REG - Keller Group PLC - Preliminary Results for the year ended 31 Dec 2023
05/03/2024 07:00
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RNS Number : 5463F Keller Group PLC 05 March 2024
5 March 2024
Keller Group plc audited Preliminary Results for the year ended 31 December
2023
Keller Group plc ('Keller' or 'the Group'), the world's largest geotechnical
specialist contractor, announces its results for the year ended 31 December
2023.
Record results provide a new foundation for long term growth
2023 2022 % change Constant currency
£m £m % change
Revenue 2,966.0 2,944.6 +1% +1%
Underlying operating profit(1) 180.9 108.6 +67% +67%
Underlying operating profit margin(1) 6.1% 3.7% +240bps
Underlying profit before tax(1) 153.4 93.5 +64%
Underlying diluted earnings per share(1) 153.9p 100.7p +53%
Free cash flow 103.2 (33.8) +405%
Net debt (bank covenant IAS 17 basis) (2) 146.2 218.8 -33%
Total dividends for the year per share 45.2p 37.7p +20%
Statutory operating profit 153.1 67.8 126%
Statutory profit before tax 125.6 56.3 123%
Statutory diluted earnings per share 120.5p 62.4p 93%
Net cash inflow from operating activities 197.0 54.8 259%
Statutory net debt (IFRS 16 basis) 237.3 298.9 -21%
(1 ) (Underlying operating profit, underlying profit before tax 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 9 of the 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
consolidated financial statements)
Highlights
· Record performance with significant progress made in key measures of
financial performance:-
· Revenue of £2,966.0m, similar to prior year
· Underlying operating profit c.80% higher than the five year
average
· Underlying operating profit margin over 6% for the first time in
eight years
· Underlying ROCE at 22.8% (2022: 14.9%), the highest for 15 years
· Free cash generation of over £100m, accelerating leverage
reduction to the bottom of the target range
· Underlying operating profit increased to £180.9m, up 67% (at
constant currency) and underlying operating profit margin increased to 6.1%
(2022: 3.7%); largely driven by an improved foundations performance and
resilient Suncoast pricing in the NA business, together with a strong
performance at Keller Australia, partly offset by a disappointing performance
in Europe
· Underlying EPS of 153.9p, up 53%, driven by higher operating profit
partially offset by increased finance costs and a higher effective tax rate
· Statutory operating profit up 126% to £153.1m
· Statutory diluted EPS of 120.5p, up 93%
· Strong recovery in free cash flow, with an inflow of £103.2m (2022:
£33.8m outflow), driven by improved profitability
· Net debt(2) reduced by 33% to £146.2m (2022: £218.8m), equating to
net debt/EBITDA leverage ratio of 0.6x (2022:1.2x), towards the lower end of
the Group's 0.5x-1.5x target range
· Robust year-end order book of £1.5bn
· Safety: accident frequency rate (AFR) was flat year on year; small
increase in injuries in AMEA offset by an improvement in Europe
· Further successful execution of strategy with continued portfolio
rationalisation including the strategic decision to exit from Cyntech Tanks,
Egypt, Sub-Saharan Africa and Kazakhstan
· In recognition of the excellent performance in the year and the
Group's future prospects, the Board is recommending a rebasing of the dividend
by increasing the total dividend for 2023 by 20%
Michael Speakman, Chief Executive Officer said:
"In 2023 the Group delivered a record set of financial results, establishing a
new foundation for future long term growth and supporting a material rebasing
of the dividend with a full year increase of 20%. Whilst political and
macro-economic uncertainties will undoubtedly remain and impact our markets in
the short term, our current level of trading together with our robust order
book mean that we enter the new year with confidence.
The strong momentum of the business is encouraging and whilst inevitably there
will be fluctuations across the Group, our diverse revenues and improved
operational delivery underpin our expectation that 2024 will be another year
of underlying progress.
The significant improvement in business performance and continued disciplined
execution of our strategy, will provide both resilience in the short term and
drive growth in the long term, through both organic and targeted M&A
opportunities. Accordingly, we view the Group's prospects with increased
confidence."
For further information, please contact: www.keller.com (http://www.keller.com)
Keller Group plc 020 7616 7575
Michael Speakman, Chief Executive Officer
David Burke, Chief Financial Officer
Caroline Crampton, Group Head of Investor Relations
FTI Consulting 020 3727 1340
Nick Hasell
Matthew O'Keeffe
A webcast for investors and analysts will be held at 09.00 GMT on 5 March 2024
and will also be available later the same day on demand
https://www.investis-live.com/keller/65c36af3d0d5201200a20f51/drwe
(https://www.investis-live.com/keller/65c36af3d0d5201200a20f51/drwe)
Conference call: Accessing the telephone replay:
Participants joining by telephone: A replay will be available until 12 March 2024
UK (Toll-Free): 0800 358 1035
UK(Local): +44 (0)20 3936 2999 UK (Toll-Free): 0800 304 5227
All other locations: +44 20 3936 2999
UK: +44 (0)20 3936 3001
Participant access code: 966988
Access Code: 685714
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.
LEI number: 549300QO4MBL43UHSN10. Classification: 1.1 (Annual financial and
audit reports)
Adjusted performance measures
In addition to statutory measures, a number of adjusted performance measures
(APMs) are included in this Preliminary 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.
Chief Executive Officer's review
Overview
Keller has delivered an outstanding performance in 2023, with consecutive
upgrades to market expectations during the year, culminating in significant
advancements in key measures of financial performance. Revenue and underlying
operating profit set new records for the Group whilst ROCE was the highest in
15 years and all evidence our improved project execution.
The management actions taken in the second half of 2022, to improve project
performance in North America generated a significant and sustainable
improvement in performance in 2023 and was the main driver of the Group's very
strong results. In addition, better than expected pricing resilience at
Suncoast and a strong performance on infrastructure projects at Keller
Australia more than offset a very disappointing project and business
performance in Europe, particularly in the Nordic region.
The increased profitability, on a consistent level of revenue and working
capital, generated a strong cashflow performance and a continued reduction in
leverage, which is now at the bottom end of our target range of 0.5x-1.5x.
In recognition of the excellent performance in the year and the Group's future
growth prospects, the Board is recommending a rebasing of the dividend with an
increase in the total dividend for 2023 of 20%, which would bring the total
dividends for the year to 45.2p (2022: 37.7p).
Financial performance
Group revenue at £2,966.0m (2022: £2,944.6m) was similar to the prior year,
while underlying operating profit was up 67%, to £180.9m (2022: £108.6m),
some 80% higher than the average underlying operating profit over the last
five years. Underlying operating margin increased to 6.1% (2022: 3.7%), the
highest for eight years. Cashflow generation also saw a significant
improvement, compared to the prior year, as a result of stable working capital
performance, generating increased free cashflow of £103.2m and a significant
reduction in net debt (IAS 17 lender covenant basis) to £146.2m (2022:
£218.8m). This equated to a net debt/EBITDA ratio of 0.6x (2022: 1.2x), at
the lower end of our leverage target range of 0.5x-1.5x.
Operational performance
In North America, revenue declined by 6% (on a constant currency basis)
largely as a result of the completion of the large LNG project at RECON at the
start of the period, and a slow-down in residential housing, impacting volume
at Suncoast where revenues were down by c.14%. Our foundations business
increased revenues by c.6%, notwithstanding an increase in our bidding
discipline. Underlying operating profit in North America more than doubled to
£169.6m, driven primarily by a material and sustainable improvement in
operational performance in the foundations business, following the management
actions taken in the second half of 2022. These included the introduction of
standard operating procedures, an upgraded project performance review process,
a new variation order tracking system and new management across some of the
business units. The foundations business experienced higher than normal
returns on three large projects, also benefitting profitability. These one-off
gains were partially offset by losses from legacy contracts, legal claims and
a reduced performance in Canada. The division also benefited from better than
expected resilient pricing at Suncoast, which is now unwinding as expected.
The increase in profitability saw underlying operating margin increase to 9.6%
(2022: 4.3%).
In Europe, although revenue increased modestly by 4.2% on a constant currency
basis, this reflected a very mixed backdrop with widespread weak demand in the
residential and commercial sectors offset by revenue from larger projects in
the infrastructure sector. Underlying operating profit reduced significantly,
down 94.0% on a constant currency basis, primarily as a result of poor project
performance and cost management in the Nordic region and also an increasingly
competitive environment across Europe in a declining market. The adverse mix
of contracts in the UK and the increasingly competitive market conditions
particularly in North East Europe, also contributed to the underlying
operating margin reducing to 0.3% (2022: 4.5%). The adverse project
performance in the Nordics is not expected to continue into 2024 and
management actions have been taken to drive improvement there and the region
more generally.
In AMEA, revenues increased by 34.1% on a constant currency basis, driven by
record volumes in Keller Australia as a result of a strong infrastructure
market; delivery of the first works order at the NEOM project in Saudi Arabia
and robust trading in India. Underlying operating profit increased
significantly to £22.6m driven primarily by the increased volume and much
improved operational execution and profitability in Keller Australia. The
Middle East, including NEOM, showed a modest uplift compared with prior year.
While Austral returned to a sustainable profit in the second half of the year,
this was insufficient to offset the significant loss on legacy contracts
experienced in the first half of the year. The overall operating margin for
the division increased to 4.4% (2022: 1.7%).
Strategy
In 2023, we were effective in executing our strategy to be the preferred
international geotechnical specialist contractor focused on sustainable
markets and attractive projects, generating long-term value for our
stakeholders. Our local businesses leverage the Group's scale and expertise to
deliver engineered solutions and operational excellence, driving market share
leadership in our selected segments.
The benefit of our strategy has been evidenced by our improved performance
compared with recent years, with the Group delivering a significant increase
in both its operational and financial performance.
Progress on strategic priorities in 2023
We have made considerable progress in recent years, rationalising,
restructuring and refining the Group's geographic and service offering to
create a more focused and higher quality portfolio of businesses. During 2023
we made the strategic decision to exit Cyntech Tanks, Egypt, Sub-Saharan
Africa and Kazakhstan, all small non-core, economically uncertain markets
which do not align with our strategy. We continue to evaluate our portfolio
and potential further incremental rationalisation. In Saudi Arabia we obtained
full control over our joint-venture business in the country to enable us to
take advantage of future opportunities in the region.
In North America, we restructured three related business units into one; the
Central, Southeast and Florida business units were combined to become South
Central. This consolidation provided the opportunity to increase both the
effectiveness and efficiency of expertise and key resources, and exemplifies
the pursuit of operational leverage and economies of scale which is a key
aspect of our strategy.
We continued to focus our efforts on our operational execution across all our
businesses, as evidenced by recent results, and we made further progress
implementing the enterprise resource planning (ERP) system, Project
Performance Management (PPM) and several other initiatives that will
incrementally improve operational execution in the medium term.
Strategic priorities for 2024
Having established a refreshed and more resilient base for our business, we
are looking to grow market share within our existing geographic footprint,
through both organic investment and targeted bolt-on M&A. We will be
customer focused locally through our branch structure and obtain the benefit
of operational leverage by gaining high quality, leading market share in our
chosen markets. Organic investment will include initiatives to increase the
cross selling of existing services into established branches that don't
currently provide those services, and investing in our people to build on our
technical expertise and influence. The Group's disciplined approach to M&A
activity will be focussed on expanding the service offering and building
critical mass in key markets, and will be biased towards markets with higher
rates of growth.
We will offer our customers alternative designs and engineered solutions that
meet their specifications whilst reducing the total cost to the client and,
wherever possible, also reducing the environmental impact of project.
We will continue evaluating our portfolio of assets to identify opportunities
for divestment or consolidation.
We remain committed to investing in key growth areas that align with our
long-term strategic objectives to focus on sustainable markets and attractive
projects, generating long-term value for our stakeholders.
Sustainability and Environmental, Social and Governance (ESG)
We base our ESG and sustainability approach on the UN Sustainable Development
Goals (SDGs). We particularly focus on those SDGs that are most closely
aligned to Keller's core business and where we can have the greatest impact.
We divide these SDGs into global initiatives, which we target across the
Group, and local initiatives that are more relevant to our local business
units and markets.
We are progressing well against the carbon reduction targets we set out two
years ago 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 Operational Scope 3 (covering business travel,
material transport and waste disposal). The short, medium and long-term
actions required to achieve these goals are in progress and in some instances
we are ahead of target, particularly around our Scope 2 carbon reduction. The
Group reduced emissions by 48% from our 2019 baseline, significantly ahead of
our target of 38%.
Scope 1 emissions covers our direct emissions from fuel use. We successfully
deployed our new KB0-E electric rig, which together with a number of hired
electric 3rd party rigs have enabled us to begin to reduce life cycle
emissions in areas where decarbonised electricity grids are available.
Scope 3 emissions, covering all other indirect emissions, mostly arise from
our supply chain. In 2023, we trained our engineers to calculate and reduce
the emissions from our use of cement and steel and we have started to develop
an action plan to decarbonise our cement design mixes.
On climate risks and opportunities, we continue to model and mitigate both our
transition and physical risks. In terms of more local environmental
initiatives, we led a project to highlight how the geotechnical sector can
help contribute to the circular economy and on water reduction at site in our
MEA business.
The Group's safety focus remains relentless, and our key safety metric, the
accident frequency rate (AFR), was flat year on year, with a small increase in
injuries in AMEA offset by an improvement in Europe. There have been a number
of important initiatives in the year including a Group wide assurance
programme to ensure safety policies, procedures and culture are truly embedded
in operations. The second Global Safety Week was successful and a recently
refreshed management safety visit process has been launched with encouraging
results. The employee traction and general progress on almost all the safety
programmes in the year have been encouraging.
Our Inclusion Commitments serve as the blueprint for setting priorities and
fostering alignment and progress across the entire Group. In 2023, these
commitments became more deeply ingrained within the fabric of our company.
This is crucial as we endeavour to cultivate a workplace that is increasingly
diverse, equitable, and inclusive.
Regarding partnerships, we remain committed to collaborating with
organisations dedicated to driving positive change and those that align with
our focus on the UN SDGs. In pursuit of this objective, we have a three-year
partnership with UNICEF UK, providing a funding contribution of £250,000 in
2023 towards its Core Resources for Children initiative. Keller's unrestricted
funding enables UNICEF to swiftly respond to emergencies worldwide.
Additionally, throughout Europe and across the Group, our employees continue
to show support for 'Fundacja KELLER', a charitable foundation established by
Keller. This foundation specifically aids our Ukrainian employees and their
families who have been impacted by the ongoing conflict.
People
Paul Leonard has been appointed President North America, and will join the
Group shortly. Paul, a highly experienced industry professional with a long
tenure at Exxon, was most recently at Wood Group PLC in the role of President
of Transformation for the Global Consulting business. He is a seasoned expert
in energy and construction, with a proven track record in project delivery,
and will build on the recent improved performance in the division.
We constantly review the way in which we manage and structure the Group in
order to respond most effectively to our evolving markets, and maximise the
potential benefits of our strategy. Recently we have made the decision to
restructure two of our divisions, Europe and AMEA (Asia-Pacific, Middle East
and Africa). The responsibility of the Middle East Business Unit (including
NEOM) will transfer to Europe to create the Europe and Middle East Division
(EME). Peter Wyton, who has 33 years of industry experience and has most
recently and successfully led the AMEA Division, will become the President of
EME. The balance of the former AMEA Division, will form a newly created
Asia-Pacific (APAC) Division and will be led by Deepak Raj. Deepak has been
with Keller for 20 years and most recently led the turnaround of the Austral
business in Australia. There is no impact of this restructuring on our North
America Division.
In our ongoing commitment to excellence and growth, we remain steadfast in
developing our most valuable asset, our people. Through structured programs
like the Project Manager Academy, Field Leadership Academy, and several other
leadership initiatives, we are dedicated to nurturing and advancing the skills
of our people, and have made several internal promotions to important roles
within the Group. This focus on in-role development, coupled with the right
opportunities for exposure within the organisation, has created many
opportunities for internal advancement.
At the core of our operations and achievements lies our diverse and talented
team, our people are at the heart of everything we do. This past year, which
was both challenging and successful, showcased the tremendous dedication, hard
work and expertise of our teams. As we reflect on the year's journey, we
extend our gratitude to all our people around the world for their unwavering
commitment and exceptional performance.
Growing the dividend
Keller has a notable 30-year history of a maintained or growing dividend with
a CAGR of just under 9% since flotation in 1994, and is only one of a few
FTSE listed companies to have consistently paid a dividend over such a period.
The Group has a dividend policy to pay a dividend that is sustainable and
grows over time which we have managed to do through both the global financial
crisis and the COVID19 pandemic.
In recognition of the excellent performance in the year and Keller's future
prospects, the Board is recommending a rebasing of the dividend with an
increase in the total dividend for 2023 of 20%. This follows the 5% increase
in the interim dividend and would bring the total amount of dividends for the
year to 45.2p (2022: 37.7p). If approved, the proposed 2023 final dividend of
31.3p (2022: 24.5p) will be paid on 28 June 2024 to shareholders on the
register as at the close of business on 31 May 2024. Following this rebasing,
it is expected that there will be a resumption of more typical levels of
dividend growth thereafter with the overall objective of maintaining a
progressive dividend over the cycle.
Outlook
In 2023 the Group delivered a record set of financial results, establishing a
new foundation for future long term growth and supporting a material rebasing
of the dividend with a full year increase of 20%. Whilst political and
macro-economic uncertainties will undoubtedly remain and impact our markets in
the short term, our current level of trading together with our robust order
book mean that we enter the new year with confidence.
The strong momentum of the business is encouraging and whilst inevitably there
will be fluctuations across the Group, our diverse revenues and improved
operational delivery underpin our expectation that 2024 will be another year
of underlying progress.
The significant improvement in business performance and continued disciplined
execution of our strategy, will provide both resilience in the short term and
drive growth in the long term, through both organic and targeted M&A
opportunities. Accordingly, we view the Group's prospects with increased
confidence.
Operating review
North America
2023 2022 Constant currency
£m £m
Revenue 1,770.0 1,896.1 -6.4%
Underlying operating profit 169.6 82.0 +107.8%
Underlying operating margin 9.6% 4.3% +530bps
Order book 904.6 761.3 +24.6%
In North America, revenue was down by 6.4% (on a constant currency basis)
largely driven by the completion of the large LNG project at RECON at the
start of the period, and a slow-down in residential housing affecting
Suncoast, where revenues were down by c.14%. Our foundations business
increased revenues by c. 6%, with an increase in our bidding discipline.
Underlying operating profit more than doubled to £169.6m, driven by a
material and sustainable improvement in operational performance in the
foundations business, better than expected pricing resilience at Suncoast and
the strong contribution from three large projects in the foundations business.
However, these one-off gains were partially offset by losses from legacy
contracts, legal claims and a reduced performance in Canada. This resulted in
underlying operating margin increasing to 9.6%. The accident frequency rate,
our key safety metric, remained flat versus the prior period at 0.09.
The foundations business had an outstanding year. Management actions taken in
the second half of 2022 have resulted in a sustainable improvement in
operational performance. These include the introduction of standard operating
procedures, an upgraded project performance review process, a new variation
order tracking system and new management across some of the business units.
The supply chain disruption that had previously impacted productivity across
the market in the prior period abated, also bolstering performance in the
year. In addition, the business benefited from the contribution from three
large projects that were particularly well executed, and delivered materially
higher than normal levels of contract profitability which are considered
one-off in nature and not expected to repeat at these levels in 2024.
Suncoast had a very strong year, despite the macro headwinds contributing to
lower volumes in the residential sector. Whilst revenue was down versus the
prior year, profitability increased due to resilient pricing in the high rise
sector. This large, non-recurring benefit is unwinding, as the lag between
movement in input costs and the impact on pricing normalises in 2024 as
expected. Overall the foundations business is expected to sustain its improved
underlying operational performance in 2024.
Moretrench Industrial, our business which operates in the highly regulated
industrial, environmental and power segments, delivered revenue and profit in
line with expectations and the prior year. At RECON, the geoenvironmental and
industrial services company, revenue and profit declined as expected following
the completion of the large LNG contract in the Gulf of Mexico.
The order book for North America at the period end was at £904.6m, up 24.6%
(on a constant currency basis) from the closing position at the end of 2022.
The increase year on year is predominantly driven by several high value
contracts.
Europe
2023 2022 Constant currency
£m £m
Revenue 686.0 649.3 +4.2%
Underlying operating profit 1.8 29.1 -93.9%
Underlying operating margin 0.3% 4.5% -420bps
Order book 317.6 347.5 -7.3%
In Europe, revenue increased modestly by 4.2% on a constant currency basis,
while underlying operating profit reduced significantly, down 94% on a
constant currency basis, reflecting tough markets and some challenging
projects.
In general, across the division, operations continued to be affected by
ongoing weak demand in the residential and commercial sectors which has
resulted in lower volumes in these sectors. However, revenue from larger
projects in the infrastructure sector has more than offset these shortfalls.
Underlying operating margin reduced to 0.3% (2022: 4.5%) as a result of the
ongoing competitive market environment and reduced margin performance on some
particularly challenging contracts. The accident frequency rate reduced from
0.26 to 0.20.
Our North-East Europe business, which comprises Poland and the Baltic
countries, was affected by both economic and political uncertainty impacting
investor confidence and project spend in the run up to the Polish election. As
a consequence revenue was significantly behind a strong prior year comparable.
Profit was down on the prior year on the lower volume and the tightening of
margins in the challenging market. Towards the end of the year volumes
increased, in part driven by work relating to CPK in Poland, a large
government funded project that will include the construction of a new
highspeed rail and road network across Poland, and may also include a new
airport.
South-East Europe and Nordics delivered further revenue growth in 2023. The
largest gains were reported in Norway, Sweden and Switzerland largely from
rail and road infrastructure projects, and in Hungary, where a number of
industrial sector projects were successfully completed. In the Nordic
countries, work has progressed on the two substantial multi-year
infrastructure contracts, though both projects encountered challenges which
created a drag on margins. Performance in the Nordics region generally was
significantly below expectations, impacted by contract performance and cost
management issues, and as a result we have made changes to the management team
and restructured the cost base.
Our UK business continued to make good progress in the year on the High Speed
2 rail contract with lower levels of project revenue against the prior period
reflecting the phasing of work. Increased volumes were achieved in the core UK
foundations business, which benefitted from the completion of a large
industrial project in the North East of England, albeit business unit margins
were affected by the mix of work performed.
In Central Europe, revenue increased in the period, helped by work delivered
on a large rail project in Germany that commenced in the fourth quarter.
Margins were adversely affected by market pressure in the residential and
commercial sector and the associated weighting towards infrastructure work.
South West Europe delivered growth in both revenue and operating profit. The
Iberian markets were affected by lower levels of revenue, with the uncertainty
of Spanish elections in the year affecting local decision making on project
investments. France performed well and the strategic cross selling of products
across the South Western Europe markets continues to be a key driver of
growth.
As part of our continuing strategic review of our asset portfolio, we took the
decision to exit the Kazakhstan market.
Despite various actions taken in response to the prevailing macro-economic
conditions, financial performance for the division, as a whole, during 2023
was disappointing. Specifically, we have taken action in the Nordics
businesses to address contract performance and cost issues. The continuing
focus on the infrastructure sector provides ongoing project opportunities
until we see a recovery in the residential and commercial sectors. In 2024 we
expect market conditions to remain challenging, however we anticipate an
improvement in operating margin.
The Europe order book at the end of the period was £317.6m, -7.3% lower than
the prior year on a constant currency basis, as a result of the completion of
work on some large multi-year infrastructure projects.
Asia-Pacific, Middle East and Africa (AMEA)
2023 2022 Constant
currency
£m £m
Revenue 510.0 399.2 +34.1%
Underlying operating profit 22.6 6.6 +253.2%
Underlying operating margin 4.4% 1.7% +270bps
Order book 266.9 298.4 -5.1%
In AMEA, revenues increased by 34.1% on a constant currency basis, driven by
record volumes in Keller Australia, delivery of the first works order at NEOM
and robust trading in India. Underlying operating profit increased
significantly to £22.6m driven by higher volumes as well as improved
operational execution in Keller Australia, the NEOM project and the return to
profit in the second half at Austral. The accident frequency rate increased
slightly to 0.04.
Keller Australia delivered a record performance with high levels of volume
driven by federal and state government spending, particularly in the
infrastructure sector, combined with improved operational execution. It is
expected the federal and state government spending will begin to ease through
2024.
Austral, as anticipated, returned to a sustainable profit in the second half,
this was insufficient to offset the significant loss on legacy contracts
experienced in the first half of the year. The new management team has done an
excellent job in turning the business around and resetting the business for
future growth. The leadership team has been restructured and strengthened. New
processes were introduced, increasing, the level of scrutiny of project
reviews, improving the reliability of forecasts and driving improved
profitability. In 2024, a full year of profit is expected.
In ASEAN, the market recovery has been slower than expected, with continued
market softness and low levels of activity, particularly in Malaysia and
Indonesia. Volumes were broadly in line with prior year with lower levels of
profitability due to high levels of competition and project mix. It is
expected that trading will improve in 2024 as previously delayed projects come
on stream.
Keller India performed well, delivering revenue and profit growth in the
period. New contract wins in the industrial, manufacturing and commercial
sectors supported the business's continued leading position in the
petrochemical sector.
After a soft first half, our MEA business performed ahead of expectations with
a strong end to the period particularly in UAE and Saudi Arabia. At NEOM,
following the signing of the overall Framework Agreement in 2022, we completed
the first Works Order in relation to The Line, in the first quarter of 2023,
worth c. £40m. While we await further work orders in relation to The Line we
have redeployed resources elsewhere. At Trojena, the winter resort development
at NEOM, we have recently been awarded a work package worth c.US$80m and we
have mobilised to site with work expected to be completed by the end of 2024.
We continue to take a measured and disciplined approach to the opportunities
provided by the project.
We continually review our portfolio and have taken the strategic decision to
exit Egypt and our remaining businesses in Sub-Sahara Africa.
The AMEA order book at the end of the period was at £266.9m, down 5.1% (on a
constant currency basis) on the prior year. The decrease is predominantly
driven by the depletion in the order book at Keller Australia as major
projects progressed.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's 2023 results.
2023 2022
£m £m
Revenue 2,966.0 2,944.6
Underlying operating profit(1) 180.9 108.6
Underlying operating profit %(1) 6.1% 3.7%
Non-underlying items in operating profit (27.8) (40.8)
Statutory operating profit 153.1 67.8
Statutory operating profit % 5.2% 2.3%
(1 ) Details of non-underlying items are set out in note 9 to the
consolidated financial statements. Reconciliations to statutory numbers are
set out in the adjusted performance measures section.
Revenue and underlying operating profit split by geography
Revenue Underlying operating profit(1) Underlying operating profit margin(1)
£m £m %
Year ended 2023 2022 2023 2022 2023 2022
Division
North America 1,770.0 1,896.1 169.6 82.0 9.6% 4.3%
Europe 686.0 649.3 1.8 29.1 0.3% 4.5%
AMEA 510.0 399.2 22.6 6.6 4.4% 1.7%
Central - - (13.1) (9.1) - -
Group 2,966.0 2,944.6 180.9 108.6 6.1% 3.7%
(2 ) Details of non-underlying items are set out in note 9 to the
consolidated financial statements. Reconciliations to statutory numbers are
set out in the adjusted performance measures section.
Revenue
Revenue of £2,966.0m (2022: £2,944.6m) was up 1% at actual foreign exchange
rates and at constant currency, driven by increased trading volumes in AMEA
and to a lesser extent Europe, offset by a reduction in North America. In
North America, revenue reduced by 6.4% on a constant currency basis driven by
the completion of the large LNG project at RECON at the start of the period.
In AMEA, revenues increased by 34.1% on a constant currency basis, driven by
record volumes in Keller Australia, delivery of the first works order at NEOM
and robust trading in Keller India. In Europe, revenue increased modestly by
4.2%, on a constant currency basis, reflecting widespread weak demand in the
residential and commercial sectors offset by revenue from larger projects in
the infrastructure sector.
We have a diversified spread of revenues across geographies, product lines,
market segments and end customers. Customers are generally market specific
and, consistent with the prior year, the largest customer represented less
than 4% of the Group's revenue. The top 10 customers represent 15% of the
Group's revenue (2022: 17%). The Group worked on c.5,500 projects in the year
with 51% (2022: 54%) of contracts having a value between £25,000 and
£250,000, demonstrating a low customer concentration and a wide project
portfolio.
Underlying operating profit
The underlying operating profit of £180.9m was 67% up on prior year (2022:
£108.6m) on an actual and constant currency basis. In North America,
underlying operating profit more than doubled to £169.6m (2022: £82.0m), due
to a sustainable improvement in the operational performance in the foundations
business, better than expected pricing resilience at Suncoast and the
contribution from three large projects in the foundations business. In Europe,
underlying operating profit reduced significantly to £1.8m (2022: £29.1m) as
a result of reduced margin performance on some particularly challenging
contracts in the Nordics region and the increasingly competitive environment
across Europe in a declining market. In AMEA, underlying operating profit
increased significantly to £22.6m (2022: £6.6m), driven by higher volumes as
well as improved operational execution and profitability in Keller Australia,
uplift in the Middle East (including NEOM) and the return to profit in the
second half at Austral.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of £0.8m in the year
(2022: £1.5m) from its share of the post-tax results from joint ventures. The
share of the post-tax amortisation charge of £0.6m (2022: £1.2m) arising
from the acquisition of NordPile by our joint venture KFS Oy in 2021 is
included as a non-underlying item. No dividends (2022: nil) were received from
joint ventures in the year.
Statutory operating profit
Statutory operating profit comprising underlying operating profit of £180.9m
(2022: £108.6m) and non-underlying items comprising net costs of £27.8m
(2022: £40.8m), increased by 126% to £153.1m (2022: £67.8m). The increase
in statutory operating profit is a reflection of the increase in underlying
operating profit in 2023, combined with a decrease in non-underlying operating
costs. The non-underlying costs are set out in further detail below.
Net finance costs
Net underlying finance costs increased by 82% to £27.5m (2022: £15.1m). The
increase was driven predominantly by the increase in underlying interest
rates, despite a decrease in the average net debt levels through the year. In
August, the Group received the proceeds from a new $300m private placement of
loan notes, which were used to repay existing borrowings. The Group's
borrowings are now largely at fixed interest rates. The average net
borrowings, excluding IFRS 16 lease liabilities, during the year were £224.8m
(2022: £252.1m).
Taxation
The Group's underlying effective tax rate increased to 25% (2022: 22%),
largely due to the change in the profit mix of where the Group is subject to
tax. Cash tax paid in the year increased from £5.9m to £72.7m. The
significant increase in tax paid is driven by the increased profitability in
the US, resulting in tax paid of c£46m (2022: £1m). In addition, Keller
delayed the payment of its FY22 tax bill (c£24m) to 2023 as it was expecting
a law change to materialise before the payment became due. As the law did not
change, the tax payable for FY22 was settled in 2023. Further details on tax
are set out in note 12 of the consolidated financial statements.
Non-underlying items
The items below have been excluded from the underlying results and further
details of non-underlying items are included in note 9 to the financial
statements. The total non-underlying items in operating profit in the year
decreased to £27.8m (2022: £40.8m), due to the reduction in amortisation of
acquired intangible assets and the non-repeat of historic contract costs in
the year.
2023 2022
£m £m
ERP implementation costs 7.5 6.3
Goodwill impairment 12.1 12.5
Exceptional restructuring costs 2.8 5.3
Impairment of trade receivables related to restructuring 0.4 0.3
Loss on disposal of operations 0.1 -
Exceptional historic contract dispute - 3.5
Claims related to closed business - 2.5
Contingent consideration: additional amounts provided - 0.1
Change in fair value of contingent consideration - (0.7)
Acquisition costs - 0.2
Amortisation of acquired intangible assets 5.1 10.3
Amortisation of joint venture acquired intangibles 0.6 1.2
Gain on sale of assets held for sale (0.8) -
Contingent consideration received - (0.7)
Total non-underlying items in operating profit 27.8 40.8
Non-underlying items in finance income - (3.6)
Total non-underlying items before taxation 27.8 37.2
Non-underlying taxation (3.0) (9.0)
Total non-underlying items 24.8 28.2
Non-underlying items in operating profit
The Group is continuing the strategic project to implement a new cloud
computing enterprise resource planning (ERP) system across the Group. As this
is a complex implementation, project costs are expected to be incurred over a
total period of five years. Non-underlying ERP costs of £7.5m (2022: £6.3m)
include only costs relating directly to the implementation, including external
consultancy costs and the cost of the dedicated implementation team.
Non-underlying costs does not include operational post-deployment costs such
as licence costs for businesses that have transitioned.
The goodwill impairment of £12.1m (2022: £12.5m) relates to the UK business
where a downward revision to the medium-term forecast has resulted in the full
impairment of the goodwill as the forward projections did not fully support
the carrying value of the goodwill. Goodwill impairment in the prior year of
£12.5m related to Austral and the Swedish business.
Exceptional restructuring costs of £2.8m (2022: £5.3m) in the year,
comprises £0.5m (2022: £1.9m) in the Europe Division and £2.3m (2022:
credit of £0.6m) in AMEA. In Europe, the costs related to the scheduled exit
of the Kazakhstan business, and in AMEA, costs arose from the mothballing of
the Egypt business. In 2022, we also incurred restructuring costs in North
America (£3.4m) and in the centre (£0.6m). In addition, the exit from
Kazakhstan resulted in a £0.4m impairment of trade receivables, in 2022 we
incurred a £0.3m impairment in respect of trade receivables in Ukraine.
A loss on disposal of £0.1m was realised on the disposal of the Cyntech Tanks
business in Canada in October 2023.
The £0.8m gain on disposal of assets held for sale relates primarily to the
sale of assets owned by the now closed Waterway business in Australia.
Impairment charges for these assets had previously been charged to
non-underlying items in prior periods and therefore the corresponding profit
on disposal of the assets is also recognised as a non-underlying item.
The classification of costs as non-underlying is a management judgement and is
reviewed on a regular basis.
Amortisation of acquired intangibles
The £5.1m (2022: £10.3m) charge for amortisation of acquired intangible
assets relates to the RECON, Nordwest Fundamentering, GKM Consultants and
Moretrench acquisitions. In addition we have incurred £0.6m (2022: £1.2m) of
amortisation of joint venture intangibles which relates to NordPile, an
acquisition by the Group's joint venture interest KFS Finland Oy.
Non-underlying taxation
A non-underlying tax credit of £3.0m (2022: £9.0m) relates entirely to the
tax impact of the non-underlying loss for the year. In 2022, £4.7m of the
credit related to the tax impact of the non-underlying loss and the £4.3m
remainder of the credit arose from the reversal of the valuation allowance
against deferred tax assets in Canada that was recognised through the
non-underlying tax charge in prior years.
Earnings per share
Underlying diluted earnings per share increased by 53% to 153.9p (2022:
100.7p) driven by higher operating profit partially offset by the increase in
finance costs and a higher effective tax rate in the year. Statutory diluted
earnings per share was 120.5p (2022: 62.4p) which includes the impact of the
non-underlying items.
Dividend
The Board has recommended a final dividend of 31.3p per share (2022: 24.5p per
share) which, following the interim dividend for 2023 of 13.9p (2022: 13.2p),
brings the total dividend for the year to 45.2p (2022: 37.7p), an increase of
20%. The 2023 dividend earnings cover, before non-underlying items, was 3.4x
(2022: 2.7x). If approved, the proposed 2023 final dividend of 31.3p (2022:
24.5p) will be paid on 28 June 2024 to shareholders on the register as at the
close of business on 31 May 2024.
Keller Group plc has distributable reserves of £190.8m at 31 December 2023
(2022: £122.1m) that are available to support the dividend policy, which
comfortably covers the proposed final dividend for 2023 of £22.7m. Keller
Group plc is a non-trading investment company that derives its profits from
dividends paid by subsidiary companies. 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 and future cash commitments and investment plans.
Free cash flow
The Group's free cash flow was an inflow of £103.2m (2022: outflow of
£33.8m) of the improvement was driven by the reversal of the increased
working capital demands in the prior year. Free cash flow has also been
impacted by the timing of US tax payments. The basis of deriving free cash
flow is set out below.
Free cash flow
2023 2022
£m £m
Underlying operating profit 180.9 108.6
Depreciation, amortisation and impairment 112.2 97.0
Underlying EBITDA 293.1 205.6
Non-cash items (4.0) (1.1)
Decrease/(increase) in working capital 2.7 (110.5)
Increase/(decrease) in provisions and retirement benefit liabilities 12.1 (13.4)
Net capital expenditure (73.6) (73.5)
Additions to right-of-use assets (33.9) (24.8)
Free cash flow before interest and tax 196.4 (17.7)
Free cash flow before interest and tax to underlying operating profit 109% (16%)
Net interest paid (20.5) (10.2)
Cash tax paid (72.7) (5.9)
Free cash flow 103.2 (33.8)
Dividends paid to shareholders (27.7) (26.4)
Purchase of own shares (3.4) (1.2)
Acquisitions (0.2) (22.4)
Business disposals 1.3 0.7
Transactions with non-controlling interests (6.4) -
Non-underlying items (12.4) (6.2)
Cash flows from derivative instruments 2.0 -
Fair value movements in net debt - 2.6
Right-of-use assets/lease liability modifications (8.7) (1.6)
Foreign exchange movements 13.9 (17.3)
Movement in net debt 61.6 (105.6)
Opening statutory net debt (298.9) (193.3)
Closing statutory net debt (237.3) (298.9)
Working capital
Net working capital decreased by £2.7m (2022: increase of £110.5m)
reflecting a significant reduction in inventory levels at Suncoast partially
offset by a decrease in trade and other payables. The net movement comprises
£26.8m decrease in inventories and a £1.5m decrease in trade and other
receivables, offset by a decrease in trade and other payables of £25.6m.
An increase in provisions and retirement benefit liabilities improved the
working capital by £12.1m (2022: decrease of £13.4m). This reflects an
increase in provisions, as the amounts provided for contract and legal
disputes exceeded the amounts settled, with fewer large legal or contract
disputes settled in the year. This excludes the cash outflow on restructuring
provisions and other items included in non-underlying costs which are
presented within non-underlying items in the free cash flow calculation.
Capital expenditure
The Group manages capital expenditure tightly whilst investing in the upgrade
and replacement of equipment where appropriate. Net capital expenditure,
excluding leased assets, of £73.6m (2022: £73.5m) was net of proceeds from
the sale of equipment of £20.9m (2022: £8.2m). 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 115% (2022: 115%).
Acquisitions and transactions with non-controlling interests
The Group purchased a 35% interest in the shares of our Saudi Arabian
subsidiary, Keller Turki Company Limited, increasing our ownership interest to
100%. An initial cash consideration of £6.4m was paid to the non-controlling
shareholders and a contingent consideration has been agreed which is valued at
£9.3m at the balance sheet date.
The accounting for the acquisition, of Nordwest Fundamentering in 2022 was
finalised in the year, giving rise to prior period measurement adjustments
which are set out in note 5 to the consolidated financial statements. In 2022,
outflows for acquisitions, net of cash and debt acquired, included £3.2m for
GKM Consultants Inc and £6.8m for Nordwest Fundamentering. Deferred and
contingent consideration in respect of prior period acquisitions of £0.2m
(2022: £12.4m) was paid in the year.
Financing facilities and net debt
The Group's total net debt of £237.3m (2022: £298.9m) comprises loans and
borrowings of £297.1m (2022: £319.0m), lease liabilities of £91.6m (2022:
£81.0m) net of cash and cash equivalents of £151.4m (2022: £101.1m). The
Group's term debt and committed facilities principally comprises US private
placement notes repayable in December 2024 ($75m), in August 2030 ($120m) and
in August 2033 ($180m) and a £375m multi-currency syndicated revolving credit
facility, which matures in November 2025. At the year end, the Group had
undrawn committed and uncommitted borrowing facilities totalling £425.2m
(2022: £273.7m).
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 0.6x (2022: 1.2x), well within
the covenant limit of 3.0x and within the Group's 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 0.8x at 31 December (2022: 1.5x). Underlying
EBITDA, excluding the impact of IFRS 16, to net finance charges was 12.3x
(2022: 15.7x), well above the limit of 4.0x.
On an IFRS 16 basis, year-end gearing, defined as statutory net debt divided
by net assets, was 46% (2022: 60%).
The average month-end net debt during 2023, excluding IFRS 16 lease
liabilities, was £224.8m (2022: £252.1m). The Group had no material
discounting or factoring in place during the year. 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, although we have negotiated
advance payments on larger projects such as NEOM.
At 31 December 2023 the Group had drawn upon uncommitted overdraft facilities
of £2.4m (2022: £6.9m) and had drawn £199.7m of bank guarantee facilities
(2022: £190.6m).
Provision for pension
The Group has defined benefit pension arrangements in the UK, Germany and
Austria.
The Group's UK defined benefit scheme is closed to future benefit accrual. The
most recent actuarial valuation of the UK scheme was as at 5 April 2023, which
recorded the market value of the scheme's assets at £45.2m and the scheme
being 98% funded on an ongoing basis. Given the funding level, contributions
will cease from August 2024, with a total of £1.7m to be paid in 2024.
Contributions will be reviewed following the next triennial actuarial
valuation to be prepared as at 5 April 2026. The 2023 year-end IAS 19
valuation of the UK scheme showed assets of £46.0m, liabilities of £41.8m
and a pre-tax surplus of £4.2m before an IFRIC 14 adjustment to reflect the
minimum funding requirement for the scheme, which adjusts the closing position
to a deficit of £1.5m.
In Germany and Austria, the defined benefit arrangements only apply to certain
employees who joined the Group before 1997. The IAS 19 valuation of the
defined benefit obligation totalled £12.6m at 31 December (2022: £13.2m).
There are no segregated funds to cover these defined benefit obligations and
the respective liabilities are included on the Group balance sheet.
All other pension arrangements in the Group are of a defined contribution
nature.
The Group has a number of end of service schemes in the Middle East as
required by local laws and regulations. The amount of benefit payable depends
on the current salary of the employee and the number of years of service.
These retirement obligations are funded on the Group's balance sheet and
obligations are met as and when required by the Group. The IAS 19 valuation
of the defined benefit obligation totalled £3.6m at 31 December 2023 (2022:
£3.5m).
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 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 year:
2023 2022
Closing Average Closing Average
USD 1.27 1.24 1.21 1.24
CAD 1.69 1.68 1.63 1.61
EUR 1.15 1.15 1.12 1.17
AUD 1.87 1.87 1.76 1.78
Treasury policies
Currency risk
The Group faces currency risk principally on its net assets, most of which are
in currencies other than sterling. The Group aims to reduce the impact that
retranslation of these net assets might have on the consolidated balance
sheet, by matching the currency of its borrowings, where possible, with the
currency of its assets. The majority of the Group's borrowings are held in US
dollar.
The Group manages its currency flows to minimise transaction exchange risk.
Forward contracts and other derivative financial instruments are used to hedge
significant individual transactions. The majority of such currency flows
within the Group relate to repatriation of profits, intra-Group loan
repayments and any foreign currency cash flows associated with acquisitions.
The Group's treasury risk management is performed at the Group's head office.
The Group does not trade in financial instruments, nor does it engage in
speculative derivative transactions.
Interest rate risk
Interest rate risk is managed by mixing fixed and floating rate borrowings
depending upon the purpose and term of the financing. At 31 December 2023 the
majority of borrowings were fixed rate.
Credit risk
The Group's principal financial assets are trade and other receivables, bank
and cash balances and a limited number of investments and derivatives held to
hedge certain Group liabilities. These represent the Group's maximum exposure
to credit risk in relation to financial assets.
The Group recognises impairment losses on trade receivables where there is
uncertainty over the amount we can recover from customers. The amount
recognised in underlying costs of £21.3m (2022: £2.9m) has increased as a
result of specific impairments relating to customers in financial difficulty
or amounts where cash receipts have been delayed due to customer disputes.
The Group has procedures to manage counterparty risk and the assessment of
customer credit risk is embedded in the contract tendering processes. The
counterparty risk on bank and cash balances is managed by limiting the
aggregate amount of exposure to any one institution by reference to its credit
rating and by regular review of these ratings.
Return on capital employed
Return on capital employed is defined at Group level as underlying operating
profit divided by the accounting value of equity attributable to equity
holders of the parent plus net debt plus retirement benefit liabilities.
Return on capital employed in 2023 was 22.8% (2022: 14.9%).
Consolidated income statement
For the year ended 31 December 2023
2023 2022(1)
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
items items
(note 9) (note 9)
Note £m £m £m £m £m £m
Revenue 3,4 2,966.0 - 2,966.0 2,944.6 - 2,944.6
Operating costs 6 (2,764.6) (22.5) (2,787.1) (2,834.6) (29.7) (2,864.3)
Net impairment loss on trade receivables and contract assets 7 (21.3) (0.4) (21.7) (2.9) (0.3) (3.2)
Amortisation of acquired intangible assets - (5.1) (5.1) - (10.3) (10.3)
Other operating income - 0.8 0.8 - 0.7 0.7
Share of post-tax results of joint ventures 17 0.8 (0.6) 0.2 1.5 (1.2) 0.3
Operating profit/(loss) 3 180.9 (27.8) 153.1 108.6 (40.8) 67.8
Finance income 10 1.8 - 1.8 0.5 3.6 4.1
Finance costs 11 (29.3) - (29.3) (15.6) - (15.6)
Profit/(loss) before taxation 153.4 (27.8) 125.6 93.5 (37.2) 56.3
Taxation 12 (38.8) 3.0 (35.8) (20.3) 9.0 (11.3)
Profit/(loss) for the year 114.6 (24.8) 89.8 73.2 (28.2) 45.0
Attributable to:
Equity holders of the parent 114.2 (24.8) 89.4 74.2 (28.2) 46.0
Non-controlling interests 34 0.4 - 0.4 (1.0) - (1.0)
114.6 (24.8) 89.8 73.2 (28.2) 45.0
Earnings per share
Basic 14 156.9p 122.8p 102.1p 63.3p
Diluted 14 153.9p 120.5p 100.7p 62.4p
(1) The prior period columns have been reclassified to show net impairment
loss on trade receivables and contract assets separate from operating costs,
where they were reported in previous periods. The inclusion of this
information is considered useful for the users of the Annual Report and
Accounts based on the material movements in the current period. Further
details of the reclassified amounts are outlined in note 7 to the consolidated
financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2023
2023 2022
Note £m £m
Profit for the year 89.8 45.0
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations (28.3) 46.3
Cash flow hedge gain taken to equity 1.9 -
Cash flow hedge transfers to income statement (0.2) -
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 33 (0.2) 2.8
Tax on remeasurements of defined benefit pension schemes 12 (0.1) (0.6)
Other comprehensive (loss)/income for the year, net of tax (26.9) 48.5
Total comprehensive income for the year 62.9 93.5
Attributable to:
Equity holders of the parent 62.7 94.0
Non-controlling interests 0.2 (0.5)
62.9 93.5
Consolidated balance sheet
As at 31 December 2023
2023 2022
(Restated)(1)
Note £m £m
Assets
Non-current assets
Goodwill and intangible assets 15 114.6 137.9
Property, plant and equipment 16 480.2 486.5
Investments in joint ventures 17 4.5 4.4
Deferred tax assets 12 36.8 15.1
Other assets 18 66.8 60.8
702.9 704.7
Current assets
Inventories 19 93.3 124.4
Trade and other receivables 20 721.8 764.6
Current tax assets 6.3 5.0
Cash and cash equivalents 21 151.4 101.1
Assets held for sale 22 1.6 2.8
974.4 997.9
Total assets 3 1,677.3 1,702.6
Liabilities
Current liabilities
Loans and borrowings 26 (86.8) (34.2)
Current tax liabilities (35.5) (53.2)
Trade and other payables 23 (553.6) (585.6)
Provisions 24 (59.1) (52.7)
(735.0) (725.7)
Non-current liabilities
Loans and borrowings 26 (301.9) (365.8)
Retirement benefit liabilities 33 (17.7) (20.8)
Deferred tax liabilities 12 (7.8) (5.3)
Provisions 24 (73.7) (66.9)
Other liabilities 25 (23.2) (21.3)
(424.3) (480.1)
Total liabilities 3 (1,159.3) (1,205.8)
Net assets 3 518.0 496.8
Equity
Share capital 28 7.3 7.3
Share premium account 38.1 38.1
Capital redemption reserve 28 7.6 7.6
Translation reserve 29.8 57.9
Other reserve 28 56.9 56.9
Hedging reserve 1.7 -
Retained earnings 373.9 326.7
Equity attributable to equity holders of the parent 515.3 494.5
Non-controlling interests 34 2.7 2.3
Total equity 518.0 496.8
(1) The 31 December 2022 consolidated balance sheet has been
restated in respect of prior period business combination measurement
adjustments, as outlined in note 5 to the consolidated financial statements.
These consolidated financial statements were approved by the Board of
Directors and authorised for issue on 4 March 2024.
They were signed on its behalf by:
Michael Speakman David Burke
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2023
Capital Attributable Non-
Share Share redemption Other Hedging to equity controlling
capital premium reserve Translation reserve reserve Retained holders of interests Total
(note 28) account (note 28) reserve (note 28) (note 26) earnings the parent (note 34) equity
£m £m £m £m £m £m £m £m £m £m
At 31 December 2021 7.3 38.1 7.6 12.1 56.9 - 303.2 425.2 2.8 428.0
Profit/(loss) for the year - - - - - - 46.0 46.0 (1.0) 45.0
Other comprehensive income
Exchange movements on translation of foreign operations - - - 45.8 - - - 45.8 0.5 46.3
Remeasurements of defined benefit pension schemes - - - - - - 2.8 2.8 - 2.8
Tax on remeasurements of defined benefit pension schemes - - - - - - (0.6) (0.6) - (0.6)
Other comprehensive income for the year, net of tax - - - 45.8 - - 2.2 48.0 0.5 48.5
Total comprehensive income/(loss) for the year - - - 45.8 - - 48.2 94.0 (0.5) 93.5
Dividends - - - - - - (26.4) (26.4) - (26.4)
Purchase of own shares for ESOP trust - - - - - - (1.2) (1.2) - (1.2)
Share-based payments - - - - - - 2.9 2.9 - 2.9
At 31 December 2022 7.3 38.1 7.6 57.9 56.9 - 326.7 494.5 2.3 496.8
Profit for the year - - - - - - 89.4 89.4 0.4 89.8
Other comprehensive income
Exchange movements on translation of foreign operations - - - (28.1) - - - (28.1) (0.2) (28.3)
Cash flow hedge gain taken to equity - - - - - 1.9 - 1.9 - 1.9
Cash flow hedge transfers to income statement - - - - - (0.2) - (0.2) - (0.2)
Remeasurements of defined benefit pension schemes - - - - - - (0.2) (0.2) - (0.2)
Tax on remeasurements of defined benefit pension schemes - - - - - - (0.1) (0.1) - (0.1)
Other comprehensive loss for the year, net of tax - - - (28.1) - 1.7 (0.3) (26.7) (0.2) (26.9)
Total comprehensive (loss)/ income for the year - - - (28.1) - 1.7 89.1 62.7 0.2 62.9
Dividends - - - - - - (27.7) (27.7) - (27.7)
Transactions with non-controlling interests - - - - - - (15.2) (15.2) 0.2 (15.0)
Purchase of own shares for ESOP trust - - - - - - (3.4) (3.4) - (3.4)
Share-based payments - - - - - - 4.4 4.4 - 4.4
At 31 December 2023 7.3 38.1 7.6 29.8 56.9 1.7 373.9 515.3 2.7 518.0
Consolidated cash flow statement
For the year ended 31 December 2023
2023 2022
Note £m £m
Cash flows from operating activities
Profit before taxation 125.6 56.3
Non-underlying items 9 27.8 40.8
Finance income 10 (1.8) (4.1)
Finance costs 11 29.3 15.6
Underlying operating profit 3 180.9 108.6
Depreciation/impairment of property, plant and equipment 16 111.8 96.6
Amortisation of intangible assets 15 0.4 0.4
Share of underlying post-tax results of joint ventures 17 (0.8) (1.5)
Profit on sale of property, plant and equipment (4.4) (3.3)
Other non-cash movements (including charge for share-based payments) 3.3 3.7
Foreign exchange gains (2.1) -
Operating cash flows before movements in working capital and other underlying 289.1 204.5
items
Decrease/(increase) in inventories 26.8 (44.2)
Decrease/(increase) in trade and other receivables 1.5 (110.0)
(Decrease)/increase in trade and other payables (25.6) 43.7
Increase/(decrease) in provisions, retirement benefit and other non-current 12.1 (13.4)
liabilities
Cash generated from operations before non-underlying items 303.9 80.6
Cash outflows from non-underlying items: ERP costs (7.5) (5.4)
Cash outflows from non-underlying items: contract disputes (3.7) -
Cash outflows from non-underlying items: restructuring costs (1.2) (0.6)
Cash outflows from non-underlying items: acquisition costs - (0.2)
Cash generated from operations 291.5 74.4
Interest paid (16.2) (10.1)
Interest element of lease rental payments (5.6) (3.6)
Income tax paid (72.7) (5.9)
Net cash inflow from operating activities 197.0 54.8
Cash flows from investing activities
Interest received 1.8 4.0
Proceeds from sale of property, plant and equipment 20.9 8.2
Proceeds on disposal of businesses 5 1.3 0.7
Acquisition of businesses, net of cash acquired 5 (0.2) (20.2)
Acquisition of property, plant and equipment 16 (94.3) (81.6)
Acquisition of other intangible assets 15 (0.2) (0.1)
Net cash outflow from investing activities (70.7) (89.0)
Cash flows from financing activities
Increase in borrowings 241.2 99.3
Cash flows from derivative instruments 2.0 0.2
Repayment of borrowings (245.1) (1.4)
Payment of lease liabilities (28.3) (29.5)
Transactions with non-controlling interest (6.4) -
Purchase of own shares for ESOP trust (3.4) (1.2)
Dividends paid 13 (27.7) (26.4)
Net cash (outflow)/inflow from financing activities (67.7) 41.0
Net increase in cash and cash equivalents 58.6 6.8
Cash and cash equivalents at beginning of year 94.2 81.8
Effect of exchange rate movements (3.8) 5.6
Cash and cash equivalents at end of year 21 149.0 94.2
Notes to the consolidated financial statements
1 Corporate information
The consolidated financial statements of Keller Group plc and its subsidiaries
(collectively, the 'Group') for the year ended 31 December 2023 were
authorised for issue in accordance with the resolution of the Directors on 4
March 2024.
Keller Group plc (the 'company') is a public 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 services.
2 Material accounting policy information
Basis of preparation
In accordance with the Companies Act 2006, these consolidated financial
statements have been prepared and approved by the Directors in accordance with
UK adopted international accounting standards. The company prepares its parent
company financial statements in accordance with FRS 101.
The financial information for the year ended 31 December 2022 does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The independent auditors' report on the full financial
statements for the year ended 31 December 2022 was unqualified and did not
contain an emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006. This announcement does not constitute the Group's full
financial statements for the year ended 31 December 2023.
The consolidated financial statements have been prepared on an historical cost
basis, except for derivative financial instruments that have been measured at
fair value. The carrying values of recognised assets and liabilities that are
designated as hedged items in fair value hedges that would otherwise be
carried at amortised cost are adjusted to recognise changes in the fair values
attributable to the risks that are being hedged in effective hedge
relationships. The consolidated financial statements are presented in pounds
sterling and all values are rounded to the nearest hundred thousand, expressed
in millions to one decimal point, except when otherwise indicated.
Prior period business combination measurement adjustment
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 2022, the Group acquired Nordwest Fundamentering
AS. Adjustments to the provisional fair values were made during the
measurement period, as set out in note 5. The impact of the measurement period
adjustments has been applied retrospectively, meaning that the results and
financial position for the year to 31 December 2022 have been restated.
Going concern
In August 2023, the Group received proceeds from a new $300m private placement
of loan notes. These were used to repay existing borrowings. At 31 December
2023, the Group had undrawn committed and uncommitted borrowing facilities
totalling £425.2m, comprising £375m of the unutilised portion of the
revolving credit facility, £2.8m of other undrawn committed borrowing
facilities and undrawn uncommitted borrowing facilities of £47.4m, as well as
cash and cash equivalents of £149.0m. At 31 December 2023, the Group's net
debt to underlying EBITDA ratio (calculated on an IAS 17 covenant basis) was
0.6x, well within the limit of 3.0x.
The Group has prepared a forecast of financial projections for the three-year
period to 31 December 2026. The forecast underpins the going concern
assessment which has been made for the period through to 31 March 2025, a
period of at least 12 months from when the financial statements are authorised
for issue and aligning with the period in which the Group's banking covenants
are tested. The base case reflects the assumptions made by the Group with
respect to key project wins, organic growth and a focus on cost reduction. The
forecast shows significant headroom and supports the position that the Group
can operate within its available banking facilities and covenants throughout
this period.
The Group's revolving credit facility falls due in November 2025, eight months
after the going concern period assessed by management. Management assumed the
Group will continue to have access to this funding throughout the going
concern period and the three year viability period, on the basis that the
Group will either renew the facility or have sufficient time to agree an
alternative source of finance on comparable terms.
For the going concern assessment, management ran a series of downside
scenarios over the base case forecast to assess covenant headroom against
available funding facilities. 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 within this Annual Report and Accounts.
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;
· Failure to procure new contracts whilst maintaining appropriate
margins reducing profits by 0.5% of revenue;
· 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 £20.1m over the period to 31
March 2025. These risks include changing environmental factors, costs of
ethical misconduct and regulatory non-compliance, occurrence of an accident
causing serious injury to an employee or member of the public and the cost of
a product or solution failure; and
· 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.
Even in the most extreme downside scenario incorporating an aggregation of all
risks considered, which showed a decrease in operating profit of 26.4% and an
increase in net debt of 26.7% against the Group's latest forecast profit and
cash flow projections for the review period up to 31 March 2025, 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 March
2025, a period of at least 12 months from when the financial statements are
authorised for issue. Accordingly, the consolidated financial statements are
prepared on a going concern basis.
Climate change
In preparing the consolidated financial statements, management has considered
the impact of climate change, particularly in the context of the risks
identified in our Task Force on Climate-related Disclosures (TCFD) disclosure.
The output from the scenario analysis has been considered, particularly the
financial reporting judgements and estimates in respect of the following
areas:
• Estimates of future cash flows used in impairment assessments of
the carrying value of goodwill;
• The useful economic life of plant, equipment and other intangible
assets; and
• Going concern and viability of the Group over the next three
years.
Although the scenario analysis identified a risk of stranded assets as a
result of increased emission standards, this was in one extreme downside
scenario and we have not adjusted the useful economic life of any plant or
equipment as a result. Whilst there is currently no change, management are
aware of the variable risks arising from climate change and will regularly
assess these risks against judgement and estimates made in preparation of the
Group's financial statements.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The following applicable amendments became effective during the year to 31
December 2023:
· Amendments to IAS 8 'Definition of Accounting Estimates'
· Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure of
Accounting Policies'.
· Amendments to IAS 12 'Deferred Tax related to Assets and
Liabilities arising from a Single Transaction'
· Amendments to IAS 12 'International Tax Reform-Pillar Two Model
Rules'.
The Group has not early adopted any standard, interpretation or amendment that
has been issued but are not yet effective.
IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts is a new accounting standard for insurance
contracts covering recognition and measurement, presentation and disclosure,
replacing IFRS 4 Insurance Contracts. The Group has identified that the
Standard will impact the results of its captive insurance company as it issues
re-insurance contracts, however since the contracts insure other group
companies and there are therefore no insurance contracts on a consolidated
basis and no transfer of significant insurance risk to the group, there is
therefore no impact on the Group's consolidated financial statements.
Amendments to IAS 8 'Definition of Accounting Estimates'
The amendments to IAS 8 clarify the distinction between changes in accounting
estimates, changes in accounting policies and the correction of errors. They
also clarify how entities use measurement techniques and inputs to develop
accounting estimates. The amendments had no impact on the Group's consolidated
financial statements.
Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure of Accounting
Policies'
The amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality
Judgements provide guidance and examples to help entities apply materiality
judgements to accounting policy disclosures. The amendments have had no
material impact on the Group's consolidated financial statements.
Amendments to IAS 12 'Deferred Tax related to Assets and Liabilities arising
from a Single Transaction'
The amendment to IAS 12 Income Tax narrow the scope of the initial recognition
exception, so that it no longer applies to transactions that give rise to
equal taxable and deductible temporary differences such as leases and
decommissioning liabilities. The amendments had no impact on the Group's
consolidated financial statements.
Amendments to IAS 12 'International Tax Reform-Pillar Two Model Rules'
The amendments to IAS 12 have been introduced in response to the OECD's BEPS
Pillar Two rules and include:
· A mandatory temporary exception to the recognition and disclosure
of deferred taxes arising from the jurisdictional implementation of the Pillar
Two model rules; and
· Disclosure requirements for affected entities to help users of
the financial statements better understand an entity's exposure to Pillar Two
income taxes arising from that legislation, particularly before its effective
date.
The UK Government enacted Finance (No 2) Act 2023 on 11 July 2023, which
includes the Pillar Two legislation introducing a multinational top up tax and
a domestic minimum top up tax in line with the minimum 15% rate in the OECD's
Pillar Two rules. The rules will apply to the Group for the financial year
commencing on 1 January 2024. The Group has applied the exemption in the
amendments to IAS 12 (issued in May 2023) and has neither recognised nor
disclosed information about deferred tax assets and liabilities related to
Pillar Two income taxes.
Basis of consolidation
The consolidated financial statements consolidate the accounts of the parent
and its subsidiary undertakings to 31 December each year. Subsidiaries are
entities controlled by the company. Control exists when the company has power
over an entity, exposure to variable returns from its involvement with the
entity and the ability to use its power over the entity to affect its returns.
Where subsidiary undertakings were acquired or sold during the year, the
accounts include the results for the part of the year for which they were
subsidiary undertakings using the acquisition method of accounting.
Intra-group balances, and any unrealised income and expense arising from
intra‑group transactions, are eliminated in preparing the consolidated
financial statements.
Joint operations
Where the Group undertakes contracts jointly with other parties, these are
accounted for as joint operations as defined by IFRS 11. In accordance with
IFRS 11, the Group accounts for its own share of assets, liabilities, revenues
and expenses measured according to the terms of the joint operations
agreement.
Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the joint
arrangement. The consolidated financial statements incorporate a share of the
results, assets and liabilities of joint ventures using the equity method of
accounting, whereby the investment is carried at cost plus post-acquisition
changes in the share of net assets of the joint venture, less any provision
for impairment. Losses in excess of the consolidated interest in joint
ventures are not recognised except where the Group has a constructive
commitment to make good those losses. The results of joint ventures acquired
or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date
of disposal, as appropriate.
Summary of material accounting policy information
Foreign currencies
The Group's consolidated financial statements are presented in pounds
sterling, which is also the parent company's functional currency. For each
entity, the Group determines the functional currency and items included in the
financial statements of each entity are measured using that functional
currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Group's
entities at their respective functional currency spot rates at the date the
transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are
translated at the functional currency spot rates of exchange at the reporting
date. Differences arising on settlement or translation of monetary items are
recognised in the consolidated income statement. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial transactions.
Group companies
On consolidation, the assets and liabilities of foreign operations are
translated into pounds sterling at the rate of exchange prevailing at the
reporting date and their income statements are translated at exchange rates
prevailing at the dates of the transactions. The exchange movements arising on
translation for consolidation are recognised in other comprehensive income
(OCI). On disposal of a foreign operation, the component of the translation
reserve relating to that particular foreign operation is reclassified to
profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amounts of assets and liabilities arising on
the acquisition are treated as assets and liabilities of the foreign operation
and translated at the average rate.
The exchange rates used in respect of principal currencies are:
Average rates 2023 2022
US dollar 1.24 1.24
Canadian dollar 1.68 1.61
Euro 1.15 1.17
Singapore dollar 1.67 1.70
Australian dollar 1.87 1.78
Year-end rates 2023 2022
US dollar 1.27 1.21
Canadian dollar 1.69 1.63
Euro 1.15 1.12
Singapore dollar 1.68 1.62
Australian dollar 1.87 1.76
Revenue from construction contracts
The Group's operations involve the provision of specialist geotechnical
services. The majority of the Group's revenue is derived from construction
contracts. Typically, the Group's construction contracts consist of one
performance obligation; however, for certain contracts (for example where
contracts involve separate phases or products that are not highly
interrelated) multiple performance obligations exist. Where multiple
performance obligations exist, total revenue is allocated to performance
obligations based on the relative standalone selling prices of each
performance obligation.
For each contract, revenue is the amount that is expected to be received from
the customer. Revenue is typically invoiced in stages during the contracts,
however smaller contracts are usually invoiced on completion. Variable
consideration and contract modifications are assessed on a
contract-by-contract basis, according to the terms, facts and circumstances of
the project. Variable consideration is recognised only to the extent that it
is highly probable that there will not be a significant reversal.
The effects of contract modifications, including claims to customers, are
recognised only when the Group considers there is an enforceable right to
consideration, therefore no revenue is recognised until this point. Operating
expenses in relation to customer modifications are recognised as incurred.
Factors indicating an enforceable right to consideration will vary from
country to country but usually includes written confirmation from the
customer. In certain circumstances, uncertainty over whether a project will be
completed or not will mean that it is not appropriate to recognise contracted
revenues.
Revenue attributed to each performance obligation is recognised based on
either the input or the output method. The output method is the Group's
default revenue recognition approach. The input method is generally used for
longer-term, more complex contracts. These methods best reflect the transfer
of benefits to the customer.
● Output method: revenue is recognised on the direct
measurement of progress based on output, such as units of production relative
to the total number of contracted production units.
● Input method: revenue is recognised on the percentage of
completion with reference to cost. The percentage of completion is calculated
based on the costs incurred to date as a percentage of the total costs
expected to satisfy the performance obligation. Estimates of revenues, costs
or extent of progress towards completion are revised if circumstances change.
Any resulting increases or decreases in estimated revenues or costs are
reflected in the percentage of completion calculation in the period in which
the circumstances that give rise to the revision become known.
Where the Group becomes aware that a loss may arise on a contract, and that
loss is probable, full provision is made in the consolidated balance sheet
based on the estimated unavoidable costs of meeting the obligations of the
contract, where these exceed the economic benefits expected to be received.
The unavoidable costs under a contract reflect the least net cost of exiting
from the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfil it.
Incremental bid/tender costs and fulfilment costs are not material to the
overall contract and are expensed as incurred.
Any revenues recognised in excess of billings are recognised as contract
assets within trade and other receivables. Any payments received in excess of
revenue recognised are recognised as contract liabilities within trade and
other payables.
Revenue from the sale of goods and services
The Group's revenue recognised from the sale of goods and services primarily
relates to certain parts of the North America business. These contracts
typically have a single performance obligation, or a series of distinct
performance obligations that are substantially the same. There are typically
two types of contract:
● Delivery of goods: revenue for such contracts is
recognised at a point in time, on delivery of the goods to the customer.
● Delivery of goods with installation and/or post-delivery
services: revenue for these contracts is recognised at a point in time by
reference to the date on which the goods are installed and/or accepted by the
customer.
Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date in the countries where the Group
operates and generates taxable income. Current income tax relating to items
recognised directly in equity is recognised in equity and not in the
consolidated income statement.
The Group provides for future liabilities in respect of uncertain tax
positions where additional tax may become payable in future periods. Such
provisions are based on management's best judgement of the probability of the
outcome in reaching agreement with the relevant tax authorities. For further
information refer to note 12.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities, and their carrying amounts
for financial reporting purposes at the reporting date.
Deferred tax is recognised on temporary differences in line with IAS 12
'Income Taxes'. Deferred tax assets are recognised when it is considered
likely that they will be utilised against future taxable profits or deferred
tax liabilities.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited to the income statement, except when it relates to items
charged or credited directly to equity or to OCI, in which case the related
deferred tax is also dealt with in equity or in OCI.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Interest income and expense
All interest income and expense is recognised in the income statement on an
accruals basis, using the effective interest method.
Employee benefit costs
The Group operates a number of defined benefit pension schemes, and also makes
payments into defined contribution schemes.
The liability in respect of defined benefit schemes is the present value of
the defined benefit obligations at the balance sheet date, calculated using
the projected unit credit method, less the fair value of the schemes' assets
where applicable. The Group recognises the administration costs, current
service cost and interest on scheme net liabilities in the income statement,
and remeasurements of defined benefit plans in OCI in full in the period in
which they occur. Any surplus resulting from this calculation is limited to
the present value of any economic benefits available in the form of refunds
from the plans or reductions in future contributions to the plans. Where there
is no legal right to a refund from the plan, the liability is calculated as
the minimum funding requirement to the plan that exists at the balance sheet
date.
The Group also has long service arrangements in certain overseas countries.
These are accounted for in accordance with IAS 19 'Employee Benefits' and
accounting follows the same principles as for a defined benefit scheme.
Payments to defined contribution schemes are accounted for on an accruals
basis.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any. Further details are
set out in note 16 for impairments recognised in the year. Subsequent
expenditure on property, plant and equipment is capitalised when it enhances
or improves the condition of the item of property, plant and equipment beyond
its original assessed standard of performance. Maintenance expenditure is
expensed as incurred.
Depreciation
Depreciation is provided to write off the cost less the estimated residual
value of property, plant and equipment using the straight-line method by
reference to their estimated useful lives as follows:
Buildings 50 years
Plant and equipment 3 to 12 years
Motor vehicles 4 years
Computers 3 years
Depreciation is not provided for on freehold land.
An item of property, plant and equipment is derecognised upon disposal (ie at
the date the recipient obtains control) or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the
income statement when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property,
plant and equipment are reviewed at each financial year end and adjusted where
appropriate.
Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as lessee
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets (less than
£3,000). The Group recognises lease liabilities to make payments and
right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(ie the date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease term and
estimated useful lives as follows:
Land and buildings 3 to 15 years
Plant and equipment 2 to 8 years
Motor vehicles 3 to 5 years
Right-of-use assets are tested for impairment in accordance with IAS 36
'Impairment of Assets'.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index or a rate, and
amounts expected to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase option reasonably
certain to be exercised by the Group and payments of penalties for terminating
a lease, if the lease term reflects the Group exercising the option to
terminate. Variable lease payments that do not depend on an index or a rate
are recognised as an expense in the period in which the event or condition
that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date, if the interest
rate implicit in the lease is not readily determinable. The incremental
borrowing rate applied to each lease is determined by taking into account the
risk-free rate of the country where the asset under lease is located, matched
to the term of the lease and adjusted for factors such as the credit risk
profile of the lessee. Incremental borrowing rates applied to individual
leases range from 1.07% to 15.05%.
After the commencement date, the amount of lease liabilities is increased to
reflect the addition of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in lease payments (eg
changes to future payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an option to
purchase the underlying asset. The Group's lease liabilities are included in
interest-bearing loans and borrowings. Refer to note 26 for details.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases of plant, machinery and vehicles (ie those leases that have a lease
term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition
exemption to leases of office equipment that are considered of low asset value
(below £3,000). Lease payments on short-term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over the lease
term.
Business combinations
Business combinations are accounted for using the acquisition method as at the
acquisition date, which is the date on which control is transferred to the
Group. Control is the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities. In assessing control,
the Group takes into consideration potential voting rights that currently are
exercisable. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at the fair value at the
acquisition date. Acquisition-related costs are expensed as incurred and
included in administrative expenses. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. The excess of
cost of an acquisition over the fair value of the Group's share of the
identifiable net assets acquired, including assets identified as intangibles
on acquisition, is recorded as goodwill.
The results of subsidiaries which have been disposed are included up to the
effective date of disposal.
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of
the consideration transferred. After initial recognition, goodwill is measured
at cost less any accumulated impairment losses. Goodwill is reviewed for
impairment annually and whenever there is an indication that the goodwill may
be impaired in accordance with IAS 36, any impairment losses are recognised
immediately in the income statement. Goodwill arising prior to 1 January 1998
was taken directly to equity in the year in which it arose. Such goodwill has
not been reinstated on the balance sheet. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group's cash-generating units (CGUs) that are
expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is measured
based on the relative values of the disposed operation and the portion of the
CGU retained.
Other intangible assets
Intangible assets, other than goodwill, include purchased licences, software
(including internally generated software), customer relationships, customer
contracts and trade names. Intangible assets are capitalised at cost and
amortised on a straight-line basis over their useful economic lives from the
date that they are available for use and are stated at cost less accumulated
amortisation and impairment losses. The estimated useful economic lives are as
follows:
Licences 1 to 4 years
Software 3 to 7 years
Patents 2 to 7 years
Customer relationships 5 to 7 years
Customer contracts 1 to 2 years
Trade names 5 to 7 years
Software-as-a-service arrangements
The Group's current SaaS arrangements are arrangements in which the Group does
not control the underlying software used in the arrangement.
Software development costs incurred to configure or customise application
software provided under a cloud computing arrangement and associated fees are
recognised as operating expenses as and when the services are received where
the costs represent a distinct service provided to the Group.
When such costs incurred do not provide a distinct service, the costs are
recognised as expenses over the duration of the SaaS contract. The Group
capitalises other software costs when the requirements of IAS 38 'Intangible
Assets' are satisfied, including configuration and customisation costs which
are distinct and within the control of the Group. Such software costs are
capitalised and carried at cost less any accumulated amortisation and
impairment, and amortised on a straight-line basis over the period
which the developed software is expected to be used.
Amortisation commences when the development is complete and the asset is
available for use and is included in the operating costs item of the
consolidated income statement. The amortisation is reviewed at least at the
end of each reporting period and any changes are treated as changes in
accounting estimates.
Impairment of assets excluding goodwill
The carrying values of property, plant and equipment, right-of-use assets and
other intangibles are reviewed for impairment when events or changes in
circumstances indicate the carrying value may be impaired. If any such
indication exists, the recoverable amount, being the lower of their carrying
amount and fair value less costs to sell, of the asset is estimated in order
to determine the extent of impairment loss.
Capital work in progress
Capital work in progress represents expenditure on property, plant and
equipment in the course of construction. Transfers are made to other property,
plant and equipment categories when the assets are available for use.
Inventories
Inventories are measured at the lower of cost and estimated net realisable
value with allowance made for obsolete or slow-moving items.
Cost comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their
present location and condition.
Write-downs to net realisable value are made for slow-moving, damaged or
obsolete items based on evaluations made at the local level by reference to
frequency of stock turnover or specific factors affecting the items concerned.
Assets held for sale
Assets are classified as held for sale if their carrying amount will be
recovered by sale rather than by continuing use in the business. Assets held
for sale are measured at the lower of their carrying amount and fair value
less costs to sell, with reference to comparable market transactions. Assets
that are classified as held for sale are not depreciated.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The principal financial assets and liabilities of the Group
are as follows:
(a) Trade receivables and trade payables
Trade receivables are initially recorded at fair value and subsequently
measured at cost and reduced by allowances for estimated irrecoverable
amounts.
Trade receivables and contract assets are stated net of expected credit losses
(ECLs). At each reporting date, the Group evaluates the estimated
recoverability of trade receivables and contract assets and records allowances
for ECLs based on experience.
The Group applies the simplified approach to measurement of ECLs in respect of
trade receivables, which requires expected lifetime losses to be recognised
from initial recognition of the receivable. Immediately after an individual
trade receivable or contract asset is assessed to be unlikely to be recovered,
an impairment is recognised as the difference between the carrying amount of
the receivable and the present value of estimated future cash flows. Customer
specific factors are considered when identifying impairments, which can
include the geographic location and credit rating of a customer.
Where there are no specific concerns over recovery, other than the increasing
age of a trade receivable or contract asset balance past payment terms, the
Group uses a provision matrix, where provision rates are based on days past
due. The provision matrix used reflects estimates based on past experience,
current economic factors and consideration of forward looking estimates of
economic conditions. Generally, trade receivables are written-off completely
if past due for more than 180 days. Default is defined as the point where
there is no further legal address available for the Group to recover the
receivable amount.
The information about the ECLs on the Group's trade receivables and contract
assets is disclosed in note 20.
Trade payables that are not interest bearing are initially recognised at fair
value and carried at amortised cost.
(b) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on
hand and short-term deposits with a maturity of three months or less. For the
purpose of the consolidated statement of cash flows, cash and cash equivalents
consist of cash and short-term deposits, as defined above, net of outstanding
bank overdrafts as they are considered an integral part of the Group's cash
management. Bank overdrafts are included within financial liabilities in
current liabilities in the balance sheet.
(c) Bank and other borrowings
Interest-bearing bank and other borrowings are recorded at the fair value of
the proceeds received, net of direct issue costs. Subsequent to initial
recognition, borrowings are stated at amortised cost, where applicable.
Bank or other borrowings are derecognised when the obligation under the
liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in the consolidated income
statement.
Financial assets and financial liabilities are offset and the net amount is
reported in the consolidated balance sheet if there is a currently enforceable
legal right to offset the recognised amounts and there is an intention to
settle on a net basis, ie to realise the assets and settle the liabilities
simultaneously.
(d) Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to manage interest rate risk
and to hedge fluctuations in foreign currencies in accordance with its risk
management policy. In cases where these derivative instruments are
significant, hedge accounting is applied as described below. The Group does
not use derivative financial instruments for speculative purposes.
Derivatives are initially recognised in the balance sheet at fair value on the
date the derivative contract is entered into and are subsequently remeasured
at reporting periods to their fair values. Derivatives are carried as
financial assets when the fair value is positive and as financial liabilities
when the fair value is negative.
Changes in the fair value of the effective portion of derivatives that are
designated and qualify as cash flow hedges are recognised in other
comprehensive income (OCI). Changes in the fair value of the ineffective
portion of cash flow hedges are recognised in the income statement. Amounts
originally recognised in OCI are transferred to the income statement when the
underlying transaction occurs or if the transaction results in the recognition
of a non-financial asset or liability, the amount accumulated in equity is
included in the initial cost or carrying amount of the hedged asset or
liability.
Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the income statement as they
arise.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting.
At that time, any cumulative gain or loss on the hedging instrument recognised
in OCI is retained in equity until the hedged transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss
recognised in OCI is transferred to the income statement in the period.
For the purpose of hedge accounting, hedges are classified as:
● Cash flow hedges when hedging the exposure or variability
in cash flows that is either attributable to a particular risk associated with
a recognised asset or liability or a highly probable transaction.
● Fair value hedges when hedging the exposure to changes in
the fair value of a recognised asset or liability.
● Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which it wishes to apply hedge accounting
and the risk management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged
item, the nature of the risk being hedged and how the Group will assess
whether the hedging relationship meets the hedge effectiveness requirements
(including the analysis of sources of hedge ineffectiveness and how the hedge
ratio is determined). A hedging relationship qualifies for hedge accounting if
it meets all of the following effectiveness requirements:
● There is 'an economic relationship' between the hedged
item and the hedging instrument.
● The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
● The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group actually
hedges and the quantity of the hedging instrument that the Group actually uses
to hedge that quantity of hedged item.
Provisions
Provisions have been made for employee-related liabilities, restructuring
commitments, onerous contracts, insured liabilities and legal claims, and
other property-related commitments. These are recognised as management's best
estimate of the expenditure required to settle the Group's liability at the
reporting date.
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event and where it is
probable that an outflow will be required to settle the obligation and the
amount of the obligation can be estimated reliably. If the effect is material,
expected future cash flows are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to unwinding the
discount is recognised as a finance cost. Details of provisions are set out in
note 24.
Provisions for insured liabilities and legal claims include the full estimated
value of the liability. Any related insurance reimbursement asset that is
virtually certain to be received is separately presented gross within trade
and other receivables or other non-current assets on the consolidated balance
sheet.
Contingent liabilities
Contingent liabilities are possible obligations of the Group of which the
timing and amount are subject to significant uncertainty. Contingent
liabilities are not recognised in the consolidated balance sheet, unless they
are assumed by the Group as part of a business combination. They are however
disclosed, unless they are considered to be remote. If a contingent liability
becomes probable and the amount can be reliably measured it is no longer
treated as contingent and recognised as a liability on the balance sheet.
Contingent assets
Contingent assets are possible assets of the Group of which the timing and
amount are subject to significant uncertainty. Contingent assets are not
recognised in the consolidated balance sheet. They are however disclosed, when
they are considered to be probable. A contingent asset is recognised in the
financial statements when the inflow of economic benefits is virtually
certain.
Share-based payments
The Group operates a number of equity-settled executive and employee share
plans. For all grants of share options and awards, the fair value of the
employee services received in exchange for the grant of share options is
recognised as an expense, calculated using appropriate option pricing models.
The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted, excluding the impact of
any non-market vesting conditions, with a corresponding increase in retained
earnings. The charge is adjusted to reflect expected actual levels of options
vesting due to non-market conditions.
Shares purchased and held in trust in connection with the Group's share
schemes are deducted from retained earnings. No gain or loss is recognised
within the income statement on the market value of these shares compared with
the original cost.
Segmental reporting
During the year the Group comprised 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.
Dividends
Interim dividends are recorded in the Group's consolidated financial
statements when paid. Final dividends are recorded in the Group's consolidated
financial statements in the period in which they receive shareholder approval.
Non-underlying items
Non-underlying items are disclosed separately in the financial statements
where it is necessary to do so to provide further understanding of the
financial performance of the Group. They are items which are exceptional by
their size and/or are non-trading in nature, including amortisation of
acquired intangibles, goodwill impairment, 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.
Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements in conformity
with IFRS requires management to make judgements, estimates and assumptions
that affect the application of policies, reported amounts of assets and
liabilities, revenue and expenses and the accompanying disclosures, and the
disclosure of contingent liabilities. The estimates are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not
readily apparent from other sources. Uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods. Actual
results may also differ from these estimates.
The estimates are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the
revision affects only that and prior periods, or in the period of the revision
and future periods if the revision affects both current and future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
Construction contracts
The Group's approach to key estimates and judgements relating to construction
contracts is set out in the revenue recognition policy. In the Group
consolidated balance sheet this impacts contract assets, contract liabilities
and contract provisions (refer to notes 4 and 24). As described in the policy
the default revenue recognition approach is the output method. When revenue is
recognised based on the output method, there is little judgement involved in
accounting for construction contracts as the amount of revenue that has not
been certified/accepted by the client is typically small and is usually based
on volumes achieved at agreed rates. These contracts can still be subject to
claims and variations resulting in an adjustment to the revenue recognised.
When revenue is recognised based on the input (cost) method, the main factors
considered when making estimates and judgements include the cost of the work
required to complete the contract in order to estimate the percentage
completion, and the outcome of claims raised against the Group by customers or
third parties. The Group performed around 5,500 contracts during 2023, at an
average revenue of approximately £540,000 and a typical range of between
£25,000 and £10m in value. The majority of contracts were completed in the
year and therefore there are no estimates involved in accounting for these.
For contracts that are not complete at year end and revenue is recognised on
the input method, the Group estimates the total costs to complete in order to
measure progress and therefore how much revenue to recognise, which may impact
the contract asset or liability recorded in the balance sheet.. The actual
total costs incurred on these contracts will differ from the estimate at 31
December and it is reasonably possible that outcomes on these contracts within
the next year could be materially different in aggregate to those estimated.
Total contract assets are £90.9m and contract liabilities are £90.9m at 31
December 2023
However, due to the level of uncertainty and timing across a large portfolio
of contracts, which will be at different stages of their contract life, it is
not practical to provide a quantitative analysis of the aggregated judgements
that are applied at a portfolio level. The estimated costs to complete are
management's best estimate at this point in time and no individual estimate or
judgement is expected to have a materially different outcome.
In the case of loss-making contracts, a full provision is made based on the
estimated unavoidable costs of meeting the obligations of the contract, where
these exceed the economic benefits expected to be received. The process for
estimating the total cost to complete is the same as for in progress
profitable contracts, and will include management's best estimate of all
labour, equipment and materials costs required to complete the contracted
work. All cost to complete estimates involve judgement over the likely future
cost of labour, equipment and materials and the impact of inflation is
included if material. The amount included within provisions in respect of
contract provisions is £41.2m (2022: £37.8m).
As stated in the revenue recognition accounting policy, variable consideration
is assessed on a contract-by-contract basis, according to the terms, facts and
circumstances of the project. Variable consideration is recognised only to the
extent that it is highly probable that there will not be a significant
reversal; management judgement is required in order to determine when variable
consideration is highly probable. Uncertainty over whether a project will be
completed or not can mean that it is appropriate to treat the contracted
revenue as variable consideration.
Non-underlying items
Non-underlying items are disclosed separately in the financial statements
where it is necessary to do so to provide further understanding of the
financial performance of the Group. They are items which are exceptional by
their size and/or are non-trading in nature, including amortisation of
acquired intangibles, goodwill impairment, 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.
The Group exercises judgement in assessing whether restructuring items and the
ERP implementation costs should be classified as non-underlying. This
assessment covers the nature of the item, cause of the occurrence and scale of
impact of that item on the reported performance. Typically, management will
categorise restructuring costs incurred to exit a specific geography as
non-underlying, in addition restructuring programmes which are incremental to
normal operations undertaken to add value to the business are included in
non-underlying items. The value of exceptional restructuring costs in 2023
(£2.8m) is lower than in 2022 (£5.3m). ERP implementation costs are
categorised as non-underlying due to the scale and length of the project. The
nature of the project and costs incurred are reviewed on a regular basis to
assess the appropriateness of the classification as a non-underlying cost.
Carrying value of goodwill
The Group tests annually whether goodwill has suffered any impairment in
accordance with the accounting policy set out above. Impairment exists when
the carrying value of an asset or cash-generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its
value-in-use. The fair value less costs of disposal calculation is based on
available market data for transactions conducted at arm's length, for similar
assets or observable market prices less incremental costs of disposing of the
asset. The Group estimates the recoverable amount based on value-in-use
calculations. The value-in-use calculation is based on a discounted cash flow
(DCF) model. The cash flows are derived from the relevant budget and forecasts
for the next three years, including a terminal value assumption. The
recoverable amount is sensitive to the discount rate used for the DCF model as
well as the expected future cash inflows, growth rates and maintainable
earnings assumed within the calculation.
In 2023, management noted sensitivity in the headroom available for Keller
Canada. The DCF for this CGU is sensitive to the future successful execution
of the CGU's business plans to consistently meet forecasted margins (which
assumes a significant improvement in operating performance compared with 2023)
by improving project delivery and revenue growth. Refer to note 15 for further
information.
Deferred tax assets
Deferred tax assets are recognised for unused tax losses and other timing
differences to the extent that it is probable that future taxable profits will
be available against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax assets that can
be recognised, based upon the likely timing and the level of future taxable
profits (based on the same Board-approved information to support the going
concern and goodwill impairment assessments). The Group uses judgement in
assessing the recoverability of deferred tax assets, for which the significant
assumption is forecast taxable profits. A 10% shortfall in expected profits
would have a proportional impact on the value of the deferred tax assets
recoverable. Deferred tax assets recognised on unused tax losses were £10.7m
at 31 December 2023 (2022: £14.5m). Refer to note 12 for further information.
Insurance and legal provisions
The recognition of provisions for insurance and legal disputes is subject to a
significant degree of estimation. In making its estimates, management seek
specialist input from legal advisers and the Group's insurance claims handler
to estimate the most likely legal outcome. Provisions are reviewed regularly
and amounts updated where necessary to reflect developments in the disputes.
The ultimate liability may differ from the amount provided depending on the
outcome of court proceedings and settlement negotiations or if investigations
bring to light new facts. Refer to note 24 for further information.
3 Segmental analysis
During the year the Group was managed as three geographical divisions and has
only one major product or service: specialist geotechnical services. This is
reflected in the Group's management structure and in the segment information
reviewed by the Chief Operating Decision Maker.
2023 2022
Revenue Operating Revenue Operating
profit profit
£m £m £m £m
North America 1,770.0 169.6 1,896.1 82.0
Europe 686.0 1.8 649.3 29.1
Asia-Pacific, Middle East and Africa 510.0 22.6 399.2 6.6
2,966.0 194.0 2,944.6 117.7
Central items - (13.1) - (9.1)
Underlying 2,966.0 180.9 2,944.6 108.6
Non-underlying items (note 9) - (27.8) - (40.8)
2,966.0 153.1 2,944.6 67.8
2023
Depreciation(2) Tangible(3)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 929.9 (302.9) 627.0 42.1 56.5 347.3
Europe 317.1 (224.1) 93.0 22.1 30.7 141.1
Asia-Pacific, Middle East and Africa 235.8 (138.2) 97.6 30.3 23.9 105.6
1,482.8 (665.2) 817.6 94.5 111.1 594.0
Central items(1) 194.5 (494.1) (299.6) - 1.1 0.8
1,677.3 (1,159.3) 518.0 94.5 112.2 594.8
2022(4)
Depreciation(2) Tangible(3)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 1,016.3 (349.1) 667.2 33.8 54.6 352.5
Europe 338.9 (208.0) 130.9 23.2 27.8 159.6
Asia-Pacific, Middle East and Africa 251.1 (163.4) 87.7 24.7 13.7 109.6
1,606.3 (720.5) 885.8 81.7 96.1 621.7
Central items(1) 96.3 (485.3) (389.0) - 0.9 2.7
1,702.6 (1,205.8) 496.8 81.7 97.0 624.4
1 Central items include net debt and tax balances, which are
managed by the 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 31 December 2022 consolidated balance sheet has been
restated in respect of the prior year business combination measurement
adjustments, as outlined in note 5 to the consolidated financial statements.
Revenue analysed by country:
2023 2022
£m £m
United States 1,644.0 1,758.0
Australia 279.4 228.4
Germany 146.3 115.9
Canada 125.2 137.9
United Kingdom 125.1 127.4
Other 646.0 577.0
2,966.0 2,944.6
Non-current assets(1) analysed by country:
2023 2022
£m £m
United States 342.6 343.5
Australia 62.3 67.0
Germany 52.4 54.3
Canada 44.5 46.6
Austria 33.2 34.9
Other 131.1 143.3
666.1 689.6
1 Excluding deferred tax assets
4 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 3) and timing of revenue recognition:
2023 2022
Revenue Revenue Revenue Revenue
recognised recognised recognised recognised
on on on on
performance performance performance performance
obligations obligations obligations obligations
satisfied over satisfied at a Total satisfied over satisfied at a Total
time point in time revenue time point in time revenue
£m £m £m £m £m £m
North America 1,355.0 415.0 1,770.0 1,434.7 461.4 1,896.1
Europe 686.0 - 686.0 649.3 - 649.3
Asia-Pacific, Middle East and Africa 510.0 - 510.0 399.2 - 399.2
2,551.0 415.0 2,966.0 2,483.2 461.4 2,944.6
The final contract value will not always have been agreed at the year end. The
contract value, and therefore revenue allocated to a performance obligation,
may change subsequent to the year end as variations and claims are agreed with
the customer. The amount of revenue recognised in 2023 from performance
obligations satisfied in previous periods is £12.4m (2022: £15.7m).
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. As at 31
December 2023, the total order book is £1,489.1m (2022: £1,407.1m).
The order book for contracts with a total duration over one year is £462.5m
(2022: £384.5m). Revenue on these contracts is expected to be recognised as
follows:
2023 2022
£m £m
Less than one year 363.4 289.3
One to two years 93.3 87.1
More than two years 5.8 8.1
462.5 384.5
The following table provides information about trade receivables, contract
assets and contract liabilities arising from contracts with customers:
2023
2022
£m £m
Trade receivables 583.1 615.5
Contract assets 90.9 105.3
Contract liabilities (90.9) (85.6)
Trade receivables include invoiced amounts for retentions, which are balances
typically payable at the end of a construction project, when all contractual
performance obligations have been met, and are therefore received over a
longer period of time. Included in the trade receivables balance is £156.9m
(2022: £121.3m) in respect of retentions anticipated to be receivable within
one year. Included in non-current other assets is £22.7m (2022: £16.3m)
anticipated to be receivable in more than one year. All contract assets and
liabilities are current.
Significant changes in the contract assets and liabilities during the year are
as follows:
2023 2022
Contract assets Contract liabilities Contract assets Contract liabilities
£m £m £m £m
As at 1 January 105.3 (85.6) 99.2 (46.5)
Revenue recognised in the current year 985.8 299.7 911.2 824.2
(Disposed)/acquired with businesses (0.8) - 0.6 -
Amounts transferred to trade receivables (995.3) - (914.1) -
Cash received/invoices raised for performance obligations not yet satisfied - (309.1) - (858.9)
Exchange movements (4.1) 4.1 8.4 (4.4)
As at 31 December 90.9 (90.9) 105.3 (85.6)
5 Acquisitions and disposals
Acquisitions
Current year
There were no material acquisitions during the year to 31 December 2023.
Prior year acquisitions
GKM Consultants Inc.
On 1 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 £3.3m (CAD$5.3m). In addition,
contingent consideration is payable dependent on
the cumulative EBITDA in the three-year period post-acquisition.
At the acquisition date, the fair value of the contingent consideration was
£1.2m (CAD $2.0m), based on expected cashflows generated by the business over
a three year period at that point in time. At 31 December 2022, the fair value
of the contingent consideration was revised to £0.9m with the reduction in
the amount payable recognised in the income statement as a non-underlying item
in that year. The maximum value of the contingent consideration is £1.2m, the
minimum payable would be zero.
The fair value of intangible assets acquired represents the fair value of
customer contracts at the date of acquisition, customer relationships and the
tradename. Goodwill 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.
Nordwest Fundamentering AS
On 15 November 2022, the Group acquired 100% of the issued share capital of
Nordwest Fundamentering AS, a small specialist geotechnical contractor
provider in Norway, for an initial cash consideration of £5.5m (NOK65m). In
addition, deferred consideration of £0.5m (NOK6m) is payable. Due to the
timing of the acquisition, the review of the fair value of net assets acquired
was performed in H1 2023. The provisional value of net assets acquired was
£1.0m at acquisition date, resulting in a goodwill and other intangibles
value of £5.3m.
Prior period business combination 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.
The valuation of Nordwest Fundamentering AS acquired assets 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 fair value Adjustments during Revised provisional
recognised on measurement fair value recognised
acquisition period on acquisition
£m £m £m
Assets
Intangible assets(1) - 0.9 0.9
Property, plant and equipment 0.3 - 0.3
Property, plant and equipment - right of use asset 2.1 - 2.1
Trade and other receivables 1.5 - 1.5
Cash and cash equivalents 1.1 - 1.1
5.0 0.9 5.9
Liabilities
Trade and other payables (1.5) - (1.5)
Current tax liabilities(2) - (0.7) (0.7)
Loans and borrowings, including lease liabilities (2.2) - (2.2)
Deferred tax liabilities (0.3) - (0.3)
(4.0) (0.7) (4.7)
Total identifiable net assets 1.0 0.2 1.2
Goodwill 5.3 (0.2) 5.1
Total consideration 6.3 - 6.3
Satisfied by:
Initial cash consideration 5.5 - 5.5
Initial valuation of contingent consideration 0.5 - 0.5
Purchase price adjustment 0.3 - 0.3
6.3 - 6.3
1 ( ) The adjustment to intangible assets relates to
the revised valuation of the tradename and customer relationships acquired.
2 ( ) The adjustment to current tax liabilities
relates to the updated tax liability due from pre-acquisition profits.
The impact of these adjustments has been applied retrospectively, meaning that
the financial position for the year to 31 December 2022 has been restated. The
adjustments did not result in any impact on the income statement for the year
ended 31 December 2022. A summary of the purchase price adjustments made for
the 2022 acquisitions are set out in the table below.
Goodwill Acquired intangible assets Acquired deferred tax liabilities Fair value of other identifiable assets and liabilities Consideration paid Cash acquired Non-cash elements Net cash outflow
Acquisition £m £m £m £m £m £m £m £m
Nordwest Fundamentering AS 5.1 0.9 (0.3) 0.6 6.3 1.1 0.8 4.4
Disposals
On 10 November 2023, the Group disposed of its Cyntech Tanks operation in
Canada, a part of Cyntech Construction Ltd, for a total consideration of
£1.5m (CAD$2.6m), consisting of the sale price of £1.3m (CAD$2.2m) and
further sale price adjustments to be paid from the Escrow amount of £0.2m
(CAD$0.4m). A non-underlying loss on disposal of £0.1m (CAD$0.2m) was
recognised.
In 2022, a contingent consideration of £0.7m was received in accordance with
the terms of the sale and purchase agreement of Wannenwetsch GmbH, which was
disposed of in 2020.
6 Operating costs
2023
2022(1)
Note £m £m
Raw materials and consumables 954.0 1,054.3
Staff costs 8 739.7 699.8
Other operating charges 774.6 777.5
Amortisation of intangible assets 15 0.4 0.5
Expenses relating to short-term leases and leases of low-value assets 184.7 201.7
Depreciation:
Owned property, plant and equipment 16a 81.8 71.1
Right-of-use assets 16b 29.4 29.7
Underlying operating costs 2,764.6 2,834.6
Non-underlying items 9 22.5 29.7
Statutory operating costs 2,787.1 2,864.3
Other operating charges include:
Redundancy and other reorganisation costs - -
Fees payable to the company's auditor for the audit of the company's Annual 1.4 1.4
Report and Accounts
Fees payable to the company's auditor for other services:
The audit of the company's subsidiaries, pursuant to legislation 2.1 2.0
Other assurance services 0.1 0.1
1 The net impairment loss on trade receivables and contract
assets has been reclassified on the face of the income statement and separated
from operating costs, where it was reported in previous periods. Further
details of the reclassified amounts are outlined in note 7 to the consolidated
financial statements. The restatement explained in note 20 has caused a
consequential increase of £12.8m in the amount reported above for Other
operating charges for the prior period.
7 Net impairment loss on trade receivables and contract assets
The net impairment loss on trade receivables and contract assets is made up of
movements in the allowance for expected credit losses of trade receivables and
contract assets as follows:
2023 2022(1)
£m £m
Additional provisions 29.4 13.8
Unused amounts reversed (7.7) (10.6)
Net impairment loss(2) 21.7 3.2
1 The net impairment loss on trade receivables and contract
assets has been reclassified and separated from operating costs, where it was
reported in previous periods.
2 Of this amount £16.8m (2022: £11.5m) is subject to
enforcement activity.
Further information on the Group's allowance for expected credit losses of
trade receivables and contract assets and on the Group's expected credit loss
rates for the 2022 and 2023 financial years can be found in note 20 Trade and
other receivables.
8 Employees
The aggregate staff costs of the Group were:
2023 2022
£m £m
Wages and salaries 643.5 606.7
Social security costs 66.2 66.7
Other pension costs 25.6 23.1
Share-based payments 4.4 3.3
739.7 699.8
These costs include Directors' remuneration. Fees payable to Non-executive
Directors totalled £0.5m (2022: £0.5m).
In the United States, the Coronavirus Aid, Relief, and Economic Security Act
allowed employers to defer the payment of the employer's share of social
security taxes otherwise required to be paid between 27 March and 31 December
2020. The payment of the deferred taxes is required in two instalments; the
first half was paid on 3 January 2022 and the remainder was paid on 3 January
2023.
The average number of staff, including Directors, employed by the Group during
the year was:
2023 2022
Number Number
North America 4,413 4,604
Europe 2,924 3,043
Asia-Pacific, Middle East and Africa 2,152 2,174
9,489 9,821
9 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,
goodwill impairment, 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 in
the table below.
As underlying results include the benefits of restructuring programmes and
acquisitions but exclude significant costs (such as major restructuring costs
and the amortisation of acquired intangible assets) they should not be
regarded as a complete picture of the Group's financial performance, which is
presented in its total statutory results. The exclusion of non-underlying
items may result in underlying earnings being materially higher or lower than
total statutory earnings. In particular, when significant impairments and
restructuring charges are excluded, underlying earnings will be higher than
total statutory earnings.
2023 2022
£m £m
ERP implementation costs 7.5 6.3
Goodwill impairment 12.1 12.5
Exceptional restructuring costs 2.8 5.3
Impairment of trade receivables related to restructuring 0.4 0.3
Loss on disposal of operations 0.1 -
Exceptional historic contract dispute - 3.5
Claims related to closed business - 2.5
Contingent consideration: additional amounts provided - 0.1
Change in fair value of contingent consideration - (0.7)
Acquisition costs - 0.2
Non‑underlying items in operating costs (including net impairment loss on 22.9 30.0
trade receivables and contract assets)
Amortisation of acquired intangible assets 5.1 10.3
Gain on sale of assets held for sale (0.8) -
Contingent consideration received - (0.7)
Non-underlying items in other operating income (0.8) (0.7)
Amortisation of joint venture acquired intangibles 0.6 1.2
Total non-underlying items in operating profit 27.8 40.8
Non-underlying items in finance income - (3.6)
Total non-underlying items before taxation 27.8 37.2
Taxation (3.0) (9.0)
Total non-underlying items after taxation 24.8 28.2
Non-underlying items in operating costs
ERP implementation costs
The Group is continuing the 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 the underlying performance of the Group. As this is a complex
implementation, project costs are expected to be incurred over a total period
of five years, of which 2023 was the third year. Non-underlying ERP costs of
£7.5m (2022: £6.3m) include only costs relating directly to the
implementation including external consultancy costs and the cost of the
dedicated implementation team. Non-underlying costs does not include
operational post-deployment costs such as licence costs for businesses that
have transitioned.
Goodwill impairment
The goodwill impairment of £12.1m relates to Keller Limited, the UK
Foundations business, following uncertainty over the future profitability of
the cash-generating unit after the completion of a substantial customer
contract. Refer to note 15 for further information.
In 2022, the goodwill impairment of £12.5m was related to Austral (£7.7m)
due to uncertainty over the future profitability of the cash-generating unit
following the discovery of the financial reporting fraud; and Sweden (£4.8m)
due to a downward revision to the medium-term forecast as forward projections
did not fully support the carrying value of the goodwill.
Exceptional restructuring costs
Exceptional restructuring costs of £2.8m comprise £0.5m in the Europe
division, and £2.3m in the Asia-Pacific, Middle East and Africa (AMEA)
division. In Europe, the costs relate to the exit from Kazakhstan, and in
AMEA the costs relate to the closure of the Egypt business. In addition, the
exit from Kazakhstan resulted in a £0.4m impairment of trade receivables.
The Group exercises judgement in assessing whether restructuring items should
be classified as non-underlying. This assessment covers the nature of the
item, cause of the occurrence and scale of impact of that item on the reported
performance. Typically, management will categorise restructuring costs
incurred to exit a specific geography as non-underlying, in addition
restructuring programmes which are incremental to normal operations undertaken
to add value to the business are included in non-underlying items. The value
of exceptional restructuring costs in 2023 (£2.8m) is lower than in 2022
(£5.3m).
In 2022, exceptional restructuring costs of £5.3m comprised £3.4m in the
North America Division, £1.8m in the Europe Division, a credit of £0.6m in
AMEA and £0.7m incurred centrally. In North America, the costs arose as a
result of a management and property reorganisation within the parts of the
business located in Texas. Costs include redundancy costs and property
duplication costs. In Europe, the costs related to the scheduled exit of the
Ivory Coast and Morocco businesses, including asset impairments and redundancy
costs. In AMEA, the credit arose from restructuring costs provided for in
prior years as costs incurred were lower than originally anticipated. In 2022,
an impairment charge of £0.3m by the North-East Europe Business Unit was in
respect of trade receivables in Ukraine that were not expected to be recovered
due to the ongoing conflict.
Loss on disposal of operations
On 10 November 2023, the Group disposed of its Cyntech Tanks operation in
Canada, a part of Cyntech Construction Ltd, for a total consideration of
£1.5m, consisting of the sale price of £1.3m and further sale price
adjustments to be paid from the Escrow amount of £0.2m. A loss on disposal of
£0.1m was recognised.
Exceptional historic contract dispute and claims related to closed business
In 2022, the £3.5m exceptional charge was related to a provision made for
additional legal costs relating to the historical Avonmouth contract dispute
following a negotiation with insurers during that year. In addition, a £2.5m
provision for a legal claim in respect of a closed business was recognised.
Contingent consideration
In 2022, additional contingent consideration payable of £0.1m related to the
acquisition of the Geo Instruments US business in 2017.
Acquisition costs
Acquisition costs of £0.2m in 2022 comprised professional fees relating to
the NWF acquisition in Norway and centrally incurred project costs.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets of £5.1m relates to the
amortisation charge on assets acquired in the RECON, GKM, Moretrench and NWF
acquisitions. The amortisation in 2022 of £10.3m relates to the RECON, GKM,
Moretrench and Voges acquisitions.
Non-underlying items in other operating income
The gain on disposal of assets held for sale of £0.8m relates primarily to
the sale of assets owned by the now closed Waterway business in Australia as
mentioned in note 22. Impairment charges for these assets had previously been
charged to non-underlying items in prior periods and therefore the
corresponding profit on disposal of the assets is also recognised as a
non-underlying item.
During 2022, the second and final instalment of contingent consideration was
received in relation to the Wannenwetsch disposal in September 2020, in
accordance with the terms of the sale and purchase agreement. The first
instalment was received during 2021.
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 finance income
In 2022, the Group entered into an interest rate derivative with the purpose
of hedging a highly probable forecast transaction. The forecast transaction
did not take place and as a result the amount arising from the hedging
instrument was recognised in the income statement. This resulted in the
recognition of £3.6m of finance income which was included in non-underlying
as it was material in size and was not reflective of the underlying finance
income and costs of the Group.
Non-underlying taxation
Refer to note 12 for details of the non-underlying tax items.
10 Finance income
2023 2022
£m £m
Bank and other interest receivable 1.6 0.3
Net pension interest income - 0.1
Other finance income 0.2 0.1
Underlying finance income 1.8 0.5
Non-underlying finance income - 3.6
Total finance income 1.8 4.1
11 Finance costs
2023 2022
£m £m
Interest payable on bank loans and overdrafts 12.6 7.8
Interest payable on other loans 8.6 2.4
Interest on lease liabilities 5.6 3.6
Net pension interest cost 0.3 0.1
Other interest costs 1.8 1.5
Total interest costs 28.9 15.4
Unwinding of discount on provisions 0.4 0.2
Total finance costs 29.3 15.6
12 Taxation
2023 2022
£m £m
Current tax expense:
Current year 54.6 46.6
Prior years 0.4 (2.5)
Total current tax 55.0 44.1
Deferred tax expense:
Current year (18.7) (32.0)
Prior years (0.5) (0.8)
Total deferred tax (19.2) (32.8)
35.8 11.3
UK corporation tax is calculated at 23.5% (2022: 19%) of the estimated
assessable profit for the year. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
The effective tax rate can be reconciled to the UK corporation tax rate of
23.5% (2022: 19%) as follows:
2023 2022
Non- Non-
underlying underlying
items items
Underlying (note 9) Statutory Underlying (note 9) Statutory
£m £m £m £m £m £m
Profit/(loss) before tax 153.4 (27.8) 125.6 93.5 (37.2) 56.3
UK corporation tax charge/(credit) at 23.5% (2022: 19%) 36.0 (6.5) 29.5 17.8 (7.1) 10.7
Tax charged at rates other than 23.5% (2022: 19%) 4.3 (0.2) 4.1 3.1 (1.0) 2.1
Tax losses and other deductible temporary differences not recognised 10.1 0.6 10.7 6.6 0.8 7.4
Utilisation of tax losses and other deductible temporary differences (7.4) - (7.4) (0.7) (4.3) (5.0)
previously unrecognised
Permanent differences (4.3) 3.1 (1.2) (2.8) 2.6 (0.2)
Adjustments to tax charge in respect of previous periods (0.1) - (0.1) (3.3) - (3.3)
Other 0.2 - 0.2 (0.4) - (0.4)
Tax charge/(credit) 38.8 (3.0) 35.8 20.3 (9.0) 11.3
Effective tax rate 25.3% 10.6% 28.5% 21.7% 24.2% 20.1%
The increase in the effective tax rate on underlying profits of 25% from the
2022 rate of 22% is largely due to increased profits in the US (which are
taxed at a higher combined federal and state tax rate), non-deductible
accounting provisions in Saudi Arabia and material accounting losses in
Sweden, Norway and Poland where no deferred tax asset is recognised.
The tax credit of £3.0m on non-underlying items has been calculated by
assessing the tax impact of each component of the charge to the income
statement and applying the jurisdictional tax rate that applies to that item.
The effective tax rate in 2023 on non-underlying items is lower than the
effective tax rate on underlying items due to the inclusion of costs for which
there is no corresponding tax credit. In 2022, £4.7m of the non-underlying
tax credit related to the tax impact of the non-underlying loss for the year.
The remainder of the FY22 credit arose from the reversal of the valuation
allowance against deferred tax assets in Canada that was recognised through
the non-underlying tax charge in prior years.
The Group is subject to taxation in over 40 countries worldwide and the risk
of changes in tax legislation and interpretation from tax authorities in the
jurisdictions in which it operates. The assessment of uncertain positions is
subjective and subject to management's best judgement of the probability of
the outcome in reaching agreement with the relevant tax authorities. Where tax
positions are uncertain, provisions are made where necessary, based on
interpretation of legislation, management experience and appropriate
professional advice. Management do not expect the outcome of these estimates
to be materially different from the position taken.
The UK government enacted Finance (No 2) Act 2023 on 11 July 2023, which
includes the Pillar Two legislation introducing a multinational top up tax and
a domestic minimum top up tax in line with the minimum 15% rate in the OECD's
Pillar Two rules. The rules will apply to the Group for the financial year
commencing on 1 January 2024. The UK legislation has also adopted the OECD's
transitional Pillar Two safe harbour rules which, if applicable, will deem the
top up tax for a jurisdiction to be nil based on available Country-by-Country
Reporting data.
The Group has performed an assessment of the potential exposure to Pillar Two
top up taxes, based on the most recent Country-by-Country Reporting, and FY24
country specific PBT forecasts for the constituent entities in the Group.
Based on the assessment, the Pillar Two effective tax rates in most of the
jurisdictions in which the Group operates are above 15%. There are however a
limited number of jurisdictions where the transitional safe harbour relief may
not apply and the Pillar Two effective tax rate is close to the 15% threshold.
The Group does not expect a material exposure to Pillar Two top up taxes for
these jurisdictions.
The Group has applied the exemption in the amendments to IAS 12 (issued in May
2023) and has neither recognised nor disclosed information about deferred tax
assets or liabilities relating to Pillar Two income taxes.
The following are the major deferred tax liabilities and assets recognised by
the Group and the movements during the current and prior reporting periods:
Other
Unused Accelerated Retirement employee- Other(1)
tax capital benefit related Bad temporary
losses allowances obligations liabilities debts differences Total
£m £m £m £m £m £m £m
At 1 January 2022 (13.0) 38.2 (4.2) (6.3) (8.7) 13.5 19.5
(Credit)/charge to the income statement (1.0) (31.2) 0.3 0.9 (0.3) (1.6) (32.9)
Charge to other comprehensive income - - 0.6 - - - 0.6
Acquisition and disposal of businesses - - 0.8
- - - 0.8
Exchange movements (0.5) 3.9 0.1 (0.7) (1.1) 0.6 2.3
Other reallocations/transfers - - - - - (0.1) (0.1)
At 31 December 2022 (14.5) 10.9 (3.2) (6.1) (10.1) 13.2 (9.8)
(Credit)/charge to the income statement 3.1 (11.9) 0.7 (6.7) 2.8 (7.2) (19.2)
Charge to other comprehensive income - - 0.1 - - - 0.1
Exchange movements 0.7 0.0 0.1 0.4 0.3 (1.6) (0.1)
At 31 December 2023 (10.7) (1.0) (2.3) (12.4) (7.0) 4.4 (29.0)
1 Other temporary differences are mainly in respect of
intangible assets and contract provisions.
The movement from a net deferred tax asset of £9.8m at 31 December 2022 to
£29.0m at 31 December 2023 is largely as a result of the timing of the
deductibility of R&D expenditure for US tax purposes. R&D expenditure
is capitalised for tax purposes and amortised over five years.
Deferred tax assets include amounts of £36.8m (2022: £15.1m) where recovery
is based on forecasts of future taxable profits that are expected to be
available to offset the reversal of the associated temporary differences. The
deferred tax assets arise predominantly in the US (£29.3m) Australia
(£3.7m), Canada (£2.1m), India (£1.0m) and the UK (£0.7m). The amount of
profits in each territory which are necessary to be realised over the forecast
period to support these assets are £115m, £12m, £7m, £4m and £3m.
Canadian tax rules currently allow tax losses to be carried forward up to 20
years. Australia and the UK allow losses to be carried forward indefinitely.
The recovery of deferred tax assets has been assessed by reviewing the likely
timing and level of future taxable profits. The period assessed for recovery
of assets is appropriate for each territory having regard to the specific
facts and circumstances and the probability of achieving forecast
profitability. A 10% shortfall in expected profits would have a proportional
impact on the value of the deferred tax assets recoverable.
The following is the analysis of the deferred tax balances:
2023 2022
£m £m
Deferred tax liabilities 7.8 5.3
Deferred tax assets (36.8) (15.1)
(29.0) (9.8)
At the balance sheet date, the Group had unused tax losses of £137.6m (2022:
£140.9m), mainly arising in Canada, Australia, Malaysia and the UK, available
for offset against future profits, on which no deferred tax asset has been
recognised. Of these losses, £84.0m (2022: £118.2m) may be carried forward
indefinitely. Of the remaining losses, £15.6m expire in 2025, £3.4m expire
in 2028 and £34.6m expire in 2035.
At the balance sheet date, the aggregate of other deductible temporary
differences for which no deferred tax asset has been recognised was £4.4m
(2022: £18.0m). These differences have no expiry term.
At the balance sheet date the aggregate of temporary differences associated
with investments in subsidiaries, branches and joint ventures for which no
deferred tax liability has been recognised is £373.9m (2022: £335.0m), on
the basis that the Group can control the reversal of temporary differences and
it is probable that the temporary differences will not reverse in the
foreseeable future. The unprovided deferred tax liability in respect of these
timing differences is £10.0m (2022: £10.2m).
13 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
2023 2022
£m £m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2022 of 24.5p (2021: 23.3p) per 17.7 16.8
share
Interim dividend for the year ended 31 December 2023 of 13.9p (2022: 13.2p) 10.0 9.6
per share
27.7 26.4
The Board has recommended a final dividend for the year ended 31 December 2023
of £22.7m, representing 31.3p (2022: 24.5p) per share. The proposed dividend
is subject to approval by shareholders at the Annual General Meeting on 15 May
2024 and has not been included as a liability in these financial statements.
14 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 adjusted for the dilutive impact
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.
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of authorisation of
these financial statements.
Basic and diluted earnings per share are calculated as follows:
Underlying earnings attributable to the equity holders of the parent Earnings attributable to the equity holders of the parent
2023 2022 2023 2022
Basic and diluted earnings (£m) 114.2 74.2 89.4 46.0
Weighted average number of ordinary shares (m)(1)
Basic number of ordinary shares outstanding 72.8 72.7 72.8 72.7
Effect of dilution from:
Share options and awards 1.4 1.0 1.4 1.0
Diluted number of ordinary shares outstanding 74.2 73.7 74.2 73.7
Earnings per share
Basic earnings per share (p) 156.9 102.1 122.8 63.3
Diluted earnings per share (p) 153.9 100.7 120.5 62.4
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.
15 Goodwill and intangible assets
Goodwill Trade names Customer contracts and relationships Other intangibles Total
£m £m £m £m £m
Cost
At 1 January 2022 225.5 32.7 44.6 22.4 325.2
Additions - - - 0.1 0.1
Acquired with businesses(1,2) 6.9 0.7 1.5 - 9.1
Exchange movements 15.8 1.4 1.8 4.6 23.6
At 31 December 2022 and 1 January 2023(1) 248.2 34.8 47.9 27.1 358.0
Additions - - - 0.2 0.2
Exchange movements (9.6) (2.0) (2.7) (0.2) (14.5)
At 31 December 2023 238.6 32.8 45.2 27.1 343.7
Accumulated amortisation and impairment
At 1 January 2022 105.0 26.8 32.2 21.7 185.7
Impairment charge for the year 12.5 - - - 12.5
Amortisation charge for the year(1) - 1.6 8.7 0.4 10.7
Exchange movements 5.4 0.6 0.8 4.4 11.2
At 31 December 2022 and 1 January 2023(1) 122.9 29.0 41.7 26.5 220.1
Impairment charge for the year 12.1 - - - 12.1
Amortisation charge for the year - 1.7 3.4 0.4 5.5
Exchange movements (4.0) (1.8) (2.5) (0.3) (8.6)
At 31 December 2023 131.0 28.9 42.6 26.6 229.1
Carrying amount
At 1 January 2022 120.5 5.9 12.4 0.7 139.5
At 31 December 2022 and 1 January 2023(1) 125.3 5.8 6.2 0.6 137.9
At 31 December 2023 107.6 3.9 2.6 0.5 114.6
1 The 31 December 2022 consolidated balance sheet has been
restated in respect of prior period business combination measurement
adjustments, as outlined in note 5 to the consolidated financial statements.
2 In the 2022 financial year, goodwill arising on acquisition of
business relates to the acquisition of Nordwest Fundamentering AS.
Other intangibles represent internally developed software and licences. There
are no indicators of impairment for assets relating to trade names, customer
contracts and relationships or other intangibles as at 31 December 2023.
For the purposes of impairment testing, goodwill has been allocated to seven
(2022: ten) separate cash-generating units (CGUs). The carrying amount of
goodwill allocated to the five CGUs with the largest goodwill balances is
significant in comparison to the total carrying amount of goodwill and
comprises 99% of the total (2022: 95%). The relevant CGUs and the carrying
amount of the goodwill allocated to each are as set out below, together with
the pre-tax discount rate and medium-term growth rate used in their
value-in-use calculations:
2023 2022
Carrying Pre-tax Forecast Carrying Pre-tax Forecast
value discount rate(1) growth rate value discount rate(1) growth rate
CGU Geographical segment £m % % £m % %
Keller US North America 49.4 15.2 2.0 51.9 13.6 2.0
Suncoast North America 33.9 15.2 2.0 35.5 13.5 2.0
Keller Canada North America 13.2 13.8 2.0 13.7 12.7 2.0
Keller Limited Europe - - - 12.1 13.2 2.0
Other North America and Europe 11.1 12.1
107.6 125.3
1 Pre-tax discount rates and forecast growth rates are defined
by market.
The recoverable amount of the goodwill allocated to each CGU has been
calculated on a value-in-use basis. The calculations use cash flow projections
based on financial budgets and forecasts approved by management and cover a
three-year period.
The Group's businesses operate in a diverse geographical set of markets, some
of which are expected to continue to face uncertain conditions in future
years. The most important factors in the value-in-use calculations are the
forecast revenues and operating margins during the forecast period, the growth
rates and discount rates applied to future cash flows. The key assumptions
underlying the cash flow forecasts are revenue and operating margins assumed
throughout the forecast period. Revenue and operating margins are prepared as
part of the Group's three-year forecast in line with the Group's annual
business planning process. The Group's budget for 2024 and financial
projections for 2025 and 2026 were approved by the Board, and have been used
as the basis for input into the value-in-use calculation.
Management considers all the forecast revenues, margins and profits to be
reasonably achievable given recent performance and the historic trading
results of the relevant CGUs. A margin for historical forecasting error has
also been factored into the value-in-use model. Cash flows beyond 2026 which
are deemed to be on a continuing basis have been extrapolated using the
forecast growth rates above and do not exceed the long-term average growth
rates for the markets in which the relevant CGUs operate. The growth rates
used in the Group's value-in-use calculation into perpetuity are based on
forecasted growth in the construction sector in each region where a CGU is
located and adjusted for longer-term compound annual growth rates for each CGU
as estimated by management. The discount rates used in the value-in-use
calculations are based on the weighted average cost of capital of companies
comparable to the relevant CGUs, adjusted as necessary to reflect the risk
associated with the asset being tested.
Management's assessment for Keller Canada is sensitive to the future
successful execution of CGU's business plans to consistently meet forecasted
margins (which assumes a significant improvement in operating performance
compared with 2023) by improving project delivery and revenue growth.
The goodwill in Keller Limited, included in the table above, was impaired by
£12.1m during 2023. The goodwill is impaired due to the uncertainty in the
CGU's business plans to address the quantum of reduction in revenue volumes,
margins and profits following scheduled completion of HS2 projects within the
next twelve months.
For the remaining CGUs, management believes that any reasonable possible
change in the key assumptions on which the recoverable amounts of the CGUs are
based would not cause any of their carrying amounts to exceed their
recoverable amounts.
A number of sensitivities were run on the projections to identify the changes
required in each of the key assumptions that, in isolation, would give rise to
an impairment of the following goodwill balances.
Increase in(1) Reduction in(1) Reduction in
discount future growth final year cash
rate rate flow
CGU Geographical segment % % %
Keller US North America 35.6 76.8 97.5
Suncoast North America 111.2 n/a 119.4
Keller Canada North America 7.4 9.6 50.1
1 The increase in discount rate and reduction in future growth
rate are presented as gross movements.
16 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
2023 2022
Note £m £m
Property, plant and equipment - owned assets 16a 394.9 409.5
Right-of-use assets - leased assets 16b 85.3 77.0
At 31 December 480.2 486.5
16 a) Property, plant and equipment - owned assets
Plant,
Land and machinery Capital work
buildings and vehicles in progress Total
£m £m £m £m
Cost
At 1 January 2022 69.0 910.9 5.5 985.4
Additions 1.9 72.4 7.3 81.6
Acquired with businesses - 0.7 - 0.7
Disposals - (34.8) - (34.8)
Net transfers to held for sale - (1.5) - (1.5)
Reclassification - 2.2 (2.2) -
Exchange movements 5.3 68.2 0.6 74.1
At 31 December 2022 and 1 January 2023 76.2 1,018.1 11.2 1,105.5
Additions 4.3 85.3 4.7 94.3
Transfer from leased assets (note 16 b)) - 0.8 - 0.8
Disposals (0.6) (69.8) (0.1) (70.5)
Net transfers to held for sale(1) - (1.7) - (1.7)
Disposed with the business(2) - (0.8) - (0.8)
Reclassification 1.2 5.8 (7.0) -
Exchange movements (2.5) (37.3) (0.6) (40.4)
At 31 December 2023 78.6 1,000.4 8.2 1087.2
Accumulated depreciation and impairment
At 1 January 2022 21.9 588.0 - 609.9
Charge for the year 1.9 69.2 - 71.1
Disposals - (30.1) - (30.1)
Net transfers to held for sale - (1.2) - (1.2)
Exchange movements 1.6 44.7 - 46.3
At 31 December 2022 and 1 January 2023 25.4 670.6 - 696.0
Charge for the year 3.1 78.7 - 81.8
Disposals (0.2) (57.3) - (57.5)
Net transfers to held for sale(1) - (0.2) - (0.2)
Disposed with the business(2) - (0.4) - (0.4)
Exchange movements (0.8) (26.6) - (27.4)
At 31 December 2023 27.5 664.8 - 692.3
Carrying amount
At 1 January 2022 47.1 322.9 5.5 375.5
At 31 December 2022 and 1 January 2023 50.8 347.5 11.2 409.5
At 31 December 2023 51.1 335.6 8.2 394.9
1 The carrying amount of assets held for sale at the balance
sheet date are detailed in note 22.
2 Assets disposed with the Cyntech Tanks operation in Canada as
detailed in note 5.
The Group had contractual commitments for the acquisition of property, plant
and equipment of £12.0m (2022: £17.6m) at the balance sheet date. These
amounts were not included in the balance sheet at the year end.
16 b) Right-of-use assets - leased assets
The Group has lease contracts for various items of land and buildings, plant,
machinery and vehicles used in its operations. Leases of land and buildings
generally have lease terms between three and 15 years, while plant, machinery
and vehicles generally have lease terms between two and eight years. The
Group's obligations under its leases are secured by the lessor's title to the
lease assets. Generally, the Group is restricted from assigning and
sub-leasing its leased assets. There are several lease contracts that include
extension and termination options.
The Group has certain leases of machinery with lease terms of 12 months or
less and leases of office equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions for
these leases.
Set out below are the carrying amounts of the right-of-use assets recognised
and the movements during the year:
Plant,
Land and machinery
buildings and vehicles Total
£m £m £m
At 1 January 2022 42.9 25.0 67.9
Additions 5.9 18.9 24.8
Acquired with businesses - 2.1 2.1
Depreciation expense (14.1) (15.6) (29.7)
Impairment reversal - 4.2 4.2
Contract modifications 6.0 (4.4) 1.6
Exchange movements 3.4 2.7 6.1
At 31 December 2022 and 1 January 2023 44.1 32.9 77.0
Additions 18.0 15.9 33.9
Transfers to property, plant & equipment - (0.8) (0.8)
Depreciation expense (14.7) (14.7) (29.4)
Impairment expense (0.6) - (0.6)
Contract modifications 7.3 1.4 8.7
Exchange movements (2.1) (1.4) (3.5)
At 31 December 2023 52.0 33.3 85.3
The carrying amounts of lease liabilities (included within note 26 within
loans and borrowings) and the movements during the year are set out in note
27.
17 Investments in joint ventures
The Group's investment in joint ventures relates to a 50% interest in the
ordinary shares of KFS Finland Oy, an entity incorporated in Finland.
2023
£m
At 1 January 2023 4.4
Share of underlying post-tax results 0.8
Share of non-underlying post-tax results (note 9) (0.6)
Exchange movements (0.1)
At 31 December 2023 4.5
2022
£m
At 1 January 2022 4.0
Share of underlying post-tax results 1.5
Share of non-underlying post-tax results (note 9) (1.2)
Exchange movements 0.1
At 31 December 2022 4.4
In 2023, KFS Finland Oy earned total revenue of £19.0m (2022: £20.7m) and a
statutory profit after tax for the year of £0.2m (2022: £0.3m).
The joint venture had no contingent liabilities or commitments as at 31
December 2023 (2022: £nil).
Aggregate amounts relating to joint ventures:
2023 2022
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
items items
(note 9) (note 9)
£m £m £m £m £m £m
Revenue 19.0 - 19.0 20.7 - 20.7
Operating costs(1) (18.0) (0.6) (18.6) (19.2) (1.2) (20.4)
Operating profit/(loss) 1.0 (0.6) 0.4 1.5 (1.2) 0.3
Finance costs (0.2) - (0.2) (0.1) - (0.1)
Profit/(loss) before taxation 0.8 (0.6) 0.2 1.4 (1.2) 0.2
Taxation (0.1) 0.1 - 0.1 - 0.1
Share of post-tax results 0.7 (0.5) 0.2 1.5 (1.2) 0.3
1 Included within operating costs is depreciation on
owned assets of £0.9m (2022: £1.1m).
KFS Finland Oy Group's portion of
(100% of results) the joint venture
2023 2022 2023 2022
£m £m £m £m
Non-current assets 16.0 18.0 8.0 9.0
Cash and cash equivalents 3.2 1.4 1.6 0.7
Other current assets 3.0 4.4 1.5 2.2
Total assets 22.2 23.8 11.1 11.9
Other current liabilities (3.8) (3.4) (1.9) (1.7)
Non-current loans and borrowings (9.0) (10.8) (4.5) (5.4)
Other non-current liabilities (0.4) (0.8) (0.2) (0.4)
Total liabilities (13.2) (15.0) (6.6) (7.5)
Share of net assets 9.0 8.8 4.5 4.4
18 Other non-current assets
2023 2022
£m £m
Non-qualifying deferred compensation plan assets 20.5 19.4
Customer retentions 22.7 16.3
Other assets 1.6 1.7
Insurance receivables 22.0 23.4
66.8 60.8
A non-qualifying deferred compensation plan (NQ) is available to US employees,
whereby an element of eligible employee bonuses and salary is deferred over a
period of four to six years. The plan allows participants to receive tax
relief for contributions beyond the limits of the tax-free amounts allowed per
the 401k defined contribution pension plan. The plan is administered by a
professional investment provider with participants able to select their
investments from an approved listing. An amount equal to each participant's
compensation deferral is transferred into a trust and invested in various
marketable securities. The related trust assets are not identical to
investments held on behalf of the employee but are invested in similar funds
with the objective that performance of the assets closely tracks the
liabilities. The investments held in the trust are designated solely for the
purpose of paying benefits under the non-qualified deferred compensation plan.
The investments in the trust would however be available to all unsecured
general creditors in the event of insolvency.
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.
At 31 December 2023, non-current assets in relation to the investments held in
the trust were £20.5m (2022: £19.4m). The fair value movement on these
assets was £2.2m (2022: £3.5m). During the period proceeds from the sale of
NQ-related investments were £nil (2022: £nil). At 31 December 2023,
non-current liabilities in relation to the participant investments were
£14.3m (2022: £14.7m). These are accounted for as financial liabilities at
fair value through profit or loss. The fair value movement on these
liabilities was £2.6m (2022: £3.5m). During the year £0.6m (2022: £1.2m)
of compensation was deferred.
Further details on insurance receivables are given in note 24.
19 Inventories
2023 2022
£m £m
Raw materials and consumables 58.9 56.3
Work in progress 1.0 1.9
Finished goods 33.4 66.2
93.3 124.4
During 2023, £1.3m (2022: £2.0m) of inventory write-downs were recognised as
an expense for inventories carried at net realisable value. This is recognised
within operating costs in the consolidated income statement.
During 2023, inventory balances decreased by £31.1m (2022: £52.3m increase),
which was made up of cashflow movements of £26.8m (2022:£(44.2)m), foreign
exchange movements of £4.2m (2022: £(7.5)m) and other non-cash movements of
£0.1m (2022: £(0.6)m).
20 Trade and other receivables
2023
2022
£m £m
Trade receivables 583.1 615.5
Contract assets 90.9 105.3
Other receivables 21.7 20.7
Prepayments 26.1 23.1
721.8 764.6
During 2023, trade and other receivable balances decreased by £42.8m (2022:
£179.1m increase), which was made up of cashflow movements of £1.5m (2022:
£(110.0)m), foreign exchange movements of £33.0m (2022: £57.1m) and other
non-cash movements of £8.3m (2022: £12.0m).
Further details on insurance receivables included within other receivables are
given in note 24.
Trade receivables and contract assets included in the balance sheet are shown
net of expected credit loss provisions as detailed in note 2.
The movement in the allowance for expected credit losses of trade receivables
and contract assets is as follows:
2023 2022
(Restated)
£m £m
At 1 January 36.0 34.8
Used during the year (10.8) (4.4)
Additional provisions 29.4 13.8
Unused amounts reversed (7.7) (10.6)
Acquisition with businesses - 0.2
Exchange movements (1.8) 2.2
At 31 December 45.1 36.0
During the year, the Financial Reporting Council ("FRC") reviewed the Group's
Annual Report and Accounts for the year ended 31 December 2022. The FRC's
review was limited to the Group's Annual Report and Accounts for the year
ended 31 December 2022 and did not benefit from a detailed understanding of
underlying transactions and therefore provided no assurance that they are
correct in all material respects. Following completion of the review, the
Directors have concluded to restate the opening allowance for expected credit
losses of trade receivables and contract assets of the prior period by £18.9m
and the amounts presented in the Unused amounts reversed. The restatement has
no impact on the value of the allowance as at 31 December 2022 and has no
impact on the statement of financial position at 31 December 2022. The
restatement has caused a consequential increase of £12.8m in the amount
reported in note 6 for Other operating charges for the prior period.
Set out below is information about the credit risk exposure on the Group's
trade receivables and contract assets, detailing past due but not impaired,
based on agreed terms and conditions with the customer:
2023
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
£m £m £m £m £m £m
Expected credit loss rate 1% 1% 1% 1% 46% 7%
Estimated total gross carrying amount at default 92.2 402.8 109.8 57.9 79.1 649.6
Allowance for expected credit loss (1.3) (5.9) (1.0) (0.3) (36.6) (43.8)
Carry amount as shown in the balance sheet 90.9 396.9 108.8 57.6 42.5 605.8
2022
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
£m £m £m £m £m £m
Expected credit loss rate 1% 1% 0% 0% 43% 5%
Estimated total gross carrying amount at default 106.4 395.9 112.3 91.2 67.3 666.7
Allowance for expected credit loss (1.1) (5.3) (0.3) (0.4) (28.9) (34.9)
Carry amount as shown in the balance sheet 105.3 390.6 112.0 90.8 38.4 631.8
The Group's expected credit loss rate for trade receivables and non-current
customer retentions that were more than 90 days past due increased from 43% in
2022 to 46% in 2023. This was as a result of specific provisions that were
provided in relation to both customers struggling financially and contractual
disputes leading to failure of recovery. The other expected credit loss rates
were in line with the prior year.
21 Cash and cash equivalents
2023 2022
£m £m
Bank balances 105.2 97.0
Short-term deposits 46.2 4.1
Cash and cash equivalents in the balance sheet 151.4 101.1
Bank overdrafts (2.4) (6.9)
Cash and cash equivalents in the cash flow statement 149.0 94.2
Cash and cash equivalents include £4.4m (2022: £8.5m) of the Group's share
of cash and cash equivalents held by joint operations, and £1.1m (2022:
£1.4m) of restricted cash which is subject to local country restrictions as
it is held as collateral in support of bank guarantees.
22 Assets held for sale
2023 2022
£m £m
Plant and machinery 1.6 2.8
1.6 2.8
During 2023, £1.1m (2022: £0.9m) of the North American assets, £1.4m of the
Waterway assets and £0.1m of the South African assets were disposed of for a
total cash consideration of £4.2m resulting in a gain from the disposal of
assets of £1.6m, which is included in operating costs.
At 31 December 2023, assets held for sale comprises of an electric crane in
Australia costing £1.5m which was added during the period and remaining
£0.1m of assets in North America.
23 Trade and other payables
2023 2022
£m £m
Trade payables 155.5 229.4
Other taxes and social security payable 16.8 21.5
Other payables 153.0 139.4
Contract liabilities 90.9 85.6
Accruals 137.1 109.7
Fair value of derivative financial instruments 0.3 -
553.6 585.6
Other payables includes contingent and deferred consideration of £1.7m (2022:
£0.8m), interest payable of £6.1m (2022: £2.0m), non-qualifying
compensation plan liabilities of £3.3m (2022: £1.7m) and contract specific
accruals of £119.1m (2022: £117.6m).
During 2023, trade and other payable balances decreased by £32.0m (2022:
£77.6m increase), which was made up of cashflow movements of £25.6m (2022:
£(43.7)m), foreign exchange movements of £22.0m (2022: £(39.2)m) and other
non-cash movements of £(15.6)m (2022: £5.3m).
24 Provisions
Employee Restructuring Contract Insurance Other
and legal
provisions provisions provisions provisions provisions Total
£m £m £m £m £m £m
As at 31 December 2022 10.4 4.1 37.8 65.0 2.3 119.6
Charge for the year 2.5 5.9 31.1 16.6 0.6 56.7
Used during the year (2.3) (3.5) (21.2) (5.8) (0.1) (32.9)
Unused amounts reversed (0.3) (0.3) (5.2) (1.8) - (7.6)
Unwinding of discount - - - 0.4 - 0.4
Exchange movements (0.7) (0.1) (1.3) (1.0) (0.3) (3.4)
At 31 December 2023 9.6 6.1 41.2 73.4 2.5 132.8
Current 3.2 6.1 29.5 17.9 2.4 59.1
Non-current 6.4 - 11.7 55.5 0.1 73.7
At 31 December 2023 9.6 6.1 41.2 73.4 2.5 132.8
Employee provisions
Employee provisions relate to various liabilities in respect of employee
rights and benefits, including the workers' compensation scheme in North
America and long service leave benefits in Australia.
At 31 December 2023, the provision in respect of workers' compensation was
£6.5m (2022: £7.1m). A provision is recognised when an employee informs the
company of a workers' compensation claim. The provision is measured based on
information provided by the workers' compensation insurer. The actual costs
that may be incurred in respect of these claims are dependent on the
assessment of an employee's claim and potential medical expenses, with timing
of outflows variable depending on the claim.
At 31 December 2023, the provision in respect of long service leave was £2.0m
(2022: £1.9m). A provision is recognised at the point an employee joins the
company, with an adjustment made to factor the likelihood that the employee
will remain in continuous service with the company to meet the threshold to
receive the benefits. It is measured on an IAS 19 basis, at the present value
of expected future benefit for services provided by employees up to the
reporting date. The actual costs that may be incurred are dependent on the
length of service for employees and amended for any starters and leavers. The
provision is utilised when the leave is taken by the employee or when unused
leave is paid on termination of employment.
Employee provisions also includes an amount of £0.8m (2022: £0.8m) in
respect of social security contributions on share options. This provision is
utilised as the options are exercised by employees, which occurs when the
awards vest. The provision covers three years of open share options and will
be utilised each year as the options vest.
Restructuring provisions
A restructuring provision is recognised when the Group has developed a
detailed formal plan for the restructuring, has raised a valid expectation in
those individuals affected and liabilities have been identified. The
measurement of a restructuring provision includes only the direct expenditures
arising from the restructuring.
The restructuring provisions in 2023 include amounts provided in the year for
the exit from the Egypt business, as well as amounts not yet settled from
restructuring projects provided in the prior year. The provisions comprise
mainly amounts for redundancy costs. Estimates may differ from the actual
charges depending on the finalisation of redundancy amounts. These provisions
are expected to be utilised within the next 12 months.
Contract provisions
Contract provisions include onerous contracts where the forecast costs of
completing the contract exceed the revenue and provision for potential
remediation costs that we believe are probable to incur .
Provision for onerous contracts is made in full when such losses are foreseen,
based on the estimated unavoidable costs of meeting the obligations of the
contract, where these exceed the economic benefits expected to be received.
The unavoidable costs under a contract reflect the least net cost of exiting
from the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfil it. The actual loss
incurred is uncertain until the project has been completed, and the actual
costs incurred to complete the contract could be higher or lower than
estimated in the calculation of the provision. The majority of this balance is
expected to be utilised in the next 12 months, given the general short-term
nature of contracts.
Provision for potential remediation costs typically arise after the completion
of a project through a customer claim or dispute. The provision reflects our
estimate of costs to be incurred in relation to the dispute, some disputes can
take a long period of time to resolve and the actual amount incurred could be
higher or lower than our provision, so there is uncertainty over both the
amount and the timing of the expected cash outflows. The non-current element
of the provision relates to disputes we expect will take longer than a year to
resolve.
Insurance and legal provisions
Insurance and legal provisions comprises the liability for legal claims
against the Group, including those that are retained within the Group's
captive insurer (the 'captive'). The captive covers both public liability and
professional indemnity claims for the Group. The captive covers liabilities
below an upper limit above which third-party insurance applies. They also
include matters relating to separate legal issues which are not covered by the
captive, including claims arising from civil matters which could result in
penalties and legal costs. By their nature the amounts and timings of any
outflows are difficult to predict.
Provisions for insurance and legal claims are made based on the best estimate
of the likely total settlement value of a claim against the Group. Management
seek specialist input from legal advisers and the Group's insurance claims
handler to estimate the most likely legal outcome. The outcome of legal
negotiations is inherently uncertain; as a result, there can be no guarantee
that the assumptions used to estimate the provision will result in an accurate
prediction of the actual costs that may be incurred.
A provision is recognised when it is judged likely that a legal claim will
result in a payment to the claimant and the amount of the claim can be
reliably estimated. Provisions are utilised as insurance claims are settled,
which may take a number of years. A separate insurance receivable is
recognised to the extent that confirmed third-party insurance is expected to
cover any element of an estimated claim value and is virtually certain to be
recovered. The asset is recognised within other non-current assets (refer to
note 18) and trade and other receivables (refer to note 20). Management
considers that there are no instances of reimbursable assets which are
probable in nature.
Other provisions
Other provisions are in respect of property dilapidation arising from lease
obligations and other operational provisions. Where a lease includes a
'make-good' requirement, provision for the cost is recognised as the
obligation is incurred, either at the commencement of the lease or as a
consequence of using the asset, and the cost of the expected work required can
be reliably estimated. These are expected to be utilised over the relevant
lease term which ranges from 3 to 15 years across the Group.
25 Other non-current liabilities
2023 2022
£m £m
Non-qualifying compensation plan liabilities 14.3 14.7
Other liabilities 8.9 6.6
23.2 21.3
Other liabilities include deferred and contingent consideration of £8.9m
(2022: £1.1m) and £nil (2022: £5.2m) in respect of US social security tax
deferrals, refer to note 8 for further information.
Refer to note 18 for further information on the non-qualifying deferred
compensation plan.
26 Financial instruments
Exposure to credit, interest rate and currency risks arise in the normal
course of the Group's business and have been identified as risks for the
Group. Derivative financial instruments are used to hedge exposure to
fluctuations in foreign exchange and interest rates.
The Group does not trade in financial instruments nor does it engage in
speculative derivative transactions.
Currency risk
The Group faces currency risk principally on its net assets, most of which are
in currencies other than sterling. The Group aims to reduce the impact that
retranslation of these net assets might have on the consolidated balance sheet
by matching the currency of its borrowings, where possible, with the currency
of its assets. The majority of the Group's borrowings are held in sterling and
US dollars.
The Group manages its currency flows to minimise transaction exchange risk.
Forward contracts are used to hedge significant individual transactions. The
majority of such currency flows within the Group relate to the repatriation of
profits, intra-group loan repayments and any foreign currency cash flows
associated with acquisitions. The Group's treasury risk management is
performed at the Group's head office.
As at 31 December 2023, the fair value of outstanding foreign exchange forward
contracts was £0.3m (2022: £nil) included in current liabilities.
Interest rate risk
Our objectives are to add stability to the interest expense and to manage our
exposure to interest rate movements. To accomplish these objectives, we
primarily use external debt and have previously used interest rate swaps as
part of our interest rate risk management strategy.
Interest rate risk is managed by either fixed or floating rate borrowings
dependent upon the purpose and term of the financing.
As at 31 December 2023, approximately 99% (2022: 80%) of the Group's
third-party borrowings were at fixed interest rates.
Hedging currency risk and interest rate risk
The Group currently hedges currency risk and has previously hedged interest
rate risk. Where hedging instruments are used to hedge significant individual
transactions, the Group ensures that the critical terms, including dates,
currencies, nominal amounts, interest rates and lengths of interest periods,
are matched. The Group uses both qualitative and quantitative methods to
confirm this and to assess the effectiveness of the hedge.
Interest rate swaps were in place at the beginning of 2022, to hedge the
interest rate risk on the existing US Private placement notes. These interest
rate swaps were closed out during 2022. There are no derivatives or other
hedging instruments in place at the balance sheet date held for the purpose of
hedging interest rate risk.
Credit risk
The Group's principal financial assets are trade and other receivables, bank
and cash balances and a limited number of investments and derivatives held to
hedge certain Group exposures. These represent the Group's maximum exposure to
credit risk in relation to financial assets.
The Group has procedures to manage counterparty risk and the assessment of
customer credit risk is embedded in the contract tendering processes. The
counterparty risk on bank and cash balances is managed by limiting the
aggregate amount of exposure to any one institution by reference to their
credit rating and by regular review of these ratings.
Customer credit risk is mitigated by the Group's relatively small average
contract size and diversity, both geographically and in terms of end markets.
No individual customer represented more than 4% of revenue in 2023 (2022: 6%).
The ageing of trade receivables that were past due but not impaired is shown
in note 20.
The Group evaluates each new customer and assesses their creditworthiness
before any contract is undertaken.
The Group reviews customer receivables (including contract assets) on an
ageing basis and provides against expected unrecoverable amounts. Experience
has shown the level of historical provision required to be relatively low.
Credit loss provisioning reflects past experience, economic factors and
specific conditions.
The Group's estimated exposure to credit risk for trade receivables and
contract assets is disclosed in note 20. This amount is the accumulation of
several years of provisions for known or expected credit losses.
Liquidity risk and capital management
The Group's capital structure is kept under constant review, taking into
account the need for availability and cost of various sources of funding. The
capital structure of the Group consists of net debt and equity as shown in the
consolidated balance sheet. The Group maintains a balance between the
certainty of funding and a flexible, cost-effective financing structure, with
all main borrowings being from committed facilities. The Group's policy
ensures that its capital structure is appropriate to support this balance and
the Group's operations.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt. The Group's debt and committed
facilities mainly comprise a $75m private placement repayable in December
2024, a US$120m private placement repayable in August 2030, a US$180m private
placement repayable in August 2033 and a £375m syndicated revolving credit
facility expiring in November 2025.
The private placement debt and revolving credit facility are subject to
certain covenants linked to the Group's financing structure, specifically
regarding the ratios of net debt and interest to profit. The covenants are
calculated on an IAS 17 basis, EBITDA to net debt leverage must be below three
times and EBITDA interest cover must be above four times. The Group has
complied with these covenants throughout the year.
At the year end, the Group also had other borrowing facilities available of
£50.2m (2022: £75.8m).
Private placements
In August 2023, $120m and $180m were raised through a private placement with
US institutions. The proceeds of the issue of $120m Series A notes 6.38% due
2030 and $180m Series B notes 6.42% due 2033 were used to repay a $115m
bilateral term loan facility and to repay drawings from the revolving credit
facility. The US private placement notes are accounted for on an amortised
cost basis and are retranslated at the exchange rate at each period end. The
carrying value of the $120m and $180m private placement liabilities at 31
December 2023 were £94.2m and £141.2m, respectively.
In December 2014, $75m was raised through a private placement with US
institutions. The proceeds of the issue of $75m Series B notes 4.17% due 2024
was used to refinance maturing private placements. The US private placement
note are accounted for on an amortised cost basis and are retranslated at the
exchange rate at each period end. The carrying value of the $75m private
placement liability at 31 December 2023 was £58.5m (2022: £62.0m).
Hedging
The Group entered into a Treasury lock on 28 April 2023 designated as a cash
flow hedge against the highly probable cash outflows for the US private
placement notes issued in August 2023. A Treasury lock is a synthetic forward
sale of a US Treasury note, which is settled in cash based upon the difference
between an agreed-upon treasury rate and the prevailing treasury rate at
settlement. Such Treasury locks are entered into to effectively fix the
underlying treasury rate component of an upcoming debt issuance. The Treasury
lock was settled on 26 May 2023.
All hedges are tested for effectiveness every six months. All hedging
relationships remained effective during the year while they were in place.
Accounting classifications
2023 2022
£m £m
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 20.5 19.4
Financial assets measured at amortised cost
Trade receivables 583.1 615.5
Contract assets 90.9 105.3
Cash and cash equivalents 151.4 101.1
Financial liabilities at fair value through profit or loss
Contingent consideration payable (10.0) (0.9)
Forward contracts (0.3) -
Financial liabilities measured at amortised cost
Trade payables (155.5) (229.4)
Contract liabilities (90.9) (85.6)
Bank and other loans (297.1) (319.0)
Lease liabilities (91.6) (81.0)
Deferred consideration payable (0.7) (1.0)
Effective interest rates and maturity analysis
In respect of financial liabilities, the following table indicates their
effective interest rates and undiscounted contractual cash flows at the
balance sheet date:
2023
Due after Carrying amount
Effective Due within Due within Due within more than as shown in the
interest rate 1 year 1-2 years 2-5 years 5 years Total balance sheet
% £m £m £m £m £m £m
Bank loans and overdrafts 2.5% (2.8) (0.4) (0.1) - (3.3) (3.2)
Other loans 6.0% (76.5) (15.1) (45.4) (287.9) (424.9) (293.9)
Lease liabilities - (31.0) (24.4) (36.7) (16.3) (108.4) (91.6)
Contract liabilities - (90.9) - - - (90.9) (90.9)
Trade payables - (155.5) - - - (155.5) (155.5)
Contingent and deferred consideration - (1.7) (3.0) (7.4) - (12.1) (10.7)
(358.4) (42.9) (89.6) (304.2) (795.1) (645.8)
2022
Due after Carrying amount
Effective Due within Due within Due within more than as shown in the
interest rate 1 year 1-2 years 2-5 years 5 years Total balance sheet
% £m £m £m £m £m £m
Bank loans and overdrafts 5.0 (10.4) (0.4) (245.7) (0.1) (256.6) (256.4)
Bonds and other loans 4.2 (3.2) (64.6) - - (67.8) (62.6)
Lease liabilities - (28.3) (21.4) (32.9) (7.1) (89.7) (81.0)
Contract liabilities - (85.6) - - - (85.6) (85.6)
Trade payables - (229.4) - - - (229.4) (229.4)
Contingent consideration - (0.8) (1.1) - - (1.9) (1.9)
(357.7) (87.5) (278.6) (7.2) (731.0) (716.9)
Loans and borrowings analysis
2023 2022
£m £m
$75m private placement (due December 2024) (58.5) (62.0)
$120m private placement (due August 2030) (94.2) -
$180m private placement (due August 2033) (141.2) -
£375m syndicated revolving credit facility (expiring November 2025) - (248.1)
Bank overdrafts (2.4) (6.9)
Other bank borrowings (0.8) (1.4)
Other loans - (0.6)
Lease liabilities (note 27) (91.6) (81.0)
Total loans and borrowings (388.7) (400.0)
The Group has substantial borrowing facilities available to it. The undrawn
committed facilities available at 31 December 2023 amounted to £377.8m (2022:
£227.6m). This mainly comprised the Group's unutilised £375m revolving
credit facility, which expires on 23 November 2025. In addition, the Group had
undrawn uncommitted borrowing facilities totalling £47.4m at 31 December 2023
(2022: £46.1m). Other uncommitted bank borrowing facilities are normally
reaffirmed by the banks annually, although they can theoretically be withdrawn
at any time. Facilities totalling £nil (2022: £1.5m) are secured against
certain assets. Future obligations under finance leases on a former IAS 17
basis totalled £0.5m (2022: £0.9m), including interest of £0.1m (2022:
£0.1m).
Changes in loans and borrowings were as follows:
Foreign
2022 Cash flows Other(1) New leases exchange movements Fair value changes 2023
£m £m £m £m £m £m £m
Bank overdrafts (6.9) 4.5 - - - - (2.4)
Bank loans (249.5) 244.5 (1.1) - 5.3 - (0.8)
Private placements (62.0) (241.2) 0.6 - 8.7 - (293.9)
Other loans (0.6) 0.6 - - - - -
Lease liabilities (note 27) (81.0) 33.9 (14.3) (33.9) 3.7 - (91.6)
Total loans and borrowings (400.0) 42.3 (14.8) (33.9) 17.7 - (388.7)
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities and the amortisation of deferred
financing costs on bank loans.
Changes in loans and borrowings in the prior year were as follows:
Foreign
2021 Cash flows Other(1) New leases Acquisition of businesses exchange movements Fair value changes 2022
£m £m £m £m £m £m £m £m
Bank overdrafts (0.9) (5.9) - - - (0.1) - (6.9)
Bank loans (140.9) (98.2) (0.5) - (0.1) (9.8) - (249.5)
Other loans (58.8) 0.3 - - - (6.5) 2.4 (62.6)
Lease liabilities (note 27) (75.4) 33.1 (5.2) (24.8) (2.1) (6.6) - (81.0)
Total loans and borrowings (276.0) (70.7) (5.7) (24.8) (2.2) (23.0) 2.4 (400.0)
Derivative financial instruments 2.6 (0.2) - - - - (2.4) -
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities and the amortisation of deferred
financing costs on bank loans.
There was no impact of IBOR reform on the Group in the year.
Cash flow hedges
At 31 December 2023, the Group held foreign exchange forward contracts to
hedge exposures to changes in foreign currency rates. The net value of
instruments held was £0.3m (2022: £nil).
2023
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal
<1 year 1-2 years 2-5 years >5 years Asset Liability ineffectiveness amount
£m £m £m £m £m £m £m $m
Forward exchange forwards (0.3) - - - - (0.3) - (0.3)
2022
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal
<1 year 1-2 years 2-5 years >5 years Asset(1) Liability ineffectiveness amount
£m £m £m £m £m £m £m $m
Forward exchange forwards - - - - - - - - -
Fair value hedges
At 31 December 2023, the Group held no instruments to hedge exposures to
changes in interest rates (2022: £nil).
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 foreign currency forward contracts are calculated based on
achieved contract rates compared to the prevailing market rates at the balance
sheet date. The valuation methods of all of 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.
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and interest cash
flows discounted using appropriate discount rates prevailing at the balance
sheet date.
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. The individually significant unobservable inputs used in the fair
value measurement of the Group's contingent consideration as at 31 December
2023 are the estimation of future profits at Keller Arabia and at GKM in order
to determine the expected outcome of the earnout arrangement.
The following table shows a reconciliation from the opening to closing
balances for contingent and deferred consideration:
2023 2022
£m £m
At 1 January 1.9 12.7
Acquisition of businesses (note 5) - 1.7
Non-controlling interest (note 34) 9.3 -
Additional amounts provided (note 9) - 0.1
Paid during the period (0.2) (12.3)
Fair value in the income statement during the period (note 9) - (0.7)
Exchange movements (0.3) 0.4
At 31 December 10.7 1.9
( )
On 29 August 2023, the Group acquired the 35% interest in the voting shares of
Keller Turki Company Limited. A contingent consideration is payable annually
between the years 2023 and 2027, dependent on the qualifying revenue generated
by the business for each of those years. The fair value of the contingent
consideration as at 31 December 2023 was £9.3m (SAR 43.2m).
On 1 May 2022, the Group acquired GKM Consultants Inc. Contingent
consideration is payable dependent on the cumulative EBITDA in the three-year
period post acquisition. The fair value of the contingent consideration was
recognised at the date of acquisition at £1.2m, but subsequently reduced
following movements in its fair value to £0.9m at 31 December 2022. On 15
November 2022, the Group acquired Nordwest Fundamentering AS and the deferred
contingent consideration payable relating to this acquisition is £0.5m.
Additional deferred consideration provided of £0.2m relates to the Voges
Drilling acquisition in 2021.
Total contingent and deferred consideration of £0.2m was paid during the
period in respect of the Voges Drilling acquisition in 2021.
There were no fair value movements during the year. In 2022, fair value
movements of £0.7m related to a fair value adjustment of the RECON contingent
consideration on finalisation of the amount payable of £0.3m and the
reduction in the GKM payable noted above of £0.4m.
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 assets and liabilities
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 of the assets and related liabilities
are recorded within net finance costs in the consolidated income statement.
Refer to note 18 for further information on the non-qualifying deferred
compensation plan.
Interest rate and currency profile
The profile of the Group's financial assets and financial liabilities after
taking account of the impact of hedging instruments was as follows:
2023
GBP USD EUR CAD AUD Other Total
Weighted average fixed debt interest rate (%) - 6.0 1.4 - - - 5.9
Weighted average fixed debt period (years) - 6.7 1.3 - - - 6.9
2023
GBP USD EUR CAD AUD Other Total
£m £m £m £m £m £m £m
Fixed rate financial liabilities - (293.9) (0.8) - - - (294.7)
Floating rate financial liabilities - (1.4) (1.0) - - - (2.4)
Lease liabilities (2.1) (57.8) (10.2) (5.6) (3.7) (12.2) (91.6)
Cash and cash equivalents 59.7 14.6 17.5 6.2 6.7 46.7 151.4
Net debt 57.6 (338.5) 5.5 0.6 3.0 34.5 (237.3)
Trade receivables 6.8 375.7 38.1 46.0 26.0 90.5 583.1
Trade payables (4.6) (71.2) (24.4) (3.3) (4.0) (48.0) (155.5)
2022
GBP USD EUR CAD AUD Other Total
Weighted average fixed debt interest rate (%) - 4.2 1.4 - - 3.5 4.1
Weighted average fixed debt period (years) - 2.0 3.2 - - 0.1 2.0
2022
GBP USD EUR CAD AUD Other Total
£m £m £m £m £m £m £m
Fixed rate financial liabilities - (62.0) (1.4) - - (0.6) (64.0)
Floating rate financial liabilities (75.3) (153.8) (0.2) - (25.6) (0.1) (255.0)
Lease liabilities (2.9) (48.4) (10.4) (4.4) (4.6) (10.3) (81.0)
Cash and cash equivalents 7.1 4.4 14.9 4.7 11.6 58.4 101.1
Net debt (71.1) (259.8) 2.9 0.3 (18.6) 47.4 (298.9)
Trade receivables 7.2 409.5 39.8 58.1 27.0 73.9 615.5
Trade payables (6.9) (120.3) (32.6) (13.0) (9.2) (47.4) (229.4)
Sensitivity analysis
At 31 December 2023, it is estimated that a general movement of one percentage
point in interest rates would increase or decrease the Group's profit before
taxation by approximately £nil (2022: £1.5m).
It is estimated that a general increase of 10 percentage points in the value
of sterling against other principal foreign currencies would have decreased
the Group's profit before taxation and non‑underlying items by approximately
£14m for the year ended 31 December 2023 (2022: £8.8m). The estimated impact
of a 10 percentage point decrease in the value of sterling is an increase of
£17m (2022: £7.2m) in the Group's profit before taxation and non-underlying
items. This sensitivity relates to the impact of retranslation of foreign
earnings only. The impact on the Group's earnings of currency transaction
exchange risk is not significant. These sensitivities assume all other factors
remain constant.
27 Lease liabilities
Set out below are the carrying amounts of lease liabilities (included within
note 26 within loans and borrowings) and the movements during the year:
2023 2022
£m £m
At 1 January 81.0 75.4
Additions 33.9 24.9
Acquired with businesses - 2.1
Contract modifications 8.7 1.6
Interest expense 5.6 3.6
Payments (33.9) (33.1)
Exchange movements (3.7) 6.5
At 31 December 91.6 81.0
Current 25.9 24.5
Non-current 65.7 56.5
28 Share capital and reserves
2023 2022
£m £m
Allotted, called up and fully paid equity share capital:
73,099,735 ordinary shares of 10p each (2022: 73,099,735) 7.3 7.3
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.
As at 31 December 2023, the total number of shares held in treasury was
323,133 (2022: 328,954).
During the year to 31 December 2023, 500,000 ordinary shares were purchased by
the Keller Group Employee Benefit Trust (2022: 135,050 purchase) to be used to
satisfy future obligations of the company under the Keller Group plc Long Term
Incentive Plan and 515,119 shares were utilised to satisfy the obligation in
the year (2022: nil). This brings the total ordinary shares held by the
Employee Benefit Trust to 537,171 (2022: 552,290). The cost of the market
purchases was £3.4m (2022: £1.2m).
There is a dividend waiver in place for both shares held in treasury and by
the Keller Group Employee Benefit Trust.
29 Related party transactions
Transactions between the parent, its subsidiaries and joint operations, which
are related parties, have been eliminated on consolidation. Other related
party transactions are disclosed below:
Compensation of key management personnel
The remuneration of the Board and Executive Committee, who are the key
management personnel, comprised:
2023 2022
£m £m
Short-term employee benefits 8.2 4.5
Post-employment benefits 0.3 0.3
Termination payments - 0.4
8.5 5.2
Other related party transactions
As at 31 December 2023, there was a net balance of £0.1m (2022: £0.1m) owed
by the joint venture. These amounts are unsecured, have no fixed date of
repayment and are repayable on demand.
30 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not
yet incurred was £12.0m (2022: £17.6m) and relates to property, plant and
equipment purchases.
31 Guarantees, contingent liabilities and contingent assets
Claims and disputes arise, both in the normal course of business and in
relation to the historic construction activities of the Group, some of which
lead to litigation or arbitration procedures. Such claims are predominantly
covered by the Group's insurance arrangements. The Group recognises provisions
for liabilities when it is more likely than not that a settlement will be
required and the value of such a payment can be reliably estimated.
At 31 December 2023, the Group had outstanding standby letters of credit and
surety bonds for the Group's captive and other global insurance arrangements
totalling £24.5m (2022: £28.1m). The Group enters into performance and
advance payment bonds and other undertakings in the ordinary course of
business, using guarantee facilities with financial institutions to provide
these bonds to customers. At 31 December 2023, the Group has £182.7m
outstanding related to performance and advanced payment bonds (2022:
£190.6m). These are treated as a contingent liability until such time it
becomes probable that payment will be required under the individual terms of
each arrangement. It is judged to be a remote possibility that a payment will
be required under any of the current performance or advance payment bonds.
At 31 December 2023, the Group had no contingent assets (2022: £nil).
32 Share-based payments
The Group operates a Long Term Incentive Plan (the 'Plan'). Under the Plan,
Executive Directors and certain members of senior management are granted
nil-cost share options with a vesting period of three years. The awards are
exercised automatically on vesting, in addition the Executive Directors are
subject to a two-year post-vesting holding period.
Performance share awards are granted to Executive Directors and key management
personnel which are subject to performance conditions including total
shareholder return, earnings per share, return on capital employed and
operating profit margin. Conditional awards are granted under which senior
management receive shares subject only to service conditions, ie the
requirement for participants to remain in employment with the Group over the
vesting period. Participants are entitled to receive dividend equivalents on
these awards.
Outstanding awards are as follows:
Number
Outstanding at 1 January 2022 1,974,436
Granted during 2022 817,381
Lapsed during 2022 (365,677)
Exercised during 2022 (448,963)
Outstanding at 31 December 2022 and 1 January 2023 1,977,177
Granted during 2023 840,572
Lapsed during 2023 (208,543)
Exercised during 2023 (520,940)
Outstanding at 31 December 2023 2,088,266
Exercisable at 1 January 2022 -
Exercisable at 31 December 2022 and 1 January 2023 -
Exercisable at 31 December 2023 -
The average share price during the year was 756.5p (2022: 759.3p).
Under IFRS 2, the fair value of services received in return for share awards
granted is measured by reference to the fair value of share options granted.
The estimate of the fair value of share awards granted is measured based on a
stochastic model. The contractual life of the award is used as an input into
this model, with expectations of early exercise being incorporated into the
model.
The inputs into the stochastic model are as follows:
2023 2022
Share price at grant 660.0p 800.0p
Weighted average exercise price 0.0p 0.0p
Expected volatility 39.6% 41.2%
Expected life 3 years 3 years
Risk-free rate 3.22% 1.35%
Expected dividend yield 0.00% 0.00%
Expected volatility was determined by calculating the historical volatility of
the Group's share price over the previous three years, adjusted for any
expected changes to future volatility due to publicly available information.
The Group recognised total expenses (included in operating costs) of £4.5m
(2022: £2.9m) related to equity-settled, share-based payment transactions.
The weighted average fair value of options granted in the year was 555.7p
(2022: 724.2p). Options outstanding at the year-end have a weighted average
remaining contractual life of 1.2 years (2022: 1.2 years).
The awards, which are taken as shares, are intended to be satisfied from
shares held under the Keller Group Employee Benefit Trust (the 'Trust') or
from treasury shares held. The shares held by the Trust are accounted for as a
deduction from equity in retained earnings. At 31 December 2023, 537,171
(2022: 552,290) ordinary shares were held by the Trust with a value of £3.9m
(2022: £4.9m).
33 Retirement benefit liabilities
The Group operates pension schemes in the UK and overseas.
In the UK, the Group operates the Keller Group Pension Scheme (the 'Scheme'),
a defined benefit scheme, which has been closed to new members since 1999 and
was closed to all future benefit accrual with effect from 31 March 2006. Under
the Scheme, employees are normally entitled to retirement benefits on
attainment of a retirement age of 65. The Scheme is subject to UK pensions
legislation which, inter alia, provides for the regulation of work‑based
pension schemes by The Pensions Regulator. The trustees are aware of and
adhere to the Codes of Practice issued by The Pensions Regulator. The Scheme
trustees currently comprise one member-nominated trustee and two
employer-nominated trustees. An employer-nominated trustee is also the Chair
of the trustees. The Scheme exposes the Group to actuarial risks, such as
longevity risk, interest rate risk and market (investment) risk, which are
managed through the investment strategy to acceptable levels established by
the trustees. The Scheme can invest in a wide range of asset classes including
equities, bonds, cash, property, alternatives (including private equity,
commodities, hedge funds, infrastructure, currency, high yield debt and
derivatives) and annuity policies. Any investment in derivative instruments is
only made to contribute to a reduction in the overall level of risk in the
portfolio or for the purposes of efficient portfolio management. With effect
from the most recent actuarial valuation date (5 April 2023), the Group has
agreed to pay a contribution of £1.7m in total, paid in monthly instalments
from January to August 2024. Contributions will then cease, subject to a
review of the level of employer contributions at the next actuarial review in
2026.
Between 1990 and 1997, the Scheme members accrued a Guaranteed Minimum Pension
(GMP). This amount differed between men and women in accordance with the rules
which were applicable at that time. On 26 October 2018, there was a court
judgement (in the case of Lloyds Banking Group Pensions Trustees Limited v
Lloyds Bank PLC) that confirmed that GMP is to be made equal for men and
women. In 2018, the estimated increase in the Scheme's liabilities was £1.3m,
which was recognised as a past service cost in 2018 as a charge to
non-underlying items. On 20 November 2020, there was an updated judgement
requiring an allowance to be made for past transfers. The estimated increase
in the Scheme's liability in respect of this is less than £0.1m. These
estimates remain appropriate for 2022. The actual cost may differ when the GMP
equalisation exercise is complete.
A potentially landmark judgement was handed down in the High Court case of
Virgin Media vs NTL Trustees in June 2023. The judge in this case ruled that,
where benefit changes were made without a valid 'section 37' certificate from
the scheme actuary, those changes could be considered void. It is anticipated
that the ruling will be appealed. The Keller Group Pension Scheme was
contracted out of the additional state pension between 1997 and 2016 and made
scheme amendments during this period. The Scheme trustees have not yet
investigated the scheme's historic documentation to confirm whether they hold
the relevant s37 certificates, until this review has been completed we are
unable to determine the impact of this judgement.
The Group has two UK defined contribution retirement benefit schemes. There
were no contributions outstanding in respect of these schemes at 31 December
2023 (2022: £nil). The total UK defined contribution pension charge for the
year was £1.8m (2022: £1.6m).
The Group has defined benefit retirement obligations in Germany and Austria.
Under these schemes, employees are entitled to retirement benefits on
attainment of a retirement age of 65, provided they have either five or ten
years of employment with the Group, depending on the area or field they are
working in. The amount of benefit payable depends on the grade of the employee
and the number of years of service. Benefits under these schemes only apply to
employees who joined the Group prior to 1997. These defined benefit retirement
obligations are funded on the Group's balance sheet and obligations are met as
and when required by the Group.
The Group has a number of end of service schemes in the Middle East as
required by local laws and regulations. The amount of benefit payable depends
on the current salary of the employee and the number of years of service.
These retirement obligations are funded on the Group's balance sheet and
obligations are met as and when required by the Group.
The Group operates a defined contribution scheme for employees in North
America, where the Group is required to match employee contributions up to a
certain level in accordance with the scheme rules. The total North America
pension charge for the year was £8.6m (2022: £8.1m).
In Australia, there is a defined contribution scheme where the Group is
required to ensure that a prescribed level of superannuation support of an
employee's notional base earnings is made. This prescribed level of support is
currently 11.0% (2022: 10.5%). The total Australian pension charge for the
year was £4.8m (2022: £4.6m).
Details of the Group's defined benefit schemes are as follows:
The Keller German,(1) German,(1)
Group Pension The Keller Austrian Austrian
Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2023 2022 2023 2022
£m £m £m £m
Present value of the scheme liabilities (41.8) (39.0) (16.2) (16.7)
Fair value of assets 46.0 42.2 - -
Surplus/(deficit) in the scheme 4.2 3.2 (16.2) (16.7)
Irrecoverable surplus (5.7) (7.3) - -
Net defined benefit liability (1.5) (4.1) (16.2) (16.7)
1 ( ) Included in this balance is £3.6m (2022: £3.5m)
in relation to the end of service schemes in the Middle East.
For the Keller Group Pension Scheme, based on the net deficit of the Scheme as
at 31 December 2023 and the committed payments under the Schedule of
Contributions agreed on 15 December 2023, there is a irrecoverable surplus of
£5.7m (2022: £7.3m). Management is of the view that, based on the Scheme
rules, it does not have an unconditional right to a refund of a surplus under
IFRIC 14, and therefore an additional balance sheet liability in respect of a
'minimum funding requirement' has been recognised. The minimum funding
requirement is calculated using the agreed total remaining contribution of
£1.5m, contributions will cease from August 2024. The contributions will be
reviewed following the next actuarial review to be prepared as at 5 April
2026.
The value of the scheme liabilities has been determined by the actuary using
the following assumptions:
The Keller The Keller German and Austrian German and
Group Pension Scheme (UK) Group Pension Scheme (UK) schemes Austrian
schemes
2023 2022 2023 2022
% % % %
Discount rate 4.6 4.8 3.4 3.5
Interest on assets 4.6 4.8 - -
Rate of increase in pensions in payment 3.5 3.4 2.5 2.5
Rate of increase in pensions in deferment 2.8 2.7 6.9 8.3
Rate of inflation 3.4 3.3 6.9 8.3
The mortality rate assumptions are based on published statistics. The average
remaining life expectancy, in years, of a pensioner retiring at the age of 65
at the balance sheet date is:
The Keller The Keller German and Austrian German and
Group Penson Scheme (UK) Group Pension Scheme (UK) schemes Austrian
schemes
2023 2022 2023 2022
Male currently aged 65 21.2 21.0 22.4 19.9
Female currently aged 65 24.0 23.4 25.3 23.3
The assets of the schemes were as follows:
The Keller The Keller German, German,
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) and other and other
schemes schemes
2023 2022 2023 2022
£m £m £m £m
Equities 6.6 7.8 - -
Target return funds(1) 6.0 5.0 - -
Bonds 18.7 13.6 - -
Liability driven investing (LDI) portfolios(2) 14.0 12.9 - -
Cash 0.7 2.9 - -
46.0 42.2 - -
1( ) A diversified growth fund split between mainly UK listed
equities, bonds and alternative investments which are capped at 20% of the
total fund.
2 ( ) A portfolio of gilt and swap contracts, backed by
investment-grade credit instruments, that is designed to hedge the majority of
the interest rate and inflation risks associated with the Schemes'
obligations.
The Keller The Keller German,(1) German,(1)
Austrian Austrian
Group Pension Scheme (UK) Group Pension Scheme (UK)
and other and other
schemes
schemes
2023 2022 2023 2022
£m £m £m £m
Changes in scheme liabilities
Opening balance (39.0) (58.3) (16.7) (18.9)
Current service cost - - (1.2) (0.8)
Interest cost (1.8) (1.1) (0.5) -
Benefits paid 2.1 2.1 1.7 1.0
Exchange movements - - 0.5 (0.8)
Experience loss on defined benefit obligation (1.0) (0.5) - -
Changes to demographic assumptions (0.7) - - -
Changes to financial assumptions (1.4) 18.8 - 2.8
Closing balance (41.8) (39.0) (16.2) (16.7)
Changes in scheme assets
Opening balance 42.2 63.7 - -
Interest on assets 2.0 1.2 - -
Administration costs (0.3) (0.2) - -
Employer contributions 2.9 2.8 - -
Benefits paid (2.1) (2.1) - -
Return on plan assets less interest 1.3 (23.2) - -
Closing balance 46.0 42.2 - -
Actual return on scheme assets 3.3 (22.0) - -
Statement of comprehensive income
Return on plan assets less interest 1.3 (23.2) - -
Experience loss on defined benefit obligation (1.0) (0.5) - -
Changes to demographic assumptions (0.7) - - -
Changes to financial assumptions (1.4) 18.8 - 2.8
Change in irrecoverable surplus 1.6 4.9 - -
Remeasurements of defined benefit plans (0.2) - - 2.8
Cumulative remeasurements of defined benefit plans (25.8) (25.6) (6.4) (6.4)
Expense recognised in the income statement
Current service cost - - (1.2) (0.8)
Administration costs (0.3) (0.2) - -
Operating costs (0.3) (0.2) (1.2) (0.8)
Net pension interest cost 0.2 0.1 (0.5) -
Expense recognised in the income statement (0.1) (0.1) (1.7) (0.8)
Movements in the balance sheet liability
Net liability at start of year 4.1 6.8 16.7 18.9
Expense recognised in the income statement 0.1 0.1 1.7 0.8
Employer contributions (2.9) (2.8) - -
Benefits paid - - (1.7) (1.0)
Exchange movements - - (0.5) 0.8
Remeasurements of defined benefit plans 0.2 - - (2.8)
Net liability at end of year 1.5 4.1 16.2 16.7
schemes
German,(1)
Austrian
and other
schemes
2023
2022
2023
2022
£m
£m
£m
£m
Changes in scheme liabilities
Opening balance
(39.0)
(58.3)
(16.7)
(18.9)
Current service cost
-
-
(1.2)
(0.8)
Interest cost
(1.8)
(1.1)
(0.5)
-
Benefits paid
2.1
2.1
1.7
1.0
Exchange movements
-
-
0.5
(0.8)
Experience loss on defined benefit obligation
(1.0)
(0.5)
-
-
Changes to demographic assumptions
(0.7)
-
-
-
Changes to financial assumptions
(1.4)
18.8
-
2.8
Closing balance
(41.8)
(39.0)
(16.2)
(16.7)
Changes in scheme assets
Opening balance
42.2
63.7
-
-
Interest on assets
2.0
1.2
-
-
Administration costs
(0.3)
(0.2)
-
-
Employer contributions
2.9
2.8
-
-
Benefits paid
(2.1)
(2.1)
-
-
Return on plan assets less interest
1.3
(23.2)
-
-
Closing balance
46.0
42.2
-
-
Actual return on scheme assets
3.3
(22.0)
-
-
Statement of comprehensive income
Return on plan assets less interest
1.3
(23.2)
-
-
Experience loss on defined benefit obligation
(1.0)
(0.5)
-
-
Changes to demographic assumptions
(0.7)
-
-
-
Changes to financial assumptions
(1.4)
18.8
-
2.8
Change in irrecoverable surplus
1.6
4.9
-
-
Remeasurements of defined benefit plans
(0.2)
-
-
2.8
Cumulative remeasurements of defined benefit plans
(25.8)
(25.6)
(6.4)
(6.4)
Expense recognised in the income statement
Current service cost
-
-
(1.2)
(0.8)
Administration costs
(0.3)
(0.2)
-
-
Operating costs
(0.3)
(0.2)
(1.2)
(0.8)
Net pension interest cost
0.2
0.1
(0.5)
-
Expense recognised in the income statement
(0.1)
(0.1)
(1.7)
(0.8)
Movements in the balance sheet liability
Net liability at start of year
4.1
6.8
16.7
18.9
Expense recognised in the income statement
0.1
0.1
1.7
0.8
Employer contributions
(2.9)
(2.8)
-
-
Benefits paid
-
-
(1.7)
(1.0)
Exchange movements
-
-
(0.5)
0.8
Remeasurements of defined benefit plans
0.2
-
-
(2.8)
Net liability at end of year
1.5
4.1
16.2
16.7
1 ( ) Other comprises end of service schemes in the
Middle East of £3.6m (2022: £3.5m).
A reduction in the discount rate of 0.5% would increase the deficit in the
schemes by £2.6m (2022: reduction in the discount rate of 0.5% would increase
the deficit in the scheme by £2.5m), whilst a reduction in the inflation
assumption of 0.5%, including its impact on the revaluation in deferment and
pension increases in payment, would decrease the deficit by £1.3m (2022:
reduction in the inflation assumption of 0.5% would decrease the deficit by
£1.3m). A decrease in the mortality rate by one year would decrease the
deficit in the schemes by £1.8m. Note that these sensitivities do not include
end of service schemes in the Middle East as these are not material to the
Group.
The weighted average duration of the defined benefit obligation is
approximately 13 years for the UK scheme and 12 years for the German and
Austrian schemes. The history of experience adjustments on scheme assets and
liabilities for all the Group's defined benefit pension schemes, including the
end of service schemes in the Middle East, are as follows:
2023 2022 2021 2020 2019
£m £m £m £m £m
Present value of defined benefit obligation (58.0) (55.7) (77.2) (86.9) (81.1)
Fair value of scheme assets 46.0 42.2 63.7 58.0 52.2
Deficit in the schemes (12.0) (13.5) (13.5) (28.9) (28.9)
Irrecoverable surplus (5.7) (7.3) (12.2) (2.2) (1.8)
Net defined benefit liability (17.7) (20.8) (25.7) (31.1) (30.7)
Experience adjustments on scheme liabilities (3.1) 21.1 6.6 (7.9) (8.2)
Experience adjustments on scheme assets 1.3 (23.2) 4.6 6.1 5.4
34 Non-controlling interests
Financial information of subsidiaries that have a material non-controlling
interest is provided below:
Name Country of incorporation 2023 2022
Keller Fondations Speciales SPA Algeria 49% 49%
Keller Turki Company Limited Saudi Arabia 0% 35%
(Loss)/profit attributable to non-controlling interests:
2023 2022
£m £m
Keller Fondations Speciales SPA (0.2) (0.5)
Keller Turki Company Limited 0.4 (0.3)
Other interests 0.2 (0.2)
0.4 (1.0)
Share of net assets of non-controlling interests:
2023 2022
£m £m
Keller Fondations Speciales SPA 2.4 2.7
Keller Turki Company Limited - (0.6)
Other interests 0.3 0.2
2.7 2.3
On 29 August 2023, the Group acquired the 35% interest in the voting shares of
Keller Turki Company Limited, increasing its ownership interest to 100%. An
initial cash consideration of £6.4m (SAR 30m) was paid to the non-controlling
shareholders. In addition, a contingent consideration has been agreed as part
of the purchase agreement and is payable annually between the years 2023 and
2027, dependent on the qualifying revenue generated by the business for each
of those years. The fair value of the contingent consideration was £9.3m (SAR
43.2m) based on expected revenue generated by the business over that period,
which is the maximum amount of contingent consideration payable.
The carrying value of the net assets of Keller Turki Company Limited was
£0.2m (SAR 0.8m). Following is a schedule of additional interest acquired in
Keller Turki Company Limited.
£m
Cash consideration paid to non-controlling shareholders 6.4
Contingent consideration 9.3
Group loan (0.7)
Carrying value of the additional interest in Keller Turki Company Limited 0.2
Difference recognised in retained earnings 15.2
Aggregate amounts relating to material non-controlling interests:
2023 2023 2022 2022
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Revenue 0.9 14.3 0.1 4.6
Operating costs (1.0) (13.9) (0.6) (4.9)
Operating loss (0.1) 0.4 (0.5) (0.3)
Finance costs - - - -
Loss before taxation (0.1) 0.4 (0.5) (0.3)
Taxation (0.1) - - -
Loss attributable to non-controlling interests (0.2) 0.4 (0.5) (0.3)
2023 2023 2022 2022
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Non-current assets 0.6 - 0.8 0.7
Current assets 2.4 - 2.8 6.0
Current liabilities (0.6) - (0.9) (6.2)
Non-current liabilities - - - (1.1)
Share of net assets/(liabilities) 2.4 - 2.7 (0.6)
35 Post balance sheet events
On 1 March we announced a change to the Group's divisional structure. The
Middle East and NEOM business units will move from the current Asia-Pacific,
Middle East and Africa (AMEA) division and combine with Europe to create a new
Europe and Middle East Division (EME). The AMEA division will become the
Asia-Pacific division. This is a non-adjusting post balance sheet event and
there is no impact to the balance sheet at 31 December 2023.
There were no other 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 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
relating to acquisitions.
As a result, adjusted performance measures have been used throughout the
Annual Report and Accounts to describe the Group's underlying performance. The
Board and Executive Committee use these adjusted measures to assess the
performance of the business because they consider them more representative of
the underlying ongoing trading result and allow more meaningful comparison to
prior year.
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
consolidated 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 2022 results of overseas operations into
sterling at the 2023 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 9 to the consolidated financial
statements. A reconciliation between the 2022 underlying result and the 2022
constant currency result is shown below and compared to the underlying 2023
performance:
Revenue by segment
2023 2022
Statutory Statutory Impact of exchange movements Constant Statutory Constant currency
currency change change
£m £m £m £m % %
North America 1,770.0 1,896.1 (5.6) 1,890.5 -7% -6%
Europe 686.0 649.3 8.9 658.2 +6% +4%
Asia-Pacific, Middle East and Africa 510.0 399.2 (18.8) 380.4 +28% +34%
Group 2,966.0 2,944.6 (15.5) 2,929.1 +1% +1%
Underlying operating profit by segment
2023 2022
Underlying Underlying Impact of exchange Constant Underlying Constant currency
movements currency change change
£m £m £m £m % %
North America 169.6 82.0 (0.4) 81.6 +107% +108%
Europe 1.8 29.1 0.5 29.6 -94% -94%
Asia-Pacific, Middle East and Africa 22.6 6.6 (0.2) 6.4 +243% +253%
Central items (13.1) (9.1) 0.1 (9.0) n/a n/a
Group 180.9 108.6 - 108.6 +67% +67%
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 consolidated income
statement, consolidated balance sheet or consolidated cash flow statement, the
adjusted measures are reconciled to the IFRS statutory numbers below:
EBITDA (statutory)
2023
2022
£m £m
Underlying operating profit 180.9 108.6
Depreciation and impairment of owned property, plant and equipment 81.8 71.1
Depreciation and impairment of right-of-use assets 30.0 25.5
Amortisation of intangible assets 0.4 0.4
Underlying EBITDA 293.1 205.6
Non-underlying items in operating costs (excluding goodwill impairment) (10.8) (17.6)
Non-underlying items in other operating income 0.8 0.7
EBITDA 283.1 188.7
EBITDA (IAS 17 covenant basis)
2023
2022
£m £m
Underlying operating profit 180.9 108.6
Depreciation and impairment of owned property, plant and equipment 81.8 71.1
Depreciation and impairment of right-of-use assets 30.0 25.5
Legacy IAS 17 operating lease charges (33.8) (27.9)
Amortisation of intangible assets 0.4 0.4
Underlying EBITDA 259.3 177.7
Non-underlying items in operating costs (excluding goodwill impairment) (10.8) (17.6)
Non-underlying items in other operating income 0.8 0.7
EBITDA 249.3 160.8
Net finance costs
2023 2022
£m £m
Finance income (1.8) (0.5)
Underlying finance costs 29.3 15.6
Net finance costs (statutory) 27.5 15.1
Exclude: Finance charge on lease liabilities(1) (5.6) (3.6)
Lender covenant adjustments (0.8) (0.2)
Net finance costs (IAS 17 covenant basis) 21.1 11.3
1 Excluding legacy IAS 17 finance leases.
Net capital expenditure
2023 2022
£m £m
Acquisition of property, plant and equipment 94.3 81.6
Acquisition of other intangible assets 0.2 0.1
Proceeds from sale of property, plant and equipment (20.9) (8.2)
Net capital expenditure 73.6 73.5
Net debt
2023 2022
£m £m
Current loans and borrowings 86.8 34.2
Non-current loans and borrowings 301.9 365.8
Cash and cash equivalents (151.4) (101.1)
Net debt (statutory) 237.3 298.9
Lease liabilities(1) (91.1) (80.1)
Net debt (IAS 17 covenant basis) 146.2 218.8
1 Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying EBITDA.
Statutory
2023
£m 2022
£m
Net debt 237.3 298.9
Underlying EBITDA 293.1 205.6
Leverage ratio (x) 0.8 1.5
IAS 17 covenant basis
2023
£m 2022
£m
Net debt 146.2 218.8
Underlying EBITDA 259.3 177.7
Leverage ratio (x) 0.6 1.2
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
consolidated 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.
Free cash flow
The calculation of free cash flow is set out in the CFO section of the
Strategic report and is reconciled to movements in the consolidated cash flow
statement and other movements in net debt as set out below.
2023
2022
£m £m
Net cash inflow from operating activities 197.0 54.8
Net cash outflow from investing activities (70.7) (89.0)
Exclude: 3.7 -
Cash inflows from non-underlying items - contract dispute
Cash inflows from non-underlying items - ERP costs 7.5 5.4
Cash inflows from non-underlying items - restructuring costs 1.2 0.6
Cash inflows from non-underlying items - acquisition costs - 0.2
Acquisition of subsidiaries, net of cash acquired 0.2 20.2
Disposal of subsidiaries (1.3) (0.7)
Include: (33.9) (24.8)
Increase in net debt from new leases
Increase in net debt from amortisation of deferred finance costs (0.5) (0.5)
Free cash flow 103.2 (33.8)
Financial record
2014 2015 2016 2017 2018 2019 2020 2021 2022(1) 2023
£m £m £m £m £m £m £m £m £m £m
Consolidated income statement
Continuing operations
Revenue 1,599.7 1,562.4 1,780.0 2,070.6 2,224.5 2,300.5 2,062.5 2,222.5 2,944.6 2,966.0
Underlying EBITDA 141.9 155.5 158.6 177.2 167.5 198.4 205.0 185.9 205.6 293.1
Underlying operating profit 92.0 103.4 95.3 108.7 96.6 103.8 110.1 88.5 108.6 180.9
Underlying net finance costs (6.9) (7.7) (10.2) (10.0) (16.1) (22.5) (13.2) (8.9) (15.1) (27.5)
Underlying profit before taxation 85.1 95.7 85.1 98.7 80.5 81.3 96.9 79.6 93.5 153.4
Underlying taxation (29.7) (33.0) (29.8) (24.7) (22.5) (22.4) (28.3) (18.9) (20.3) (38.8)
Underlying profit for the year 55.4 62.7 55.3 74.0 58.0 58.9 68.6 60.7 73.2 114.6
Non-underlying items(2) (56.6) (36.4) (7.3) 13.5 (71.8) (37.2) (27.5) (5.1) (28.2) (24.8)
Profit/(loss) for the year (1.2) 26.3 48.0 87.5 (13.8) 21.7 41.1 55.6 45.0 89.8
Underlying EBITDA (IAS 17 covenant basis) 141.9 155.5 158.6 177.2 167.5 170.8 175.0 153.2 177.7 259.3
Consolidated balance sheet
Working capital 104.1 97.1 152.5 181.3 225.4 200.9 180.3 149.6 303.4 261.5
Property, plant and equipment 295.6 331.8 405.6 399.2 422.0 460.6 434.9 443.4 486.5 480.2
Intangible and other non-current assets 203.4 183.0 218.2 198.3 179.5 192.3 183.5 232.0 203.1 185.9
Net debt (statutory) (102.2) (183.0) (305.6) (229.5) (286.2) (289.8) (192.5) (193.3) (298.9) (237.3)
Other net liabilities (154.6) (94.9) (41.1) (77.1) (114.2) (166.5) (196.2) (203.7) (197.3) (172.3)
Net assets 346.3 334.0 429.6 472.2 426.5 397.5 410.0 428.0 496.8 518.0
Net debt (IAS 17 covenant basis) (102.2) (183.0) (305.6) (229.5) (286.2) (213.1) (120.9) (119.4) (218.8) (146.2)
Underlying key performance indicators
Diluted earnings per share from continuing operations (p) 74.2 85.4 74.8 101.8 79.1 81.3 96.3 84.2 100.7 153.9
Dividend per share (p) 25.2 27.1 28.5 34.2 35.9 35.9 35.9 35.9 37.7 45.2
Operating margin 5.8% 6.6% 5.4% 5.2% 4.3% 4.5% 5.3% 4.0% 3.7% 6.1%
Return on capital employed(3) 18.3% 20.5% 15.3% 15.1% 13.2% 14.4% 16.4% 13.9% 14.9% 22.8%
Net debt: EBITDA (statutory) 0.7x 1.2x 1.9x 1.3x 1.7x 1.5x 0.9x 1.0x 1.5x 0.8x
Net debt: EBITDA (IAS 17 covenant basis) 0.7x 1.2x 1.9x 1.3x 1.7x 1.2x 0.7x 0.8x 1.2x 0.6x
1 Intangible and other non-current assets and other net liabilities
presented here do not correspond to the published 2022 consolidated financial
statements. The consolidated balance sheet has been restated in respect of
prior period measurement business combinations adjustments.
2 Non-underlying items are items which are exceptional by their
size and/or are non-trading in nature and are disclosed separately in the
financial statements where it is necessary to do so to provide further
understanding of the financial position of the Group.
3 Calculated as underlying operating profit expressed as a
percentage of average capital employed. 'Capital employed' is net assets
before non-controlling interests plus net debt and net defined benefit
retirement liabilities.
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