REG - Keller Group PLC - Interim Results for the half year ended 26 June 22
02/08/2022 07:00
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RNS Number : 5327U Keller Group PLC 02 August 2022
2 August 2022
Keller Group plc Interim Results for the half year ended 26 June 2022
Keller Group plc ('Keller' or the 'Group'), the world's largest geotechnical
specialist contractor, announces its results for the half year ended 26 June
2022.
Record profit in H1, confidence in H2 outlook maintained and dividend
increased
H1 2022 H1 2021 Constant currency
£m £m % change
% change
Revenue 1,337.4 984.1 +36% +31%
Underlying operating profit(1) 49.6 39.5 +26% +19%
Underlying operating profit margin(1) 3.7% 4.0% -30bps n/a
Underlying diluted earnings per share(1) 46.5p 35.6p +31%
Net debt (bank covenant IAS 17 basis)(2) 194.0 113.4 +71%
Dividend per share 13.2p 12.6p +5%
Statutory operating profit 37.7 33.5
Statutory profit before tax 32.7 29.2
Statutory diluted earnings per share 33.5p 28.2p
Statutory net debt (IFRS 16 basis) 277.7 180.8
(1) Underlying operating profit and underlying diluted earnings per share are
non-statutory measures which provide readers of this Announcement with a
balanced and comparable view of the Group's performance by excluding the
impact of non-underlying items, as disclosed in note 7 of the interim
condensed consolidated financial statements.
(2) Net debt is presented on a lender covenant basis excluding the impact of
IFRS 16 as disclosed within the adjusted performance measures in the interim
condensed consolidated financial statements.
( )
Highlights
· Record first half performance despite the current macroeconomic
challenges
· Revenue of £1,337.4m, up 31% on a constant currency basis,
reflecting growth in all three divisions as trading activity recovered
following the impacts of COVID-19
· Record first half underlying operating profit of £49.6m, up 19%
on a constant currency basis, driven by growth and the active management of
inflationary pressures and materials and labour availability
· Group operating margin of 3.7% reflects the passing on of
materials cost inflation with little or no mark-up and some operational
challenges in the North America Foundations business
· Net debt (on a bank covenant IAS 17 basis) of £194.0m, equating
to a net debt/EBITDA leverage ratio of 1.1x (H1 2021: 0.7x), well within our
target range of 0.5x - 1.5x
· Mobilising in preparation for work on major new contract to
undertake work on the prestigious NEOM project in Saudi Arabia where we are
well positioned, with the potential to generate contract revenues in the
hundreds of millions of pounds in future years
· A number of recent contract awards and prospects in the energy
and infrastructure sectors, including increased LNG activity where Keller has
both a well-established presence and an excellent reputation
· ESG: On climate action, we are making good progress towards our
net zero targets with specific actions taken at business unit level in
collaboration with industry partners
· The overall accident frequency rate increased slightly to 0.09
from 0.08 injuries per 100,000 hours worked, driven by a small number of lost
time injuries in Europe. North America and AMEA continued to show improvement,
with zero injuries reported in AMEA
· Continued successful strategy execution, with a bolt-on
acquisition in North America and restructuring of specific business units in
Europe and AMEA
· Interim dividend increased by 5% to 13.2p, continuing the
dividend policy of long-term progression, and building on the Group's
uninterrupted record of maintaining or increasing the dividend since flotation
in 1994. The Board is also reviewing a further increase to the final dividend
Outlook
· Record order book of £1.6bn at the end of June, up 31% on the
prior period, and up 22% on a constant currency basis, underpinning future
performance
· The Board's expectations for the Group's full-year performance
remain unchanged, with our usual increase in trading momentum and moderate
second half weighting
Michael Speakman, Chief Executive Officer, said:
"Our record first half profit and the Group's record and growing £1.6bn order
book provides us with confidence for the second half and for delivering on our
expectations for the full year. Our involvement in the prestigious NEOM
project, together with a number of recent infrastructure and LNG contract
wins, demonstrates the strength and inherent resilience of the Group across
the macroeconomic cycle. We remain very confident in the Group's strategy and
long-term prospects, which is reflected in the Board's decision to recommence
the progressive dividend policy with a 5% increase in the interim dividend for
the first half of 2022."
For further information, please contact:
Keller Group plc www.keller.com (http://www.keller.com)
Michael Speakman, Chief Executive Officer 020 7616 7575
David Burke, Chief Financial Officer
Caroline Crampton, Group Head of Investor Relations
FTI Consulting
Nick Hasell 020 3727 1340
Matthew O'Keeffe
A webcast for investors and analysts will be held at 09.00am BST on 2 August
2022
and will also be available later the same day on demand
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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 five continents, Keller tackles an unrivalled 6,000 projects every
year, generating annual revenue of more than £2bn.
Cautionary statements:
This document contains certain 'forward-looking statements' with respect to
Keller's financial condition, results of operations and business and certain
of Keller's plans and objectives with respect to these items. Forward-looking
statements are sometimes, but not always, identified by their use of a date in
the future or such words as 'anticipates', 'aims', 'due', 'could', 'may',
'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'reasonably
possible', 'targets', 'goal' or 'estimates'. By their very nature,
forward-looking statements are inherently unpredictable, speculative and
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of factors
that could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements. These factors
include, but are not limited to, changes in the economies and markets in which
the Group operates; changes in the regulatory and competition frameworks in
which the Group operates; the impact of legal or other proceedings against or
which affect the Group; and changes in interest and exchange rates. For a more
detailed description of these risks, uncertainties and other factors, please
see the Principal risks and uncertainties section of the Strategic report in
the Annual Report and Accounts. All written or verbal forward-looking
statements, made in this document or made subsequently, which are attributable
to Keller or any other member of the Group, or persons acting on their behalf,
are expressly qualified in their entirety by the factors referred to above.
Keller does not intend to update these forward-looking statements. Nothing in
this document should be regarded as a profits forecast. This document is not
an offer to sell, exchange or transfer any securities of Keller Group plc or
any of its subsidiaries and is not soliciting an offer to purchase, exchange
or transfer such securities in any jurisdiction. Securities may not be
offered, sold or transferred in the United States absent registration or an
applicable exemption from the registration requirements of the US Securities
Act of 1933 (as amended).
LEI number: 549300QO4MBL43UHSN10. Classification: 1.2 (Half yearly financial
reports).
Adjusted performance measures
In addition to statutory measures, a number of adjusted performance measures
(APMs) are included in this Interim Announcement to assist investors in
gaining a clearer understanding and balanced view of the Group's underlying
results and in comparing performance. These measures are consistent with how
business performance is measured internally.
The APMs used include underlying operating profit, underlying earnings before
interest, tax, depreciation and amortisation, underlying net finance costs and
underlying earnings per share, each of which are the equivalent statutory
measure adjusted to eliminate the amortisation of acquired intangibles and
other significant one-off items not linked to the underlying performance of
the business. Net debt (bank covenant IAS 17 basis) is provided as a key
measure for measuring bank covenant compliance and is calculated as the
equivalent statutory measure adjusted to exclude the additional lease
liabilities relating to the adoption of IFRS 16. Further underlying constant
exchange rate measures are given which eliminate the impact of currency
movements by comparing the current measure against the comparative restated at
this year's actual average exchange rates. Where APMs are given, these are
compared to the equivalent measures in the prior year.
APMs are reconciled to the statutory equivalent, where applicable, in the
adjusted performance measures section in this Announcement.
GROUP OVERVIEW
Financial performance
The Group delivered a strong recovery in the first half, with significantly
improved performance in terms of both revenue and profit growth, delivering a
record first half profit, despite the challenging macroeconomic environment.
As previously highlighted, across the Group we have successfully passed on a
significant portion of cost increases in the form of higher prices, preserving
the absolute level of profitability. The operating margin, down 30 basis
points, has inevitably been affected by project delays due to some materials
shortages, the residual unrecovered inflation and the mathematical margin
dilution effect of the increased material costs passed through to clients.
The Group reported revenue of £1,337.4m, up 31% on the prior period on a
constant currency basis and up 20% excluding the impact of the RECON
acquisition. As anticipated, the return of market demand drove trading
activity across all our markets as the impacts of COVID-19 subsided.
We delivered a record first half underlying operating profit of £49.6m, an
increase of 19% on a constant currency basis. The recovery in market demand
and the inclusion of RECON in North America more than offset some operational
challenges in the North America Foundations business. These challenges in
North America also caused a softening of the Group's underlying operating
margin, along with the inflation-driven price increases passed onto clients
with little or no mark-up, and the operational challenges associated with
material and labour availability.
Increased trading activity across the Group was reflected in the working
capital profile, with net debt at the period end of £194.0m, up 71%, equating
to a net debt/EBITDA leverage ratio of 1.1x (H1 2021: 0.7x). Our target
leverage ratio for the year end is c1.0x, well within our target range of 0.5x
- 1.5x.
Operating performance
Active management and market demand helped drive growth in our revenue and
operating profit, offsetting the macroeconomic challenges including the
impacts of raw material and labour availability post COVID-19, the significant
increase in inflation and the war in Ukraine.
In North America, our foundations business experienced a high level of
activity in delivering on a backlog of projects. Profitability was challenged
due to material and labour availability that impacted productivity, together
with project execution issues that resulted in some contract losses in the
half. Suncoast, the Group's post-tension business, continued to trade well as
demand in the residential single family home market offset the impact of steel
prices in the high-rise sector. Moretrench Industrial, our business that
operates in the highly regulated environmental remediation market, continued
to make good progress in the period. RECON, the geotechnical and industrial
services company we acquired in July 2021, has integrated well and is
performing strongly and ahead of our expectations. The business is managed
under the Moretrench Industrial team as we establish and build our new
environmental, geotechnical and industrial services business that will
leverage our position in this large and growing sector.
In Europe, revenue and profit increased, reflecting heightened activity across
all business units as our markets recovered following the impact of COVID-19.
The division has demonstrated operational and financial resilience following
the disruption triggered by the war in Ukraine, in particular in managing the
impact of price escalation and shortages of raw materials across the region.
Our AMEA (Asia-Pacific, Middle East and Africa) Division delivered a strong
turnaround in the period, as well as reporting a zero accident frequency rate.
We are encouraged by the turnaround of the business over the last three years
and, while we will continue to refine areas of the portfolio, the division is
well placed for consistent future growth. The performance in the period was
primarily driven by management action that took advantage of the recovery in
trading in Australia and Middle East and Africa (MEA) following the pandemic.
Strategy
The Group continues to successfully implement its strategy to be the preferred
international geotechnical specialist contractor focused on sustainable
markets and attractive projects, generating long-term value for our
stakeholders. During 2020 and 2021 we made considerable progress rationalising
and restructuring the Group's geographic and service activities to create a
more focused, higher quality portfolio of businesses. In 2022 we have
maintained that trajectory and successfully exited two of our more peripheral
geographies in our Europe Division as we continued to refine its focus. In
addition, we are looking at our South West Europe and Middle East and Africa
business units, both of which still retain a legacy of geographically
dispersed locations which will benefit from further rationalisation and
reorganisation.
A core pillar of our strategy is to further in-fill our chosen local markets,
both organically and through bolt-on acquisitions, to accelerate our growth.
In May, we completed the bolt-on acquisition of GKM Consultants Inc, a small
geo-structural measurements and monitoring business based in Quebec, Canada.
GKM will integrate into our Specialty Services business in our North America
Division and will help accelerate our growth in this specialist segment.
One of our strategic priorities starting in 2022 is the successful
implementation of an enterprise resource planning (ERP) system. This
initiative will embed operational excellence in project execution across the
whole Group, together with the associated financial benefits. It will also
help address the emerging requirement for UK SOX. The initiative will be
implemented over five years and we will leverage our risk management processes
to help control the challenges associated with implementing the programme of
work.
Safety
Construction is an inherently dangerous industry and safety remains our top
priority. We saw an increase in the accident frequency rate of 13% year on
year, to 0.09 injuries per 100,000 hours worked. This increase is primarily
due to six lost time injuries in Europe in June. None of these injuries were
classified as critical but any increase demonstrates that we cannot be
complacent and must maintain our focus on the pursuit of zero harm. North
America and AMEA continued to show improvement, with AMEA recording zero
accidents in the period.
ESG
In 2021 the Executive team set ambitious and achievable targets to achieve net
zero by 2050. We will be net zero across all three emission scopes by 2050;
net zero on Scope 2 by 2030, net zero on Scope 1 by 2040 and net zero by 2050
on Keller originated Scope 3 (as opposed to client originated Scope 3). We
have begun implementing the short, medium and long-term actions required to
achieve these goals.
Keller is actively working to embed sustainability within the Group and this
year there are three key elements to our sustainability strategy to support
this. First, setting long-term and interim carbon reduction targets
establishes clear and measurable goals on environmental sustainability.
Second, energy audits and carbon calculator training provide our employees
with insight on the source of Keller's emissions, and tangible ways in which
to reduce our impact. Third, by tying our leaders' bonuses to carbon-cutting
initiatives, Keller is signalling its commitment to making our environmental
sustainability a top priority for the company. To keep this strategy at the
forefront of our employees' minds, Keller is including carbon reduction
discussions in our quarterly webinars to our extended leadership teams,
mandating carbon reduction reporting from each business unit in their
quarterly updates and requiring carbon calculator training for all our
engineers.
During the pandemic, the Board approved funding of £300,000 to UNICEF, where
teams were able to work around the clock to distribute billions of doses
of the COVID-19 vaccines, to protect frontline workers, teachers and
families everywhere, as a result of our contribution. The Board recognises the
continued global challenges faced by our communities and is therefore
announcing a new three-year partnership with UNICEF, commencing with a funding
contribution of £250,000 in 2022 towards its Core Resources for Children.
UNICEF's Core Resources for Children provides help wherever the need is
greatest. Whether it is needed for programmes working to tackle the
devastating effect of the climate crisis on children's lives, or programmes to
help support children caught in conflict zones, our partnership will help
UNICEF to continue to provide life-saving support to those families in
need.
Interim dividend
The Board recognises the importance of capital returns to our shareholders and
Keller has consistently and materially grown its dividend in the 28 years
since listing. This unbroken record of dividends clearly demonstrates the
Group's ability to continue to prosper through economic downturns, including
both the global financial crisis and the pandemic. In the recent AGM trading
statement, the Board stated that it would be reviewing the progression of the
dividend. Accordingly, the Board has announced a 5% increase in the interim
dividend to 13.2p (2021: 12.6p), payable on 9 September 2022 to shareholders
on the register as at 19 August 2022. The Board will also be reviewing a
further increase to the final dividend in respect of the current year as part
of the Group's return to a progressive dividend policy.
Outlook
After a relatively slow start to the year, trading momentum improved as the
first half progressed, despite the challenging economic conditions. Whilst
macroeconomic uncertainty continues to increase, the combination of the
Group's geographic footprint, sector diversity, its record £1.6bn order book
and an FX tailwind, gives the Board confidence that the Group is on track to
deliver its expectations for the full year. The recently announced NEOM
project in Saudi Arabia further underpins this confidence and has the
potential to be a material contributor to the Group's performance in the
medium term.
Operating review
North America
H1 2022 H1 2021 Constant currency
£m £m
Revenue 865.7 581.7 +39%
Underlying operating profit 30.1 38.4 -27%
Underlying operating margin 3.5% 6.6% -310bps
Order book(1) 927.2 735.7 +26%
(1) Comparative order book stated at constant currency.
In North America, revenue was up 39% and up 22% excluding the impact of the
RECON acquisition (both on a constant currency basis). Revenue growth was
largely driven by price increases at Suncoast and improved trading across all
sectors post COVID-19. Operating profit decreased by 27% on a constant
currency basis to £30.1m, largely driven by the foundations business, which
experienced cost inflation and shortages of materials and labour, some
contract losses, and a c£7m claim resolution which benefited the prior
period. This was partly offset by the inclusion of RECON and a strong
performance at Suncoast in the residential market. The accident frequency
rate, our key metric for measuring safety performance, improved from 0.06 to
0.04.
In the foundations business, whilst revenue increased in almost all business
units, reflecting the increased activity levels post COVID-19, our performance
was affected by widespread material and labour inflation and shortages. The
business was able to pass on these inflationary increases on a timely basis;
however, material and labour availability did reduce productivity and
profitability. Furthermore, there were project execution issues that resulted
in some contract losses.
Suncoast, the Group's post-tension business, performed strongly, with
increased demand continuing in the residential sector and new high-rise
contracts adjusted to reflect the market increases in steel prices that had a
significant adverse impact in the prior period.
Moretrench Industrial, which operates in the highly regulated industrial and
power segments, performed in line with our expectations and reported high
levels of activity. RECON, the geotechnical and industrial services company we
acquired in July 2021, has integrated well and performed strongly and ahead of
our expectations. The business is managed under the Moretrench Industrial team
as we establish and build our new environmental, geotechnical and industrial
services business that will leverage our position in this large and growing
sector. The contract to develop an energy facility in the Gulf Coast region of
the USA, worth approximately £120m, is progressing well. We continue to
explore further opportunities related to LNG in the region.
In the period we continued to make strategic progress through the bolt-on
acquisition of GKM Consultants Inc, a small geo-structural measurements and
monitoring business based in Quebec, Canada. GKM has integrated into our
Specialty Services business in our North America Division and will help
accelerate our growth in this specialist segment.
The order book for North America at the period end strengthened to £927.2m,
up 26% on a constant currency basis, reflecting the improved momentum across
all the North American business units.
Europe
H1 2022 H1 2021 Constant currency
£m £m
Revenue 297.6 242.0 +26%
Underlying operating profit 13.9 5.7 +144%
Underlying operating margin 4.7% 2.4% +230bps
Order book(1) 390.5 373.2 +5%
(1) Comparative order book stated at constant currency.
In Europe, revenue increased by 26% and underlying operating profit increased
by 144% to £13.9m on a constant currency basis. Improved activity levels and
underlying operating profit growth were reported across all five business
units, reflecting a recovery in our markets post the impact of COVID-19 and
the ability of the business to respond to the disruption triggered by the war
in Ukraine. The accident frequency rate increased to 0.28 from 0.17 as a
result of 10 lost time injuries. The injuries were classified as non-critical
and all have been subject to a thorough root cause analysis.
Whilst the first half performance was robust, the period was operationally
challenging. There was a significant escalation in supplier costs and energy
prices, and delays in the delivery of materials to site resulted in some
downtime. Material price inflation stabilised to some extent and increases
were largely passed onto our customers.
South-East Europe and Nordics delivered revenue and operating profit growth,
with the largest gains in Austria, Italy, Slovakia and the Czech Republic.
Activity levels in Norway were affected by a de-scoping of a substantial part
of the remaining works on the Sandbukta-Moss-Sastad (SMS2) rail project. The
order book was bolstered by the award of the c£35m Tangenvika bridge project,
also in Norway, where work will start in 2023.
The UK business reported revenue and profit growth through the core
foundations business and continued good delivery on the High Speed 2 (HS2)
rail contract.
Our business in Central Europe increased revenue and profit, driven by a
number of large projects. Additionally, it has secured some important project
wins in the period that position it well for the second half of the year.
The North-East Europe business continued to be profitable despite being the
most affected by the war in Ukraine, both from a financial and humanitarian
perspective. The leadership team and our employees responded quickly to
provide direct support to our workers from Ukraine and their families and to
assist with the associated migration crisis in Poland.
South-West Europe has shown some recovery in the period, having been heavily
impacted by COVID-19 in the prior year. The integration of our Iberian and
French Speaking Countries operations is now substantially complete following
the merger announced mid-2021.
Having announced the exit from smaller, non-core geographies during the first
half, we continue to actively monitor our European portfolio as well as
ensuring our position in certain growth sectors, such as oil and gas and the
energy sector more broadly.
The Europe order book at the end of the period was £390.5m, up 5% on a
constant currency basis.
Asia-Pacific, Middle East and Africa (AMEA)
H1 2022 H1 2021 Constant
currency
£m £m
Revenue 174.1 160.4 +7%
Underlying operating profit 10.5 0.1 n/a
Underlying operating margin 6.0% 0.1% +590bps
Order book(1) 247.4 171.6 +44%
(1) Comparative order book stated at constant currency.
In AMEA, revenues increased by 7% on a constant currency basis, driven by
improved trading activity in Middle East and Africa (MEA), Australia and
India. Underlying operating profit increased to £10.5m, primarily driven by
the general recovery in trading. There were no reported accidents in the
period, with the accident frequency rate falling from 0.03 to zero.
Austral continued to deliver a strong performance in terms of both revenue and
profit. Following the successful completion of the large Cape Lambert upgrade
project in the Pilbara region (c£75m), the business has successfully secured
a number of follow-on resource related projects across the country.
Keller Australia significantly increased its trading activity in delivering on
the order book backlog resulting from COVID-19. However, persistent heavy
rains and flooding on the East Coast in the second quarter temporarily
impacted profitability. Tendering levels were high and we anticipate this will
continue in the second half of the year.
The ASEAN business has experienced some continued market softness, with the
region continuing to feel the impacts of COVID-19. We expect an improved
trading environment in the second half.
Our India business performed strongly, growing in revenue and profit, having
recovered following the impacts of COVID-19. The business has experienced high
tendering levels and has a number of large industrial infrastructure projects
in the pipeline.
The MEA business delivered strong growth in revenue and profit, with an
improved trading environment post COVID-19 that is expected to gain further
momentum in the second half of the year. In Mozambique, the LNG project
remains suspended through 2022.
As announced on 27 June 2022, Keller has made a strong commitment to the
transformational NEOM development in Saudi Arabia. As recently announced by
HRH Mohammad Bin Salam, the scale of the project affords significant
opportunity to companies of Keller's skills and global reach. Keller has
commenced mobilisation of key resources and equipment to service this exciting
opportunity with further works orders expected to be awarded later in the
year. We have a longstanding presence in Saudi Arabia and we are delighted to
have been invited to participate in NEOM, a world-class construction project.
Following the signing of the Framework Agreement, Keller is very well
positioned to participate in the future geotechnical work, with the potential
to generate contract revenues in the hundreds of millions of pounds in future
years.
The AMEA order book at the end of the period was £247.4m, up 44%, on a
constant currency basis and excluding the benefit of NEOM.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's interim
results for the half year period ended 26 June 2022.
H1 2022 H1 2021
£m £m
Revenue 1,337.4 984.1
Underlying operating profit(1) 49.6 39.5
Underlying operating profit %(1) 3.7% 4.0%
Non-underlying items (11.9) (6.0)
Statutory operating profit 37.7 33.5
(1) Details of non-underlying items are set out in note 7 to the interim
condensed consolidated financial statements. Reconciliations to statutory
numbers are set out in the adjusted performance measures section on page 37.
Geographic segmentation
Revenue Underlying operating profit(2) Underlying operating profit margin(2)
£m £m %
H1 2022 H1 2021 H1 2022 H1 2021 H1 2022 H1 2021
Division
North America 865.7 581.7 30.1 38.4 3.5% 6.6%
Europe 297.6 242.0 13.9 5.7 4.7% 2.4%
AMEA 174.1 160.4 10.5 0.1 6.0% 0.1%
Central - - (4.9) (4.7) - -
Group 1,337.4 984.1 49.6 39.5 3.7% 4.0%
(2) Details of non-underlying items are set out in note 7 of the interim
condensed consolidated financial statements.
Revenue
Revenue of £1,337.4m (H1 2021: £984.1m) was 36% up on 2021 due to growth in
all three divisions with some benefit from foreign exchange tailwinds. On a
constant currency basis, revenue increased by 31% and on an organic constant
currency basis, excluding the impact of RECON revenue increased by 20%.
North America reported a revenue increase of 39% (at constant currency),
positively impacted by the RECON acquisition in H2 2021, price increases at
Suncoast and increased volumes in the US Foundations business. Constant
currency revenue growth excluding RECON was 22%. In Europe, revenue increased
by 26% (at constant currency) as business activity levels increased compared
to the prior year which was still heavily impacted by COVID restrictions.
Revenue in AMEA increased by 7% on a constant currency basis, as increased
activity levels in Australia, India and the Middle East more than offset
softer volumes in Indonesia and Malaysia.
We have a diversified spread of revenues across geographies, product lines,
market segments and end customers. Customers are generally market specific and
the largest customer represented less than 5% (H1 2021: 3%) of the Group's
revenue for the half year. The top 10 customers represent 18% of the Group's
revenue for the half year (H1 2021: 17%).
Underlying operating profit
The underlying operating profit of £49.6m was 26% ahead of prior year (H1
2021: £39.5m) and on a constant currency basis was 19% up on prior year.
North America underlying constant currency operating profit decreased by 27%
as profitability was challenged due to the increased cost of materials and
labour as well as availability constraints that impacted productivity and some
project execution issues. In addition, the prior half year period included the
£7m benefit from the resolution of a significant historic claim. Europe
constant currency operating profit increased 144%, reflecting the bounce back
post-COVID restrictions and the ability of the business to respond to the
disruption triggered by the war in Ukraine, and managing the impact of price
escalation and shortages of raw materials across the region. AMEA constant
currency operating profit increased significantly in H1 2022, largely as a
result of the recovery in trading in Middle East and Africa (MEA) and
Australia following the impacts of the pandemic. The first half last year was
negatively impacted by the Mozambique LNG project losses.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of £0.9m in the period (H1
2021: £0.3m) from its share of the post-tax results from joint ventures. The
share of the post-tax amortisation charge of £0.7m (H1 2021: £nil) arising
from the acquisition of NordPile by our joint venture KFS Oy in 2021 is
included as a non-underlying item.
Statutory operating profit
Statutory operating profit, comprising underlying operating profit of £49.6m
(H1 2021: £39.5m) and non-underlying items comprising net costs of £11.9m
(H1 2021: £6.0m), increased by 13% to £37.7m (H1 2021: £33.5m).
Net finance costs
Net finance costs increased by 16% to £5.0m (H1 2021: £4.3m), as a result of
a higher average net debt during the half year. Average net borrowings,
excluding IFRS 16 lease liabilities, increased by 76% in the period from
£123.4m during the half year to 27 June 2021 to £217.8m during the half year
to 26 June 2022, as a result of increased working capital requirements.
Taxation
The Group's underlying effective tax rate decreased to 25% (H1 2021: 27%). The
overall rate is determined by a range of factors, but the reduction is mainly
as a result of the change in profit mix across the various tax jurisdictions
in which we operate. The actual underlying tax charge for the half year has
been reduced by £0.4m as a result of a reduction of a provision held for
historic taxes.
Cash tax paid in the period of £2.4m was a decrease of £9.5m over prior year
(H1 2021: £11.9m). The difference is mainly due to the timing and phasing of
tax payments which do not necessarily relate to the period in which the
profits are earned. Further details on tax are set out in note 8 of the
interim condensed consolidated financial statements.
The Group is monitoring developments in the OECD's Pillar 2 proposals to agree
minimum effective tax rates across jurisdictions participating in the OECD
programme. Although the Group's activities are mainly in territories which
will be unaffected by the Pillar 2 proposals, it is possible that additional
tax will be charged in the future in countries where corporate tax rates are
increased. Any changes are not expected to be introduced before 2024.
Under draft proposals introduced to the US Congress in 2021, the Group would
potentially be subject to adverse changes in respect of measures intended to
limit the tax deductibility of intra-group financing costs. The proposed
measures were unable to secure passage through Congress in 2021 and the Group
is awaiting developments to see if the measures, and whether they are in
original or revised form, are reintroduced in 2022. At present there is
insufficient evidence to assess the probable financial impact on the Group's
future tax position.
Non-underlying items
Details of non-underlying items are included in note 7 to the interim
condensed consolidated financial statements.
Amortisation of acquired intangibles
The £5.8m (H1 2021: £0.4m) charge for amortisation of acquired intangible
assets relates primarily to the RECON, Moretrench and Voges acquisitions in
the current half year and to the Moretrench acquisition in the prior half
year.
Non-underlying operating costs
Non-underlying operating costs were £6.1m (H1 2021: £6.3m).
The Group has recognised costs of £3.5m relating to a historical contract
dispute. Exceptional restructuring costs of £1.2m (H1 2021: £3.1m) have been
incurred during the period related to the scheduled exit from the Ivory Coast
business. The prior year costs primarily related to rationalisation activities
within the Europe Division and KGS, the in-house equipment manufacturer.
The Group has commenced a strategic project to implement a new cloud computing
enterprise resource planning (ERP) system across the Group. Due to the size,
nature and incidence of these costs, they are presented as a non-underlying
item, as they are not reflective of underlying performance of the Group. As
this is a complex implementation, project costs are expected to be incurred
over the next five years . The cost recognised in the first half is £1.2m.
An impairment charge of £0.4m was recognised in respect of trade receivables
in Ukraine that are not expected to be recovered due to the ongoing conflict.
A net credit of £0.2m (H1 2021: £1.3m cost) arising from a change in the
fair value of contingent considerations related to prior year acquisitions has
been recognised in non-underlying operating costs, in line with the Group's
policy to show acquisition-related costs separately from the underlying
performance of the business.
The prior half year period included the loss on classification of disposal
group for the Cyntech Anchors business of £1.9m.
Non-underlying other operating income
Non-underlying other operating income of £0.7m (H1 2021: £0.7m) is
contingent consideration receivable in relation to the Wannenwetsch disposal,
completed in 2020.
Non-underlying taxation
A non-underlying tax credit of £2.4m (H1 2021: £0.6m) relates to the tax
benefit on non-underlying charges which are expected to be deductible.
Earnings per share
Underlying diluted earnings per share increased by 31% to 46.5p (H1 2021:
35.6p) in line with the increased operating profit combined with a reduced
effective tax rate in the period. Statutory diluted earnings per share was
33.5p (H1 2021: 28.2p).
Dividend
The Group's dividend policy is to increase the dividend sustainably whilst
allowing the Group to be able to grow, or as a minimum, maintain, the level of
dividend through market cycles. The dividend policy is therefore impacted by
the performance of the Group, which is subject to the Group's principal risks
and uncertainties as well as the level of headroom on the Group's borrowing
facilities, future cash commitments and investment plans.
Reflecting the financial strength of the Group and the longer-term confidence
in the performance of the business the Board has decided to increase the
interim dividend by 5% and has recommended a dividend of 13.2p per share (H1
2021: 12.6p per share).
Free cash flow
The Group's free cash outflow of £46.8m (H1 2021: inflow of £26.9m) has been
impacted by the volume growth in the business and the related increase in
working capital requirements. The basis of deriving free cash flow is set out
below:
H1 2022 H1 2021
£m £m
Underlying operating profit 49.6 39.5
Depreciation and amortisation 48.5 44.5
Underlying EBITDA 98.1 84.0
Non-cash items (1.1) (0.7)
(Increase)/decrease in working capital (93.2) 3.9
Outflows from provisions, retirement benefit liabilities and other (9.7) (7.1)
non-current
liabilities
Net capital expenditure (23.4) (26.4)
Additions to right-of-use assets (12.3) (10.6)
Free cash flow before interest and tax (41.6) 43.1
Free cash flow before interest and tax to underlying operating profit (84%) 109%
Net interest paid (2.8) (4.3)
Cash tax paid (2.4) (11.9)
Free cash flow (46.8) 26.9
Dividends paid to shareholders - (16.8)
Purchase of own shares (1.2) -
Acquisitions (15.6) -
Non-underlying items (1.7) (1.7)
Right-of-use assets/lease liability modifications (4.4) 0.8
Foreign exchange movements (14.7) 2.5
Movement in net debt (84.4) 11.7
Opening net debt (193.3) (192.5)
Closing net debt (277.7) (180.8)
Working capital
The working capital performance reflects the increased activity in H1, as the
revenue volumes grow post-pandemic resulting in an increased working capital
position. The net increase of £93.2m (H1 2021: £3.9m decrease) includes the
impact of supply chain requirements for earlier payments in order to ensure
delivery of materials to site. There was a decrease in provisions and
retirement benefits of £9.7m (H1 2021: £7.1m), reflecting utilisations and
legal settlements in the period.
Capital expenditure
The Group manages capital expenditure tightly whilst investing in the upgrade
and replacement of equipment where appropriate. Net capital expenditure of
£23.4m (H1 2021: £26.4m) included proceeds from the sale of equipment of
£3.3m (H1 2021: £5.5m). The asset replacement ratio, which is calculated by
dividing gross capital expenditure, excluding sales proceeds on disposal of
items of property, plant and equipment and those assets capitalised under IFRS
16, by the depreciation charge on owned property, plant and equipment, was 76%
(H1 2021: 101%).
Acquisitions and disposals
On 2 May 2022, the Group acquired GKM Consultants Inc. for an initial cash
consideration of £3.6m and £1.3m of contingent consideration to be paid
based on future profitability of the acquired entity. The business is an
instrumentation and monitoring provider based in Quebec, Canada and is
included in the North America Division.
The acquisition cash flow of £15.6m includes the GKM outflow of £3.4m, net
of £0.2m of acquired cash and £12.2m of contingent and deferred
consideration relating to past acquisitions.
There were no material acquisitions or disposals in the period ended 27 June
2021.
Financing facilities and net debt
The Group's term debt and committed facilities principally comprise US private
placements of US$75m (£61.0m) which mature in December 2024 and a £375m
multi-currency syndicated revolving credit facility which matures in November
2025. At 26 June 2022, the Group had undrawn committed and uncommitted
borrowing facilities totalling £215.7m comprising £144.3m of the unutilised
portion of the revolving credit facility, £18.4m of other undrawn committed
borrowing facilities and undrawn uncommitted borrowing facilities of £53.0m,
as well as cash and cash equivalents of £85.8m.
The most significant covenants in respect of the main borrowing facilities
relate to the ratio of net debt to underlying EBITDA, underlying EBITDA
interest cover and the Group's net worth. The covenants are required to be
tested at the half year and the year end. The Group operates comfortably
within all of its covenant limits. Net debt to underlying EBITDA leverage,
calculated excluding the impact of IFRS 16, was 1.1x (H1 2021: 0.7x), well
within the limit of 3.0x and within the leverage target of between 0.5x -
1.5x. Calculated on a statutory basis, including the impact of IFRS 16, net
debt to EBITDA leverage was 1.4x at 26 June 2022 (H1 2021: 0.9x). Underlying
EBITDA, excluding the impact of IFRS 16, to net finance charges for the period
to 26 June 2022 was 27.5x (H1 2021: 30.5x), well above the limit of 4.0x.
On an IFRS 16 basis, gearing at 26 June 2022 was 56% (H1 2021: 44%).
The average month-end net debt during the period ended 26 June 2022, excluding
IFRS 16 lease liabilities, was £217.8m (H1 2021: £123.4m) and the minimum
headroom during this period on the Group's main banking facility was £75.6m
(H1 2021: £250.2m), in addition to a cash balance at that time of £89.4m (H1
2021: £116.8m). The Group had no material discounting or factoring in place
during the period. Given the relatively low value and short-term nature of the
majority of the Group's projects, the level of advance payments is typically
not significant.
At 26 June 2022 the Group had drawn upon uncommitted overdraft facilities of
£0.5m (H1 2021: £4.5m) and had drawn £165.2m of bank guarantee facilities
(H1 2021: £163.1m).
Retirement benefit liabilities
The primary defined benefit scheme is in the UK. The Group also has defined
benefit retirement obligations in Germany and Austria and a number of end of
service schemes in the Middle East that follow the same principles as a
defined benefit scheme. The Group's net defined benefit liabilities as at 26
June 2022 were £22.5m (H1 2021: £23.0m). The reduction in the half year
period was driven by an actuarial gain of £2.2m on the German and Austrian
schemes, reflecting a higher discount rate driven by the increase in interest
rates during the first half of 2022. The net defined liability for the Keller
Group Pension Scheme in the UK as at 26 June 2022 is £5.4m (H1 2021: £2.7m),
being the minimum funding requirement, calculated using the agreed
contributions.
Prior year balance sheet restatement
As a result of the restatement at 31 December 2021 of insurance reimbursement
receivables and the provision for insurance and legal claims, the comparative
consolidated balance sheet as at 27 June 2021 has been restated. Consequently,
the Group has increased current provisions by £0.6m, increased non-current
provisions by £31.0m and increased trade and other receivables by £0.6m and
non-current other assets by £31.0m. As a result of the restatement in respect
of the non-current element of trade receivables arising from customer
retentions, the comparative consolidated balance sheet at 27 June 2021 has
been restated to increase non-current other assets by £20.4m and decrease
trade and other receivables by £20.4m. Further details on this are set out in
note 2 of the interim condensed consolidated financial statements.
The comparative consolidated balance sheet as at 31 December 2021 has been
restated to reflect the prior year measurement period adjustment as a result
of finalising the provisional fair value of assets and liabilities acquired
with RECON Services Inc.
Currencies
The Group is exposed to both translational and, to a lesser extent,
transactional foreign currency gains and losses through movements in foreign
exchange rates as a result of its global operations. The Group's primary
currency exposures are US dollar, Canadian dollar, euro, Singapore dollar and
Australian dollar.
As the Group reports in sterling and conducts the majority of its business in
other currencies, movements in exchange rates can result in significant
currency translation gains or losses. This has an effect on the primary
statements and associated balance sheet metrics, such as net debt and working
capital.
A large proportion of the Group's revenues are matched with corresponding
operating costs in the same currency. The impacts of transactional foreign
exchange gains or losses are consequently mitigated and are recognised in the
period in which they arise.
The following exchange rates applied during the current and prior half year
period:
H1 2022 H1 2021
Closing Average Closing Average
USD 1.23 1.30 1.39 1.39
CAD 1.58 1.65 1.71 1.73
EUR 1.16 1.19 1.16 1.15
SGD 1.70 1.77 1.87 1.85
AUD 1.77 1.81 1.83 1.80
Principal risks
The Group operates globally across many geotechnical market sectors and in
varied geographic markets. The Group's performance and prospects may be
affected by risks and uncertainties in relation to the industry and the
environments in which it undertakes its operations around the world. The Group
is alert to the challenges of managing risk and has systems and procedures in
place across the Group to identify, assess and mitigate major business risks.
The principal risks and uncertainties are as follows:
· financial risks
o the inability to finance our business;
· market risk
o a rapid downturn in our markets;
· strategic risk
o the failure to procure new contracts, losing market share;
o ethical misconduct and non-compliance with regulations;
o inability to maintain our technological product advantage;
o climate change;
· operational risk
o service or solution failure;
o the ineffective execution of our projects;
o supply chain partners fail to meet the Group's operational expectation and
contractual obligations (including capacity, competency, quality, financial
stability, safety, environmental, social and ethical);
o causing a serious injury or fatality to an employee or member of the
public;
o not having the right skills to deliver and the risk of potential
disruption in the business operations;
o cyber risk.
The Group's principal risks and uncertainties have not materially changed in
the first half of 2022. For a more detailed description of these risks,
uncertainties and other factors, please see the principal risks and
uncertainties section of the Strategic report in the Annual Report and
Accounts.
The important developments in managing our principal risks during 2022 are as
follows:
· continued focus on embedding risk management processes across all
parts of the organisation;
· regularly reviewing our principal risks and the mitigating
activities we are taking to ensure they accurately reflect the risks we are
facing and how we are responding to those risks;
· continuing to review risk trends, including the consideration of
risks across the medium and long-term via horizon scanning and reviewing
emerging legislation to ascertain how they may impact Keller;
· continuing to embed the requirements of the Task Force on
Climate-related Financial Disclosures (TCFD) into business-as-usual
activities, including risk reporting;
· maintaining focus on managing the continued impact of COVID-19
even as its impact on the business has declined.
The key areas of focus for the remainder of 2022 are as follows:
· finalising and developing appropriate scenario analyses needed to
comply with TCFD requirements. These scenarios will also lead to continued
improvement in understanding of the longer-term strategic impact and in turn
support a more timely and robust decision-making process;
· we will be closely monitoring the following items through the
regular review of risks across the business and any impact they may have on
our principal risks for 2022 year-end reporting:
o Supply chain issues, including both scarcity of certain materials (steel,
cement and energy) and the pricing impact of this, which has come under
renewed pressure as a result of the geopolitical uncertainty following
Russia's invasion of Ukraine. This will be closely monitored in the coming
months as the volume of gas supplies from Russia become even more significant
as Europe moves into autumn and winter.
o Recruitment and retention which is being exacerbated by the inflationary
pressure in many of our markets.
o Inflation and interest rates, which if they continue to rise may
negatively impact customer confidence in many of the markets in which we
operate as they delay investment decisions on new projects, while they
evaluate the trajectory of both.
o The continuing impact from COVID-19 in specific markets continues to
diminish across the majority of the markets in which we operate, but we are
observing different responses driven by new waves of infection set against
vaccination levels in the population. These include the introduction of
mandates on vaccination and/or testing regimes, plus the reintroduction of
partial lockdowns.
Statement of Directors' responsibilities
The interim financial report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the interim
financial report in accordance with the Disclosure Guidance and Transparency
Rules (DTR) of the United Kingdom's Financial Conduct Authority (FCA).
The DTR require that the accounting policies and presentation applied to the
half yearly figures must be consistent with those applied in the latest
published annual accounts, except where the accounting policies and
presentation are to be changed in the subsequent annual accounts, in which
case the new accounting policies and presentation should be followed, and the
changes and the reasons for the changes should be disclosed in the interim
report, unless the FCA agrees otherwise.
The Directors confirm that to the best of their knowledge the condensed set of
financial statements, which have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' give a
true and fair view of the assets, liabilities, financial position and profit
and loss of the Group, as required by DTR 4.2 and in particular include a fair
review of:
• the important events that have occurred during the first half of the
financial year and their impact on the interim condensed consolidated set of
financial statements as required by DTR 4.2.7R;
• the principal risks and uncertainties for the remaining half of the year
as required by DTR 4.2.7R; and
• related party transactions that have taken place in the first half of the
current financial year and changes in the related party transactions described
in the previous annual report that have materially affected the financial
position or performance of the Group during the first half of the current
financial year as required by DTR 4.2.8R.
The Directors of Keller Group plc are listed in the 2021 Annual Report and
Accounts.
Approved by the Board of Keller Group plc and signed on its behalf by:
Michael Speakman
Chief Executive Officer
David Burke
Chief Financial Officer
1 August 2022
INDEPENDENT REVIEW REPORT TO KELLER GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the Interim Results of Keller Group plc for the half-year period
ended 26 June 2022, which comprises the consolidated income statement,
consolidated statement of comprehensive income, consolidated balance sheet,
consolidated statements of changes in equity, consolidated cash flow
statement, and the related explanatory notes. We have read the other
information contained in the Interim Results and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the interim period ended 26 June 2022 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting'.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit, as described in the basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) 'Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Reading
1 August 2022
Interim condensed consolidated income statement (unaudited)
For the half year period ended 26 June 2022
2022 2021
Note Underlying Non-underlying items Statutory Underlying Non-underlying items Statutory
£m (note 7) £m £m (note 7) £m
£m £m
Revenue 4,5 1,337.4 - 1,337.4 984.1 - 984.1
Operating costs (1,288.7) (6.1) (1,294.8) (944.9) (6.3) (951.2)
Amortisation of acquired intangible assets - (5.8) (5.8) - (0.4) (0.4)
Other operating income - 0.7 0.7 - 0.7 0.7
Share of post-tax results of joint ventures 0.9 (0.7) 0.2 0.3 - 0.3
Operating profit/(loss) 4 49.6 (11.9) 37.7 39.5 (6.0) 33.5
Finance income 0.3 - 0.3 0.1 - 0.1
Finance costs (5.3) - (5.3) (4.4) - (4.4)
Profit/(loss) before taxation 44.6 (11.9) 32.7 35.2 (6.0) 29.2
Taxation 8 (10.7) 2.4 (8.3) (9.5) 0.6 (8.9)
Profit/(loss) for the period 33.9 (9.5) 24.4 25.7 (5.4) 20.3
Attributable to:
Equity holders of the parent 34.1 (9.5) 24.6 26.0 (5.4) 20.6
Non-controlling interests (0.2) - (0.2) (0.3) - (0.3)
33.9 (9.5) 24.4 25.7 (5.4) 20.3
Earnings per share
Basic 10 47.0p 33.9p 36.0p 28.5p
Diluted 10 46.5p 33.5p 35.6p 28.2p
Interim condensed consolidated statement of comprehensive income (unaudited)
For the half year period ended 26 June 2022
2022 2021
£m £m
Profit for the period 24.4 20.3
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations 41.8 (8.7)
Exchange movements on translation of non-controlling interests 0.2 -
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 2.2 5.8
Tax on remeasurements of defined benefit pension schemes (0.4) (0.9)
Other comprehensive income/(loss) for the period, net of tax 43.8 (3.8)
Total comprehensive income for the period 68.2 16.5
Attributable to:
Equity holders of the parent 68.2 16.8
Non-controlling interests - (0.3)
68.2 16.5
Interim condensed consolidated balance sheet (unaudited)
As at 26 June 2022
As at As at(1) As at(2)
26 June 27 June 31 December
2022 2021 2021
Note £m £m £m
Assets
Non-current assets
Goodwill and intangible assets 149.1 116.9 141.4
Property, plant and equipment 11 468.1 417.7 443.4
Investments in joint ventures 4.4 4.6 4.0
Deferred tax assets 14.3 8.4 13.0
Other assets 111.4 77.0 88.5
747.3 624.6 690.3
Current assets
Inventories 107.3 74.5 72.1
Trade and other receivables 742.6 523.7 592.0
Current tax assets 9.5 8.2 8.9
Cash and cash equivalents 12 85.8 116.8 82.7
Assets held for sale 13 1.0 23.6 3.4
946.2 746.8 759.1
Total assets 1,693.5 1,371.4 1,449.4
Liabilities
Current liabilities
Loans and borrowings (29.0) (65.9) (29.8)
Current tax liabilities (24.5) (19.7) (17.9)
Trade and other payables (605.0) (450.7) (505.7)
Provisions (59.9) (45.3) (53.8)
Liabilities directly associated with assets held for sale 13 - (10.5) -
(718.4) (592.1) (607.2)
Non-current liabilities
Loans and borrowings (334.5) (231.7) (246.2)
Retirement benefit liabilities 14 (22.5) (23.0) (25.7)
Deferred tax liabilities (31.5) (20.4) (28.3)
Provisions (76.5) (72.4) (77.9)
Other liabilities (15.3) (20.3) (21.2)
(480.3) (367.8) (399.3)
Total liabilities (1,198.7) (959.9) (1,006.5)
Net assets 494.8 411.5 442.9
Equity
Share capital 16 7.3 7.3 7.3
Share premium account 38.1 38.1 38.1
Capital redemption reserve 16 7.6 7.6 7.6
Translation reserve 53.4 7.6 11.6
Other reserve 16 56.9 56.9 56.9
Retained earnings 328.7 290.6 318.6
Equity attributable to equity holders of the parent 492.0 408.1 440.1
Non-controlling interests 2.8 3.4 2.8
Total equity 494.8 411.5 442.9
( )
1 The 27 June 2021 consolidated balance sheet has been restated for
items disclosed in the 2021 Annual Report and Accounts, as outlined in note 2
to the interim financial statements.
2 The 31 December 2021 consolidated balance sheet has been restated in
respect of prior period measurement adjustments, as outlined in notes 2 and 6
to the interim financial statements.
Interim condensed consolidated statement of changes in equity (unaudited)
For the half year period ended 26 June 2022
Share premium account Capital redemption reserve Non-controlling interests
Share capital Translation reserve Other reserve Retained earnings Total equity
£m £m £m £m £m £m £m £m
At 31 December 2021(1) 7.3 38.1 7.6 11.6 56.9 318.6 2.8 442.9
Total comprehensive income for the period - 41.8 26.4 - 68.2
- - -
Dividends - - - - - (16.8) - (16.8)
Purchase of own shares for ESOP trust - - - - - (1.2) - (1.2)
Share-based payments - - - - - 1.7 - 1.7
At 26 June 2022 7.3 38.1 7.6 53.4 56.9 328.7 2.8 494.8
1 Retained earnings as at 31 December 2021 have been restated in
respect of prior period measurement adjustments, as outlined in notes 2 and 6
to the interim financial statements.
Share premium account Capital redemption reserve Non-controlling interests
Share capital Translation reserve Other reserve Retained earnings Total equity
£m £m £m £m £m £m £m £m
At 31 December 2020 7.3 38.1 7.6 16.3 56.9 280.1 3.7 410.0
Total comprehensive (loss)/income for the period - (8.7) 25.5 (0.3) 16.5
- - -
Dividends - - - - - (16.8) - (16.8)
Share-based payments - - - - - 1.8 - 1.8
At 27 June 2021 7.3 38.1 7.6 7.6 56.9 290.6 3.4 411.5
Interim condensed consolidated cash flow statement (unaudited)
For the half year period ended 26 June 2022
2022 2021
Note £m £m
Cash flows from operating activities
Profit before taxation 32.7 29.2
Non-underlying items 11.9 6.0
Finance income (0.3) (0.1)
Finance costs 5.3 4.4
Underlying operating profit 4 49.6 39.5
Depreciation of property, plant and equipment 48.2 44.2
Amortisation of intangible assets 0.3 0.3
Share of underlying post-tax results of joint ventures (0.9) (0.3)
Profit on sale of property, plant and equipment 11 (2.5) (1.5)
Other non-cash movements 2.3 1.2
Foreign exchange gains - (0.1)
Operating cash flows before movements in working capital and other underlying 97.0 83.3
items
Increase in inventories (28.3) (20.3)
Increase in trade and other receivables (121.9) (59.5)
Increase in trade and other payables 57.0 83.7
Decrease in provisions, retirement benefit and other non-current liabilities (9.7) (7.1)
Cash generated from operations before non-underlying items (5.9) 80.1
Cash outflows from non-underlying items: ERP costs (0.2) -
Cash outflows from non-underlying items: restructuring costs (1.5) (1.7)
Cash generated from operations (7.6) 78.4
Interest paid (0.9) (2.6)
Interest element of lease rental payments (1.8) (1.5)
Income tax paid (2.4) (11.9)
Net cash (outflow)/inflow from operating activities (12.7) 62.4
Cash flows from investing activities
Interest received 0.3 0.1
Proceeds from sale of property, plant and equipment 3.3 5.5
Acquisition of businesses, net of cash acquired 6 (15.6) -
Acquisition of property, plant and equipment 11 (26.6) (31.7)
Acquisition of other intangible assets (0.1) (0.2)
Net cash outflow from investing activities (38.7) (26.3)
Cash flows from financing activities
Increase in borrowings 68.2 52.6
Cash flows from derivative instruments 0.2 -
Repayment of borrowings (1.7) (7.4)
Payment of lease liabilities (15.4) (12.9)
Purchase of own shares for ESOP trust (1.2) -
Dividends paid 9 - (16.8)
Net cash inflow from financing activities 50.1 15.5
Net (decrease)/increase in cash and cash equivalents (1.3) 51.6
Cash and cash equivalents at beginning of period 81.8 61.6
Effect of exchange rate movements 4.8 (0.9)
Cash and cash equivalents at end of period 12 85.3 112.3
1. Corporate information
The interim condensed consolidated financial statements of Keller Group plc
and its subsidiaries (collectively, the 'Group') for the half year period
ended 26 June 2022 were authorised for issue in accordance with a resolution
of the Directors on 1 August 2022.
Keller Group plc (the 'company') is a limited company, incorporated and
domiciled in the United Kingdom, whose shares are publicly traded on the
London Stock Exchange. The registered office is located at 2 Kingdom Street,
London W2 6BD. The Group is principally engaged in the provision of specialist
geotechnical engineering services.
2. Basis of preparation
The condensed financial statements included in this interim financial report
have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting'. They do not include all of the
information required for full annual financial statements and should be read
in conjunction with the consolidated financial statements of the Group as at
and for the year ended 31 December 2021. The interim report does not
constitute statutory accounts. The financial information for the year ended 31
December 2021 does not constitute the Group's statutory financial statements
for that period as defined in section 435 of the Companies Act 2006 but is
instead an extract from those financial statements. The Group's financial
statements for the year ended 31 December 2021 have been delivered to the
Registrar of Companies. The Auditor's Report on those financial statements
contained an unqualified opinion, did not draw attention to any matters by way
of emphasis and did not contain any statement under section 498 of the
Companies Act 2006. The annual financial statements for year ended 31 December
2022 will be prepared in accordance with UK adopted international accounting
standards.
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2021, except in respect of the adoption of new
standards effective as of 1 January 2022. The following applicable amendments
apply for the first time in 2022:
· Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a
Contract'.
· Amendments to IAS 16 'Property, Plant and Equipment: Proceeds
before Intended Use'.
· IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for
derecognition of financial liabilities'.
These amendments have a limited impact on the consolidated financial
statements of the Group.
The Group has not early adopted any standard, interpretation or amendment that
has been issued but is not yet effective.
Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a Contract'
An onerous contract is a contract under which the unavoidable costs (ie, the
costs that the Group cannot avoid because it has the contract) of meeting the
obligations under the contract exceed the economic benefits expected to be
received under it. The amendments specify that when assessing whether a
contract is onerous or loss-making, an entity needs to include costs that
relate directly to a contract to provide goods or services including both
incremental costs (eg, the costs of direct labour and materials) and an
allocation of costs directly related to contract activities (eg, depreciation
of equipment used to fulfil the contract as well as costs of contract
management and supervision). General and administrative costs do not relate
directly to a contract and are excluded unless they are explicitly chargeable
to the counterparty under the contract. This amendment does not have an impact
on the interim condensed consolidated financial statements of the Group as an
allocation of costs directly related to contract activities was previously
included in the unavoidable costs used in the costs to complete assessment for
onerous contracts and the Group does not include an allocation of general
overheads.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds before Intended
Use'
The amendments prohibit entities from deducting from the cost of an item of
property, plant and equipment, any proceeds of the sale of items produced
while bringing that asset to the location and condition necessary for it to be
capable of operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of producing
those items, in profit or loss. These amendments had no impact on the interim
condensed consolidated financial statements of the Group as there were no
sales of such items produced by property, plant and equipment made available
for use on or after the beginning of the earliest period presented.
IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for derecognition
of financial liabilities'
The amendment clarifies the fees that an entity includes when assessing
whether the terms of a new or modified financial liability are substantially
different from the terms of the original financial liability. These fees
include only those paid or received between the borrower and the lender,
including fees paid or received by either the borrower or lender on the
other's behalf. This amendment had no impact on the interim condensed
consolidated financial statements of the Group as there were no modifications
of the Group's financial instruments during the period.
Going concern
As part of the interim going concern review, management ran a series of
downside scenarios on the latest forecast profit and cash flow projections to
assess covenant headroom against available funding facilities for the period
to 31 December 2023, a period of at least 12 months from when the interim
financial statements are authorised for issue and aligning with the interval
in which the Group's banking covenants are tested. This process involved
constructing scenarios to reflect the Group's current assessment of its
principal risks, including those that would threaten its business model,
future performance, solvency or liquidity. The principal risks and
uncertainties modelled by management align with those disclosed in the 2021
Annual Report and Accounts and there have been no changes since in
management's risk assessment. The following severe but plausible downside
assumptions were modelled:
· Rapid downturn in the Group's markets resulting in up to a 10%
decline in revenues.
· Ineffective execution of projects reducing profits by 1% of
revenue.
· A combination of other principal risks and trading risks
materialising together reducing profits by up to £33.5m over the period to 31
December 2023. These risks include costs of ethical misconduct and regulatory
non-compliance, occurrence of an accident causing serious injury to an
employee or member of the public, the cost of a product or solution failure
and an unrecorded tax liability.
· Deterioration of working capital performance by 5% of six months'
sales.
The financial and cash effects of these scenarios were modelled individually
and in combination. The focus was on the ability to secure or retain future
work and potential downward pressure on margins. Management applied
sensitivities against projected revenue, margin and working capital metrics
reflecting a series of plausible downside scenarios. Against the most negative
scenario, mitigating actions were overlaid. These include a range of
cost-cutting measures and overhead savings designed to preserve cash flows.
The most extreme downside scenario modelled included an aggregation of all
risks considered. This showed a decrease in the 18-month rolling operating
profit to 31 December 2023 of 62.2% compared to the base case and an increase
in net debt of 41.9% against the Group's latest forecast and cash flow
projections for the review period up to 31 December 2023. Even in these
circumstances, the adjusted projections do not show a breach of covenants in
respect of available funding facilities or any liquidity shortfall.
Consideration was given to scenarios where covenants would be breached and the
circumstances giving rise to these scenarios were considered extreme and
remote. This process allowed the Board to conclude that the Group will
continue to operate on a going concern basis for the period through to the end
of December 2023, a period of at least 12 months from when the interim
consolidated financial statements are authorised for issue. Accordingly, the
interim consolidated financial statements are prepared on a going concern
basis.
At 26 June 2022, the Group had undrawn committed and uncommitted borrowing
facilities totalling £215.7m, comprising £144.3m of the unutilised portion
of the revolving credit facility, £18.4m of other undrawn committed borrowing
facilities and undrawn uncommitted borrowing facilities of £53.0m, as well as
cash of £85.8m. At 26 June 2022, the Group's net debt to underlying EBITDA
ratio (calculated on an IAS 17 covenant basis, as documented in the adjusted
performance measures section) was 1.1x, well within the covenant limit of
3.0x.
Prior year restatement as at 27 June 2021
The below restatements were made to the comparative consolidated balance sheet
for the year ending 31 December 2020, published in the 2021 Annual Report and
Accounts. For the 2022 interim report, the comparative consolidated balance
sheet as at 27 June 2021 has been restated.
Insured liabilities restatement
In October 2021, the Group received a letter from the Financial Reporting
Council (FRC) as part of its regular review and assessment of the quality of
corporate reporting in the UK, following the Group's inclusion in the
'Thematic review on Provisions, Contingent Liabilities and Contingent Assets'.
The letter included a request for further information on the Group's Annual
Report and Accounts for the year ended 31 December 2020. The review conducted
by the FRC was based solely on the Group's published Annual Report and
Accounts and does not provide any assurance that the Annual Report and
Accounts are correct in all material respects.
Following finalisation of the correspondence with the FRC, the Directors have
concluded that the insurance reimbursement receivables relating to claims made
against the Group should be separately presented gross on the consolidated
balance sheet, rather than netted off against the insurance and legal
provision.
Retentions restatement
Separately from the above, the element of trade receivables relating to
customer retentions expected to be received in more than one year was
previously disclosed separately in the revenue note to the year-end accounts,
but classified incorrectly within the trade and other receivables balance
sheet line. The Group has amended this disclosure and separately categorised
this receivable within other non-current assets as detailed below.
As a result of these items, the consolidated balance sheet as at 27 June 2021
has been restated as follows:
Consolidated balance sheet
27 June Insured liabilities restatement Retentions 27 June 2021
2021 £m restatement (restated)
(as reported) £m £m
£m
Non-current assets 25.6 31.0 20.4 77.0
Other assets
Current assets
Trade and other receivables 543.5 0.6 (20.4) 523.7
Current liabilities
Provisions (44.7) (0.6) - (45.3)
Of which: Insurance and legal provisions (9.6) (0.6) - (10.2)
Other provisions (35.1) - - (35.1)
Non-current liabilities
Provisions (41.4) (31.0) - (72.4)
Of which: Insurance and legal provisions (26.4) (31.0) - (57.4)
Other provisions (15.0) - - (15.0)
The restatement did not result in any change to reported profit, earnings per
share, net assets or cash flows reported in the half year period to 27 June
2021.
Prior year measurement period adjustment as at 31 December 2021
Under IFRS 3 'Business Combinations' there is a measurement period of no
longer than 12 months in which to finalise the valuation of the acquired
assets and liabilities. During the measurement period, the acquirer shall
retrospectively adjust the provisional amounts recognised at the acquisition
date to reflect new information obtained about facts and circumstances that
existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date. During the measurement
period, the acquirer shall also recognise additional assets or liabilities if
new information is obtained about facts and circumstances that existed as of
the acquisition date and, if known, would have resulted in the recognition of
those assets and liabilities as of that date.
In the year to 31 December 2021, the Group acquired RECON Services Inc.
Adjustments to the provisional fair values were made during the measurement
period, as set out in note 6. The impact of the measurement period adjustments
has been applied retrospectively, meaning that the results and financial
position for the year to 31 December 2021 have been restated as follows:
Consolidated balance sheet
31 December 2021 Impact of measurement period adjustments 31 December 2021
(as reported) £m (restated)
£m £m
Non-current assets
Goodwill and intangible assets 141.5 (0.1) 141.4
Of which: Goodwill 121.3 1.1 122.4
Intangible assets 20.2 (1.2) 19.0
Non-current liabilities
Deferred tax liabilities (28.6) 0.3 (28.3)
Retained earnings 318.4 0.2 318.6
Significant accounting judgements, estimates and assumptions
During the half year period to 26 June 2022, there have not been any changes
in the significant accounting judgements, estimates and assumptions disclosed
in the 2021 Annual Report and Accounts.
3. Foreign currencies
The exchange rates used in respect of principal currencies are:
Average for period Period end
Half year period to Half year Year to As at As at As at
26 June period to 31 December 26 June 27 June 31 December
2022 27 June 2021 2022 2021 2021
2021
US dollar 1.30 1.39 1.38 1.23 1.39 1.35
Canadian dollar 1.65 1.73 1.72 1.58 1.71 1.71
Euro 1.19 1.15 1.16 1.16 1.16 1.19
Singapore dollar 1.77 1.85 1.85 1.70 1.87 1.82
Australian dollar 1.81 1.80 1.83 1.77 1.83 1.86
4. Segmental analysis
In accordance with IFRS 8, the Group has determined its operating segments
based upon the information reported to the Chief Operating Decision Maker. The
Group comprises of three geographical divisions which have only one major
product or service: specialist geotechnical services. North America, Europe,
and Asia-Pacific, Middle East and Africa continue to be managed as separate
geographical divisions. This is reflected in the Group's management structure
and in the segment information reviewed by the Chief Operating Decision Maker.
Half year period to 26 June 2022 Half year period to 27 June 2021
Revenue Operating profit Revenue Operating profit
£m £m £m £m
North America 865.7 30.1 581.7 38.4
Europe 297.6 13.9 242.0 5.7
Asia-Pacific, Middle East and Africa 174.1 10.5 160.4 0.1
1,337.4 54.5 984.1 44.2
Central items and eliminations - (4.9) - (4.7)
Before non-underlying items 1,337.4 49.6 984.1 39.5
Non-underlying items (note 7) - (11.9) - (6.0)
1,337.4 37.7 984.1 33.5
As at 26 June 2022
Segment Segment Capital Capital Depreciation(2) Tangible and(3)
assets liabilities employed additions and intangible
£m £m £m £m amortisation assets
£m £m
North America 1,011.3 (410.9) 600.4 12.3 26.2 360.8
Europe 289.7 (191.0) 98.7 7.6 13.4 144.7
Asia-Pacific, Middle East and Africa 257.3 (118.4) 138.9 6.8 9.2 109.3
1,558.3 (720.3) 838.0 26.7 48.8 614.8
Central items and eliminations(1) 135.2 (478.4) (343.2) - (0.3) 2.4
1,693.5 (1,198.7) 494.8 26.7 48.5 617.2
The increase in trade receivables, inventories and trade payables as at 26
June 2022 is driven by increased revenues in the half year period. Trade
receivables include invoiced amounts for retentions. Retentions anticipated to
be receivable in more than one year are included in other non-current assets.
As at 27 June 2021(4)
Segment Segment Capital Capital Depreciation(2) Tangible and(3)
assets liabilities employed additions and intangible
£m £m £m £m amortisation assets
£m £m
North America 729.4 (308.6) 420.8 13.3 22.3 290.7
Europe 261.2 (170.6) 90.6 8.9 12.8 143.2
Asia-Pacific, Middle East and Africa 219.9 (102.5) 117.4 9.7 9.4 100.6
1,210.5 (581.7) 628.8 31.9 44.5 534.5
Central items and eliminations(1) 160.9 (378.2) (217.3) - - 0.1
1,371.4 (959.9) 411.5 31.9 44.5 534.6
As at 31 December 2021(5)
Segment Segment Capital Capital Depreciation(2) Tangible and(3)
assets liabilities employed additions and intangible
£m £m £m £m amortisation assets
£m £m
North America 826.9 (349.9) 477.0 36.4 46.1 334.6
Europe 273.9 (184.7) 89.2 23.8 25.0 143.7
Asia-Pacific, Middle East and Africa 218.0 (99.9) 118.1 24.2 19.5 103.5
1,318.8 (634.5) 684.3 84.4 90.6 581.8
Central items and eliminations(1) 130.6 (372.0) (241.4) - 0.6 3.0
1,449.4 (1,006.5) 442.9 84.4 91.2 584.8
1 ( ) Central items include net debt and tax balances, which are
managed at Group.
2 ( ) Depreciation and amortisation excludes amortisation of acquired
intangible assets.
3 ( ) Tangible and intangible assets comprise goodwill, intangible
assets and property, plant and equipment.
4 The 27 June 2021 consolidated balance sheet has been restated for
items disclosed in the 2021 Annual Report and Accounts, as outlined in note 2
to the interim financial statements.
5 The 31 December 2021 consolidated balance sheet has been restated in
respect of prior period measurement adjustments, as outlined in notes 2 and 6
to interim the financial statements.
( )
5. Revenue
The Group's revenue is derived from contracts with customers. In the following
table, revenue is disaggregated by primary geographical market, being the
Group's operating segments (see note 4) and timing of revenue recognition:
Half year period to 26 June 2022 Half year period to 27 June 2021
Revenue recognised on performance obligations satisfied over time Revenue recognised on performance obligations satisfied at a point in time Total Revenue recognised on performance obligations satisfied over time Revenue recognised on performance obligations satisfied at a point in time Total
£m £m revenue £m £m revenue
£m £m
North America 625.4 240.3 865.7 439.2 142.5 581.7
Europe 297.6 - 297.6 242.0 - 242.0
Asia-Pacific, Middle East and Africa 174.1 - 174.1 160.4 - 160.4
1,097.1 240.3 1,337.4 841.6 142.5 984.1
6. Acquisitions and disposals
Acquisitions
Current period
On 2 May 2022, the Group acquired 100% of the issued share capital of GKM
Consultants Inc., an instrumentation and monitoring provider in Quebec,
Canada, for an initial cash consideration of £3.6m (CAD$5.3m). In addition,
contingent consideration is payable dependent on the cumulative EBITDA in the
three-year period post acquisition. At 26 June 2022, the fair value of the
contingent consideration is £1.3m (CAD$2.0m). Goodwill and other intangibles
arising on acquisition is attributable to the knowledge and expertise of the
assembled workforce, the expectation of future contracts and customer
relationships and the operating synergies that arise from the Group's
strengthened market position. The goodwill is not expected to be deductible
for tax purposes.
Due to the timing of the acquisition, the review of the fair value of net
assets acquired is expected to be completed in the second half of the year.
The value of assets acquired is therefore provisional and will be finalised
within 12 months of the acquisition date. The provisional value of net assets
acquired was £2.2m, resulting in a goodwill and other intangibles value of
£2.7m.
In the half year period to 26 June 2022, the acquisition contributed £1.3m to
revenue and an underlying profit before tax of £0.3m. Had the acquisition
taken place on 1 January 2022, total Group revenue would have been £1,342.3m
and underlying profit before tax for the period would have been £43.3m.
Acquisition of businesses per the cash flow statement
Half year period to
26 June
2022
£m
GKM Consultants Inc. - initial cash consideration 3.6
GKM Consultants Inc. - cash acquired (0.2)
Contingent and deferred consideration paid (note 15) 12.2
15.6
Prior period measurements adjustments
Under IFRS 3 'Business Combinations' there is a measurement period of no
longer than 12 months in which to finalise the valuation of the acquired
assets and liabilities. During the measurement period, the acquirer
retrospectively adjusts the provisional amounts recognised at the acquisition
date to reflect any new information obtained about facts and circumstances
that existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date.
On 13 July 2021, the Group acquired RECON Services Inc. The valuation of the
acquired assets and liabilities is now final and the adjustments to the
provisional fair values that were made during the measurement period are set
out in the table below:
Provisional Adjustments Revised
fair value during provisional
recognised on measurement fair value
acquisition period recognised on
acquisition
£m £m £m
Assets
Intangible assets(1) 18.9 (1.4) 17.5
Property, plant and equipment 4.7 - 4.7
Other non-current assets 0.1 - 0.1
Trade and other receivables 20.4 - 20.4
Current tax assets 1.4 - 1.4
Cash and cash equivalents 0.9 - 0.9
46.4 (1.4) 45.0
Liabilities
Lease liabilities (1.4) - (1.4)
Trade and other payables (11.2) - (11.2)
Current tax liabilities (1.1) - (1.1)
Deferred tax liabilities(2) (5.1) 0.3 (4.8)
Provisions (1.4) - (1.4)
Other non-current assets (0.3) - (0.3)
(20.5) 0.3 (20.2)
Total identifiable net assets 25.9 (1.1) 24.8
Goodwill 3.7 1.1 4.8
Total consideration 29.6 - 29.6
Satisfied by:
Initial cash consideration 20.2 - 20.2
Initial valuation of contingent consideration 9.5 - 9.5
Purchase price adjustment (0.1) - (0.1)
29.6 - 29.6
1 ( ) The adjustment to intangible assets relates to the revised
valuation of the tradename and customer relationships acquired.
2 ( ) The adjustment to deferred tax liabilities relates to the
updated value of intangible assets.
The impact of these adjustments has been applied retrospectively, meaning that
the results and financial position for the year to 31 December 2021 have been
restated, as detailed in note 2. The adjustment to intangible assets at
acquisition resulted in a lower amortisation charge in the year to 31 December
2021 of £0.2m, resulting in a net adjustment to the net book value of
intangible assets of £1.2m as at 31 December 2021.
Disposals
There were no material disposals during the half year period to 26 June 2022.
During the current period contingent consideration receivable of £0.7m was
agreed in accordance with the terms of the sale and purchase agreement of
Wannenwetsch GmbH, which was disposed of in 2020.
7. Non-underlying items
Non-underlying items include items which are exceptional by their size and/or
are non-trading in nature, including amortisation of acquired intangibles,
restructuring costs and other non-trading amounts, including those relating to
acquisitions and disposals. Tax arising on these items, including movement in
deferred tax assets arising from non-underlying provisions, is also classified
as a non-underlying item. These are detailed below:
Half year period to Half year period to
26 June 27 June
2022 2021
£m £m
Exceptional contract dispute (3.5) -
Exceptional restructuring costs (1.2) (3.1)
ERP implementation costs (1.2) -
Impairment costs (0.4) -
Contingent consideration payable: additional amounts provided (0.1) (1.3)
Change in fair value of contingent consideration 0.3 -
Loss on classification of disposal group/disposal of operations - (1.9)
Non-underlying items in operating costs (6.1) (6.3)
(5.8) (0.4)
Amortisation of acquired intangible assets
Contingent consideration received 0.7 0.7
Non-underlying items in other operating income 0.7 0.7
Amortisation of joint venture acquired intangibles (0.7) -
Total non-underlying items in operating profit and before taxation (11.9) (6.0)
Taxation 2.4 0.6
Total non-underlying items after taxation (9.5) (5.4)
Non-underlying items in operating costs
Half year period to 26 June 2022
The £3.5m exceptional charge relates to a provision made for additional costs
relating to a historical contract dispute.
Restructuring costs comprise £1.2m in the Europe Division relating to the
scheduled exit of the Ivory Coast business. Costs include asset impairments
and redundancy costs.
The Group has commenced a strategic project to implement a new cloud computing
enterprise resource planning (ERP) system across the Group. Due to the size,
nature and incidence of the relevant costs expected to be incurred, the costs
are presented as a non-underlying item, as they are not reflective of
underlying performance of the Group. As this is a complex implementation,
project costs are expected to be incurred over the next five years.
Non-underlying ERP costs include only costs relating directly to the
implementation. Non-underlying costs does not include operational
post-deployment costs such as licence costs for businesses that have
transitioned.
An impairment charge of £0.4m by the North-East Europe Business Unit is in
respect of trade receivables in Ukraine that are not expected to be recovered
due to the ongoing conflict.
Additional contingent consideration of £0.1m relates to the acquisition of
the Geo Instruments US business in 2017.
During the period there was an adjustment to the fair value of the RECON
contingent consideration on finalisation of the amount payable.
Half year period to 27 June 2021
Restructuring costs of £3.1m comprised £2.6m in Europe, £0.9m of central
items and a credit of £0.4m in North America. In Europe, these costs arose as
a continuation of the strategic project to rationalise the Europe Division and
comprised redundancy costs, property costs, asset impairments and costs of
market exit which included project termination costs. Centrally, £0.9m of
restructuring costs were incurred in KGS, the in-house equipment manufacturer,
as part of a plan to streamline the organisation. These costs comprised
redundancy costs.
The Cyntech Anchors business in Canada was disposed of on 28 June 2021,
resulting in £1.9m of non-underlying costs including asset write-downs and
additional impairments recorded on classification of the business as held for
sale, which reflected anticipated proceeds under the planned sale.
Contingent consideration payable of £1.3m related to the acquisition of the
Geo Construction Group (Bencor) in 2015, following finalisation of items
referenced in the sale and purchase agreement.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets relates to the RECON, Moretrench
and Voges acquisitions. The prior year charge relates to Moretrench.
Non-underlying items in other operating income
During 2022, the second instalment of contingent consideration was agreed in
relation to the Wannenwetsch disposal in September 2020, in accordance with
the terms of the sale and purchase agreement. The first instalment was agreed
in the half year period to 27 June 2021 and paid in the second half of 2021.
During 2022, there was an adjustment to the fair value of the RECON contingent
consideration on finalisation of the amount payable.
Amortisation of joint venture acquired intangibles
Amortisation of joint venture intangibles relates to NordPile, an acquisition
by the Group's joint venture interest KFS Finland Oy on 8 September 2021.
Non-underlying taxation
The credit relates to the tax benefit of amounts which are expected to be
deductible for tax purposes.
8. Taxation
The Group's effective tax rate on underlying profit of 25.0% (2021: 27.0%) is
calculated using management's best estimate of the average annual effective
income tax rate expected for the full year. The average is calculated using
the weighted average profit at jurisdictional rates which differ from the tax
rate in the UK of 19%. The actual underlying tax charge for the half year has
been reduced by £0.4m as a result of a reduction of a provision held for
historic taxes. The tax credit on non-underlying items has been calculated by
assessing the tax impact of each component of the charge to the income
statement in the interim accounts and applying the jurisdictional tax rate
that applies to that item.
The Group is monitoring developments in the OECD's Pillar 2 proposals to agree
minimum effective tax rates across jurisdictions participating in the OECD
programme. Although the Group's activities are mainly in territories which
will be unaffected by the Pillar 2 proposals, it is possible that additional
tax will be charged in the future in countries where corporate tax rates are
increased. Any changes are not expected to be introduced before 2024.
Under draft proposals introduced to the US Congress in 2021, the Group would
potentially be subject to adverse changes in respect of measures intended to
limit the tax deductibility of intra-group financing costs. The proposed
measures were unable to secure passage through Congress in 2021 and the Group
is awaiting developments to see if the measures, and whether they are in
original or revised form, are reintroduced in 2022. At present there is
insufficient evidence to assess the probable financial impact on the Group's
future tax position.
9. Dividends
Ordinary dividends on equity shares:
Half year period to Half year period to Year to
26 June 27 June 31 December 2021
2022 2021 £m
£m £m
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2021 of 12.6p (2020: 12.6p) - -
per share
9.1
Final dividend for the year ended 31 December 2021 of 23.3p per share (2020: - 16.8
23.3p) per share
16.8
- 16.8 25.9
The 2021 final dividend of £16.8m was paid on 1 July 2022 and is included as
a liability in the interim consolidated balance sheet within trade and other
payables. The 2020 final dividend of £16.8m was paid in the half year period
to 27 June 2021.
In addition to the above, an interim ordinary dividend of 13.2p per share
(2021: 12.6p) will be paid on 9 September 2022 to shareholders on the register
at 19 August 2022. This proposed dividend has not been included as a liability
in these financial statements and will be accounted for in the period in which
it is paid.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
When the Group makes a profit, diluted earnings per share equals the profit
attributable to equity holders of the parent divided by the weighted average
diluted number of shares. When the Group makes a loss, diluted earnings per
share equals the loss attributable to the equity holders of the parent divided
by the basic average number of shares. This ensures that earnings per share on
losses is shown in full and not diluted by unexercised share awards.
Basic and diluted earnings per share are calculated as follows:
Underlying earnings attributable to the equity holders of the parent Earnings attributable to equity holders of the parent
Half year Half year Half year Half year
period to period to period to period to
26 June 27 June 26 June 27 June
2022 2021 2022 2021
Basic and diluted earnings (£m) 34.1 26.0 24.6 20.6
Weighted average number of shares (m)(1)
Basic number of ordinary shares outstanding 72.6 72.3 72.6 72.3
Effect of dilution from:
Share options and awards 0.8 0.7 0.8 0.7
Diluted number of ordinary shares 73.4 73.0 73.4 73.0
Earnings per share
Basic earnings per share (p) 47.0 36.0 33.9 28.5
Diluted earnings per share (p) 46.5 35.6 33.5 28.2
1 The weighted average number of shares takes into
account the weighted average effect of changes in treasury shares during the
year. The weighted average number of shares excludes those held in the
Employee Share Ownership Plan Trust and those held in treasury, which for the
purpose of this calculation are treated as cancelled.
11. Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
As at As at As at
26 June 27 June 31 December 2021
2022 2021 £m
£m £m
Property, plant and equipment - owned 392.2 352.3 375.5
Right-of-use assets - leased 75.9 65.4 67.9
468.1 417.7 443.4
During the half year period to 26 June 2022, the Group acquired owned
property, plant and equipment with a cost of £26.6m (27 June 2021: £31.7m,
31 December 2021: £84.0m). Right-of-use asset additions during the period
were £12.4m (27 June 2021: £10.6m, 31 December 2021: £23.4m). Owned assets
with a net book value of £0.8m were disposed of during the half year period
to 26 June 2022 (27 June 2021: £4.0m, 31 December 2021: £8.0m), resulting in
a net gain on disposal of £2.5m (27 June 2021: £1.5m gain, 31 December 2021:
£1.8m gain).
12. Analysis of closing net debt
As at As at As at
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Bank balances 81.5 111.0 77.9
Short-term deposits 4.3 5.8 4.8
Cash and cash equivalents in the balance sheet 85.8 116.8 82.7
Bank overdrafts (0.5) (4.5) (0.9)
Cash and cash equivalents in the cash flow statement 85.3 112.3 81.8
Bank and other loans (278.9) (223.8) (199.7)
Lease liabilities (84.1) (69.3) (75.4)
Closing net debt (277.7) (180.8) (193.3)
Cash and cash equivalents include £9.4m (27 June 2021: £4.4m, 31 December
2021: £2.7m) of the Group's share of cash and cash equivalents held by joint
operations, and £1.1m (27 June 2021: £1.7m, 31 December 2021: £1.7m) of
restricted cash which is subject to local country restrictions.
The increase in bank and other loans in the half year period to 26 June 2022
reflects further drawdowns on the Group's revolving credit facility.
13. Assets held for sale
As at As at As at
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Assets held for sale 1.0 23.6 3.4
Liabilities directly associated with assets held for sale - (10.5) -
Current period
At 26 June 2022, assets held for sale mainly comprise equipment in the North
America Division following a rationalisation exercise. During the period, a
number of assets held for sale in the AMEA Division were reinstated for use
and transferred to property, plant and equipment.
Prior period
On 28 June 2021, subsequent to the half year period to 27 June 2021, the Group
disposed of its Cyntech Anchors business in Canada. In the half year period to
27 June 2021, the business' assets and liabilities were classified as a
disposal group held for sale and written down to the expected value of the
proceeds to be received. Net assets held for sale were £5.6m, comprising
assets classified as held for sale of £16.1m and liabilities directly
associated with assets held for sale of £10.5m.
Other assets held for sale mainly comprised plant and machinery in the AMEA
Division, as a result of the wind-down of a business, and equipment in the
North America Division following a rationalisation exercise.
14. Retirement benefit liabilities
The Group operates pension schemes in the UK and overseas. The primary defined
benefit scheme is in the UK. The Group also has defined benefit retirement
obligations in Germany and Austria and a number of end of service schemes in
the Middle East that follow the same principles as a defined benefit scheme.
For further information on the Group's pension schemes, refer to note 32 of
the Group's financial statements for the year ended 31 December 2021.
The Group's net defined benefit liabilities as at 26 June 2022 were £22.5m
(27 June 2021: £23.0m, 31 December 2021: £25.7m).The reduction in the half
year period was driven by an actuarial gain of £2.2m on the German and
Austrian schemes, reflecting a higher discount rate driven by the increase in
interest rates during the first half of 2022. The net defined liability for
the Keller Group Pension Scheme in the UK as at 26 June 2022 is £5.4m, being
the minimum funding requirement, calculated using the agreed contributions.
15. Financial assets and financial liabilities
Set out below is an overview of financial assets and liabilities held by the
Group:
As at As at As at
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 18.8 19.5 20.6
Interest rate swaps - 4.4 2.6
Contingent consideration receivable 0.7 0.7 -
Financial assets measured at amortised cost
Trade receivables 531.3 400.1 448.8
Contract assets 163.1 109.1 107.6
Cash and cash equivalents 85.8 116.8 82.7
Financial liabilities at fair value through profit or loss
Contingent consideration payable (1.2) (4.3) (11.9)
Financial liabilities measured at amortised cost
Deferred consideration payable (0.8) - (0.8)
Trade payables (290.8) (234.8) (268.8)
Contract liabilities (58.5) (61.2) (46.5)
Bank and other loans (279.4) (228.3) (200.6)
Lease liabilities (84.1) (69.3) (75.4)
Fair values
The fair values of the Group's financial assets and liabilities are not
materially different from their carrying values. The following summarises the
major methods and assumptions used in estimating the fair values of financial
instruments; being derivatives, interest-bearing loans and borrowings,
contingent and deferred consideration and payables, receivables and contract
assets, cash and cash equivalents.
Derivatives
The fair values of interest rate and cross-currency swaps are calculated based
on expected future principal and interest cash flows, discounted using market
rates prevailing at the balance sheet date. The valuation methods of all the
Group's derivative financial instruments carried at fair value are categorised
as Level 2. Level 2 assets are financial assets and liabilities that do not
have regular market pricing, but whose fair value can be determined based on
other data values or market prices. During the period, the interest rate swaps
on the $75m private placement were terminated.
Contingent and deferred consideration
Fair value is calculated based on the amounts expected to be paid, determined
by reference to forecasts of future performance of the acquired businesses
discounted using appropriate discount rates prevailing at the balance sheet
date and the probability of contingent events and targets being achieved.
The valuation methods of the Group's contingent consideration carried at fair
value are categorised as Level 3. Level 3 assets are financial assets and
liabilities that are considered to be the most illiquid. Their values have
been estimated using available management information including subjective
assumptions. There are no individually significant unobservable inputs used in
the fair value measurement of the Group's contingent consideration as at 26
June 2022.
The following table shows a reconciliation from the opening to closing
balances for net contingent and deferred consideration:
As at As at As at
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Opening balance at 1 January 12.7 3.0 3.0
Acquisition of businesses (note 6) 1.3 - 8.8
Additional amounts provided 0.1 1.3 1.3
Amount receivable (0.7) (0.7) -
Released during the period (0.3) - (0.1)
Paid during the period (12.2) - (0.4)
Exchange movements 0.4 - 0.1
Closing balance 1.3 3.6 12.7
On 2 May 2022, the Group acquired GKM Consultants Inc. Contingent
consideration is payable dependent on the cumulative EBITDA in the three year
period post acquisition. At 26 June 2022, the fair value of the contingent
consideration is £1.3m (CAD$2.0m).
Additional contingent consideration of £0.1m relates to the acquisition of
the Geo Instruments US business in 2017.
Contingent consideration receivable of £0.7m was recognised during the period
in relation to the Wannenwetsch disposal in 2020.
Amounts released during the period of £0.3m relate to a fair value adjustment
of the RECON contingent consideration on finalisation of the amount payable.
Total contingent and deferred consideration of £12.2m was paid during the
period, comprising £8.6m in respect of the RECON Services Inc. acquisition in
2021 and, £3.8m in respect of the Geo Construction Group (Bencor) acquisition
in 2015. These both represent final agreements. Additionally, £0.2m was paid
in respect of the Geo Instruments acquisition and £0.1m deferred
consideration in respect of the Voges Drilling acquisition in 2021.
Payables, receivables and contract assets
For payables, receivables and contract assets with an expected maturity of one
year or less, the carrying amount is deemed to reflect the fair value.
Non-qualifying deferred compensation plan
The value of both the employee investments and those held in trust by the
company are measured using Level 1 inputs per IFRS 13 ('quoted prices in
active markets for identical assets or liabilities that the entity can access
at the measurement date') based on published market prices at the end of the
period. Adjustments to the fair value are recorded within net finance costs in
the consolidated income statement. Refer to note 17 of the Group's financial
statements for the year ended 31 December 2021 for further information on the
non-qualifying deferred compensation plan.
16. Share capital and reserves
As at As at As at
26 June 27 June 31 December 2021
2022 2021 £m
£m £m
Allotted, called up and fully paid equity share capital 7.3 7.3 7.3
73,099,735 ordinary shares of 10p each
(27 June 2021 and 31 December 2021: 73,099,735)
The company has one class of ordinary shares, which carries no rights to fixed
income. There are no restrictions on the transfer of these shares.
The capital redemption reserve of £7.6m is a non-distributable reserve
created when the company's shares were redeemed or purchased other than from
the proceeds of a fresh issue of shares.
The other reserve of £56.9m is a non-distributable reserve created when
merger relief was applied to an issue of shares under section 612 of the
Companies Act 2006 to part-fund the acquisition of Keller Canada. The reserve
becomes distributable should Keller Canada be disposed of.
At 26 June 2022, the total number of shares held in treasury was 328,954 (27
June 2021: 784,364 and 31 December 2021: 777,917).
During the period to 26 June 2022, 135,050 ordinary shares were purchased by
the Keller Group Employee Benefit Trust (27 June 2021: nil, 31 December 2021:
417,240), to be used to satisfy future obligations of the company under the
Keller Group plc Long Term Incentive Plan. The cost of the market purchases
was £1.2m (31 December 2021: £3.7m).
17. 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
As at 26 June 2022, a net balance of £0.1m was owed by (27 June 2021: £nil
owed by and 31 December 2021: £0.1m owed by) the joint venture. This amount
is unsecured, has no fixed date of repayment and is repayable on demand.
18. Post balance sheet events
There were no material post balance sheet events between the balance sheet
date and the date of this report.
Adjusted performance measures
The Group's results as reported under International Financial Reporting
Standards (IFRS) and presented in the interim condensed consolidated financial
statements (the 'statutory results') are significantly impacted by movements
in exchange rates relative to sterling, as well as by exceptional items and
non-trading amounts including those relating to acquisitions and disposals.
Adjusted performance measures have been used throughout this report to
describe the Group's underlying performance. The Board and Executive Committee
use these adjusted measures to assess the performance of the business as they
consider them more representative of the underlying ongoing trading result and
allow more meaningful comparison to prior periods.
Underlying measures
The term 'underlying' excludes the impact of items which are exceptional by
their size and/or are non-trading in nature, including amortisation of
acquired intangible assets and other non-trading amounts relating to
acquisitions and disposals (collectively 'non-underlying items'), net of any
associated tax. Underlying measures allow management and investors to compare
performance without the potentially distorting effects of one-off items or
non-trading items. Non-underlying items are disclosed separately in the
interim financial statements where it is necessary to do so to provide further
understanding of the financial performance of the Group.
Constant currency measures
The constant currency basis ('constant currency') adjusts the comparative to
exclude the impact of movements in exchange rates relative to sterling. This
is achieved by retranslating the 2021 results of overseas operations into
sterling at the 2022 average exchange rates.
A reconciliation between the underlying results and the reported statutory
results is shown on the face of the consolidated income statement, with
non-underlying items detailed in note 7. A reconciliation between the 2021
underlying result to the 2021 constant currency result is shown below and
compared to the underlying 2022 performance:
Revenue by segment
Statutory Statutory Impact of exchange movements Constant Statutory Constant
2022 2021 2021 currency change currency
2021 change
£m £m £m £m % %
North America 865.7 581.7 38.9 620.6 +49% +39%
Europe 297.6 242.0 (6.6) 235.4 +23% +26%
Asia-Pacific, Middle East and Africa 174.1 160.4 2.0 162.4 +9% +7%
Group 1,337.4 984.1 34.3 1,018.4 +36% +31%
Underlying operating profit by segment
Underlying Underlying Impact of exchange movements Constant Underlying Constant
2022 2021 2021 currency change currency
2021 change
£m £m £m £m % %
North America 30.1 38.4 2.8 41.2 -22% -27%
Europe 13.9 5.7 - 5.7 +144% +144%
Asia-Pacific, Middle East and Africa 10.5 0.1 (0.7) (0.6) n/a n/a
Central items (4.9) (4.7) - (4.7) n/a n/a
Group 49.6 39.5 2.1 41.6 +26% +19%
Underlying operating margin
Underlying operating margin is underlying operating profit as a percentage of
revenue.
Other adjusted measures
Where not presented and reconciled on the face of the interim condensed
consolidated income statement, balance sheet or cash flow statement, the
adjusted measures are reconciled to the IFRS statutory numbers below:
EBITDA (statutory)
26 June 27 June
2022 2021
£m £m
Underlying operating profit 49.6 39.5
Depreciation and impairment of owned property, plant and equipment 34.8 31.4
Depreciation and impairment of right-of-use assets 13.4 12.8
Amortisation of intangible assets 0.3 0.3
Underlying EBITDA 98.1 84.0
Non-underlying items in operating costs (6.1) (6.3)
Non-underlying items in other operating income 0.7 0.7
EBITDA 92.7 78.4
EBITDA (IAS 17 covenant basis)
26 June 27 June
2022 2021
£m £m
Underlying operating profit 49.6 39.5
Depreciation and impairment of owned property, plant and equipment 34.8 31.4
Depreciation and impairment of right-of-use assets 13.4 12.8
Legacy IAS 17 operating lease charges (15.2) (13.9)
Amortisation of intangible assets 0.3 0.3
Underlying EBITDA 82.9 70.1
Non-underlying items in operating costs (6.1) (6.3)
Non-underlying items in other operating income 0.7 0.7
EBITDA 77.5 64.5
Net finance costs
26 June
2022 27 June
2021
£m £m
Finance income (0.3) (0.1)
Finance costs 5.3 4.4
Net finance costs (statutory) 5.0 4.3
Finance charge on lease liabilities(1) (1.2) (1.4)
Lender covenant adjustments - (0.1)
Net finance costs (IAS 17 covenant basis) 3.8 2.8
1( ) Excluding legacy IAS 17 finance leases.
Net capital expenditure
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Acquisition of property, plant and equipment 26.6 31.7 84.0
Acquisition of intangible assets 0.1 0.2 0.4
Proceeds from sale of property, plant and equipment (3.3) (5.5) (9.8)
Net capital expenditure(1) 23.4 26.4 74.6
1 ( ) Net capital expenditure excludes right-of-use assets.
Net debt
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Current loans and borrowings 29.0 65.9 29.8
Non-current loans and borrowings 334.5 231.7 246.2
Cash and cash equivalents (85.8) (116.8) (82.7)
Net debt (statutory) 277.7 180.8 193.3
Lease liabilities(1) (83.7) (67.4) (73.9)
Net debt (IAS 17 covenant basis) 194.0 113.4 119.4
1 ( ) Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying EBITDA.
Statutory
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Net debt 277.7 180.8 193.3.8
Underlying EBITDA 204.3 194.1 190.2
Leverage ratio (x) 1.4 0.9 1.0
IAS 17 covenant basis
26 June 27 June 31 December
2022 2021 2021
£m £m £m
Net debt 194.0 113.4 119.4
Underlying EBITDA 170.3 164.8 157.5
Leverage ratio (x) 1.1 0.7 0.8
Order book
The Group's disclosure of its order book is aimed to provide insight into its
backlog of work and future performance. The Group's order book is not a
measure of past performance and therefore cannot be derived from its financial
statements. The Group's order book comprises the unexecuted elements of orders
on contracts that have been awarded. Where a contract is subject to
variations, only secured variations are included in the reported order book.
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