REG - Keller Group PLC - Preliminary Results for the year ended 31 Dec 21
08/03/2022 07:00
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RNS Number : 9898D Keller Group PLC 08 March 2022
8 March 2022
Keller Group plc Audited Preliminary Results for the year ended 31 December
2021
Keller Group plc ('Keller' or 'the Group'), the world's largest geotechnical
specialist contractor, announces its results for the year ended 31 December
2021.
A strong and resilient performance ahead of market expectations
2021 2020 Constant currency
£m £m % change
% change
Revenue 2,224.4 2,062.5 +8% +13%
Underlying operating profit(1) 92.8 110.1 -16% -10%
Underlying operating profit margin(1) 4.2% 5.3% -110bps n/a
Underlying profit before tax(1) 83.9 96.9 -13% -6%
Underlying diluted earnings per share(1) 88.4p 96.3p -8%
Free cash flow 60.1 134.2 -55%
Net debt (bank covenant IAS 17 basis) (2) 119.4 120.9 -1%
Dividend per share 35.9p 35.9p -
Statutory operating profit 80.5 77.0
Statutory profit before tax 71.6 63.8
Statutory diluted earnings per share 86.1p 58.5p
Net cash inflow from operating activities 155.7 210.5
Statutory net debt (IFRS 16 basis) 193.3 192.5
( )
(1 )Underlying operating profit, 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 8 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
· Revenue increased to £2,224.4m, up 13% (at constant currency) as
a result of increased trading activity, particularly during the second half,
and several bolt-on acquisitions (up 9.7% on an organic basis)
· Record order book at £1.3bn; well positioned for future growth
· Underlying operating profit of £92.8m, ahead of market
expectations, but down 10% (at constant currency) reflecting adverse pressure
on market pricing, operational disruption due to COVID-19 and unrecovered
steel price increases at Suncoast
· Underlying EPS of 88.4p, down 8%, decline mitigated by lower
finance costs and a prior year benefit from R&D tax credit
· After funding acquisitions, net debt (on a bank covenant IAS 17
basis) marginally improved to £119.4m, equating to net debt/EBITDA leverage
ratio of 0.8x (2020: 0.7x)
· Further progress in operational safety evidenced by a 42%
improvement in our overall accident frequency rate
· Net zero targets set 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
· Further execution of strategy with portfolio refinement and
several acquisitions that build our share in our chosen markets, particularly
RECON Services, Inc in North America
· Recommended final dividend of 23.3p, continuing the Group's
uninterrupted track record of increasing or maintaining dividends every year
since flotation in 1994 and reflecting the financial strength of the Group
Michael Speakman, Chief Executive Officer, said:
"Keller proved its resilience in 2021, overcoming the many challenges posed by
COVID-19 whilst further rationalising the business portfolio, completing a
number of bolt-on acquisitions, delivering another strong set of results which
are ahead of market expectations, and maintaining the dividend. Whilst we are
mindful of the recently increased geopolitical and macroeconomic uncertainty
and inflationary pressures, our expectations for 2022 are unchanged. Our
£1.3bn record order book gives us good visibility in the near term. In
addition, our strong balance sheet, a gradually improving market environment
together with the positive momentum in the business, gives us confidence that
2022 will be a year of growth, with our usual second half bias."
For further information, please contact:
Keller Group
plc
www.keller.com (http://www.keller.com)
Michael Speakman, Chief Executive
Officer 020
7616 7575
David Burke, Chief Financial
Officer
Caroline Crampton, Group Head of Investor Relations
FTI Consulting
Nick
Hasell
020 3727 1340
Matthew O'Keeffe
A webcast for investors and analysts will be held at 09.00 GMT on 8 March 2022
and will also be available later the same day on demand
https://www.investis-live.com/keller/61fcf5efd99fcd0c0000e9b9/defu
(https://www.investis-live.com/keller/61fcf5efd99fcd0c0000e9b9/defu)
Conference call: Accessing the telephone replay:
Participants joining by telephone: A recording will be available until 15 March 2022
UK: 0800 640 6441
UK: (Local) 020 3936 2999 UK: 020 3936 3001
All other locations: +44 20 3936 2999
USA: 1 845 709 8569
Participant access code: 665534
All other locations: +44 20 3936 3001
Access Code: 785278
Notes to editors:
Keller is the world's largest geotechnical specialist contractor providing a
wide portfolio of advanced foundation and ground improvement techniques used
across the entire construction sector. With around 10,000 staff and operations
across five continents, Keller tackles an unrivalled 6,000 projects every
year, generating annual revenue of more than £2bn.
Cautionary statements:
This document contains certain 'forward-looking statements' with respect to
Keller's financial condition, results of operations and business and certain
of Keller's plans and objectives with respect to these items. Forward-looking
statements are sometimes, but not always, identified by their use of a date in
the future or such words as 'anticipates', 'aims', 'due', 'could', 'may',
'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'reasonably
possible', 'targets', 'goal' or 'estimates'. By their very nature forward
looking statements are inherently unpredictable, speculative and involve risk
and uncertainty because they relate to events and depend on circumstances that
will occur in the future. There are a number of factors that could cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements. These factors include, but are
not limited to, changes in the economies and markets in which the Group
operates; changes in the regulatory and competition frameworks in which the
Group operates; the impact of legal or other proceedings against or which
affect the Group; and changes in interest and exchange rates. For a more
detailed description of these risks, uncertainties and other factors, please
see the Principal risks and uncertainties section of the Strategic report in
the Annual Report and Accounts. All written or verbal forward
looking-statements, made in this document or made subsequently, which are
attributable to Keller or any other member of the Group or persons acting on
their behalf are expressly qualified in their entirety by the factors referred
to above. Keller does not intend to update these forward-looking statements.
Nothing in this document should be regarded as a profits forecast. This
document is not an offer to sell, exchange or transfer any securities of
Keller Group plc or any of its subsidiaries and is not soliciting an offer to
purchase, exchange or transfer such securities in any jurisdiction. Securities
may not be offered, sold or transferred in the United States absent
registration or an applicable exemption from the registration requirements of
the US Securities Act of 1933 (as amended).
LEI number: 549300QO4MBL43UHSN10
Classification: 1.1 (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,
underlying profit before tax and underlying earnings per share, free cash
flow, each of which represent the relevant 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.
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 in the adjusted performance
measures section in this Announcement.
Chief Executive Officer's review
Overview
In a year that has seen COVID-19 continue to challenge our business in so many
ways, I am proud of how the Keller team have worked together, demonstrating
resilience and agility in safeguarding our people, while supporting the
continuing performance and development of our business. We have had a
successful year, delivering financial results ahead of market expectations and
successfully executing our strategy in very challenging market conditions. We
also made further progress in operational safety, with a 42% improvement in
our overall accident frequency rate.
As we predicted in the summer of 2020, the effect of the COVID-19 pandemic
impacted Keller most markedly in 2021, later than other sectors, evidenced by
reduced market demand and an associated operating margin compression. We
anticipated correctly the timing of the inflection point marking the upturn in
demand at around the half way point in the year. We delivered a stronger
volume growth than anticipated, particularly in the second half, with
significant contract wins and helped by acquisitions, both of which will
benefit performance in 2022. However, our 2021 operating profit was negatively
impacted, primarily by the COVID-19 adverse pressure on market pricing and
operational disruption. Although the Group has suffered higher material and
wage inflation, our businesses have been largely successful in passing the
majority of these increased costs to our customers, with the exception of
steel strand in the Suncoast High-Rise business.
Notwithstanding the tougher market conditions, the Group delivered a resilient
performance and further significant strategic progress in the year, continuing
to bring more focus to the portfolio by exiting non-core businesses and
executing several acquisitions that build our market share in our chosen
markets. We have continued the progressive transformation of the Group into a
more efficient, more focused, higher-quality business, with industry-leading
margins, achieving sustainable operational delivery and cash generation. We
expect to see further benefits from these in 2022. Our record order book, now
standing at £1.3bn, also gives us confidence for the future.
Financial performance
Group revenue was £2,224.4m, 13% up on the prior year on a constant currency
basis, driven by increased activity as markets began to recover, particularly
during the second half, with significant contract wins together with the
benefit of several bolt-on acquisitions that are expected to benefit the
bottom line in 2022.
Underlying operating profit decreased to £92.8m, a reduction of 10% at
constant currency, impacted primarily by the COVID-19 adverse pressure on
market pricing and operational disruption across our businesses. Although the
Group has seen higher than expected material and wage inflation, our
businesses have been largely successful in passing the majority of these
increased costs to our customers, with the exception of steel strand in the
Suncoast High-Rise business.
In North America, disruption, supply chain issues and labour availability
caused adverse pressure on profitability, and these are expected to ease going
forward. Our Europe Division recovered in performance compared with 2020 and
benefited particularly from large contract wins. In AMEA, our Australia
business was impacted significantly by COVID-19 imposed travel restrictions.
Our Middle East and Africa business also had an extremely tough year, largely
due to COVID-19, despite our successful claim on our Mozambique LNG contract.
We are taking action to improve profitability in that business in 2022.
As a result of these factors, the underlying operating margin was 4.2%
compared with 5.3% in 2020. We expect a recovery towards our historical margin
profile in 2022.
Underlying diluted earnings per share decreased by 8% to 88.4p per share
(2020: 96.3p per share), reflecting a decrease in operating profit. This was
partially offset by lower financing costs and a lower tax rate reflecting the
recognition of a prior year research and development tax credit in North
America.
Despite the increased working capital requirement the growth in revenue
demanded, the Group continued to generate a strong cash flow performance in
the year. The free cash flow funded all the acquisitions in the year and
marginally reduced the Group's net debt (on a bank covenant IAS 17 basis) to
£119.4m (2020: £120.9m). This resulted in a net debt/EBITDA leverage ratio
of 0.8x (2020: 0.7x) (on a bank covenant IAS 17 basis), comfortably within our
target range of 0.5x-1.5x and compared to our covenant limit of 3.0x.
Operational performance
The market effects of COVID-19 had a significant impact on the business,
particularly early on in the year, with the macro uncertainty driving customer
behaviour to halt or delay a large number of projects. We anticipated
correctly the timing of the inflection point marking the upturn in demand at
around the halfway point in the year. This was reflected in our record order
book at the year end of £1.3bn. Whilst we delivered a stronger volume growth
than anticipated, particularly in the second half, our operating profit was
negatively impacted by adverse pressure on market pricing and operational
disruption. Although the business has suffered higher than expected material
and wage inflation, our businesses have been largely successful in passing the
majority of these increased costs to our customers, with the exception of
steel strand in the Suncoast High-Rise business.
In North America, led by Eric Drooff, President North America, revenue
increased by 15% (at constant currency) to £1,323.1m and underlying operating
profit decreased by 5.6% (at constant currency) to £73.0m. The first half
performance benefited strongly from the resolution of a historical claim,
whilst trading activity generally was impacted by the COVID-19 slowdown in the
construction market. Business activity increased as the year progressed
following the success of vaccination and lockdown containment programmes. This
led to increased business confidence and improved market demand. Suncoast was
impacted by the continued higher cost of steel strand, partially mitigated by
strong demand from the residential single family home market. The higher cost
of steel strand has been unprecedented and directly impacted the profitability
of the high-rise segment during the year given the market practice of fixed
price contracts. We expect the adverse impact on profitability to unwind
during 2022. Our North American performance, benefited from the inclusion of
several acquisitions in the second half of the year, the largest being RECON
Services, Inc (RECON), a geotechnical and industrial services company
headquartered in Houston, Texas. Similar to Keller's existing Florida-based
Moretrench Industrial business, RECON is focused on environmental remediation
activities.
In Europe, led by Jim De Waele, President Europe, revenue increased by 5% (at
constant currency) to £549.2m and operating profit increased 38% (at constant
currency) to £24.3m. Its markets recovered during the course of the year with
the easing of COVID-19 related shutdowns and travel restrictions resulting in
higher levels of activity and contract performance. Performance also benefited
from improved efficiencies on site, cost savings following the restructuring
activity in the previous year, as well as the advancement of the large High
Speed 2 (HS2) rail project in the UK and Sandbukta-Moss-Sastad (SMS2) rail
project in Norway. We completed further restructuring with the formation of
the new South West Europe Business Unit, further streamlining the Europe
Division. In line with our strategy, our joint venture in Finland, KFS Finland
Oy, acquired NordPile, a driven and drilling piling contractor.
In AMEA (Asia-Pacific, Middle East and Africa), led by Peter Wyton, President
AMEA, revenue increased by 20% (at constant currency), to £352.1m while
operating profit decreased 77% (at constant currency) to £3.4m. The division
was the most impacted by COVID-19 of all our businesses during the year with
countries and regions, particularly Australia and the Middle East and Africa,
suffering lockdown restrictions in advance of vaccination programmes.
Operational challenges caused by border restrictions in Keller Australia, and
a difficult trading environment in the Middle East and Africa, resulted in
both business units reporting a loss for the year. Notwithstanding the wider
issues in Australia, Austral had a strong performance, driven by mining and
port-related projects in the Pilbara region. In the second half of the year, a
substantial settlement agreement was signed with our client in Mozambique in
relation to the suspended liquefied natural gas (LNG) project. This largely
reversed the contract loss incurred to date and protects the Group in the
event that the contract does not resume in the short to medium term,
justifying the approach we took to this contract and the risk assessment
undertaken.
Strategy
The Group's corporate purpose reflects both the evolution of our strategy and
the changing environment in which we operate and 'building the foundations for
a sustainable future' will be at the heart of everything we do in the future.
Our vision to be the leading provider of specialist geotechnical solutions is
unchanged and, despite the disruptive impact of the pandemic on change
management activities, we have made good progress with our objective for
Keller to become a more focused, higher-quality business achieving both
sustainable operational delivery and cash generation whilst building on our
industry-leading margins.
We have continued to successfully execute on 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.
Our diversified model of operating in a number of sectors, applications and
geographies helps to generate revenues that are resilient whilst lessening the
impacts that can arise from business cycles and geopolitics. In line with our
strategy we have continued to focus on increased market penetration and cost
reduction.
Progress on strategic priorities for 2021
In North America, we furthered our drive to gain market share in our chosen
markets with the acquisition in July of RECON Services, Inc (RECON), a
geotechnical and industrial services company headquartered in Houston, Texas.
Similar to Keller's existing Florida-based Moretrench Industrial business,
RECON is focused on environmental remediation activities. The geographic
proximity of the two businesses provides revenue synergies from cross-selling
opportunities, both between the two businesses and also the Keller foundations
businesses, and some, primarily volume-based, cost synergies. The additional
revenue synergies provide the opportunity to increase the Group's overall
market share in the important Gulf Coast area where Keller has historically
been relatively under-represented. The cash consideration on an enterprise
value basis was US$23m (£17m), and an original maximum earn-out of US$15m
(£11m) related to specific future contract wins. As we anticipated, RECON was
awarded one of the specific contracts in December, worth approximately US$160m
(£120m) in revenue over two years, in connection with the development of an
energy facility in the Gulf Coast region of the USA.
In October, the North America Division acquired Subterranean (Manitoba) Ltd, a
small market-leading geotechnical foundation business in Manitoba, Canada. In
November 2021, the division acquired Voges Drilling, a geotechnical foundation
company based in Texas. At the end of June, the division disposed of its
non-core Cyntech Anchors operation in Canada.
In Europe, as well as rightsizing the divisional head office, we simplified
the structure of the division by reducing the number of business units
following the merger of French Speaking Countries with Iberia and Latin
America, by forming one new South West Europe Business Unit; this became
effective on 1 July 2021. Early wins from this strategic action include
securing work as a combined business unit that Keller would not have won
previously, and a reduction in costs.
Our joint venture in Finland, KFS Finland Oy, acquired NordPile, a driven and
drilling piling contractor, in September. This acquisition reinforces KFS's
position as the largest geotechnical specialist contractor in the region
offering the widest range of solutions.
Strategic priorities for 2022
Market-leading operational execution is imperative in order to remain
competitive and therefore enhancing operational excellence is a key focus for
the Group. During 2021 we established a multi-functional team of experts,
drawn from across the Group to identify and develop best practice in project
management and site support business processes that are currently deployed
within Keller. This bank of knowledge will be leveraged by implementing best
practice standard templates across the Group using a proven, cloud-based
enterprise resource planning (ERP) system. In doing so the initiative will
embed operational excellence in project execution across the whole Group,
together with the associated financial benefits. It will allow the full
integration of project management, supply chain, human resources, equipment
and operations which will all seamlessly feed through to financials, and
provide a single, standardised platform for robust, systemic, pre-emptive
management controls, and a convenient solution to the emerging requirement for
UK SOX. The initiative will be implemented progressively over 5 years by a
project team that consists of seasoned business leaders, subject matter
experts and experienced ERP global system implementors. We will leverage our
risk management processes to help control the challenges associated with
implementing the programme of work.
As we execute our strategy and further penetrate our chosen local markets, we
will continue to pursue suitable bolt-on acquisition opportunities and
integrate them into the Group. RECON is integrating well, and during 2022,
will together with Moretrench Industrial, be developed as we establish and
build our new environmental, geotechnical and industrial services business
that will leverage our position in this large and growing sector. We will
continue to be focused and disciplined in our acquisition process.
Environmental, Social and Governance (ESG)
We define ESG and sustainability according to our four Ps: Planet, People,
Principles and Profitable projects. Beneath each P, we have a number of global
and local initiatives aligned to the UN Sustainable Development Goals (SDGs).
These provide a common language for us to communicate sustainability
initiatives to our stakeholders worldwide. In terms of global initiatives,
under Planet we focus on carbon reduction (SDG 13), under People, we focus on
safety (SDG 3) and gender equality (SDG 5); and under Principles we focus on
good governance (SDG 16). In addition, there are a number of other SDG
initiatives that are being supported at local business level that are relevant
and appropriate to their community context.
The safety of every individual is our priority. While our safety performance
has improved, we are not yet where we need to be. Making sure every employee
returns home safely at the end of each day drives our thinking and behaviours
across the Group. It is with this approach that we have reduced the Group's
accident frequency rate (AFR) by 42% compared with 2020, and our AMEA Division
had an outstanding year achieving an AFR of zero. Our total recordable
incident rate (TRIR) also improved by 32%.
Led by John Raine, Group HSEQ Director, we have a number of safety initiatives
underway to leverage our experience and safety knowledge across the Group. As
our number of recordable incidents decreases, it is more important than ever
to focus on proactive reporting measures to identify and address hazardous
situations pre-emptively, before accidents occur with their inherent potential
for adverse consequences. Year-on-year near miss reports are increasing as a
consequence of this increased emphasis and leadership site interaction is
strong, even with the site access challenges created by COVID-19. Overall the
safety culture and awareness continues to improve, and is clearly evidenced in
recent employee engagement surveys. We are very proud of our industry-leading
performance and improving track record, and were devastated to lose a
long-serving and valued employee early in 2021 following an accident on a site
in Austria. Whilst it has been determined Keller was not at fault for the
accident, the incident has caused us to re-double our efforts and we have
continued to further advance our safety programmes. We continue to share our
safety best practices with trade associations, so that the whole sector can
continue to improve health and safety.
The global COVID-19 pandemic continued to create operational challenges in
2021. The Group has actively encouraged and supported employees to become
vaccinated against COVID-19 wherever possible. However, I'm greatly saddened
that across the Group we have lost eight colleagues due to COVID-19 related
illness. Whilst we believe none of these cases were related to the workplace,
we have taken great care in supporting the families through their
bereavements. The vaccination status of those that have died is consistent
with the external benchmark globally and supports our active approach to
encourage our workforce in becoming vaccinated.
At Keller, we recognise safety and wellbeing is more than just avoiding
accidents and this year we launched our first ever wellbeing framework. This
helps our business units support and develop the aspects of wellbeing
important to our employees worldwide - body, mind, community, growth and
financial security wellbeing.
Having launched our Inclusion Commitments, our focus in 2021 was on giving our
teams the understanding and the means to contribute to our aspiration to
become a diverse, equitable and inclusive workplace. Today is International
Women's Day and an ideal opportunity to reflect on how we can collectively
continue to #BreakTheBias (https://www.internationalwomensday.com/Theme) and
further accelerate gender equality.
In respect of carbon reduction, the Group has set ambitious but achievable net
zero targets 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). We have already begun implementing the substantive short term
actions to address Scope 2 and are developing the medium and long-term actions
for Scope 1 and 3 that are required to achieve these goals.
Good governance plays an essential role in how we operate the business. During
2021, despite the challenging backdrop, we continued to take a number of steps
to strengthen our leadership, our management controls, and our understanding
of the needs of our stakeholders. This included listening to the views of our
past, current and potential investors. At the end of the year we completed an
investor audit of a number of key institutions enabling us to deepen our
understanding of the views of investors. Participation by those that took part
was greatly appreciated and we will actively use the feedback as we move
forward. We will repeat the exercise in the future so that we can maintain a
momentum of continuous improvement and monitor our progress.
People
Our people are the major differentiator of our business and pivotal to
everything we do. I continue to be immensely impressed by the dedication and
tenacity of our team. Despite the prolonged attrition of COVID-19, in terms of
social isolation and logistical challenges, employees have continued to go to
extraordinary lengths to continue to safely deliver projects for our
customers. I would like to acknowledge this endeavour and thank all Keller
employees for their commitment, hard work and expertise during another very
challenging year.
On the Executive team, James Hind, Divisional President of Keller North
America, retired at the end of 2021, after 18 years' service. James was a
highly effective member of the Executive team, from his appointment in 2003 as
Finance Director of Keller Group plc and an Executive Director on the Board
until 2020, through to his most recent appointment as Divisional President of
Keller North America, a post he held since 2018. Under his leadership and with
the support of a strong Executive team, Keller North America has undergone
significant transformation, with greatly enhanced organisational capability
and accelerated collaboration. Eric Drooff, previously Chief Operating
Officer, Keller North America, has succeeded James. Over the 29 years Eric has
been with Keller North America he has demonstrated his strong leadership
capabilities across the organisation and his dedication, passion and depth of
geotechnical experience made him the best person to lead Keller North America.
We are deeply concerned about the military invasion of Ukraine and the
unfolding humanitarian crisis. Whilst we have no projects in the country, and
therefore there is no material impact on our business, we have two employees
based in Ukraine and over 20 Ukrainian nationals working for us in our North
East Europe Business Unit. Furthermore, many colleagues across Keller have
connections with people in Ukraine. Our first thoughts are with them and their
families. Our team in Poland has been providing practical support including
help at the border with transport, accommodation and medical supplies. Events
are unfolding rapidly on the ground, and accordingly we continue to evaluate
where to best deploy our Group support to most effectively assist the
humanitarian relief effort.
Dividend
The Board is recommending the payment of a 2021 final dividend of 23.3p per
share (2020: 23.3p per share) to be paid on 1 July 2022 to shareholders on the
register as at the close of business on 6 June 2022. We are very proud of our
dividend history and recognise its importance to shareholders. Even through
very challenging times we have consistently increased or maintained the
dividend over the last 27 years since first listing on the London Stock
Exchange, one of only a few listed companies to have achieved this. The
continuation of dividend payments during the challenging macro environment of
2020 and 2021 reflected the financial strength of the Group, its significant
liquidity position and the longer term confidence in the performance of the
business. As we advance through 2022 the Board will review the progression of
our dividend.
Outlook
We have had a successful year given the extremely challenging business
environment. The year developed largely as we anticipated at our 2020 interim
results, and whilst inflationary impacts were larger than expected, the
resilience of the Group has meant that the financial performance for the year
was still ahead of market expectations. We have continued to implement
strategic actions to shape Keller's future, while delivering robust
operational and financial results built on a strong balance sheet. We have a
clear strategy and increasing operational momentum with a record order book of
£1.3bn. This, together with the maintenance of the dividend, evidences our
confidence in the medium term.
Whilst we are mindful of the recently increased geopolitical and macroeconomic
uncertainty and inflationary pressures, our expectations for 2022 are
unchanged. We remain strategically well placed to benefit from the anticipated
macroeconomic recovery and increasing levels of public infrastructure spending
in our chosen markets, although this recovery will naturally vary by geography
as countries progressively manage COVID-19 as an endemic rather than pandemic
challenge.
Our leading market positions and the strategic actions we have taken to
improve the Group's performance, together with our financial resilience, will
allow us to benefit from the longer-term structural growth drivers for global
infrastructure and urbanisation in the years ahead. We therefore remain
confident in our ability to deliver increasing shareholder returns through
underlying profit growth and our progressive dividend policy.
Operating review
North America
2021 2020 Constant currency
£m £m
Revenue 1,323.1 1,227.5 +15.4%
Underlying operating profit 73.0 83.2 -5.6%
Underlying operating margin 5.5% 6.8%
Order book(1) 787.0 593.9 +32.5%
(1) Comparative order book stated at constant currency
In North America, revenue increased by 15.4%, on a constant currency basis,
with improved momentum across all markets and the addition of the recently
acquired RECON Services, Inc (RECON) business in Texas, which will contribute
to profits in 2022. Underlying operating profit decreased by 5.6% on a
constant currency basis to £73.0m, driven by market pricing pressures and the
impact of higher costs of materials and labour. These were partly offset by
the benefit from the resolution of a historical claim (c£7m) in H1 and strong
growth at Moretrench Industrial. The underlying operating margin decreased to
5.5% from 6.8% in the prior year primarily due to the impact of the increased
cost of steel strand in the Suncoast High-Rise business and pressure on
profitability due to labour and material shortages and the associated
operational disruptions. Our continued focus on safety saw our key metric,
accident frequency rate, fall from 0.08 in 2020 to 0.03 for 2021, a 63%
improvement.
On a like-for-like basis, excluding acquisitions and disposals on a constant
currency basis, revenue for the year increased by 11%, and operating profit
decreased by 14%.
In 2021 the construction industry in the US grew 8%, driven by a 12% increase
in residential construction. Non-residential construction grew 2%.
As anticipated, we had a slow start to the year following the continued impact
of the COVID-19 pandemic which curtailed sentiment and activity in the second
half of 2020 through to early 2021. In March, trading accelerated and we began
to operate more normally given the combination of increased vaccination rates
across the North American population and reduced restrictions and lockdowns.
The foundations business demonstrated its resilience with a flat year-on-year
profit performance with margins impacted by market pricing pressure and higher
input costs.
Our Canadian business delivered a strong performance in terms of revenue and
profit, benefiting from a restructuring and a strengthening of the management
team in 2020 as well as the acquisition of Subterranean (Manitoba) Ltd, a
small, market-leading geotechnical foundations business, for a cash
consideration of £7.8m.
Suncoast, the Group's post-tension business serving mostly the residential
construction market, experienced high volumes with revenue ahead of the prior
year. The high-rise sector continued to be challenged by the increased cost of
imported, as well as domestic, steel strand, Suncoast's main raw material,
which negatively impacted operating profit. The recent unprecedented increase
in the cost of steel is expected to continue to impact margins in the near
term. We expect the adverse impact on profitability to unwind during 2022.
Moretrench Industrial, which operates in the highly regulated industrial and
power segments, performed well with increased revenue and profit driven by the
Florida industrial market.
The Hampton Roads Bridge Tunnel Expansion Project in Virginia, cUS$120m
two-year contract, is c65% complete. Work on the South Island has concluded
and the team has commenced work on the North Island.
In July 2021, we announced the acquisition of RECON, an environmental,
geotechnical and industrial services company headquartered in Houston, Texas.
RECON is a specialist geotechnical environmental remediation and industrial
services contractor working principally for industrial clients, many in the
petrochemical sector, predominantly along the Gulf and East coasts of the
United States. Similar to Keller's existing Florida-based Moretrench
Industrial business, RECON is focused on environmental remediation activities
and the geographic proximity of the two businesses provides revenue synergies
from cross-selling opportunities, both between the two businesses and also the
Keller foundations businesses. The additional revenue synergies provide the
opportunity to increase the Group's overall market share in the important Gulf
Coast area where Keller has historically been relatively under-represented and
where a significant pipeline of new projects is projected by the petrochemical
sector. Cost synergies will also be achieved through this acquisition. The
cash consideration on an enterprise value basis was US$23m (£17m), and an
original maximum earn-out of US$15m (£11m) related to specific future
contract wins. As we anticipated, in December 2021 RECON was awarded a
contract worth approximately US$160m (£120m) in revenue over two years, in
connection with the development of an energy facility in the Gulf Coast region
of the USA. RECON is integrating well and, during 2022, will together with
Moretrench Industrial, be developed as we establish and build our new
environmental, geotechnical and industrial services business that will
leverage our position in this large and growing sector.
On 1 November 2021, the division acquired Voges Drilling, a geotechnical
foundation company based in Texas for cash consideration of £1.4m and a
further deferred consideration of £0.8m is payable over three years. At the
end of June 2021, the division disposed of its non-core Cyntech Anchors
operation in Canada.
The order book for North America at the period end was at £787.0m, up 32.5%
(on a constant currency basis) from the closing position at the end of 2020.
The increase year on year is predominantly driven by the newly-signed RECON
contract worth £120m ($160m) over two years.
Europe(1)
2021 2020 Constant currency
£m £m
Revenue 549.2 538.5 +5.2%
Underlying operating profit 24.3 18.4 +38.2%
Underlying operating margin 4.4% 3.4%
Order book(2) 332.7 220.3 +51.0%
(2) Comparative order book stated at constant currency
In Europe, revenue increased by 5.2% on a constant currency basis as markets
recovered with the COVID-19 related shutdowns and travel restrictions easing
as the year progressed. Underlying operating profit was £24.3m, up 38.2% on a
constant currency basis, reflecting the higher level of activity, improved
efficiencies on site, enhanced contract profitability and cost savings
following the prior year restructuring activity. As a result, the underlying
operating margin increased to 4.4% (2020: 3.4%).
In early 2021, a tragic fatality occurred following an accident on a site in
Austria in which we lost a long-serving employee. Whilst a thorough
investigation has determined Keller was not at fault for the accident, we have
continued to advance our safety programmes. The accident frequency rate was up
slightly at 0.24 from 0.18 in 2020.
Following a relatively slow start to the year due to some harsh winter weather
in some parts of Europe and the continued impacts of the pandemic, momentum
built as markets opened up with people and equipment permitted to cross
borders more easily and the year finished more strongly. Whilst the division
was impacted by both material and labour shortages, which were operationally
challenging, and the widely-publicised inflationary pressures continued to be
felt across the continent, the division generated an exceptional performance
from several major projects.
South-East Europe and Nordics delivered record revenue with significant
increases in activity levels in Austria and Italy. The Scandinavian region
also continued to grow, and benefitted from the Sandbukta-Moss-Sastad rail
project (SMS2) in Norway. In September 2021, our joint venture in Finland, KFS
Finland Oy, acquired NordPile, a driven and drilling piling contractor. This
acquisition reinforces KFS's position as the largest geotechnical specialist
contractor in the region offering the broadest range of solutions and is
consistent with our wider strategy of building market-leading shares in the
regions that play to our strengths.
The UK business, which was adversely impacted in 2020 by the hesitant
investment climate following the 2019 general election and uncertainty around
Brexit, reported good revenue growth, including the benefit from several
contract awards on the High Speed 2 rail project (HS2). Particularly
noteworthy are the C1 package at a value of c£84m, awarded in February 2021,
and the main packages of work on C2/3 at a value of c£48m which were secured
in April.
Our businesses in Central Europe and North East Europe were impacted by lower
volumes at the start of the year due to the weather and project delays related
to COVID-19. However, both businesses finished the year with improved activity
levels and strong order books. At the end of 2021 North East Europe secured a
€26m piling contract for work at an oil refinery in Poland which is expected
to be delivered during 2022. We are also exploring the Baltic region for
potential expansion with some attractive future projects in the pipeline.
In July 2021, the new South West Europe Business Unit was formed following the
successful merger of our French Speaking Countries and Iberia and Latin
America businesses. South West Europe was our business most affected by the
impact of COVID-19 in the period, with extended country lockdowns and delays
to contract starts. In addition, the completion in early 2021 of an oil
refinery project in Mexico contributed to reduced revenue and profits compared
to the prior year. The combined business unit is now being integrated and is
better positioned to benefit from growth opportunities in its domestic and
overseas markets.
The European portfolio is more focused following the exit from South America
and the disposal of non-core businesses during 2020. As a result of these
actions, we were also able to reduce the divisional overhead. Moving forward,
we will continue to review our various European markets to ensure that we
focus only on sustainable markets and attractive projects that generate
long-term returns.
The European core business continues to recover steadily, and we have
benefited from a number of larger projects across the region, particularly in
infrastructure. Looking forward, our success in the region will require those
larger projects to be replaced. However, our strong regional approach coupled
with our divisional support will ensure we are well placed to pursue new
contract opportunities.
The Europe order book at the end of the period was £332.7m, up 51% (on a
constant currency basis) on the prior year, largely due to the HS2 contracts.
(1) In November 2020 it was announced that from 1 January 2021 the MEA
business would be transferred to the APAC division, creating the Asia-Pacific,
Middle East and Africa, (AMEA) division, and the remaining EMEA division
becoming Europe. The comparative financials for 2020 are on a proforma basis,
aligned with our new structure.
Asia-Pacific, Middle East and Africa (AMEA)(1)
2021 2020 Constant
currency
£m £m
Revenue 352.1 296.5 +20.4%
Underlying operating profit 3.4 15.5 -77.1%
Underlying operating margin 1.0% 5.2%
Order book(2) 177.3 182.2 -2.7%
(2) Comparative order book stated at constant currency
In AMEA, revenues increased by 20.4% on a constant currency basis, driven
predominantly by Austral in Australia and India, partly offset by a decline in
the Middle East and Africa business which was transferred into the Division at
the beginning of 2021. Operating profit in the division as a whole decreased
by 77.1% on a constant currency basis to £3.4m, driven by operational
disruption as a result of COVID-19, particularly in Keller Australia and an
extremely challenging trading environment in the Middle East and Africa. The
division had a notable achievement in its safety record with no significant
accidents reported in the period, resulting in a zero accident frequency rate.
The effects of the COVID-19 pandemic were felt across all our markets in the
division to varying degrees. The ASEAN business continued to feel the impact
of COVID-19 through the postponement of contracts and border closures.
However, trading levels improved in the second half and the business delivered
revenue growth for the year. The business continued to benefit from the
restructuring activity in 2019 and is well placed for the future with a strong
focus on ground improvement projects across the region.
Austral in Australia had another strong performance in terms of revenue and
profit growth as it nears completion of Rio Tinto's Cape Lambert Port in the
Pilbara, Australia. The business has secured a strong pipeline of projects,
including a number of other mining and port-related projects in the Pilbara
region, and continues its diversification strategy with key selected projects
on Australia's east coast.
Our Keller Australia business had a particularly difficult year, making a loss
in the period. The challenges posed by the COVID-19 travel restrictions and
state border restrictions in Australia had a very significant impact on
operations and profits, amid a continued softness in some markets. The
workforce model relies on the fluid movement of employees and equipment around
the country and the travel restrictions made movement impossible for long
periods of time. Many employees made huge personal sacrifices including long
periods away from home due to the strict lockdown rules. Tendering activity
has substantially improved, the management team has been strengthened and the
outlook is more positive as border restrictions ease.
Our India business performed strongly in terms of revenue and profit growth
with management successfully managing the business in a country that has been
severely impacted by the effects of COVID-19. Tendering levels improved and
there are a number of good prospects in the pipeline.
The Middle East and Africa business has been the most challenged region in
terms of market clarity and recovery from the impacts of COVID-19, with many
countries relying on lockdowns and restrictions in advance of vaccination
programmes. At the end of the year, we signed a substantial agreement with our
client in Mozambique in relation to the suspended LNG project. This largely
reversed the contract loss incurred to date and protects the Group in the
event that the contract does not resume. Despite the successful Mozambique
resolution, the Middle East and Africa business as a whole recorded a loss in
the year. The focus is now on turning this business around post COVID-19 and
actions are being taken to deliver this. Tendering activity in the region
continues to strengthen, though with more variability than other areas of
AMEA.
The AMEA order book strengthened strongly through the second half and at the
end of the period was £177.3m down 2.7% (on a constant currency basis) on the
prior year.
(1)In November 2020 it was announced that our newly formed Middle East and
Africa Business Unit would combine with APAC, with effect from 1 January 2021,
to create an Asia-Pacific, Middle East and Africa (AMEA) division. This brings
together under one management team all of our businesses in developing
geographies that have similar market characteristics and customers, with a
greater focus on large contracts, particularly in the resources sector. The
comparative financials for 2020 are on a proforma basis, aligned with our new
structure.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's 2021 results.
2021 2020
£m £m
Revenue 2,224.4 2,062.5
Underlying operating profit(1) 92.8 110.1
Underlying operating profit %(1) 4.2% 5.3%
Non-underlying items (12.3) (33.1)
Statutory operating profit 80.5 77.0
Statutory operating profit % 3.6% 3.7%
(1 )Details of non-underlying items are set out in note 8 to the
consolidated financial statements. Reconciliations to statutory numbers are
set out in the adjusted performance measures section on page 67.
Revenue split by geography
£m North America Europe(2) AMEA(2) Total
2021
H1 581.7 242.0 160.4 984.1
H2 741.4 307.2 191.7 1,240.3
Total 1,323.1 549.2 352.1 2,224.4
2020
H1 636.5 254.7 147.9 1,039.1
H2 591.0 283.8 148.6 1,023.4
Total 1,227.5 538.5 296.5 2,062.5
Revenue Underlying operating profit(3) Underlying operating profit margin(3)
£m £m %
Year ended 2021 2020 2021 2020 2021 2020
Division
North America 1,323.1 1,227.5 73.0 83.2 5.5% 6.8%
Europe(2) 549.2 538.5 24.3 18.4 4.4% 3.4%
AMEA(2) 352.1 296.5 3.4 15.5 1.0% 5.2%
Central - - (7.9) (7.0) - -
Group 2,224.4 2,062.5 92.8 110.1 4.2% 5.3%
(2 )From 1 January 2021 Middle East and Africa business unit
transferred to APAC division, to create the Asia-Pacific, Middle East and
Africa (AMEA) division. The remaining EMEA division became our Europe
division. The comparative financials for 2020 are on a proforma basis, aligned
with our new structure.
(3 )Details of non-underlying items are set out in note 8 of the
consolidated financial statements.
Revenue
Revenue of £2,224.4m (2020: £2,062.5m) was 7.8% up on 2020, driven by
increased activity, as markets began to recover, particularly in the second
half, with significant contract wins together with the benefit of several
bolt-on acquisitions. At constant currency, revenue increased by 13.4% and
increased across all three divisions. North America reported an increase in
revenue of 15.4% (at constant currency), with improved momentum across all
markets and the addition of several bolt-on acquisitions, the largest being
RECON Services, Inc (RECON). Of the 15.4% increase in revenue, 4.1% was
derived from businesses acquired in 2021 and 11.3% from the existing business.
Europe revenue increased by 5.2% (at constant currency) as markets recovered
with the COVID-19 related shutdowns and travel restrictions easing as the year
progressed. AMEA revenue increased by 20.4% (at constant currency) driven
predominantly by Austral in Australia and India, partly offset by a decline in
the Middle East and Africa business.
We have a consistently 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 3% of the Group's revenue. The top 10 customers
represent 15% of the Group's revenue (2020: 11%). The Group worked on more
than 6,000 projects in the year with 60% 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 £92.8m was 15.7% down on prior year (2020:
£110.1m), which on a constant currency basis was 9.7% down, impacted
primarily by the COVID-19 adverse pressure on market pricing and operational
disruption across our businesses.
North America underlying constant currency operating profit decreased by 5.6%
to £73.0m driven by market pricing pressures and the impact of higher costs
of materials and labour. In particular, operating profit at Suncoast reduced
by £15.3m, largely due to the increased cost of steel strand in High-Rise.
Europe constant currency operating profit increased 38.2% reflecting the
higher level of activity, improved efficiencies on site, enhanced contract
profitability and cost savings following the prior year restructuring
activity. AMEA constant currency operating profit decreased by 77.1% to £3.4m
driven by operational disruption as a result of COVID-19, particularly in
Keller Australia and an extremely challenging trading environment in the
Middle East and Africa.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of £0.4m in the year
(2020: £0.8m) from its share of the post-tax results from joint ventures. The
share of the post-tax amortisation charge of £0.6m arising from the
acquisition of NordPile by our joint venture KFS Oy is included as a
non-underlying item. No dividends (2020: £0.4m) were received from joint
ventures in the year.
Statutory operating profit
Statutory operating profit comprising underlying operating profit of £92.8m
(2020: £110.1m) and non-underlying items comprising net costs of £12.3m
(2020: £33.1m), increased by 4.5% to £80.5m (2020: £77.0m).
Net finance costs
Net finance costs decreased by 32.6% to £8.9m (2020: £13.2m). The reduction
has been driven by the decrease in US LIBOR, which reduces the cost of the
Group's private placement debt, and a decrease in the average net debt levels
through the year. The average net borrowings, excluding IFRS 16 lease
liabilities, during the year were £147.6m (2020: £183.5m).
Taxation
The Group's underlying effective tax rate decreased to 24% (2020: 29%),
largely due to a prior year benefit in North America from research and
development tax credits. Cash tax paid in the year of £15.9m (2020: £24.9m)
was a decrease of £9.0m over the prior year and was mainly attributable to
the impact of the additional research and development tax credits. Other
differences are mainly due to the timing and phasing of tax payments which do
not necessarily relate to the period in which the profits are earned. Further
details on tax are set out in note 11 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 8 to the financial
statements. The total pre-tax non-underlying items in the year decreased to
£12.3m (2020: £33.1m), due to the reduction in restructuring activity during
the year.
2021 2020
£m £m
Exceptional restructuring costs 7.3 16.6
Loss on disposal of operations 0.5 11.6
Acquisition costs 0.5 0.3
Contingent consideration: additional amounts provided 1.3 0.8
Goodwill impairment - 0.3
Amortisation of acquired intangible assets 2.8 4.2
Amortisation of joint venture acquired intangibles 0.6 -
Contingent consideration received (0.7) -
Exceptional contract dispute - (0.7)
Total non-underlying items in operating profit 12.3 33.1
Non-underlying taxation (10.6) (5.6)
Total non-underlying items 1.7 27.5
Non-underlying items in operating profit
Total exceptional restructuring costs of £7.3m have been incurred in AMEA and
Europe as the final costs on the project to rationalise the Middle East and
Africa businesses and the restructuring costs incurred in KGS, the in-house
equipment manufacturer following a review of overheads.
The loss on disposal of operations comprises £0.5m loss on disposal arising
from the disposal of the non-core Cyntech Anchors business in Canada and the
finalisation of the sale price for the disposal of the Brazil business in
2020. Acquisition costs of £0.5m relate to professional fees and other
related costs incurred through the acquisitions of RECON and Subterranean.
Additional contingent consideration payable of £1.3m relates to the
acquisition of the Geo Construction Group (Bencor) in 2015, following
finalisation of items referenced in the sale and purchase agreement.
The £2.8m charge for amortisation of acquired intangible assets relates to
the RECON, Moretrench Industrial and Austral acquisitions. Amortisation of
joint venture intangibles of £0.6m relates to the NordPile acquisition
undertaken by our joint venture investment KFS Finland Oy during the year.
Contingent consideration of £0.7m was received in respect of the 2020
Wannenwetsch disposal.
Non-underlying taxation
A non-underlying tax credit of £10.6m (2020: £5.6m) included the £1.5m
(2020: £3.7m) tax impact of the non-underlying loss. The remaining £9.1m
(2020: £1.9m) tax credit arose from the partial reversal of the valuation
allowance against deferred tax assets in Canada and Australia that was
recognised through the non-underlying tax charge in prior years.
Free cash flow
2021 2020
£m £m
Underlying operating profit 92.8 110.1
Depreciation, amortisation and impairment 97.4 94.9
Underlying EBITDA 190.2 205.0
Non-cash items - 1.9
Dividends from joint ventures - 0.4
(Increase)/decrease in working capital (3.1) 38.2
(Decrease)/increase in provisions and retirement benefit liabilities (7.8) 13.9
Net capital expenditure (74.6) (65.6)
Additions to right-of-use assets (23.4) (22.7)
Free cash flow before interest and tax 81.3 171.1
Free cash flow before interest and tax to underlying operating profit 88% 155%
Net interest paid (5.3) (12.0)
Cash tax paid (15.9) (24.9)
Free cash flow 60.1 134.2
Dividends paid to shareholders (25.9) (25.9)
Purchase of own shares (3.7) -
Acquisitions (31.3) -
Business disposals 7.1 2.2
Non-underlying items (2.0) (11.0)
Right-of-use assets/lease liability modifications (4.0) (1.1)
Foreign exchange movements (1.1) (1.1)
Movement in net debt (0.8) 97.3
Opening net debt (192.5) (289.8)
Closing net debt (193.3) (192.5)
Earnings per share
Underlying diluted earnings per share decreased by 8.2% to 88.4p (2020: 96.3p)
driven by lower operating profit partially offset by the reduction in finance
costs and the effective tax rate reduction. Statutory diluted earnings per
share was 86.1p (2020: 58.5p) which reflects the reduction in non-underlying
items in comparison to the prior year.
Dividend
The Board has recommended a final dividend of 23.3p per share (2020: 23.3p per
share) which, following the interim dividend for 2021 of 12.6p (2020: 12.6p),
brings the total dividend for the year to 35.9p (2020: 35.9p). The 2021
dividend earnings cover, before non-underlying items, was 2.5x (2020: 2.7x).
The Group's dividend policy is to increase the dividend sustainably whilst
allowing the Group to be able to grow, or as a minimum, maintain, the level of
dividend through market cycles. The continuation of dividend payments during
the challenging macro environment of 2020 and 2021 reflects the financial
strength of the Group, its significant liquidity position and the longer-term
confidence in the performance of the business. As we advance through 2022 the
Board will review the progression of our dividend.
Keller Group plc had distributable reserves of £122.9m at 31 December 2021
that are available to support the dividend policy, which comfortably covers
the proposed full-year dividend for 2021 of £16.8m. 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.
Acquisitions
On 13 July 2021, the Group acquired RECON Services, Inc for an initial cash
consideration of £20.2m and £9.5m of contingent consideration, of which
£1.5m had been paid at year end. The business is a geotechnical environmental
remediation and industrial services company based in Texas, US and is included
in the North America Division.
On 29 September 2021, the Group acquired the business of Subterranean
(Manitoba) Ltd, for cash consideration of £7.8m. Subterranean is a
geotechnical contractor in Manitoba, Canada.
On 1 November 2021, the Group acquired the business of Voges Drilling, a
geotechnical foundation company based in Texas, for cash consideration of
£1.4m. Further deferred consideration of £0.8m is payable over a three-year
period.
Prior year balance sheet reclassification
As noted in the Audit and Risk Committee report, during 2021, the Financial
Reporting Council (FRC) included the Group's annual report and accounts for
the year ended 31 December 2020 in their thematic review of IAS 37,
'Provisions, Contingent Liabilities and Contingent Assets', which resulted in
the FRC requesting further information in respect of provisions for insurance
and legal claims. The Group responded fully to the matters raised in the
correspondence and have concluded that the insurance reimbursement receivables
of the Group should be separately presented gross on the consolidated balance
sheet, rather than netted off against the insurance and legal provision.
The Group has restated the relevant sections of this year's accounts to
reflect this. The restatement impacted the balance sheet reported in the 2020
annual report and accounts as detailed in the accounting policies note on page
28. The restatement did not result in any changes to reported profit,
earnings per share, net assets or the cash flows reported in the 2020
financial year.
Working capital
Net working capital increased by £3.1m (2020: decrease of £38.2m) reflecting
the reversal of the working capital timing benefit achieved in 2020 due to the
impact of COVID-19 on business activity and cash collections. The net movement
comprised of an £18.3m increase in inventories and a £104.4m increase in
trade and other receivables, offset by an increase in trade and other payables
of £119.6m.
A reduction in provisions and retirement benefit liabilities increased the
cash outflow in respect of working capital by £7.8m (2020: increase of
£13.9m). This mainly comprises payments in respect of retirement benefits.
The increase in insurance provisions that offsets with an increase in
insurance receivables does not impact the cash flow statement. The £7.8m
outflow excludes the cash outflow on restructuring provisions which is
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 £74.6m (2020: £65.6m) was net of proceeds from
the sale of equipment of £9.8m (2020: £7.4m). 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 127% (2020: 109%).
Free cash flow
The Group's free cash flow of £60.1m (2020: £134.2m) is more than sufficient
to fund, in cash terms, the full value of the payment in relation to the total
2021 dividend of £25.9m (2020: £25.9m). The basis of deriving free cash flow
is set out on page 18.
Financing facilities and net debt
The Group's total net debt of £193.3m (2020: £192.5m) comprises loans and
borrowings and related derivatives of £200.6m (2020: £185.0m), lease
liabilities of £75.4m (2020: £73.8m) net of cash and cash equivalents of
£82.7m (2020: £66.3m). The Group's term debt and committed facilities
principally comprise US private placements of $75m (£58.1m) which mature in
2024 and a £375m multi-currency syndicated revolving credit facility, which
matures in November 2025. During the year, $50m (£36.2m) of US private
placements matured and were repaid and in March 2021 the Group's unused £300m
Covid Corporate Financing Facility (CCFF) was withdrawn. At the year end, the
Group had undrawn committed and uncommitted borrowing facilities totalling
£291.9m (2020: £672.6m).
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 0.8x (2020: 0.7x), well within
the limit of 3.0x and at the lower end of the leverage target of between
0.5x-1.5x. Calculated on a statutory basis, including the impact of IFRS 16,
net debt to EBITDA leverage was 1.0x at 31 December 2021 (2020: 0.9x).
Underlying EBITDA, excluding the impact of IFRS 16, to net finance charges was
30.5x (2020: 21.7x), well above the limit of 4.0x.
On an IFRS 16 basis, year-end gearing was 44% (2020: 47%).
The average month-end net debt during 2021, excluding IFRS 16 lease
liabilities, was £147.6m (2020: £183.5m) and the minimum headroom during the
year on the Group's main banking facility was £164.2m (2020: £129.4m), in
addition to a cash balance at that time of £92.0m (2020: £80.8m). 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.
At 31 December 2021 the Group had drawn upon uncommitted overdraft facilities
of £0.9m (2020: £4.7m) and had drawn £150.4m of bank guarantee facilities
(2020: £167.5m).
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 2020, which
recorded the market value of the scheme's assets at £49.7m and the scheme
being 77% funded on an ongoing basis. The level of contributions are £2.7m a
year with effect from 1 January 2021 and will increase by 3.6% per annum on 1
January going forward to 5 August 2024. Contributions will be reviewed
following the next triennial actuarial valuation to be prepared as at 5 April
2023. The 2021 year-end IAS 19 valuation of the UK scheme showed assets of
£63.7m, liabilities of £58.3m and a pre-tax surplus of £5.4m before an
IFRIC 14 adjustment to reflect the minimum funding requirement for the scheme,
which adjusts the closing position to a deficit of £6.8m.
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 £15.9m at 31 December 2021 (2020:
£19.0m). 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 £3.0m at 31 December 2021 (2020:
£2.9m).
Currencies
The Group is exposed to both translational and, to a lesser extent,
transactional foreign currency gains and losses through movements in foreign
exchange rates as a result of its global operations. The Group's primary
currency exposures are US dollar, Canadian dollar, euro, Singapore dollar and
Australian dollar.
As the Group reports in sterling and conducts the majority of its business in
other currencies, movements in exchange rates can result in significant
currency translation gains or losses. This has an effect on the primary
statements and associated balance sheet metrics, such as net debt and working
capital.
A large proportion of the Group's revenues are matched with corresponding
operating costs in the same currency. The impact 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:
2021 2020
Closing Average Closing Average
USD 1.35 1.38 1.37 1.28
CAD 1.71 1.72 1.74 1.72
EUR 1.19 1.16 1.12 1.12
SGD 1.82 1.85 1.81 1.77
AUD 1.86 1.83 1.78 1.86
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
sterling, US dollar, Canadian dollar, euro, Australian dollar and Singapore
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.
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 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 2021 was 14.4% (2020: 16.4%).
Principal risks
The Group operates globally across many geotechnical market sectors and in
varied geographic markets. The Group's performance and prospects may be
affected by risks and uncertainties in relation to the industry and the
environments in which it undertakes its operations around the world. Those
risks include: financial risks - the inability to finance our business; market
risk - a rapid downturn in our markets; strategic risk - the failure to
procure new contracts, losing market share, non-compliance with our code of
business conduct; operational risk - product and/or solution failure, the
ineffective management of our contracts, causing a serious injury or fatality
to an employee or member of the public, and not having the right skills to
deliver.
The Group is alert to the challenges of managing risk and has systems and
procedures in place across the Group to identify, assess and mitigate major
business risks. The important developments in managing our principal risks
during 2021 and the key areas of focus for 2022 are set out in the Strategic
report within the Group's Annual Report and Accounts.
Consolidated income statement
For the year ended 31 December 2021
2021 2020
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
items items
(note 8) (note 8)
Note £m £m £m £m £m £m
Revenue 3,4 2,224.4 - 2,224.4 2,062.5 - 2,062.5
Operating costs 6 (2,132.0) (9.6) (2,141.6) (1,953.2) (29.6) (1,982.8)
Amortisation of acquired intangible assets - (2.8) (2.8) - (4.2) (4.2)
Other operating income - 0.7 0.7 - 0.7 0.7
Share of post-tax results of joint ventures 16 0.4 (0.6) (0.2) 0.8 - 0.8
Operating profit/(loss) 3 92.8 (12.3) 80.5 110.1 (33.1) 77.0
Finance income 9 0.4 - 0.4 1.1 - 1.1
Finance costs 10 (9.3) - (9.3) (14.3) - (14.3)
Profit/(loss) before taxation 83.9 (12.3) 71.6 96.9 (33.1) 63.8
Taxation 11 (20.1) 10.6 (9.5) (28.3) 5.6 (22.7)
Profit/(loss) for the year 63.8 (1.7) 62.1 68.6 (27.5) 41.1
Attributable to:
Equity holders of the parent 64.7 (1.7) 63.0 70.0 (27.5) 42.5
Non-controlling interests 33 (0.9) - (0.9) (1.4) - (1.4)
63.8 (1.7) 62.1 68.6 (27.5) 41.1
Earnings per share
Basic 13 89.5p 87.1p 97.1p 58.9p
Diluted 13 88.4p 86.1p 96.3p 58.5p
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Note £m £m
Profit for the year 62.1 41.1
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations (4.3) (5.9)
Transfer of translation reserve on disposal of subsidiaries (0.4) 2.9
Cash flow hedge gains taken to equity 25 - 0.5
Cash flow hedge transferred to income statement 25 - (0.5)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 32 1.2 (2.2)
Tax on remeasurements of defined benefit pension schemes 11 (0.2) 0.4
Other comprehensive loss for the year, net of tax (3.7) (4.8)
Total comprehensive income for the year 58.4 36.3
Attributable to:
Equity holders of the parent 59.3 37.9
Non-controlling interests (0.9) (1.6)
58.4 36.3
Consolidated balance sheet
As at 31 December 2021
2021 2020(1)
Note £m £m
Assets
Non-current assets
Goodwill and intangible assets 14 141.5 118.8
Property, plant and equipment 15 443.4 434.9
Investments in joint ventures 16 4.0 4.4
Deferred tax assets 11 13.0 10.3
Other assets 17 88.5 60.3
690.4 628.7
Current assets
Inventories 18 72.1 60.1
Trade and other receivables 19 592.0 501.9
Current tax assets 8.9 2.1
Cash and cash equivalents 20 82.7 66.3
Assets held for sale 21 3.4 8.7
759.1 639.1
Total assets 3 1,449.5 1,267.8
Liabilities
Current liabilities
Loans and borrowings 25 (29.8) (67.0)
Current tax liabilities (17.9) (17.1)
Trade and other payables 22 (505.7) (381.7)
Provisions 23 (53.8) (54.4)
(607.2) (520.2)
Non-current liabilities
Loans and borrowings 25 (246.2) (191.8)
Retirement benefit liabilities 32 (25.7) (31.1)
Deferred tax liabilities 11 (28.6) (21.3)
Provisions 23 (77.9) (71.4)
Other liabilities 24 (21.2) (22.0)
(399.6) (337.6)
Total liabilities 3 (1,006.8) (857.8)
Net assets 3 442.7 410.0
Equity
Share capital 27 7.3 7.3
Share premium account 38.1 38.1
Capital redemption reserve 27 7.6 7.6
Translation reserve 11.6 16.3
Other reserve 27 56.9 56.9
Retained earnings 318.4 280.1
Equity attributable to equity holders of the parent 439.9 406.3
Non-controlling interests 33 2.8 3.7
Total equity 442.7 410.0
1 Other assets, trade and other receivables and provisions
presented here do not correspond to the published 2020 consolidated financial
statements. The comparative balance sheet has been restated to present gross
insurance provisions with a separate reimbursement asset recognised for
amounts recoverable from insurance providers and customer retentions
receivable in more than one year to other non-current assets, as outlined in
note 2 to the financial statements.
These consolidated financial statements were approved by the Board of
Directors and authorised for issue on 7 March 2022.
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 2021
Capital Attributable Non-
Share Share redemption Other Hedging to equity controlling
capital premium reserve Translation reserve reserve Retained holders of interests Total
(note 27) account (note 27) reserve (note 27) (note 25) earnings the parent (note 33) equity
£m £m £m £m £m £m £m £m £m £m
At 1 January 2020 7.3 38.1 7.6 19.1 56.9 - 263.2 392.2 5.3 397.5
Profit/(loss) for the year - - - - - - 42.5 42.5 (1.4) 41.1
Other comprehensive income
Exchange movements on translation of foreign operations - - - (5.7) - - - (5.7) (0.2) (5.9)
Transfer of reserves on disposal of subsidiaries - - - 2.9 - - - 2.9 - 2.9
Cash flow hedge gains taken to equity - - - - - 0.5 - 0.5 - 0.5
Cash flow hedge transferred to income statement - - - - - (0.5) - (0.5) - (0.5)
Remeasurements of defined benefit pension schemes - - - - - - (2.2) (2.2) - (2.2)
Tax on remeasurements of defined benefit pension schemes - - - - - - 0.4 0.4 - 0.4
Other comprehensive loss for the year, net of tax - - - (2.8) - - (1.8) (4.6) (0.2) (4.8)
Total comprehensive (loss)/ income for the year - - - (2.8) - - 40.7 37.9 (1.6) 36.3
Dividends - - - - - - (25.9) (25.9) - (25.9)
Share-based payments - - - - - - 2.1 2.1 - 2.1
At 31 December 2020 and 1 January 2021 7.3 38.1 7.6 16.3 56.9 - 280.1 406.3 3.7 410.0
Profit/(loss) for the year - - - - - - 63.0 63.0 (0.9) 62.1
Other comprehensive income
Exchange movements on translation of foreign operations - - - (4.3) - - - (4.3) - (4.3)
Transfer of reserves on disposal of subsidiaries - - - (0.4) - - - (0.4) - (0.4)
Remeasurements of defined benefit pension schemes - - - - - - 1.2 1.2 - 1.2
Tax on remeasurements of defined benefit pension schemes - - - - - - (0.2) (0.2) - (0.2)
Other comprehensive (loss)/income for the year, net of tax - - - (4.7) - - 1.0 (3.7) - (3.7)
Total comprehensive (loss)/ income for the year - - - (4.7) - - 64.0 59.3 (0.9) 58.4
Dividends - - - - - - (25.9) (25.9) - (25.9)
Purchase of own shares for ESOP trust - - - - - - (3.7) (3.7) - (3.7)
Share-based payments - - - - - - 3.9 3.9 - 3.9
At 31 December 2021 7.3 38.1 7.6 11.6 56.9 - 318.4 439.9 2.8 442.7
Consolidated cash flow statement
For the year ended 31 December 2021
2021 2020
Note £m £m
Cash flows from operating activities
Profit before taxation 71.6 63.8
Non-underlying items 8 12.3 33.1
Finance income 9 (0.4) (1.1)
Finance costs 10 9.3 14.3
Underlying operating profit 3 92.8 110.1
Depreciation of property, plant and equipment 15 90.6 94.3
Amortisation of intangible assets 14 0.6 0.6
Share of underlying post-tax results of joint ventures 16 (0.4) (0.8)
Profit on sale of property, plant and equipment (1.8) (0.6)
Other non-cash movements 8.3 1.8
Foreign exchange losses 0.1 1.5
Operating cash flows before movements in working capital and other underlying 190.2 206.9
items
(Increase)/decrease in inventories (18.3) 7.1
(Increase)/decrease in trade and other receivables (104.4) 111.1
Increase/(decrease) in trade and other payables 119.0 (80.0)
(Decrease)/increase in provisions, retirement benefit and other non-current (7.8) 13.9
liabilities
Cash generated from operations before non-underlying items 178.7 259.0
Cash inflows from non-underlying items: contract disputes - 0.7
Cash inflows from non-underlying items: assets held for sale 2.4 -
Cash outflows from non-underlying items: restructuring costs (3.9) (11.7)
Cash outflows from non-underlying items: acquisition costs (0.5) -
Cash generated from operations 176.7 248.0
Interest paid (2.0) (8.8)
Interest element of lease rental payments (3.1) (3.8)
Income tax paid (15.9) (24.9)
Net cash inflow from operating activities 155.7 210.5
Cash flows from investing activities
Interest received 0.4 0.6
Proceeds from sale of property, plant and equipment 9.8 7.4
Proceeds on disposal of businesses 5 7.1 2.2
Acquisition of businesses, net of cash acquired 5 (29.9) -
Acquisition of property, plant and equipment 15 (84.0) (72.5)
Acquisition of other intangible assets 14 (0.4) (0.5)
Dividends received from joint ventures 16 - 0.4
Net cash outflow from investing activities (97.0) (62.4)
Cash flows from financing activities
Increase in borrowings 91.2 10.4
Repayment of borrowings (69.4) (131.4)
Payment of lease liabilities (29.8) (27.2)
Purchase of own shares for ESOP trust (3.7) -
Dividends paid 12 (25.9) (25.9)
Net cash outflow from financing activities (37.6) (174.1)
Net increase/(decrease) in cash and cash equivalents 21.1 (26.0)
Cash and cash equivalents at beginning of year 61.6 87.5
Effect of exchange rate movements (0.9) 0.1
Cash and cash equivalents at end of year 20 81.8 61.6
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 2021 were
authorised for issue in accordance with the resolution of the Directors on 7
March 2022.
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. Information on the Group's structure is provided in
note 9 of the company financial statements.
2 Significant accounting policies
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.
These financial statements do not constitute the company's statutory accounts
for the years ended 31 December 2021 or 2020 but are derived from the 2022
accounts. Statutory accounts for 2020 have been delivered to the Registrar of
Companies. Those for 2021 will be delivered to the Registrar of Companies and
made available on the company's website at www.keller.com. The auditors have
reported on those accounts; their reports were (i) unqualified, (ii) did not
include references to any matters to which the auditors drew attention by way
of emphasis without qualifying their reports and (iii) did not contain
statements under section 498(2) or (3) of the Companies Act 2006.
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.
Going concern
As part of the going concern and viability review, management ran a series of
downside scenarios on the latest forecast profit and cash flow projections to
assess covenant headroom against available funding facilities for a three-year
period to 31 December 2024. The going concern review used the same downside
scenarios and forecasts for the period through to the end of March 2023, 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. 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.
· Ineffective execution of projects reducing profits by 1% of
revenue.
· Not having the right skills to deliver reducing profits by 0.5%
of revenue.
· A combination of other principal risks and trading risks
materialising together reducing profits by up to £84.6m over the period to 31
December 2024. 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, the cost of a
product or solution failure and the impact of a previously unrecorded tax
liability.
· Deterioration of working capital performance by 5% of six months'
sales.
The financial and cash effects of these scenarios were modelled individually
and in combination. The focus was on the ability to secure or retain future
work and potential downward pressure on margins. Management applied
sensitivities against projected revenue, margin and working capital metrics
reflecting a series of plausible downside scenarios. Against the most negative
scenario, mitigating actions were overlaid. These include a range of
cost-cutting measures and overhead savings designed to preserve cash flows.
Even in the most extreme downside scenario modelled, including an aggregation
of all risks considered, which showed a decrease in operating profit of 42.9%
and an increase in net debt of 47.9% against the Group's latest forecast
profit and cash flow projections for the review period up to 31 March 2023.
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 2023, 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.
At 31 December 2021, the Group had undrawn committed and uncommitted borrowing
facilities totalling £291.9m, comprising £219.8m of the unutilised portion
of the revolving credit facility, £15.7m of other undrawn committed borrowing
facilities and undrawn uncommitted borrowing facilities of £56.4m, as well as
cash and cash equivalents of £82.7m. At 31 December 2021, the Group's net
debt to underlying EBITDA ratio (calculated on an IAS 17 covenant basis) was
0.8x, well within the limit of 3.0x.
Climate change
In preparing the consolidated financial statements, management has considered
the impact of climate change on a number of key estimates within the financial
statements, including estimates of future cash flows used in impairment
assessments of the carrying value of goodwill, recoverability of deferred
assets and the useful economic life of plant, equipment and other intangible
assets. These considerations did not have a material impact on the financial
reporting judgements and estimates, consistent with the assessment that
climate change is not expected to have a significant impact on the Group's
going concern assessment to March 2023 nor the viability of the Group over the
next three years.
Prior year restatement
Insurance restatement
In October 2021, the Group received a letter from the Financial Reporting
Council (FRC) as part of its regular review and assessment of the quality of
corporate reporting in the UK, following the Group's inclusion in the
'Thematic review on Provisions, Contingent Liabilities and Contingent Assets'.
The letter included a request for further information on the Group's Annual
Report and Accounts for the year ended 31 December 2020. The review conducted
by the FRC was based solely on the Group's published Annual Report and
Accounts and does not provide any assurance that the Annual Report and
Accounts are correct in all material respects.
Following finalisation of the correspondence with the FRC, the Directors have
concluded that the insurance reimbursement receivables of the Group should be
separately presented gross on the consolidated balance sheet, rather than
netted off against the insurance and legal provision.
Retentions restatement
Separately from the above, the element of trade receivables relating to
customer retentions expected to be received in more than one year was
disclosed separately in the revenue note (note 4 to the consolidated financial
statements) but classified incorrectly within the trade and other receivables
balance sheet line. The Group has amended this disclosure and separately
categorised this receivable within other non-current assets as detailed below.
As a result of these items, the consolidated balance sheet as at 31 December
2020 has been restated as follows:
Consolidated balance sheet
2020 Insurance Retentions 2020
(as reported) restatement restatement (restated)
£m £m £m £m
Non-current assets 25.9 24.2 10.2 60.3
Other assets
Current assets
Trade and other receivables 503.9 8.2 (10.2) 501.9
Current liabilities
Provisions (46.2) (8.2) - (54.4)
Of which: Insurance and legal provisions (12.6) (8.2) - (20.8)
Other provisions (33.6) - - (33.6)
Non-current liabilities
Provisions (47.2) (24.2) - (71.4)
Of which: Insurance and legal provisions (26.9) (24.2) - (51.1)
Other provisions (20.3) - - (20.3)
The restatement did not result in any change to reported profit, earnings per
share, net assets or cash flows reported in the 2020 financial year.
The impact on the opening consolidated balance sheet as at 31 December 2019 is
as follows:
Consolidated balance sheet
2019 Insurance restatement Retentions 2019
(as reported) £m restatement (restated)
£m £m £m
Non-current assets
Other assets 22.3 9.1 32.4 63.8
Current assets
Trade and other receivables 626.7 2.5 (32.4) 596.8
Current liabilities
Provisions (28.6) (2.5) - (31.1)
Of which: Insurance and legal provisions (6.9) (2.5) - (9.4)
Other provisions (21.7) - - (21.7)
Non-current liabilities
Provisions (46.4) (9.1) - (55.5)
Of which: Insurance and legal provisions (25.8) (9.1) - (34.9)
Other provisions (20.6) - - (20.6)
The restatement did not result in any change to reported profit, earnings per
share, net assets or cash flows reported in the 2019 financial year.
Further details of the impact of the restatement can be found in notes 17,19
and 23 to the consolidated financial statements.
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.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The following amendments became effective during the year to 31 December 2021:
· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 'Interest Rate
Benchmark Reform Phase 2' (effective 1 January 2021).
· Amendments to IFRS 16 'COVID-19 Related Rent Concessions beyond 30 June
2021' (effective 1 April 2021).
These amendments have a limited impact on the consolidated financial
statements of the Group.
The Group has not early adopted any standards, interpretations or amendments
that have been issued but are not yet effective.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 'Interest Rate
Benchmark Reform Phase 2' (IBOR)
In September 2019, the IASB issued the first accounting amendment to IFRS 9,
IAS 39 and IFRS 7 related to the IBOR reform, which addresses the impact that
the current uncertainty could have when applying specific hedge accounting
requirements on applicable hedge relationships. The first phase of amendments
to IFRS 9 provides temporary relief from applying specific hedge accounting
requirements to hedging relationships directly affected by the IBOR reforms.
In accordance with the transition provisions, the amendments have been adopted
retrospectively to hedging relationships that existed at the start of the
current reporting period. The reliefs have meant that the uncertainty over the
IBOR reforms has not resulted in the discontinuation of hedge accounting for
any of the Group's fair value hedges.
Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were issued
by the IASB in August 2020 to provide practical expedients and reliefs in
relation to modifications of financial instruments and leases that arise from
the transition from IBORs to risk-free rates. Phase 2 also provides further
reliefs to hedge accounting requirements. These amendments were effective for
the Group from 1 January 2021.
The Group is monitoring and managing the transition to alternative benchmark
rates that are linked to existing interest rate benchmarks related to
borrowings, leases and derivative contracts. The impact of IBOR reform on the
Group is assessed as being limited. The changes only apply to one hedge
relationship associated with managing the fixed rate on the US private
placement expiring in December 2024 (refer to note 25), for which the Group is
exposed to a six-month USD LIBOR that will be available until June 2023. In
2021, the Group amended and restated the £375m syndicated revolving credit
facility to replace any reference to IBOR with reference to applicable
risk-free rates. There is no impact on the incremental borrowing rate for
calculating leases liabilities.
Amendments to IFRS 16 'COVID-19 Related Rent Concessions beyond 30 June 2021'
On 28 May 2020, the IASB issued COVID-19 Related Rent Concessions amendments
to IFRS 16 'Leases'. The amendments provide relief to lessees from applying
IFRS 16 guidance on lease modification accounting for rent concessions arising
as a direct consequence of the COVID-19 pandemic. As a practical expedient, a
lessee may elect not to assess whether a COVID-19 related rent concession from
a lessor is a lease modification. A lessee that makes this election accounts
for any change in lease payments resulting from the COVID-19 related rent
concession the same way it would account for the change under IFRS 16, if the
change were not a lease modification. The amendment was intended to apply
until 30 June 2021, but as the impact of the COVID-19 pandemic is continuing,
on 31 March 2021, the IASB extended the period of application of the practical
expedient to 30 June 2022. The amendment applies to annual reporting periods
beginning on or after 1 April 2021.
The Group has not received COVID-19 related rent concessions during the year,
but plans to apply the practical expedient if it becomes applicable within the
allowed period of application.
Summary of significant accounting policies
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 2021 2020
US dollar 1.38 1.28
Canadian dollar 1.72 1.72
Euro 1.16 1.12
Singapore dollar 1.85 1.77
Australian dollar 1.83 1.86
Year end rates 2021 2020
US dollar 1.35 1.37
Canadian dollar 1.71 1.74
Euro 1.19 1.12
Singapore dollar 1.82 1.81
Australian dollar 1.86 1.78
Revenue from contracts with customers
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 are recognised only when the Group considers there
is an enforceable right to consideration. 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 11.
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. As allowed by IAS 19, 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.
Government subsidies
In an attempt to mitigate the impact of the COVID-19 pandemic, during the year
some government bodies continued to provide direct subsidies to aid companies.
Where the subsidy relates to an expense item, it has been recognised in the
consolidated income statement as an offset against the expense for which it is
was intended to compensate. In the prior year the Group was eligible for
deferral of the employer's share of social security taxes in the United
States. No additional deferrals took place in 2021. Further details are set
out in notes 6 and 7.
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 15 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 0.9% to 33.0%.
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
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
indications 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). The initial ECLs are recognised on recognition of a receivable. This
provision is made for each category of receivables with similar risks, based
on historical experience and adjusted for the effects of expected or actual
changes in customer risk, economic risk and performance expected in the next
12 months. For the lifetime ECL the Group uses a provision matrix.
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 a non-financial
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 23.
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.
Financial guarantees
Where Group companies enter into financial guarantee contracts to guarantee
the indebtedness or obligations of other companies within the Group, these are
considered to be insurance arrangements, and are accounted for as such. In
this respect, the guarantee contract is treated as a contingent liability
until such time as it becomes probable that the guarantor will be required to
make a payment under the guarantee.
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. The geographical divisions were revised with effect
from 1 January 2021; the Middle East and Africa (MEA) business was combined
with the Asia-Pacific Division, creating the Asia-Pacific, Middle East and
Africa Division, and the remaining Europe, Middle East and Africa Division
became the Europe Division. The comparative information has been amended to
reflect consistent basis of preparation.
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, 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 23). 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 6,000 contracts during 2021, at an
average revenue of approximately £375,000 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, 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. 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.
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.
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. Refer to note 14 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. Refer to note 11 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 23 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.
2021 2020(1)
Revenue Operating Revenue Operating
profit profit
£m £m £m £m
North America 1,323.1 73.0 1,227.5 83.2
Europe 549.2 24.3 538.5 18.4
Asia-Pacific, Middle East and Africa 352.1 3.4 296.5 15.5
2,224.4 100.7 2,062.5 117.1
Central items - (7.9) - (7.0)
Underlying 2,224.4 92.8 2,062.5 110.1
Non-underlying items (note 8) - (12.3) - (33.1)
2,224.4 80.5 2,062.5 77.0
2021
Depreciation(3) Tangible(4)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 827.0 (349.9) 477.1 36.4 46.1 334.7
Europe 273.9 (184.7) 89.2 23.8 25.0 143.7
Asia-Pacific, Middle East and Africa 218.0 (99.9) 118.1 24.2 19.5 103.5
1,318.9 (634.5) 684.4 84.4 90.6 581.9
Central items(2) 130.6 (372.3) (241.7) - 0.6 3.0
1,449.5 (1,006.8) 442.7 84.4 91.2 584.9
2020(1,5)
Depreciation(3) Tangible(4)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 690.2 (228.2) 462.0 26.9 47.7 304.0
Europe 275.5 (197.8) 77.7 24.6 25.9 147.3
Asia-Pacific, Middle East and Africa 224.6 (98.7) 125.9 21.5 20.7 101.8
1,190.3 (524.7) 665.6 73.0 94.3 553.1
Central items(2) 77.5 (333.1) (255.6) - 0.6 0.6
1,267.8 (857.8) 410.0 73.0 94.9 553.7
1 From 1 January 2021 the Middle East and Africa (MEA) business
was transferred to the Asia-Pacific Division, creating the Asia-Pacific,
Middle East and Africa Division, and the remaining Europe, Middle East and
Africa Division became the Europe Division. The 2020 comparative segmental
information has been updated to reflect this change as it is consistent with
the information reviewed by the Chief Operating Decision Maker.
2 Central items include net debt and tax balances, which are
managed by the Group.
3 Depreciation and amortisation excludes amortisation of
acquired intangible assets.
4 Tangible and intangible assets comprise goodwill, intangible
assets and property, plant and equipment.
5 Segment assets and liabilities presented here do not
correspond to the published 2020 consolidated financial statements. The
comparative balance sheet has been restated to present gross insurance
provisions with a separate reimbursement asset recognised for amounts
recoverable from insurance providers, as outlined in note 2 to the financial
statements.
Revenue analysed by country:
2021 2020
£m £m
United States 1,197.6 1,112.0
Australia 202.4 158.9
Germany 110.0 116.9
Canada 125.1 113.3
United Kingdom 100.4 59.1
Other 488.9 502.3
2,224.4 2,062.5
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:
Year ended 31 December 2021 Year ended 31 December 2020
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 1,005.0 318.1 1,323.1 944.0 283.5 1,227.5
Europe 549.2 - 549.2 538.5 - 538.5
Asia-Pacific, Middle East and Africa 352.1 - 352.1 296.5 - 296.5
1,906.3 318.1 2,224.4 1,779.0 283.5 2,062.5
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 2021 from
performance obligations satisfied in previous periods is £28.0m (2020:
£21.5m).
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 2021, the total order book is £1,296.7m (2020:
£1,000.2m).
The order book for contracts with a total duration over one year is £402.0m
(2020: £295.8m). Revenue on these contracts is expected to be recognised as
follows:
2021 2020
£m £m
Less than one year 279.7 185.0
One to two years 103.7 99.8
More than two years 18.6 11.0
402.0 295.8
The following table provides information about trade receivables, contract
assets and contract liabilities arising from contracts with customers:
2021 2020
£m £m
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Contract liabilities (46.5) (43.9)
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 £85.9m
(2020: £87.5m) in respect of retentions anticipated to be receivable within
one year. Included in non-current other assets is £24.4m (2020: £10.2m)
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:
2021 2020
Contract assets Contract liabilities Contract assets Contract liabilities
£m £m £m £m
As at 1 January 71.3 (43.9) 102.1 (42.0)
Revenue recognised in the current year 654.2 516.0 597.1 619.2
Acquired with businesses 2.0 (0.3) - -
Disposal of businesses - - (2.4) 0.5
Amounts transferred to trade receivables (619.5) - (624.3) -
Cash received/invoices raised for performance obligations not yet satisfied - (518.3) - (623.1)
Exchange movements (0.4) - (1.2) 1.5
As at 31 December 107.6 (46.5) 71.3 (43.9)
5 Acquisitions and disposals
Acquisitions
On 13 July 2021, the Group acquired 100% of the issued share capital of RECON
Services Inc., a geotechnical environmental remediation and industrial
services company based in Texas, US, for an initial cash consideration of
£20.2m (US$27.8m). Following the finalisation of the acquired working
capital, an adjustment of £0.1m (US$0.2m) was agreed with the vendor,
reducing the consideration paid. In addition, contingent consideration is
payable in respect of certain contract awards; the total fair value of the
contingent consideration is £9.5m (US$13.1m) of which £1.5m has been paid
and £8.0m is recognised as contingent consideration payable at year end. This
amount has been agreed in principle with the vendor (refer to note 34).The
fair value of the intangible assets acquired represents the fair value of
customer contracts at the date of acquisition, customer relationships and the
trade name. Goodwill arising on acquisition is attributable to the knowledge
and expertise of the assembled workforce, the expectation of future contracts,
customer relationships and the operating synergies that arise from the Group's
strengthened market position. None of the goodwill is expected to be
deductible for tax purposes. Acquisition costs of £0.2m were expensed to the
income statement as a non-underlying item.
On 29 September 2021, the Group acquired the trade and assets of Subterranean
(Manitoba) Ltd., a geotechnical contractor in Canada, for an initial cash
consideration of £7.8m (CAD$13.4m). Following the finalisation of the
acquisition, a working capital true-up of £0.2m (CAD$0.3m) is receivable,
resulting in a net consideration of £7.6m (CAD$13.1m). Goodwill arising on
acquisition is attributable to the expectation of future contracts and
customer relationships and the operating synergies that arise from the Group's
strengthened market position. The goodwill is expected to be deductible for
tax purposes. Acquisition costs of £0.3m were expensed to the income
statement as a non-underlying item.
On 1 November 2021, the Group acquired the trade and assets of Voges Drilling,
a geotechnical foundation company based in Texas, US, for an initial cash
consideration of £1.4m (US$2.0m) and a further £0.8m (US$1.0m) of deferred
consideration to be paid over a three-year period.
For the Subterranean acquisition, £2.2m was provided for against contractual
trade receivables acquired of £4.1m, resulting in a fair value of £1.9m. For
RECON and Voges, the fair value of the total trade receivables is not
materially different from the gross contractual amounts receivable and is
expected to be recovered in full.
In the period to 31 December 2021, in total, acquisitions contributed £46.2m
to revenue and a underlying profit before tax of £1.4m, as broken down below:
Revenue Underlying
profit/(loss)
before tax
£m £m
RECON 42.8 1.5
Subterranean 3.3 (0.2)
Voges 0.1 0.1
46.2 1.4
Had the acquisitions taken place on 1 January 2021, total Group revenue would
have been £2,270.2m and underlying profit before tax for the period would
have been £82.5m, as broken down below:
Revenue Underlying
profit/(loss)
before tax
£m £m
Group balance for the year to 31 December 2021 2,224.4 83.9
RECON 28.9 (2.4)
Subterranean 16.3 1.0
Voges 0.6 -
2,270.2 82.5
Adjustments made in respect of the acquisitions in the period to 31 December
2021 for intangible asset valuations, trade and other receivables and
contingent consideration are provisional pending completion of the valuation
exercise and agreement of any contingent consideration and will be finalised
within 12 months of the acquisition date.
The identifiable assets and liabilities as at the date of acquisition were:
Subterranean and Voges
RECON Total
Carrying Fair value adjustment Fair Carrying Fair value adjustment Fair Fair
amount £m value amount £m value value
£m £m £m £m £m
Assets
Intangible assets - 18.9 18.9 0.3 0.1 0.4 19.3
Property, plant and equipment 4.3 0.4 4.7 7.9 (1.8) 6.1 10.8
Other non-current assets 0.1 - 0.1 - - - 0.1
Inventories - - - 1.4 (1.4) - -
Trade and other receivables 20.5 (0.1) 20.4 4.9 (2.2) 2.7 23.1
Current tax assets 1.4 - 1.4 - - - 1.4
Cash and cash equivalents 0.9 - 0.9 - - - 0.9
27.2 19.2 46.4 14.5 (5.3) 9.2 55.6
Liabilities
Lease liabilities (1.4) - (1.4) - - - (1.4)
Trade and other payables (11.0) (0.2) (11.2) (1.3) - (1.3) (12.5)
Current tax liabilities (1.1) - (1.1) - - - (1.1)
Deferred tax liabilities - (5.1) (5.1) - - - (5.1)
Provisions (0.1) (1.3) (1.4) - - - (1.4)
Other non-current liabilities (0.3) - (0.3) - - - (0.3)
(13.9) (6.6) (20.5) (1.3) - (1.3) (21.8)
Total identifiable net assets 13.3 12.6 25.9 13.2 (5.3) 7.9 33.8
Goodwill 3.7 1.9 5.6
Total consideration 29.6 9.8 39.4
Satisfied by:
Initial cash consideration 20.2 9.2 29.4
Contingent consideration 9.5 - 9.5
Deferred consideration - 0.8 0.8
Purchase price adjustment (0.1) (0.2) (0.3)
29.6 9.8 39.4
Acquisition of businesses per the cash flow statement:
Initial cash consideration 20.2 9.2 29.4
Contingent consideration paid 1.5 - 1.5
Purchase price adjustment received (0.1) - (0.1)
Less cash acquired (0.9) - (0.9)
20.7 9.2 29.9
Disposals
On 28 June 2021, the Group disposed of its Cyntech Anchors operation in
Canada, being 100% of the issued share capital of Keller Cyntech U.S. and
Cyntech Anchors Ltd., for a total consideration of £6.0m (CAD$10.2m),
consisting of the sale price of £3.1m (CAD$5.3m) and further sale price
adjustments in relation to working capital of £2.9m (CAD$4.9m).
Cyntech Anchors
£m
Proceeds 3.1
Sale price adjustments 2.9
Net disposal proceeds 6.0
Net assets disposed (see below) (6.6)
Currency translation gains transferred from translation reserve 0.4
Non-underlying loss on disposal (0.2)
Cyntech Anchors
£m
Property, plant and equipment 1.4
Inventories 3.9
Trade and other receivables 13.1
Trade and other payables (10.7)
Other net liabilities (1.3)
Net assets disposed 6.6
The results for the period are presented below. The 2021 results represent
activity prior to the sale.
Cyntech Anchors
2021 2020
£m £m
Revenue 11.1 19.1
Operating costs (10.0) (18.6)
1.1 0.5
On 8 January 2021, the Group disposed of its Colcrete business, being 100% of
the issued share capital of Keller Colcrete Limited, for a cash consideration
of £0.4m. Property, plant and equipment of £0.2m and inventories of £0.2m
were disposed of. These assets were classified as held for sale at 31 December
2020. During the prior year a loss of £0.4m was recognised, relating to the
write-down of Colcrete assets and restructuring costs associated with the
exit.
Prior year disposals
On 6 April 2020, the Group disposed of its Brazil operation, being 100% of the
issued share capital of Keller Tecnogeo Fundacoes Ltda., for a cash
consideration of £0.5m (BRL3.0m). Additional consideration of £0.9m
(BRL6.5m) was received in September 2020, resulting in a loss of disposal of
£9.2m at 31 December 2020. During 2021 there was a true-up to the sale price
of £0.3m, increasing the non-underlying loss on disposal to £9.5m.
On 11 September 2020, the Group disposed of Wannenwetsch GmbH, a non-core
business in Germany, for a cash consideration of £2.4m (EUR2.6m). The loss on
disposal at 31 December 2020 was £0.9m. During the current year contingent
consideration of £0.7m was received in accordance with the terms of the sale
and purchase agreement, reducing the non-underlying loss on disposal to
£0.2m.
Disposal of businesses per the cash flow statement:
£m
Cyntech Anchors net proceeds 6.0
Colcrete proceeds 0.4
Wannenwetsch contingent consideration 0.7
7.1
6 Operating costs 2021 2020
Note £m £m
Raw materials and consumables 711.8 597.7
Staff costs 7 580.7 572.4
Other operating charges 593.5 549.8
Amortisation of intangible assets 14 0.6 0.6
Expenses relating to short-term leases and leases of low-value assets 154.8 138.4
Depreciation:
Owned property, plant and equipment 15a 64.1 66.3
Right-of-use assets 15b 26.5 28.0
Underlying operating costs 2,132.0 1,953.2
Non-underlying items 8 9.6 29.6
Statutory operating costs 2,141.6 1,982.8
Other operating charges include:
Redundancy and other reorganisation costs - 0.2
Fees payable to the company's auditor for the audit of the company's Annual 1.1 0.9
Report and Accounts
Fees payable to the company's auditor for other services:
The audit of the company's subsidiaries, pursuant to legislation 1.9 1.7
Other assurance services 0.1 0.1
During the year, the Group received £2.4m (2020: £5.6m) of direct subsidies
with respect to COVID-19 related aid measures introduced by government bodies
in various countries. These subsidies are recognised as an offset against the
expense item which they are intended to compensate. During the year, the
amount received in 2020 in relation to the UK furlough scheme was repaid; this
cost was provided for within operating costs at 31 December 2020.
7 Employees
The aggregate staff costs of the Group were:
2021 2020
£m £m
Wages and salaries 505.6 498.1
Social security costs 57.5 59.7
Other pension costs 13.7 12.2
Share-based payments 3.9 2.4
580.7 572.4
These costs include Directors' remuneration. Fees payable to Non-executive
Directors totalled £0.5m (2020: £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 is due by January
2023. At 31 December 2021, the amount deferred is £4.7m.
The average number of staff, including Directors, employed by the Group during
the year was:
2021 2020(1)
Number Number
North America 4,722 4,305
Europe 2,922 3,034
Asia-Pacific, Middle East and Africa 2,080 1,970
9,724 9,309
1 ( ) From 1 January 2021 the Middle East and Africa
(MEA) business was transferred to the Asia-Pacific Division, creating the
Asia-Pacific, Middle East and Africa Division, and the remaining Europe,
Middle East and Africa Division became the Europe Division. The 2020
comparative information has been updated to reflect this change.
8 Non-underlying items
Non-underlying items include items which are exceptional by their size and/or
are non-trading in nature, including amortisation of acquired intangibles,
restructuring costs and other non-trading amounts, including those relating to
acquisitions and disposals. Tax arising on these items, including movement in
deferred tax assets arising from non-underlying provisions, is also classified
as a non-underlying item. These are detailed below:
2021 2020
£m £m
Exceptional restructuring costs 7.3 16.6
Loss on disposal of operations 0.5 11.6
Acquisition costs 0.5 0.3
Contingent consideration: additional amounts provided 1.3 0.8
Goodwill impairment - 0.3
Non‑underlying items in operating costs 9.6 29.6
Amortisation of acquired intangible assets 2.8 4.2
Contingent consideration received (0.7) -
Exceptional contract dispute - (0.7)
Non-underlying items in other operating income (0.7) (0.7)
Amortisation of joint venture acquired intangibles 0.6 -
Total non-underlying items in operating profit 12.3 33.1
Non-underlying finance costs - -
Total non-underlying items before taxation 12.3 33.1
Taxation (10.6) (5.6)
Total non-underlying items after taxation 1.7 27.5
Non-underlying items in operating costs
Year ended 31 December 2021
Exceptional restructuring costs for the year of £7.3m comprised £4.4m in
Europe, £2.5m in Asia-Pacific, Middle East and Africa, £1.6m of central
items and a credit of £1.2m in North America.
In Europe, these costs arose as a continuation of the strategic project to
rationalise the Europe Division. The restructuring costs during the period
comprised redundancy costs, property costs, asset impairments and costs of
market exit which include project termination costs. In Asia-Pacific, Middle
East and Africa these costs arose as part of the project to rationalise the
Middle East and Africa business. The restructuring costs during the period
comprised mainly assets impairments and redundancy costs. Centrally,
restructuring costs were incurred in KGS, the in-house equipment manufacturer,
as a result of a restructuring plan for this business. These costs comprised
redundancy costs and asset impairments. In North America the credit arose from
the reduction in restructuring costs provided for in 2020 as costs incurred
were lower than originally anticipated.
The Cyntech Anchors operation in Canada was disposed of on 28 June 2021,
resulting in a net loss on disposal of £0.2m. During 2021 there was a true-up
of the sale price of the Brazil disposal reflected in 2020, resulting in an
additional loss of £0.3m in the year. This increased the total non-underlying
loss on disposal for this transaction to £9.5m.
Acquisition costs of £0.5m in the year comprised professional fees relating
to the RECON and Subterranean acquisitions.
Additional contingent consideration payable of £1.3m relates to the
acquisition of the Geo Construction Group (Bencor) in 2015, following
finalisation of items referenced in the sale and purchase agreement.
Additional contingent consideration of £0.7m was received on the achievement
of performance targets in relation to the Wannenwetsch disposal in 2020,
reducing the total loss on disposal to £0.2m.
Year ended 31 December 2020
In 2020, restructuring costs of £16.6m comprised £5.5m in North America, as
a result of exiting the Prairies region in Canada and a specific market
rationalisation exercise in the US, £11.0m in
Europe, Middle East and Africa (now Europe) was incurred as a result of
the strategic project to rationalise the division and a net charge of £0.1m
in Asia-Pacific (now Asia-Pacific, Middle East and Africa) related to the
cessation of the Waterway operation, offset by a restructuring provision
release in ASEAN in relation to the activities started in the second half of
2018.
In 2020, a net loss on disposal of £11.6m was recognised during the year;
comprising a loss of £9.2m on the disposal of the Group's Brazil operation, a
£1.5m loss in relation to the Colcrete Eurodrill business, a UK machinery
manufacturer (which comprised £1.1m loss on sale of the Eurodrill assets and
£0.4m provisions in relation to the sale of the Colcrete business which
completed in 2021), and a £0.9m loss on the disposal of Wannenwetsch GmbH, a
non-core business in Germany.
In 2020, acquisition costs of £0.3m related to professional fees associated
with the wind-up of an employee share ownership plan at Moretrench, following
acquisition in March 2018.
In 2020, the contingent consideration payable of £0.8m related to the
acquisition of the Geo Instruments US business in 2017. The goodwill
impairment of £0.3m related to the Genco business in Egypt.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the Moretrench
and RECON acquisitions. The prior year charge also includes amounts related to
the Austral acquisition.
Non-underlying items in other operating income
The proceeds of £0.7m in the previous year were received on final settlement
of a contributory claim relating to an exceptional contract dispute.
Amortisation of joint venture acquired intangibles
Amortisation of joint venture intangibles relates to the acquisition of
NordPile by the Group's joint venture interest KFS Finland Oy during the year.
Refer to note 16 for further details.
Non-underlying taxation
Refer to note 11 for details of the non-underlying tax items.
9 Finance income
2021 2020
£m £m
Bank and other interest receivable 0.2 0.3
Other finance income 0.2 0.8
0.4 1.1
10 Finance costs
2021 2020
£m £m
Interest payable on bank loans and overdrafts 3.1 4.9
Interest payable on other loans 1.3 2.4
Interest on lease liabilities 3.1 3.8
Net pension interest cost 0.2 0.3
Other interest costs 1.0 1.6
Total interest costs 8.7 13.0
Unwinding of discount and effect of changes in discount rates on provisions 0.6 1.3
Total finance costs 9.3 14.3
11 Taxation
2021 2020
£m £m
Current tax expense:
Current year 14.0 24.3
Prior years (3.0) (0.8)
Total current tax 11.0 23.5
Deferred tax expense:
Current year (1.7) (1.2)
Prior years 0.2 0.4
Total deferred tax (1.5) (0.8)
9.5 22.7
UK corporation tax is calculated at 19% (2020: 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 19%
(2020: 19%) as follows:
2021 2020
Non- Non-
underlying underlying
items items
Underlying (note 8) Statutory Underlying (note 8) Statutory
£m £m £m £m £m £m
Profit/(loss) before tax 83.9 (12.3) 71.6 96.9 (33.1) 63.8
UK corporation tax charge/(credit) at 19% (2020: 19%) 15.9 (2.3) 13.6 18.4 (6.3) 12.1
Tax charged at rates other than 19% (2020: 19%) 5.5 (0.5) 5.0 5.6 (0.8) 4.8
Tax losses and other deductible temporary differences not recognised 3.3 1.2 4.5 6.5 1.6 8.1
Utilisation of tax losses and other deductible temporary differences (1.4) (9.1) (10.5) (1.9) (1.3) (3.2)
previously unrecognised
Permanent differences (0.5) 0.1 (0.4) (0.2) 2.3 2.1
Adjustments to tax charge in respect of previous periods (2.8) - (2.8) 0.2 (0.6) (0.4)
Other 0.1 - 0.1 (0.3) (0.5) (0.8)
Tax charge/(credit) 20.1 (10.6) 9.5 28.3 (5.6) 22.7
Effective tax rate 24.0% 86.2% 13.3% 29.2% 16.9% 35.6%
The tax credit of £10.6m on non-underlying losses includes £1.5m as the tax
benefit of amounts which are expected to be deductible for tax purposes and
£9.1m from the partial reduction in the valuation allowance made against
deferred tax assets in Canada and Australia at 31 December 2020. As the
original valuation allowance was booked through the non-underlying tax charge
the credit from the re-recognition of the deferred tax assets has also been
treated as a non-underlying item. The 2020 tax credit of £5.6m on
non-underlying items includes a partial re-recognition of Australian deferred
tax assets of £1.9m as a result of the improved performance of the Australian
business, and the benefit of a net tax credit on other non-underlying charges
which are expected to be deductible for tax purposes.
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, provision is 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 Group is monitoring developments in the OECD's Pillar 2 proposals to agree
minimum effective tax rates across jurisdictions participating in the OECD
programme. Although the Group's activities are mainly in territories which
will be unaffected by the Pillar 2 proposals it is possible that additional
tax will be charged in the future in countries where corporate tax rates are
increased. Any changes are not expected to be introduced before 2024.
Under draft proposals introduced to the US Congress in 2021, the Group would
potentially be subject to adverse changes in respect of measures intended to
limit the tax deductibility of intra-group financing costs. The proposed
measures were unable to secure passage through Congress in 2021 and the Group
is awaiting developments to see if the measures, and whether they are in
original or revised form, are reintroduced in 2022. At present there is
insufficient evidence to assess the probable financial impact on the Group's
future tax position.
The Group has previously disclosed that it has been subject to enquiries from
the UK tax authorities in relation to the recovery of tax benefits under EU
State Aid provisions. The Group has now received notification from HMRC that
their enquiries have been resolved and the original filing position has been
accepted. Accordingly, the contingent liability of £4m previously disclosed
has been extinguished.
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 2020 (14.6) 35.8 (2.6) (5.9) (4.7) 4.8 12.8
Charge/(credit) to the income statement 4.1 (0.8) 0.1 (0.8) (1.9) (1.5) (0.8)
Credit to other comprehensive income - - (0.4) - - - (0.4)
Exchange movements (0.2) (0.6) (0.1) 0.2 0.3 - (0.4)
Other reallocations/transfers (0.2) - (1.0) - 0.1 0.9 (0.2)
At 31 December 2020 and 1 January 2021 (10.9) 34.4 (4.0) (6.5) (6.2) 4.2 11.0
(Credit)/charge to the income statement (6.4) 3.2 (0.7) 0.3 (2.4) 4.5 (1.5)
Charge to other comprehensive income - - 0.2 - - - 0.2
Acquisition and disposal of businesses - 0.3 - - - 4.7 5.0
Exchange movements 0.1 0.3 0.2 (0.1) (0.1) 0.2 0.6
Other reallocations/transfers - - 0.1 - - 0.2 0.3
At 31 December 2021 (17.2) 38.2 (4.2) (6.3) (8.7) 13.8 15.6
1 Other temporary differences are mainly in respect of intangible
assets.
Deferred tax assets include amounts of £13.0m (2020: £10.4m) 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 Canada (£6.7m), Australia (£4.2m)
and UK (£1.6m). The amount of profits in each territory which are necessary
to be realised over the forecast period to support these assets are £25m,
£14m and £8m respectively. Canadian tax rules currently allow tax losses to
be carried forward up to 20 years. UK and Australia 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:
2021 2020
£m £m
Deferred tax liabilities 28.6 21.3
Deferred tax assets (13.0) (10.3)
15.6 11.0
At the balance sheet date, the Group had unused tax losses of £125.0m (2020:
£146.4m), 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, £74.3m (2020: £85.2m) may be carried forward
indefinitely.
At the balance sheet date, the aggregate of other deductible temporary
differences for which no deferred tax asset has been recognised was £13.9m
(2020: £24.7m). 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 £124.9m (2020: £118.4m), 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 £7.6m (2020: £7.4m).
12 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
2021 2020
£m £m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2020 of 23.3p (2019: 23.3p) per 16.8 16.8
share
Interim dividend for the year ended 31 December 2021 of 12.6p (2020: 12.6p) 9.1 9.1
per share
25.9 25.9
The Board has recommended a final dividend for the year ended 31 December 2021
of £16.8m, representing 23.3p (2020: 23.3p) per share. The proposed dividend
is subject to approval by shareholders at the Annual General Meeting on 18 May
2022 and has not been included as a liability in these financial statements.
13 Earnings per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
When the Group makes a profit, diluted earnings per share equals the profit
attributable to equity holders of the parent divided by the weighted average
diluted number of shares. When the Group makes a loss, diluted earnings per
share equals the loss attributable to the equity holders of the parent divided
by the basic average number of shares. This ensures that earnings per share on
losses is shown in full and not diluted by unexercised share awards.
Basic and diluted earnings per share are calculated as follows:
Underlying earnings attributable to the equity holders of the parent Earnings attributable to the equity holders of the parent
2021 2020 2021 2020
Basic and diluted earnings (£m) 64.7 70.0 63.0 42.5
Weighted average number of ordinary shares (m)(1)
Basic number of ordinary shares outstanding 72.3 72.1 72.3 72.1
Effect of dilution from:
Share options and awards 0.9 0.6 0.9 0.6
Diluted number of ordinary shares outstanding 73.2 72.7 73.2 72.7
Earnings per share
Basic earnings per share (p) 89.5 97.1 87.1 58.9
Diluted earnings per share (p) 88.4 96.3 86.1 58.5
( )
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.
14 Goodwill and intangible assets
Arising on
Goodwill acquisition Other Total
£m £m £m £m
Cost
At 1 January 2020 228.6 59.0 23.4 311.0
Additions - - 0.5 0.5
Disposal of businesses (7.2) - - (7.2)
Exchange movements (1.8) (0.1) (0.6) (2.5)
At 31 December 2020 and 1 January 2021 219.6 58.9 23.3 301.8
Additions - - 0.4 0.4
Acquired with businesses (note 5)(1) 5.6 19.3 - 24.9
Disposals - - (0.7) (0.7)
Exchange movements 1.1 0.5 (0.6) 1.0
At 31 December 2021 226.3 78.7 22.4 327.4
Accumulated amortisation and impairment
At 1 January 2020 111.8 52.4 22.1 186.3
Impairment charge for the year 0.3 - - 0.3
Amortisation charge for the year - 4.2 0.6 4.8
Disposal of businesses (7.2) - - (7.2)
Exchange movements (0.5) (0.1) (0.6) (1.2)
At 31 December 2020 and 1 January 2021 104.4 56.5 22.1 183.0
Amortisation charge for the year - 2.8 0.6 3.4
Disposals - - (0.7) (0.7)
Exchange movements 0.6 (0.1) (0.3) 0.2
At 31 December 2021 105.0 59.2 21.7 185.9
Carrying amount
At 1 January 2020 116.8 6.6 1.3 124.7
At 31 December 2020 and 1 January 2021 115.2 2.4 1.2 118.8
At 31 December 2021 121.3 19.5 0.7 141.5
1 Goodwill arising on acquisition relates to the acquisition of
RECON and Subterranean. Refer to note 5 for further details.
Intangible assets arising on acquisition represent customer contracts and
relationships with a carrying amount of £13.9m (2020: £0.3m) and trade names
with a carrying amount of £5.6m (2020: £2.1m). Other intangibles represent
internally developed software and licences. There are no indicators of
impairment for these assets at 31 December 2021.
For the purposes of impairment testing, goodwill has been allocated to nine
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 92% of
the total (2020: 94%). 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:
2021 2020
Carrying Pre-tax Forecast Carrying Pre-tax Forecast
value discount rate growth rate value discount rate growth rate
CGU Geographical segment £m % % £m % %
Keller US North America 45.0 11.6 2.0 44.4 13.0 2.0
Suncoast North America 31.9 11.6 2.0 31.4 13.3 2.0
Keller Canada North America 15.0 11.8 2.0 12.8 12.6 2.0
Keller Limited Europe 12.1 10.1 3.0 12.1 12.7 3.0
Austral Asia-Pacific, Middle East and Africa 7.3 12.9 2.0 7.6 14.2 2.0
Other(1) North America and Europe 10.0 6.9
121.3 115.2
( )
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 2022 and financial
projections for 2023 and 2024 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 2024 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 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 24.5 39.3 85.9
Suncoast North America 63.7 740.0 108.0
Keller Canada North America 9.5 11.9 60.0
Keller Limited Europe 5.0 6.0 48.9
Austral Asia-Pacific, Middle East and Africa 21.4 35.8 84.8
( )
1 The increase in discount rate and reduction in future growth
rate are presented as gross movements.
15 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
2021 2020
Note £m £m
Property, plant and equipment - owned assets 15a 375.5 365.4
Right-of-use assets - leased assets 15b 67.9 69.5
At 31 December 443.4 434.9
15 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 2020 70.7 880.4 9.6 960.7
Additions 2.2 67.9 2.4 72.5
Disposals (1.5) (37.5) (0.7) (39.7)
Transfers to held for sale(1) (0.5) (23.3) - (23.8)
Disposal of businesses (2.3) (12.2) - (14.5)
Reclassification - 4.3 (4.3) -
Exchange movements 0.3 (0.9) 0.3 (0.3)
At 31 December 2020 and 1 January 2021 68.9 878.7 7.3 954.9
Additions 3.4 79.3 1.3 84.0
Acquired with businesses (note 5) 0.7 8.7 - 9.4
Disposals (2.5) (41.4) - (43.9)
Net transfers to held for sale(1) - 1.3 - 1.3
Disposal of businesses (note 5) - (1.2) (0.5) (1.7)
Reclassification - 2.4 (2.4) -
Exchange movements (1.5) (16.9) (0.2) (18.6)
At 31 December 2021 69.0 910.9 5.5 985.4
Accumulated depreciation and impairment
At 1 January 2020 20.9 555.1 - 576.0
Charge for the year 2.2 64.1 - 66.3
Disposals (0.2) (32.7) - (32.9)
Transfers to held for sale(1) (0.5) (15.4) - (15.9)
Disposal of businesses (1.2) (9.2) - (10.4)
Impairments 0.1 6.5 - 6.6
Exchange movements 0.1 (0.3) - (0.2)
At 31 December 2020 and 1 January 2021 21.4 568.1 - 589.5
Charge for the year 1.7 62.4 - 64.1
Disposals (0.7) (35.2) - (35.9)
Net transfers to held for sale(1) - 0.9 - 0.9
Disposal of businesses (note 5) - (0.3) - (0.3)
Impairments - 3.4 - 3.4
Exchange movements (0.5) (11.3) - (11.8)
At 31 December 2021 21.9 588.0 - 609.9
Carrying amount
At 1 January 2020 49.8 325.3 9.6 384.7
At 31 December 2020 and 1 January 2021 47.5 310.6 7.3 365.4
At 31 December 2021 47.1 322.9 5.5 375.5
1 The carrying amount of assets held for sale at the balance
sheet date are detailed in note 21.
The Group had contractual commitments for the acquisition of property, plant
and equipment of £7.2m (2020: £7.5m) at the balance sheet date. These
amounts were not included in the balance sheet at the year end.
Impairments in the year include the write-down of surplus equipment to their
value-in-use in the Middle East and Africa and KGS, the in-house equipment
manufacturer, where it is not being relocated to other more active parts of
the Group. The carrying amount of these assets was £1.9m, compared to a
value-in-use of £0.3m, which resulted in a non-underlying impairment charge
of £1.6m. Details of restructuring are set out in note 8. Also included are
impairments in the year relating to assets that are inaccessible due to a
contract suspension. The carrying amount of these assets was £1.8m, compared
to a value-in-use sell of £nil, which resulted in an underlying impairment
charge of £1.8m.
15 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 subleasing
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 2020 47.4 28.5 75.9
Additions 8.4 14.3 22.7
Depreciation expense (13.4) (14.6) (28.0)
Impairment expense (0.7) - (0.7)
Contract modifications 1.3 (0.8) 0.5
Exchange movements (0.8) (0.1) (0.9)
At 31 December 2020 and 1 January 2021 42.2 27.3 69.5
Additions 11.3 12.1 23.4
Acquired with businesses (note 5) 0.4 1.0 1.4
Depreciation expense (12.6) (13.9) (26.5)
Impairment expense - (4.4) (4.4)
Contract modifications 1.7 3.1 4.8
Exchange movements (0.1) (0.2) (0.3)
At 31 December 2021 42.9 25.0 67.9
The carrying amounts of lease liabilities (included within note 25 within
loans and borrowings) and the movements during the year are set out in note
26.
Impairments in the year relate to assets that are inaccessible due to a
contract suspension. The carrying amount of these assets was £4.4m, compared
to a value-in-use of £nil, which resulted in an underlying impairment charge
of £4.4m.
16 Investments in joint ventures
£m
At 1 January 2021 4.4
Share of underlying post-tax results 0.4
Share of non-underlying post-tax results (note 8) (0.6)
Exchange movements (0.2)
At 31 December 2021 4.0
£m
At 1 January 2020 3.8
Share of underlying post-tax results 0.8
Dividends received (0.4)
Exchange movements 0.2
At 31 December 2020 4.4
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.
In 2021, KFS Finland Oy earned total revenue of £36.8m (2020: £34.6m) and a
statutory loss after tax for the year of £0.4m (2020: statutory profit after
tax of £1.6m)
Aggregate amounts relating to joint ventures:
2021 2020
Underlying Non-underlying Statutory Statutory
items
(note 8)
£m £m £m £m
Revenue 18.4 - 18.4 17.3
Operating costs(1) (17.9) (0.6) (18.5) (16.4)
Operating profit/(loss) 0.5 (0.6) (0.1) 0.9
Finance costs (0.1) - (0.1) -
Profit/(loss) before taxation 0.4 (0.6) (0.2) 0.9
Taxation - - - (0.1)
Share of post-tax results 0.4 (0.6) (0.2) 0.8
( )
1 Included within operating costs is depreciation on owned assets
of £0.8m (2020: £0.6m).
KFS Finland Oy Group portion of
(100% of results) the joint venture
2021 2020 2021 2020
£m £m £m £m
Non-current assets 20.4 10.0 10.2 5.0
Cash and cash equivalents 1.2 0.8 0.6 0.4
Other current assets 7.8 4.4 3.9 2.2
Total assets 29.4 15.2 14.7 7.6
Other current liabilities (8.4) (3.6) (4.2) (1.8)
Non-current loans and borrowings (11.2) (2.8) (5.6) (1.4)
Other non-current liabilities (1.8) - (0.9) -
Total liabilities (21.4) (6.4) (10.7) (3.2)
Share of net assets 8.0 8.8 4.0 4.4
On 8 September 2021, KFS Finland Oy acquired NordPile, a driven and piling
contractor, for £7.3m (EUR8.5m). The fair value of the Group's share of
intangibles acquired was £2.1m (EUR2.4m), representing the fair value of
customer contracts at the date of acquisition and customer relationships.
Amortisation of these assets is recognised as a non-underlying item.
17 Other non-current assets
2021 2020(1)
£m £m
Fair value of derivative financial instruments 2.6 5.4
Non-qualifying deferred compensation plan assets 20.6 18.3
Other assets 26.5 12.4
Insurance receivables 38.8 24.2
88.5 60.3
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset recognised for
amounts recoverable from insurance providers and customer retentions
receivable in more than one year to other non-current assets, as outlined in
note 2 to the financial statements.
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 2021, non-current assets in relation to the investments held in
the trust were £20.6m (2020: £18.3m). The fair value movement on these
assets was £1.1m (2020: £2.2m). During the period proceeds from the sale of
NQ-related investments were £nil (2020: £nil). At 31 December 2021,
non-current liabilities in relation to the participant investments were
£15.8m (2020: £14.7m). These are accounted for as financial liabilities at
fair value through profit or loss. The fair value movement on these
liabilities was £2.1m (2020: £2.7m). During the year £1.4m (2020: £1.2m)
of compensation was deferred.
Other assets include customer retentions receivable of £24.4m (2020:
£10.2m). For further information refer to note 4. Note 2 highlights the
restatement required in the presentation of customer retentions receivable.
18 Inventories
2021 2020
£m £m
Raw materials and consumables 40.6 41.3
Work in progress 1.8 0.3
Finished goods 29.7 18.5
72.1 60.1
During 2021, £2.4m (2020: £3.8m) of inventory write-downs were recognised as
an expense in the consolidated income statement.
19 Trade and other receivables
2021 2020(1)
£m £m
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Other receivables 15.9 21.2
Fair value of derivative financial instruments - 0.8
Prepayments 19.6 17.2
Insurance receivables 0.1 8.2
592.0 501.9
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset recognised for
amounts recoverable from insurance providers and customer retentions
receivable in more than one year to other non-current assets, as outlined in
note 2 to the financial statements.
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 provision held against trade receivables and contract
assets (including expected credit losses) is as follows:
2021 2020
£m £m
At 1 January 42.9 38.1
Used during the year (3.1) (6.3)
Additional provisions 24.6 23.6
Unused amounts reversed (11.9) (12.1)
Acquisition with businesses 2.4 -
Disposal of businesses - (0.7)
Exchange movements (1.2) 0.3
At 31 December 53.7 42.9
Set out below is information about the credit risk exposure on the Group's
trade receivables, detailing past due but not impaired, based on agreed terms
and conditions with the customer:
2021 2020
£m £m
Overdue by less than 30 days 125.2 65.9
Overdue by between 31 and 90 days 59.6 31.0
Overdue by more than 90 days 20.2 25.9
205.0 122.8
20 Cash and cash equivalents
2021 2020
£m £m
Bank balances 77.9 64.2
Short-term deposits 4.8 2.1
Cash and cash equivalents in the balance sheet 82.7 66.3
Bank overdrafts (0.9) (4.7)
Cash and cash equivalents in the cash flow statement 81.8 61.6
Cash and cash equivalents include £2.7m (2020: £3.1m) of the Group's share
of cash and cash equivalents held by joint operations, and £1.7m (2020:
£0.5m) of restricted cash which is subject to local country restrictions.
21 Assets held for sale
2021 2020
£m £m
Plant and machinery 3.1 7.9
Inventories 0.3 0.3
Trade receivables - 0.5
3.4 8.7
Assets held for sale mainly comprise plant and machinery in Waterway, as a
result of the wind-down of the business, and equipment in the North America
Division following a rationalisation exercise.
22 Trade and other payables
2021 2020
£m £m
Trade payables 268.8 169.3
Other taxes and social security payable 25.2 23.0
Other payables 117.2 97.3
Contract liabilities 46.5 43.9
Accruals 48.0 47.7
Fair value of derivative financial instruments - 0.5
505.7 381.7
Other payables include contingent and deferred consideration of £12.3m (2020:
£0.8m).
23 Provisions
Employee Restructuring Contract Insurance Other
and legal
provisions provisions provisions provisions provisions Total
£m £m £m £m £m £m
At 31 December 2020 9.3 5.6 35.3 39.5 3.7 93.4
Restatement(1) - - - 32.4 - 32.4
As at 31 December 2020 (restated) 9.3 5.6 35.3 71.9 3.7 125.8
Charge for the year 4.7 5.2 22.8 12.3 0.8 45.8
Acquired with businesses (note 5) - - 0.5 - 0.9 1.4
Disposal of businesses (note 5) (0.1) - - - - (0.1)
Used during the year (4.4) (6.9) (11.6) (7.1) (0.9) (30.9)
Unused amounts reversed (0.1) (0.2) (4.9) (3.4) (0.9) (9.5)
Unwinding of discount and changes in the discount rate 0.4 - - (0.1) - 0.3
Exchange movements 0.1 (0.2) (0.2) (0.8) - (1.1)
At 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
Current 3.2 3.5 34.1 9.4 3.6 53.8
Non-current 6.7 - 7.8 63.4 - 77.9
At 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset recognised for
amounts recoverable from insurance providers, as outlined in note 2 to the
financial statements.
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 2021, the provision in respect of workers' compensation was
£6.5m (2020: £6.8m). A provision is recognised when the 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 2021, the provision in respect of long service leave was £1.7m
(2020: £1.6m). 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 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 £1.4m (2020: £0.9m) 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.
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 2021 relate primarily to the relevant
activities in the Europe and Asia-Pacific, Middle East and Africa Divisions.
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. Provision 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 majority of this balance is expected to be utilised in the next 12
months, given the general short-term nature of contracts. The non-current
element of the provision relates to longer-term contracts and customer claims
and disputes.
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.
Following the identification of an error (refer to note 2 for further details)
there was a change in accounting policy for the presentation of provisions for
legal claims and related insurance receivables. 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 17) and trade and other receivables (refer to note 19). 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.
24 Other non-current liabilities
2021 2020
£m £m
Non-qualifying compensation plan liabilities 15.8 14.8
Other liabilities 5.4 7.2
21.2 22.0
Other liabilities include deferred consideration of £0.4m (2020: contingent
consideration of £2.2m) and £4.7m (2020: £4.5m) in respect of US social
security tax deferrals, refer to note 7 for further information.
Refer to note 17 for further information on the non-qualifying deferred
compensation plan.
25 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, US
dollars and Australian 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 2021, the fair value of outstanding foreign exchange forward
contracts was £nil (2020: £0.5m, included in current liabilities).
Interest rate risk
Interest rate risk is managed by either fixed and floating rate borrowings
dependent upon the purpose and term of the financing.
As at 31 December 2021, approximately 99% (2020: 97%) of the Group's
third-party borrowings were at floating interest rates.
Hedging currency risk and interest rate risk
The Group hedges currency risk and 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.
For currency hedging, the main source of hedge ineffectiveness is the relative
movement of the forward points of the different currencies.
For interest rate hedging, the main sources of hedge ineffectiveness include
changes in the US LIBOR rate and the movement in discount factors.
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 3% of revenue in 2021. The ageing
of trade receivables that were past due but not impaired is shown in note 19.
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 19. This amount is the accumulation of
several years of provisions for known or expected credit losses. Consideration
of future events is generally taken into account when deciding when and how
much to provide for of the Group's trade receivables and contract assets.
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
and a £375m syndicated revolving credit facility expiring in November 2025.
These facilities are subject to certain covenants linked to the Group's
financing structure, specifically regarding the ratios of net debt and
interest to profit. The Group has complied with these covenants throughout the
year.
At the year end, the Group also had other borrowing facilities available of
£76.0m (2020: £385.3m). In 2020, facilities available included £300m
available under the Bank of England Covid Corporate Financing Facility, which
expired on 23 March 2021.
Private placements
In October and December 2014, $50m and $75m respectively was raised through a
private placement with US institutions. The proceeds of the issue of $50m
Series A notes 3.81% due 2021 and $75m Series B notes 4.17% due 2024 were used
to refinance maturing private placements. In October 2021 the $50m private
placement was repaid, in line with the agreed terms. The US private placement
notes are accounted for on an amortised cost basis, adjusted for the impact of
hedge accounting (as described below), and are retranslated at the exchange
rate at each period end. The carrying value of the private placement
liabilities at 31 December 2021 was £58.1m (2020: £97.3m).
Hedging
The 2014 $50m and $75m fixed rate private placement liabilities were swapped
into floating rates by means of US dollar interest rate swaps (the '2014
swaps'). The 2014 swaps have the same maturity as the private placement
liabilities and have been designated as fair value hedges. The objective is to
protect against the Group's exposure to changes in the fair value of the US
private placement debt and to protect related interest cash flows due to
changes in US dollar interest rates.
The fair value of the 2014 swaps at 31 December 2021 was £2.6m (2020:
£6.2m); of this amount £2.6m (2020: £5.4m) is included in other non-current
assets. At 31 December 2020, £0.8m was included in trade and other
receivables. The effective portion of the changes in the fair value of the
2014 swaps gave rise to a loss of £3.6m (2020: gain of £2.8m), which has
been taken to the income statement along with the equal and opposite movement
in fair value of the corresponding hedged items. In October 2021, the interest
rate swap hedging the tranche of the private placement liability repaid in the
year was closed out in line with the agreed terms.
All hedges are tested for effectiveness every six months. All hedging
relationships remained effective during the year.
Accounting classifications
2021 2020
£m £m
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 20.6 18.3
Interest rate swaps 2.6 6.2
Financial assets measured at amortised cost
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Cash and cash equivalents 82.7 66.3
Financial liabilities at fair value through profit or loss
Forward exchange contracts - (0.5)
Contingent and deferred consideration (12.7) (3.0)
Financial liabilities measured at amortised cost
Trade payables (268.8) (169.3)
Contract liabilities (46.5) (43.9)
Loans and borrowings (200.6) (185.0)
Lease liabilities (75.4) (73.8)
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:
2021
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 1.0 1.5 0.4 139.3 0.1 141.3 141.8
Bonds and other loans 1.6 3.6 2.3 57.8 - 63.7 58.8
Lease liabilities - 30.3 17.4 27.3 7.6 82.6 75.4
Contract liabilities - 46.5 - - - 46.5 46.5
Trade payables - 268.8 - - - 268.8 268.8
Contingent consideration - 12.3 0.4 - - 12.7 12.7
363.0 20.5 224.4 7.7 615.6 604.0
2020
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 2.1 4.9 - 80.1 0.5 85.5 85.3
Bonds and other loans 1.6 40.6 4.5 59.3 - 104.4 99.7
Lease liabilities - 27.4 18.7 24.7 11.1 81.9 73.8
Contract liabilities - 43.9 - - - 43.9 43.9
Trade payables - 169.2 - - - 169.3 169.3
Contingent consideration - 0.8 2.2 - - 3.0 3.0
286.8 25.4 164.1 11.6 488.0 475.0
Loans and borrowings analysis
2021 2020
£m £m
$75m private placement (due December 2024) 58.1 60.0
$50m private placement (repaid October 2021) - 37.3
£375m syndicated revolving credit facility (expiring November 2025) 138.5 78.3
Bank overdrafts 0.9 4.7
Other bank borrowings 2.4 2.3
Other loans 0.7 2.4
Lease liabilities (note 26) 75.4 73.8
Total loans and borrowings 276.0 258.8
The Group has substantial borrowing facilities available to it. The undrawn
committed facilities available at 31 December 2021 amounted to £235.5m (2020:
£313.2m). This mainly comprised the unutilised portion of the Group's £375m
revolving credit facility, which expires on 23 November 2025. In addition, the
Group had undrawn uncommitted borrowing facilities totalling £56.4m at 31
December 2021 (2020: £359.4m). In 2020 this included £300m available under
the Bank of England Covid Corporate Financing Facility (CCFC) which expired 23
March 2021. No drawings were made on the CCFC. Other uncommitted bank
borrowing facilities are normally reaffirmed by the banks annually, although
they can theoretically be withdrawn at any time. Facilities totalling £3.2m
(2020: £4.0m) are secured against certain assets. Future obligations under
finance leases on a former IAS 17 basis totalled £1.5m (2020: £2.2m),
including interest of £0.1m (2020: £nil).
Changes in loans and borrowings were as follows:
Foreign
2020 Cash flows Other(1) New leases Acquisition of businesses exchange movements Fair value changes 2021
£m £m £m £m £m £m £m £m
Bank overdrafts (4.7) 3.7 - - - 0.1 - (0.9)
Bank loans (80.6) (59.0) (1.2) - - (0.1) - (140.9)
Other loans (99.7) 37.2 0.6 - - (0.5) 3.6 (58.8)
Lease liabilities (note 26) (73.8) 29.8 (7.1) (23.4) (1.4) 0.5 - (75.4)
Total loans and borrowings (258.8) 11.7 (7.7) (23.4) (1.4) - 3.6 (276.0)
Derivative financial instruments 5.7 - - - - - (3.1) 2.6
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities.
Cash flow hedges
At 31 December 2021, the Group held no instruments to hedge exposures to
changes in foreign currency rates. At 31 December 2020, the Group held the
following instruments:
( )
( )
2020
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal
<1 year 1-2 years 2-5 years >5 years Asset Liability(1) ineffectiveness amount
£m £m £m £m £m £m £m $m
Forward exchange contracts (0.5) - - - - (0.5) - 25.0
( )
1 Included within other liabilities.
Fair value hedges
The Group held the following instruments to hedge exposures to changes in
interest rates:
2021
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal(2)
<1 year 1-2 years 2-5 years >5 years Asset(1) Liability ineffectiveness amount
£m £m £m £m £m £m £m $m
Interest rate swaps - - 2.6 - 2.6 - - 9.4
2020
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal(2)
<1 year 1-2 years 2-5 years >5 years Asset(1) Liability ineffectiveness amount
£m £m £m £m £m £m £m $m
Interest rate swaps 0.8 - 5.4 - 6.2 - - 14.4
1 Included within other assets.
2 The average fixed interest rate is 4.0%.
The Group had the following hedged items relating to the above instruments:
2021 2020
Change in fair Change in fair
value used for Hedge(2) value used for Hedge(2)
Carrying(1) calculating ineffectiveness Carrying(1) calculating ineffectiveness
amount hedge in profit amount hedge in profit
liability ineffectiveness or loss liability ineffectiveness or loss
£m £m £m £m £m £m
$75m private placements (2020: $125m) (58.1) - - (97.3) - -
Fair value hedge adjustments 3.6 - - 2.8 - -
1 Included within loans and borrowings.
2 Included in operating profit for the year.
Non-interest-bearing financial liabilities comprise trade payables and
contract liabilities of £315.3m (2020: £213.2m), payable within one year.
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
construction assets.
Derivatives
The fair values of interest rate and cross-currency swaps are calculated based
on expected future principal and interest cash flows, discounted using market
rates prevailing at the balance sheet date. The valuation methods of all 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.
There are no individually significant unobservable inputs used in the fair
value measurement of the Group's contingent consideration as at 31 December
2021.
The following table shows a reconciliation from the opening to closing
balances for contingent and deferred consideration:
2021 2020
£m £m
At 1 January 3.0 2.4
Acquisition of businesses (note 5) 8.8 -
Additional amounts provided (note 8) 1.3 0.8
Paid during the period (0.4) -
Released during the period (0.1) -
Exchange movements 0.1 (0.2)
At 31 December 12.7 3.0
( )
During the year, the Group acquired RECON Services Inc. Contingent
consideration is payable in respect of certain contract awards; the total fair
value of the contingent consideration at 31 December 2021 is £8.0m. This
amount has been agreed with the vendor (refer to note 34). The Group also
acquired Voges Drilling. Deferred consideration of £0.8m is to be paid over a
three-year period. Refer to note 5 for further details.
Additional contingent consideration payable of £1.3m relates to the
acquisition of the Geo Construction Group (Bencor) in 2015, following the
finalisation of items referenced in the sale and purchase agreement. This now
reflects the maximum value payable under the sale and purchase agreement.
Contingent consideration was paid during the period of £0.4m in respect of
the Geo Instruments acquisition in 2017, with an additional £0.1m released in
the period. In the prior period, an additional £0.8m was provided.
At 31 December 2021, contingent consideration of £11.9m (2020: £2.4m) is
payable between one and two years (2020: £0.8m for Geo Instruments payable in
one year).
At 31 December 2021, £0.4m deferred consideration in respect of Voges
Drilling, is payable in one year and £0.4m payable in one to two years.
The fair value measurement of the contingent consideration could be affected
if the forecast financial performance is different to that estimated. A better
than estimated performance may increase the value of the contingent
consideration payable.
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.
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:
2021
GBP USD EUR CAD Other(1) Total
Weighted average fixed debt interest rate (%) - - 1.5 - 6.1 -
Weighted average fixed debt period (years) - - 4.1 - 0.3 -
£m £m £m £m £m £m
Fixed rate financial liabilities - - (1.7) - (1.3) (3.0)
Floating rate financial liabilities (63.3) (111.8) (0.1) - (22.4) (197.6)
Lease liabilities (3.5) (45.1) (12.7) (3.2) (10.9) (75.4)
Financial assets 4.3 14.7 6.9 8.4 48.4 82.7
Net debt (62.5) (142.2) (7.6) 5.2 13.8 (193.3)
2020
GBP USD EUR CAD Other(1) Total
Weighted average fixed debt interest rate (%) - - 1.3 - 8.4 -
Weighted average fixed debt period (years) - - 4.6 - 1.4 -
£m £m £m £m £m £m
Fixed rate financial liabilities - - (2.6) - (2.1) (4.7)
Floating rate financial liabilities (43.5) (97.3) (12.3) (5.2) (22.0) (180.3)
Lease liabilities (1.2) (46.4) (12.2) (3.5) (10.5) (73.8)
Financial assets 3.7 9.7 10.1 1.8 41.0 66.3
Net debt (41.0) (134.0) (17.0) (6.9) 6.4 (192.5)
1 Included within other floating rate financial liabilities are
AUD revolver loans of £21.5m (2020: £5.8m). Included within other financial
assets are AUD cash balances of £4.1m (2020: £1.5m), ZAR cash balances of
£5.6m (2020: £4.4m) and SGD cash balances of £4.3m (2020: £2.3m).
Sensitivity analysis
At 31 December 2021, 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 £1.2m (2020: £1.1m).
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
£5.0m for the year ended 31 December 2021 (2020: £12.0m). The estimated
impact of a 10 percentage point decrease in the value of sterling is an
increase of £6.1m (2020: £14.6m) 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.
26 Lease liabilities
Set out below are the carrying amounts of lease liabilities (included within
note 25 within loans and borrowings) and the movements during the year:
2021 2020
£m £m
At 1 January 73.8 78.4
Additions 24.8 22.5
Contract modifications 4.0 0.3
Interest expense 3.1 3.8
Payments (29.8) (30.2)
Exchange movements (0.5) (1.0)
At 31 December 75.4 73.8
Current 27.5 24.8
Non-current 47.9 49.0
27 Share capital and reserves
2021 2020
£m £m
Allotted, called up and fully paid equity share capital:
73,099,735 ordinary shares of 10p each (2020: 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 2021, the total number of shares held in treasury was
777,917 (2020: 889,733).
During the year to 31 December 2021, 417,240 ordinary shares were purchased by
the Keller Group Employee Benefit Trust (2020: nil), to be used to satisfy
future obligations of the company under the Keller Group plc Long Term
Incentive Plan. The cost of the market purchases was £3.7m (2020: £nil).
There is a dividend waiver in place for both shares held in treasury and by
the Keller Group Employee Benefit Trust.
28 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:
2021 2020
£m £m
Short-term employee benefits 8.2 8.3
Post-employment benefits 0.3 0.4
Termination payments 0.4 0.4
8.9 9.1
Other related party transactions
As at the year end there was a net balance of £0.1m owed by (2020: £0.1m
owed by) the joint venture. These amounts are unsecured, have no fixed date of
repayment and are repayable on demand.
29 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not
yet incurred was £7.2m (2020: £7.5m) and relates to property, plant and
equipment purchases.
30 Guarantees, contingent liabilities and contingent assets
Claims against the Group arise in the normal course of business, 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.
The company and certain of its subsidiary undertakings have entered into a
number of guarantees in the ordinary course of business, the effects of which
are to guarantee or cross-guarantee certain bank borrowings and other
liabilities of other Group companies. At 31 December 2021, the Group had
outstanding standby letters of credit and surety bonds for the Group's captive
insurance arrangements totalling £26.5m (2020: £25.4m). The Group enters
into performance and advance payment bonds and other undertakings in the
ordinary course of business. At 31 December 2021, the Group has £138.3m
outstanding related to performance and advanced payment bonds (2020:
£154.0m). 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.
The company has provided a guarantee of certain subsidiaries' liabilities to
take the exemption from having to prepare individual accounts under section
394A and section 394C of the Companies Act 2006 and exemption from having
their financial statements audited under sections 479A to 479C of the
Companies Act 2006.
At 31 December 2021, the Group had no contingent assets (2020: £nil).
31 Share-based payments
The Group operates a Long Term Incentive Plan (the 'Plan').
Outstanding awards are as follows:
Number
Outstanding at 1 January 2020 2,090,277
Granted during 2020 788,062
Lapsed during 2020 (662,030)
Exercised during 2020 (152,899)
Outstanding at 31 December 2020 and 1 January 2021 2,063,410
Granted during 2021 805,367
Lapsed during 2021 (782,525)
Exercised during 2021 (111,816)
Outstanding at 31 December 2021 1,974,436
Exercisable at 1 January 2020 -
Exercisable at 31 December 2020 and 1 January 2021 -
Exercisable at 31 December 2021 -
The average share price during the year was 865.1p (2020: 651.0p).
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.
2021 2020
The inputs into the stochastic model are as follows:
Share price at grant 856.0p 720.0p
Weighted average exercise price 0.0p 0.0p
Expected volatility 47.3% 39.1%
Expected life 3 years 3 years
Risk-free rate 0.14% 0.11%
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 £3.9m
(2020: £2.4m) related to equity-settled, share-based payment transactions.
The weighted average fair value of options granted in the year was 827.6p
(2020: 695.5p).
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 2021, 417,240
ordinary shares were held by the Trust with a value of £3.7m. These shares
were purchased during the year. At 31 December 2020, no shares were held in
the Trust.
32 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 2020), the Group has
agreed to pay annual contributions of £2.7m, to increase by 3.6% per annum,
until 5 August 2024, subject to a review of the level of employer
contributions at the next actuarial review in 2023.
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 2021. The actual cost may differ when the GMP
equalisation exercise is complete.
The Group has two UK defined contribution retirement benefit schemes. There
were no contributions outstanding in respect of these schemes at 31 December
2021 (2020: £nil). The total UK defined contribution pension charge for the
year was £1.4m (2020: £1.2m).
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 £6.4m (2020: £5.9m).
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 10.0% (2020: 9.5%). The total Australian pension charge for the year
was £3.8m (2020: £3.1m).
Details of the Group's defined benefit schemes are as follows:
The Keller The Keller German,(1) German,(1)
Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
£m £m £m £m
Present value of the scheme liabilities (58.3) (65.0) (18.9) (21.9)
Fair value of assets 63.7 58.0 - -
Surplus/(deficit) in the scheme 5.4 (7.0) (18.9) (21.9)
Irrecoverable surplus (12.2) (2.2) - -
Net defined benefit liability (6.8) (9.2) (18.9) (21.9)
( )
1 ( ) Included in this balance is £3.0m (2020: £2.9m)
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 2021 and the committed payments under the Schedule of
Contributions agreed on 17 November 2020, there is a notional surplus of
£12.2m (2020: £2.2m). 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 contributions of £2.7m a year with
effect from 1 January 2021, increasing by 3.6% per annum on 1 January going
forward to 5 August 2024. The contributions will be reviewed following the
next actuarial review to be prepared as at 5 April 2023.
The value of the Scheme liabilities has been determined by the actuary using
the following assumptions:
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
% % % %
Discount rate 2.0 1.2 0.8 0.3
Interest on assets 2.0 1.2 - -
Rate of increase in pensions in payment 3.5 3.4 2.0 2.0
Rate of increase in pensions in deferment 2.9 2.7 3.2 1.6
Rate of inflation 3.5 3.3 3.2 1.6
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 German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
Male currently aged 65 21.0 20.9 19.5 19.4
Female currently aged 65 23.3 23.3 22.8 22.8
The assets of the schemes were as follows:
The Keller The Keller German, German,
Group Pension Austrian Austrian
Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
£m £m £m £m
Equities 16.8 17.5 - -
Target return funds(1) 8.1 14.5 - -
Gilts - 10.1 - -
Bonds 19.7 10.0 - -
Liability driven investing (LDI) portfolios(2) 15.9 - - -
Cash 3.2 0.1 - -
63.7 52.2 - -
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)
Group Pension Group Pension Austrian Austrian
and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
£m £m £m £m
Changes in scheme liabilities
Opening balance (65.0) (60.4) (21.9) (20.7)
Current service cost - - (0.6) (0.7)
Interest cost (0.8) (1.2) (0.1) (0.1)
Benefits paid 2.1 3.7 1.5 1.2
Exchange movements - - 1.0 (0.8)
Experience loss on defined benefit obligation - (0.4) - -
Changes to demographic assumptions (0.6) 2.7 - -
Changes to financial assumptions 6.0 (9.4) 1.2 (0.8)
Closing balance (58.3) (65.0) (18.9) (21.9)
Changes in scheme assets
Opening balance 58.0 52.2 - -
Interest on assets 0.7 1.0 - -
Administration costs (0.2) (0.2) - -
Employer contributions 2.7 2.6 - -
Benefits paid (2.1) (3.7) - -
Return on plan assets less interest 4.6 6.1 - -
Closing balance 63.7 58.0 - -
Actual return on scheme assets 5.3 7.1 - -
Statement of comprehensive income
Return on plan assets less interest 4.6 6.1 - -
Experience loss on defined benefit obligation - (0.4) - -
Changes to demographic assumptions (0.6) 2.7 - -
Changes to financial assumptions 6.0 (9.4) 1.2 (0.8)
Change in irrecoverable surplus (10.0) (0.4) - -
Remeasurements of defined benefit plans - (1.4) 1.2 (0.8)
Cumulative remeasurements of defined benefit plans (25.6) (25.6) (9.2) (10.4)
Expense recognised in the income statement
Current service cost - - 0.6 0.7
Administration costs 0.2 0.2 - -
Operating costs 0.2 0.2 0.6 0.7
Net pension interest cost 0.1 0.2 0.1 0.1
Expense recognised in the income statement 0.3 0.4 0.7 0.8
Movements in the balance sheet liability
Net liability at start of year 9.2 10.0 21.9 20.7
Expense recognised in the income statement 0.3 0.4 0.7 0.8
Employer contributions (2.7) (2.6) - -
Benefits paid - - (1.5) (1.2)
Exchange movements - - (1.0) 0.8
Remeasurements of defined benefit plans - 1.4 (1.2) 0.8
Net liability at end of year 6.8 9.2 18.9 21.9
( )
1 ( ) Other comprises end of service schemes in the
Middle East of £3.0m (2020: £2.9m).
A reduction in the discount rate of 0.1% would increase the deficit in the
schemes by £1.1m, whilst a reduction in the inflation assumption of 0.1%,
including its impact on the revaluation in deferment and pension increases in
payment, would decrease the deficit by £0.7m. A decrease in the mortality
rate by one year would decrease the deficit in the schemes by £1.4m. 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 17 years for the UK scheme and 11 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:
2021 2020 2019 2018 2017
£m £m £m £m £m
Present value of defined benefit obligation (77.2) (86.9) (81.1) (71.7) (75.3)
Fair value of scheme assets 63.7 58.0 52.2 45.2 46.1
Deficit in the schemes (13.5) (28.9) (28.9) (26.5) (29.2)
Irrecoverable surplus (12.2) (2.2) (1.8) (1.4) -
Net defined benefit liability (25.7) (31.1) (30.7) (27.9) (29.2)
Experience adjustments on scheme liabilities 6.6 (7.9) (8.2) 3.7 (1.8)
Experience adjustments on scheme assets 4.6 6.1 5.4 (1.5) 3.2
33 Non-controlling interests
Financial information of subsidiaries that have a material non-controlling
interest is provided below:
Name Country of incorporation 2021 2020
Keller Fondations Speciales SPA Algeria 49% 49%
Keller Turki Company Limited Saudi Arabia 35% 35%
Loss attributable to non-controlling interests:
2021 2020
£m £m
Keller Fondations Speciales SPA (0.5) (0.6)
Keller Turki Company Limited (0.3) (1.0)
Other interests (0.1) 0.2
(0.9) (1.4)
Share of net assets of non-controlling interests:
2021 2020
£m £m
Keller Fondations Speciales SPA 2.9 3.5
Keller Turki Company Limited (0.3) 0.1
Other interests 0.2 0.1
2.8 3.7
Aggregate amounts relating to material non-controlling interests:
2021 2021 2020 2020
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Revenue 0.9 4.2 0.8 1.5
Operating costs (1.2) (4.5) (1.4) (2.5)
Operating loss (0.3) (0.3) (0.6) (1.0)
Finance costs - - - -
Loss before taxation (0.3) (0.3) (0.6) (1.0)
Taxation (0.2) - - -
Loss attributable to non-controlling interests (0.5) (0.3) (0.6) (1.0)
2021 2021 2020 2020
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Non-current assets 0.9 0.7 1.2 0.9
Current assets 2.8 2.4 4.0 1.0
Current liabilities (0.8) (2.8) (1.7) (1.1)
Non-current liabilities - (0.6) - (0.7)
Share of net assets/(liabilities) 2.9 (0.3) 3.5 0.1
34 Post balance sheet events
On 15 February 2022, an agreement was reached with the vendor of RECON
Services Inc. to finalise the amount of contingent consideration payable in
respect of the acquisition made in July 2021. A final settlement amount of
£8.7m (US$11.7m) was agreed in respect of the remaining contingent
consideration payable and other liabilities arising from the sale and purchase
agreement. This represents a non-adjusting post balance sheet event under
IFRS. The change in fair value of the contingent consideration between the 31
December 2021 balance sheet date and the agreement reached on 15 February will
be reflected in the income statement for the period ending 31 December 2022.
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 2020 results of overseas operations into
sterling at the 2021 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 8 to the consolidated financial
statements. A reconciliation between the 2020 underlying result and the 2020
constant currency result is shown below and compared to the underlying 2021
performance:
Revenue by segment
2021 2020
Statutory Statutory Impact of exchange movements Constant Statutory Constant currency
currency change change
£m £m £m £m % %
North America 1,323.1 1,227.5 (80.7) 1,146.8 +8% +15%
Europe 549.2 538.5 (16.3) 522.2 +2% +5%
Asia-Pacific, Middle East and Africa 352.1 296.5 (4.0) 292.5 +19% +20%
Group 2,224.4 2,062.5 (101.0) 1,961.5 +8% +13%
Underlying operating profit by segment
2021 2020
Underlying Underlying Impact of exchange Constant Underlying Constant currency
movements currency change change
£m £m £m £m % %
North America 73.0 83.2 (5.9) 77.3 -12% -6%
Europe 24.3 18.4 (0.8) 17.6 +32% +38%
Asia-Pacific, Middle East and Africa 3.4 15.5 (0.7) 14.8 -78% -77%
Central items (7.9) (7.0) - (7.0) n/a n/a
Group 92.8 110.1 (7.4) 102.7 -16% -10%
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)
2021 2020
£m £m
Underlying operating profit 92.8 110.1
Depreciation and impairment of owned property, plant and equipment 65.9 66.3
Depreciation and impairment of right-of-use assets 30.9 28.0
Amortisation of intangible assets 0.6 0.6
Underlying EBITDA 190.2 205.0
Non-underlying items in operating costs (9.6) (29.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 181.3 176.1
EBITDA (IAS 17 covenant basis)
2021 2020
£m £m
Underlying operating profit 92.8 110.1
Depreciation and impairment of owned property, plant and equipment 65.9 66.3
Depreciation and impairment of right-of-use assets 30.9 28.0
Legacy IAS 17 operating lease charges (32.7) (30.0)
Amortisation of intangible assets 0.6 0.6
Underlying EBITDA 157.5 175.0
Non-underlying items in operating costs (9.6) (29.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 148.6 146.1
Net finance costs
2021 2020
£m £m
Finance income (0.4) (1.1)
Underlying finance costs 9.3 14.3
Net finance costs (statutory) 8.9 13.2
Finance charge on lease liabilities(1) (3.0) (3.6)
Lender covenant adjustments (0.7) (1.5)
Net finance costs (IAS 17 covenant basis) 5.2 8.1
1 Excluding legacy IAS 17 finance leases.
Net capital expenditure
2021 2020
£m £m
Acquisition of property, plant and equipment 84.0 72.5
Acquisition of other intangible assets 0.4 0.5
Proceeds from sale of property, plant and equipment (9.8) (7.4)
Net capital expenditure(1) 74.6 65.6
1 Net capital expenditure excludes right-of-use assets.
Net debt
2021 2020
£m £m
Current loans and borrowings 29.8 67.0
Non-current loans and borrowings 246.2 191.8
Cash and cash equivalents (82.7) (66.3)
Net debt (statutory) 193.3 192.5
Lease liabilities(1) (73.9) (71.6)
Net debt (IAS 17 covenant basis) 119.4 120.9
1 Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying EBITDA.
Statutory
2021 2020
£m £m
Net debt 193.3 192.5
Underlying EBITDA 190.2 205.0
Leverage ratio (x) 1.0 0.9
IAS 17 covenant basis
2021 2020
£m £m
Net debt 119.4 120.9
Underlying EBITDA 157.5 175.0
Leverage ratio (x) 0.8 0.7
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.
( )
Financial record
2012 2013 2014 2015 2016 2017 2018 2019(1) 2020(1) 2021
£m £m £m £m £m £m £m £m £m £m
Consolidated income statement
Continuing operations
Revenue 1,317.5 1,438.2 1,599.7 1,562.4 1,780.0 2,070.6 2,224.5 2,300.5 2,062.5 2,224.4
Underlying EBITDA 91.9 124.2 141.9 155.5 158.6 177.2 167.5 198.4 205.0 190.2
Underlying operating profit 48.3 77.8 92.0 103.4 95.3 108.7 96.6 103.8 110.1 92.8
Underlying net finance costs (4.8) (3.7) (6.9) (7.7) (10.2) (10.0) (16.1) (22.5) (13.2) (8.9)
Underlying profit before taxation 43.5 74.1 85.1 95.7 85.1 98.7 80.5 81.3 96.9 83.9
Underlying taxation (13.5) (23.8) (29.7) (33.0) (29.8) (24.7) (22.5) (22.4) (28.3) (20.1)
Underlying profit for the year 30.0 50.3 55.4 62.7 55.3 74.0 58.0 58.9 68.6 63.8
Non-underlying items(2) - (20.2) (56.6) (36.4) (7.3) 13.5 (71.8) (37.2) (27.5) (1.7)
Profit/(loss) for the year 30.0 30.1 (1.2) 26.3 48.0 87.5 (13.8) 21.7 41.1 62.1
Underlying EBITDA (IAS 17 covenant basis) 91.9 124.2 141.9 155.5 158.6 177.2 167.5 170.8 175.0 157.5
Consolidated balance sheet
Working capital 97.6 124.1 104.1 97.1 152.5 181.3 225.4 200.9 180.3 158.4
Property, plant and equipment 248.5 281.9 295.6 331.8 405.6 399.2 422.0 460.6 434.9 443.4
Intangible and other non-current assets 112.1 202.8 203.4 183.0 218.2 198.3 179.5 192.3 183.5 234.0
Net debt (statutory) (51.2) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (289.8) (192.5) (193.3)
Other net liabilities (71.3) (92.5) (154.6) (94.9) (41.1) (77.1) (114.2) (166.5) (196.2) (199.8)
Net assets 335.7 372.6 346.3 334.0 429.6 472.2 426.5 397.5 410.0 442.7
Net debt (IAS 17 covenant basis) (51.2) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (213.1) (120.9) (119.4)
Underlying key performance indicators
Diluted earnings per share from continuing operations (p) 45.0 71.9 74.2 85.4 74.8 101.8 79.1 81.3 96.3 88.4
Dividend per share (p) 22.8 24.0 25.2 27.1 28.5 34.2 35.9 35.9 35.9 35.9
Operating margin 3.7% 5.4% 5.8% 6.6% 5.4% 5.2% 4.3% 4.5% 5.3% 4.2%
Return on capital employed(3) 11.6% 16.7% 18.3% 20.5% 15.3% 15.1% 13.2% 14.4% 16.4% 14.4%
Net debt: EBITDA (statutory) 0.6x 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.5x 0.9x 1.0x
Net debt: EBITDA (IAS 17 covenant basis) 0.6x 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.2x 0.7x 0.8x
1 Working capital, intangible and other non-current assets and other
net liabilities presented here do not correspond to the published 2020
consolidated financial statements. The comparative balance sheet has been
restated to present gross insurance provisions with a separate reimbursement
asset recognised for amounts recoverable from insurance providers and customer
retentions receivable in more than one year to other non-current assets, as
outlined in note 2 to the consolidated financial statements.
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 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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AnnouncementREG-Keller Group Plc: Annual Financial Report
AnnouncementREG-Keller Group Plc: Total Voting Rights
AnnouncementREG-Keller Group Plc: Holding(s) in Company
AnnouncementREG-Keller Group Plc: Director/PDMR Shareholding
Announcement