REG - Keller Group PLC - Unaudited Preliminary Results
07/03/2023 07:00
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RNS Number : 0758S Keller Group PLC 07 March 2023
7 March 2023
Keller Group plc Unaudited Preliminary Results for the year ended 31 December
2022
Keller Group plc ('Keller' or 'the Group'), the world's largest geotechnical
specialist contractor, announces its results for the year ended 31 December
2022.
Record revenue, strong underlying profit growth and dividend increased
Michael Speakman, Chief Executive Officer, said:
"In 2022 Keller made some notable achievements and delivered strong growth in
revenue and underlying profits as well as maintaining a robust order book of
£1.4bn. We also faced, and dealt with, a number of challenges and headwinds,
which held us back during the year. The Group will continue to pursue organic
and targeted M&A growth opportunities and we will also look to further
refine the portfolio as we continue to execute our strategy. Whilst higher
interest rates will increase our interest expense in 2023, we have entered the
new financial year with increased momentum, a more solid operational base and
are well placed for major contract awards. This, together with the actions we
have taken, gives us confidence that 2023 will be a year of good progress".
2022 2021(1) Constant currency
£m £m % change
% change
Revenue 2,944.6 2,222.5 +32% +24%
Underlying operating profit(2) 108.6 88.5 +23% +12%
Underlying operating profit margin(2) 3.7% 4.0% -30bps n/a
Underlying profit before tax(2) 93.5 79.6 +17% +6%
Underlying diluted earnings per share(2) 100.7p 84.2p +20%
Free cash flow (33.8) 62.5 n/a
Net debt (bank covenant IAS 17 basis) (3) 218.8 119.4 +83%
Dividend per share 37.7p 35.9p +5%
Statutory operating profit 67.8 76.4 -11%
Statutory profit before tax 56.3 67.5 -17%
Statutory diluted earnings per share 62.4p 77.2p -19%
Net cash inflow from operating activities 54.8 153.3 -64%
Statutory net debt (IFRS 16 basis) 298.9 193.3 +55%
( )
(1 ) Restated for prior period accounting error arising from the financial
reporting fraud at Austral and prior period business combination measurement
adjustments as detailed in notes 3 and 6 to the consolidated financial
statements
(2 )Underlying operating profit, underlying profit before tax and
underlying diluted earnings per share are non-statutory measures which provide
readers of this announcement with a balanced and comparable view of the
Group's performance by excluding the impact of non-underlying items, as
disclosed in note 9 of the consolidated financial statements
(3 )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 a record £2,944.6m, up 32%, comprised
organic growth of 22%, acquisition growth of 2% and an FX tailwind of 8%
· Underlying operating profit increased to £108.6m, up 12% (at
constant currency) as a result of continued strategic and operational delivery
in a turbulent, challenging market environment, and despite events at Austral
· Whilst North American margins recovered in H2 as expected, Group
operating margin reduced in the year to 3.7% largely driven by the impact of
inflationary cost pressures, supply chain challenges and operational issues in
North America Foundations in H1. We expect that the actions we have taken will
continue to restore Group margins in 2023
· No material change from the position we announced in January 2023
with respect to a financial reporting fraud at Austral. An external forensic
investigation has now confirmed that there has been no cash leakage. The
impact on the Group's historically stated operating profits was c£7.3m in H1
2022, £4.3m in 2021 and £6.7m in the years prior to 2021
· A robust year-end order book at £1.4bn; up 8% (broadly unchanged
at constant currency)
· NEOM project in Saudi Arabia is progressing in line with our
expectations operationally and financially; piling on the c£40m initial Works
Order was completed in February 2023, ahead of schedule and we are in advanced
discussions on the next tranche of work. The precise phasing of this
potentially material project is fluid and will require measured investment in
equipment and working capital as it accelerates
· Underlying EPS of 100.7p, up 20%, driven by higher operating
profit and a reduction in the effective tax rate partially offset by increased
finance costs
· Statutory profit before tax decreased by 17% to £56.3m, as a
result of increased non-underlying costs of £37.2m, comprising £24.0m of
non-cash goodwill impairments and amortisation of acquired intangible assets
and £13.2m of cash items including the ERP implementation costs of £6.3m and
restructuring costs of £5.3m
· Free cash outflow of £33.8m (2021: £62.5m inflow) driven by a
£110.5m (2021: £1.2m inflow) increase in working capital, largely driven by
22% increase in organic revenue, supplier behaviour mainly in NA, and an
inventory surplus at Suncoast
· Net debt (on a bank covenant IAS 17 basis) of £218.8m, increased
by £99.4m, equating to net debt/EBITDA leverage ratio of 1.2x (2021: 0.8x),
well within the Group's leverage target of 0.5x-1.5x and the covenant limit of
3.0x. As a consequence of the anticipated investment in NEOM, we expect to
remain in the upper end of our target range
· A slight decline in Group safety performance with an increase in
finger injuries; overall accident frequency rate increased to 0.10,
representing 26 lost time injuries across our c10,000 employees
· The short, medium and long-term actions required to achieve Net
Zero emissions by 2050 are in progress. We are ahead of our Scope 2 carbon
reduction target of 10%, achieving 28% reduction from our 2019 baseline
· Further successful execution of strategy, with continued
portfolio rationalisation and two bolt-on acquisitions that build our share in
our chosen markets
· Recommended final dividend of 24.5p, brings the total dividend
for the year to 37.7p (2021: 35.9p) an increase of 5%. The increased dividend
continues the Group's uninterrupted track record of increasing or maintaining
dividends every year for 28 years and reflects the financial strength of the
Group and our confidence in the future
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 7 March 2023
and will also be available later the same day on demand
https://www.investis-live.com/keller/63da8f583e92bb0c00491950/ksds
(https://www.investis-live.com/keller/63da8f583e92bb0c00491950/ksds)
Conference call: Accessing the telephone replay:
Participants joining by telephone: A recording will be available until 14 March 2023
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: 760899
All other locations: +44 20 3936 3001
Access Code: 730110
Notes to editors:
Keller is the world's largest geotechnical specialist contractor providing a
wide portfolio of advanced foundation and ground improvement techniques used
across the entire construction sector. With around 10,000 staff and operations
across five continents, Keller tackles an unrivalled 6,000 projects every
year, generating annual revenue of more than £2bn.
Cautionary statements:
This document contains certain 'forward-looking statements' with respect to
Keller's financial condition, results of operations and business and certain
of Keller's plans and objectives with respect to these items. Forward-looking
statements are sometimes, but not always, identified by their use of a date in
the future or such words as 'anticipates', 'aims', 'due', 'could', 'may',
'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'reasonably
possible', 'targets', 'goal' or 'estimates'. By their very nature forward
looking statements are inherently unpredictable, speculative and involve risk
and uncertainty because they relate to events and depend on circumstances that
will occur in the future. There are a number of factors that could cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements. These factors include, but are
not limited to, changes in the economies and markets in which the Group
operates; changes in the regulatory and competition frameworks in which the
Group operates; the impact of legal or other proceedings against or which
affect the Group; and changes in interest and exchange rates. For a more
detailed description of these risks, uncertainties and other factors, please
see the Principal risks and uncertainties section of the Strategic report in
the Annual Report and Accounts. All written or verbal forward
looking-statements, made in this document or made subsequently, which are
attributable to Keller or any other member of the Group or persons acting on
their behalf are expressly qualified in their entirety by the factors referred
to above. Keller does not intend to update these forward-looking statements.
Nothing in this document should be regarded as a profits forecast. This
document is not an offer to sell, exchange or transfer any securities of
Keller Group plc or any of its subsidiaries and is not soliciting an offer to
purchase, exchange or transfer such securities in any jurisdiction. Securities
may not be offered, sold or transferred in the United States absent
registration or an applicable exemption from the registration requirements of
the US Securities Act.
LEI number: 549300QO4MBL43UHSN10. Classification: 1.1 (Annual financial and
audit reports)
______________________________________________________________________________________________________________________________________
Adjusted performance measures
In addition to statutory measures, a number of adjusted performance measures
(APMs) are included in this Preliminary Announcement to assist investors in
gaining a clearer understanding and balanced view of the Group's underlying
results and in comparing performance. These measures are consistent with how
business performance is measured internally.
The APMs used include underlying operating profit, underlying earnings before
interest, tax, depreciation and amortisation, underlying net finance costs and
underlying earnings per share, each of which are the equivalent statutory
measure adjusted to eliminate the amortisation of acquired intangibles and
other significant one-off items not linked to the underlying performance of
the business. Net debt (bank covenant IAS 17 basis) is provided as a key
measure for measuring bank covenant compliance and is calculated as the
equivalent statutory measure adjusted to exclude the additional lease
liabilities relating to the adoption of IFRS 16. Further underlying constant
exchange rate measures are given which eliminate the impact of currency
movements by comparing the current measure against the comparative restated at
this year's actual average exchange rates. Where APMs are given, these are
compared to the equivalent measures in the prior year.
APMs are reconciled to the statutory equivalent, where applicable, in the
adjusted performance measures section in this Announcement.
Chief Executive Officer's review
Overview
The Group delivered a strong performance in 2022 in a turbulent and
challenging market environment. Whilst markets generally began to recover in
volume terms, the residual pandemic-related labour and supply chain shortages
were compounded by more localised effects of the war in Ukraine, resulting in
increased supply chain issues and stronger inflationary pressures than the
global economy has seen for some time. Against this uneven macroeconomic
backdrop, construction demand has reacted variably across geographies and
sectors and almost all our businesses faced the challenge of serving increased
market demand with a decreasing and more expensive supply base. Whilst the
execution of our strategy has structurally put the Group in a strong position,
it is a credit to our businesses and management teams that together Keller
generated a record revenue for the Group, close to £3bn, as well as a strong
growth in the underlying operating profit.
In January 2023, we announced our internal systems had identified a financial
reporting fraud discrete to Austral, a business unit in Australia. An external
forensic investigation has now confirmed that there has been no cash leakage.
This was an isolated and contained incident. The impact of the financial
reporting fraud on the Group's historical operating profits was c£7.3m in the
first half of 2022, £4.3m in 2021 and £6.7m in the years prior to 2021. We
will take the lessons learned from this incident and embed any identified
improvements into our management and financial control processes.
Nonetheless, overall the Group progressed well in 2022 and finished the year
with a robust year-end order book of £1.4bn (2021: £1.3bn), which excludes
expected upcoming sizeable packages in relation to the large NEOM project.
Keller has an unbroken record of dividends, having consistently and materially
grown its dividend in the 28 years since listing which clearly demonstrates
the Group's ability to continue to prosper through economic downturns,
including both the global financial crisis and the pandemic. The Board is
committed to paying dividends through the cycle, and despite the increase in
net debt driven by growth in the year, the Board is recommending an increased
dividend for 2022 in keeping with its confidence in the future.
Financial performance
Group revenue was £2,944.6m, up 24% on the prior year on a constant currency
basis, with increased trading activity across all our markets. We delivered an
underlying operating profit of £108.6m, an increase of 12% on a constant
currency basis. Whilst in North America Foundations some project execution
issues continued throughout the year, the supply chain and inflationary
pressures that were all a feature of the first half of the year were largely
addressed in the second half and the recovery in margin is on track. Europe
grew notably year-on-year whilst maintaining its operating margin. In
Asia-Pacific, Middle East and Africa (AMEA), despite the Austral setback, the
division advanced well in terms of volume and profit. The Group margin for the
year was 3.7% (2021: 4.0%), down on prior year, albeit, as anticipated, the
North America margin improved in the second half and we expect further
progress in 2023.
Our cash flow generation was suppressed by the growth in working capital as a
result of the record revenue, reflecting the increased activity and the
pressures of supply chain payment terms. As a result, net debt (IAS 17 lender
covenant) increased by £99.4m to £218.8m, equating to a net debt/EBITDA
leverage ratio of 1.2x, well within our leverage target of 0.5x-1.5x and our
covenant limit of 3.0x.
Operational performance
In North America revenue increased by 29% (on a constant currency basis)
driven by improved trading volume across all businesses, largely driven by
Suncoast (before a slowdown in the fourth quarter in residential demand) and
with a material contribution from the accelerated LNG contract at RECON.
Despite contract losses in the foundations business, supply chain issues,
inflationary pressures and a non-repeat claim resolution in the prior year,
underlying operating profit increased marginally, up 1%, on a constant
currency basis with these issues more than offset by the benefit from the
increased volume across the division. Importantly, the operating margin
improved by 150 basis points to 5.0% in the second half compared to the first
half, demonstrating the continuing improvement in the business.
In Europe, revenue increased by 19% on a constant currency basis, with growth
in all business units despite the macroeconomic backdrop and the impact of the
Ukraine war. Underlying operating profit increased by 20% on a constant
currency basis, reflecting the growth in trading activity and the ability to
pass on the majority of inflationary cost pressures, partially offset by
challenges in North-East Europe.
Notwithstanding the issue in Austral, the AMEA Division performed strongly.
Revenue increased by 9% on a constant currency basis, driven by a recovery in
trading in Keller Australia, the Middle East and Africa, and continued
strength in India. NEOM in Saudi Arabia is rapidly gaining momentum and is
ramping up in terms of activity. We started the initial Works Order in
December and the piling works have completed ahead of schedule in February
2023. We are in advanced discussions on sizeable packages in relation to this
project and the quantum of further work will require investment in 2023.
Underlying operating profit in the AMEA Division increased to £6.6m from a
restated £0.9m loss in the prior year, despite the losses in Austral, driven
by the recovery in trading in Keller Australia and the UAE as well as the
impact of the asset impairment reversal related to equipment previously
deployed in Mozambique that will be brought back into use elsewhere in the
Group which improved year-on-year operating profit by £6.1m. The result was
partly offset by challenges on marine projects in Austral that are nearing
completion. In light of the reporting fraud at Austral, a goodwill impairment
of £7.7m has been taken in the non-underlying items reflecting the current
more cautious view taken of its future profitability.
Strategy
Our strategy remains 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 strategic business model provides the Group with diversity in revenue
streams in terms of sectors, applications and geographies and helps to provide
revenue resilience and lessen the impact of business cycles and geopolitical
uncertainly. This in turn ensures that both the consistency of profit
generation and the quality of cash conversion are also robust over time, as
evidenced by the dividend history of the Group.
We are focused on strengthening and simplifying our asset portfolio and
building local market share leadership, in line with our strategy. During the
year we made two bolt-on acquisitions that strengthen our existing market
positions. As part of our continuing strategic review of our asset portfolio,
we took the decision to exit two of our peripheral geographies earlier in the
year in the Europe Division. Whilst there are an increasing number of quality
acquisition opportunities emerging, the Group will retain its disciplined
approach to M&A and will only pursue targets which will generate
attractive financial returns and shareholder value.
In terms of organic growth opportunities, the residual impact of the pandemic
and the war in Ukraine has materially influenced the opportunities that are
currently emerging. The high natural gas price and fluctuating oil price have
emphasised the need for governments to diversify energy supply and develop
independent supply chains. The short-term focus on energy security is driving
investment in traditional hydrocarbon industries and infrastructure, whilst
the growing global political will to decarbonise economies is driving
long-term power generation construction away from carbon-based energy
production projects. Both drivers provide attractive opportunities for the
Group. Infrastructure renewal remains a major driver of growth, reflecting the
efforts by governments and public institutions to accelerate investment to
stimulate activity, especially in an economically constrained time. Investment
is being made in battery manufacture, green energy is expanding, and in some
markets these are replacing logistics, warehousing and data centres as the
higher growth segments.
Whilst we take pride in the quality of our project management and project
execution, we recognise that we can always improve and we are engaged in a
process of re-energising our project execution and other continuous
improvement initiatives. The latest part of this programme is 'Project
Performance Management' which is the next incremental improvement that
captures the latest best practice across the Group and will ensure that it is
accessible to all project managers throughout the Group.
During the year we commenced the design of an enterprise resource planning
(ERP) system. This initiative will embed operational excellence in all
foundations businesses across the Group by introducing new ways of working,
streamlining processes and providing data to drive our growth. Using an ERP
system, processes become more consistent and standardised, thereby increasing
opportunities for automation and accuracy. The overall result is improved
efficiency, driving increased productivity and the profitability of the Group.
It will also help address the likely evolution of the UK regulatory landscape
as it relates to financial reporting and internal controls. The initiative
will be implemented over five years and we will leverage our risk management
processes to help control the challenges associated with implementing the
programme of work.
Progress on strategic priorities in 2022
In North America, we successfully integrated RECON, a geotechnical and
industrial services company acquired in July 2021, into our North America
Division. The RECON project to develop an energy facility in the Gulf Coast
region of the USA is c90% complete and has been very successful to date. We
continue to explore further opportunities related to LNG in the region. We
have consolidated our Midwest Business Unit into our North-East Business Unit;
they are commercially similar and this will reduce our cost base. In May 2022,
the division completed the bolt-on acquisition of GKM Consultants Inc., a
small geo-structural measurements and monitoring business based in Quebec,
Canada, for c£5m. GKM is integrating into our Speciality Services business
and will help accelerate our growth in this specialist segment.
In Europe, in November 2022 the division acquired Nordwest Fundamentering AS,
a specialist geotechnical contractor based in Trondheim, in the west of
Norway, for c £6m. This builds our market share in the region. As part of our
continuing strategic review of our asset portfolio, we took the decision to
exit our peripheral businesses in Denmark and the Ivory Coast.
In Saudi Arabia, to meet the increasing needs of the NEOM project we
established an operations base in the Tabuk province, in the north west of the
country. Equipment and people were sourced and work started on the first Works
Order in December, worth c£40m, and the piling works has now been completed.
Strategic priorities for 2023
Our diversified model of operating in a number of sectors, applications and
geographies generates revenues that are resilient whilst lessening the impacts
that can arise from business cycles and geopolitics. In line with our
strategy, we will continue to focus on increased market penetration and cost
reduction. We remain customer focused through our branch structure and
continue to drive for a leading share in our chosen markets.
We continue to review our diverse markets to ensure that we focus only on
sustainable markets and attractive projects that generate long-term returns.
Through our expertise and scale, we will continue to share product knowledge.
Colleagues in the North America Foundations business have teamed up with
colleagues at RECON at the ground improvement project for the development of
an LNG facility. The contract involves early site preparation and soil
stabilisation. The North America Foundations team introduced a new technique
to their RECON colleagues that was a faster solution, saving the client time
and money, and which was also more environmentally friendly in using less
cement.
Growth through organic development and a disciplined approach to M&A will
remain a priority in 2023, and we will maintain our diligent assessment of
potential acquisitions. At the same time, as part of our continuing strategic
review of our asset portfolio, we will continue to refine our existing
portfolio, and exit non-core businesses where appropriate.
In our effort to drive efficiencies and cost savings, we are assessing
opportunities for back-office consolidation.
The NEOM project is ramping up and will become a significant revenue generator
for the Group. The project is progressing in line with our expectations
operationally and financially; piling on the c£40m initial Works Order was
completed in February 2023, ahead of schedule, and we are in advanced
discussions on the next tranche of work. The precise phasing of this
potentially material project is fluid and will require measured investment in
equipment and working capital as it accelerates. We will continue to focus our
efforts on successfully delivering for the client as the project gains further
momentum.
Environmental, Social and Governance (ESG)
We align our ESG and sustainability approach with the UN Sustainable
Development Goals (SDGs) through a number of global and local initiatives. Of
the 17 SDGs, we specifically focus on those that are most closely aligned to
Keller's core business and where we can have the greatest impact. In addition,
there are a number of local initiatives that are being supported at local
business level that are relevant and appropriate to their community context.
We are progressing well against the carbon reduction targets we set out last
year to achieve net zero by 2050. We will be net zero across all three
emission scopes by 2050; net zero on Scope 2 by 2030, net zero on Scope 1 by
2040 and net zero by 2050 on Operational Scope 3 (covering business travel,
material transport and waste disposal). The short, medium and long-term
actions required to achieve these goals are in progress and in some instances
we are ahead of target, particularly around our Scope 2 carbon reduction.
Scope 2 covers indirect emissions from the electricity we use. These emissions
mostly occur as a result of electricity use in our offices and maintenance
yards. Whilst it is by far the smallest Scope of carbon emissions for Keller,
it is where we can make the most immediate impact and therefore where we
aligned our Executive and BU management remuneration for 2022. There are many
opportunities to save electricity and these savings have already included
energy efficiency improvements to our equipment and lighting, as well as
generating our own renewable energy. Whilst Europe and AMEA have significantly
reduced their emissions, North America's Scope 2 emissions increased in 2022,
driven mostly by local weather events, as well as the acquisition of RECON.
For the Group as a whole, Scope 2 emissions reduced by 28% from our 2019
baseline, significantly ahead of our 10% target.
We continue to pay relentless attention to safety and our people.
Disappointingly, we saw the key indicator for injury, the accident frequency
rate, increase to 0.1, representing 26 lost time injuries, an increase of
seven lost times injuries on the prior year. There have been a number of key
initiatives in the year including a Group-wide safety stand down day, which
together with the introduction of 'mechanised handling steering groups' is
targeted upon reducing hand injuries. We have invested in cameras for all c300
of our owned rigs in order to provide the rig driver with reverse and blind
spot visibility. With the return to growth and an expanding workforce, we have
introduced a new induction process for new employees. The completion of a
safety induction will appear on an employee's 'Safety Passport' within Insite,
which is an increasingly important tool in keeping our employees safe and
managing projects effectively and efficiently.
We have made progress against our Diversity, Equity and Inclusion priorities.
Our Inclusion Commitments define the framework we use to set priorities and
ensure alignment and progress across the Group and in 2022 we saw these embed
deeper into the organisation. This is important as we strive to build a more
diverse, equitable and inclusive workplace.
In terms of partnerships, we work with organisations to drive change and those
that align with our own focus on the UN Sustainable Development Goals. To that
end we have continued our partnership with UNICEF UK and have entered into a
three-year partnership, starting with a funding contribution of £250,000 in
2022 towards its Core Resources for Children. Keller's support with
unrestricted funding allows UNICEF to rapidly respond to emergencies across
the world, including the devastating earthquakes that have affected children
and their families in Turkey and Syria.
People
Our people are the major differentiator of our business and pivotal to
everything we do. As I travel around the Group I continue to be immensely
impressed by the skill, dedication and tenacity of our team and, despite the
significant headwinds of the last year, the team has continued to outperform
our peers. I would like to acknowledge this endeavour, and thank all Keller
employees for their commitment, hard work and expertise during another very
challenging year.
We want our people to be inspired and motivated, equipped with the right
skills, tools and standards to be successful. To that end, it is important
that as Directors we understand and learn from the views of our employees. Our
culture and engagement programme provides a structured way of getting and
actioning employee feedback, the aim being to continually improve employee
experience and drive better business performance. Successfully piloted in four
businesses in 2021, it rolled out to a further seven business units in 2022.
Having considered the current cost of living crisis that we are experiencing,
salary increases across the Group have taken inflationary pressures into
account, and we have targeted higher increases across those who are more
junior and lower paid amongst our employees.
Whilst we had no projects in Ukraine, we have several employees based in the
country and over 20 Ukrainian nationals working for us for many years in our
North-East Europe Business Unit. It was therefore incredibly sad that in
February 2023 we lost a Ukrainian colleague who was killed defending his
country against the Russian invasion. One year after the initial invasion, the
Ukrainian people continue to defend their country and their independence. The
impact on all people is significant, with destruction, displacement,
separation and loss of all daily norms. Money raised through 'Fundacia
Keller', a charitable foundation set up by Keller Poland, is given directly to
our Ukrainian employees and their families who have been affected by the
conflict so they can buy what they need most.
Dividend
Keller has an unbroken record of dividends, having consistently and materially
grown its dividend in the 28 years since listing which clearly demonstrates
the Group's ability to continue to prosper through economic downturns,
including both the global financial crisis and the pandemic. The Board is
committed to paying dividends through the cycle and, despite the increase in
net debt driven by growth in the year, the Board is recommending an increased
dividend for 2022 in keeping with its confidence in the future. The Board has
recommended a 5% increase in the final dividend which follows the 5% increase
in the interim dividend and marks the resumption of the Group's progressive
dividend policy. The final dividend of 24.5p (2021: 23.3p) will be paid on 23
June 2023 to shareholders on the register as at the close of business on 2
June 2023. This will bring the 2022 total dividend payable to 37.7p (2021:
35.9p).
Outlook
In 2022 Keller made some notable achievements and delivered strong growth in
revenue and underlying profits as well as maintaining a robust order book of
£1.4bn. We also faced, and dealt with, a number of challenges and headwinds,
which held us back during the year. The Group will continue to pursue organic
and targeted M&A growth opportunities and we will also look to further
refine the portfolio as we continue to execute our strategy. Whilst higher
interest rates will increase our interest expense in 2023, we have entered the
new financial year with increased momentum, a more solid operational base and
are well placed for major contract awards. This, together with the actions we
have taken, gives us confidence that 2023 will be a year of good progress.
Operating review
North America
2022 2021 Constant currency
£m £m
Revenue 1,896.1 1,323.1 +29.3%
Underlying operating profit 82.0 73.0 +1.0%
Underlying operating margin 4.3% 5.5% -120bps
Order book(1) 761.3 787.0 -13.0%
(1) Comparative order book stated at constant currency
In North America, revenue was up by 29.3% (on a constant currency basis)
driven by improved trading volume across all businesses, largely driven by
Suncoast (before a slowdown in the fourth quarter in residential demand) and
with a material contribution from the accelerated LNG contract at RECON.
Despite contract losses in the foundations business, supply chain issues,
inflationary pressures and a non-repeat claim resolution in the prior year,
underlying operating profit increased marginally, up 1%, on a constant
currency basis, with these issues more than offset by the benefit from the
increased volume across the division. In the foundations business trading
continued with a high level of activity. As a direct result of management
actions, the challenges of project execution and productivity impacted by
supply chain disruption began to reduce in the latter part of the year, and
started to benefit the North America operating margin which improved from 3.5%
in H1 to 5.0% in H2. Further year on year progress in the margin is expected
in 2023.The supply chain issues impacted performance through lower
productivity due to delayed delivery and put pressure on working capital as
suppliers tightened up credit terms on raw materials that were in short
supply. The accident frequency rate, our key safety metric, increased from
0.02 in 2021 to 0.08 in 2022.
Suncoast, the Group's post tension business, experienced high volumes in the
residential sector despite some market headwinds, with revenue and profit
ahead of prior year, despite a continued slowdown in the housing market in the
final quarter as interest rates rose. In the high-rise sector, the business
benefited from the unwind of the prior years' adverse impact on profit from
its long-term customer contracts and a reduction in the price of steel strand,
its major raw material.
Moretrench Industrial, our business which operates in the highly regulated
industrial, environmental and power segments, delivered a solid performance.
RECON, the geotechnical and industrial services company we acquired in July
2021, performed strongly and ahead of expectations. RECON's contract to
provide the foundations for an energy facility in the Gulf of Mexico is
nearing completion and we see continuing further opportunities related to LNG
in the region.
On 1 May 2022, the business completed the bolt-on acquisition of GKM
Consultants Inc, a small geo-structural measurements and monitoring business
based in Quebec, Canada. GKM will integrate into our Speciality Services
business and will help accelerate our growth in this specialist segment.
The order book for North America at the period end was at £761.3m, down 13.0%
(on a constant currency basis) from the closing position at the end of 2021.
The decrease year on year is predominantly driven by the near completion of
the large LNG contract in the RECON business. Excluding this contract, the
order book is broadly flat on a constant currency basis.
Europe
2022 2021 Constant currency
£m £m
Revenue 649.3 549.2 19.4%
Underlying operating profit 29.1 24.3 20.2%
Underlying operating margin 4.5% 4.4% +10bps
Order book(1) 347.5 332.7 +1.5%
(1) Comparative order book stated at constant currency
In Europe, revenue increased by 19.4% on a constant currency basis, with
growth reported by all business units despite the challenging macro
environment. Underlying operating profit increased by 20.2% on a constant
currency basis, reflecting the growth in revenue, partly offset by challenges
in North-East Europe. The businesses were largely able to pass on the
significant cost inflation experienced during the first half of 2022,
benefiting revenue and helping to maintain the operating margin. The accident
frequency rate reduced from 0.23 to 0.19 in the year.
The growth in revenue and operating profit were achieved against the backdrop
of the war in Ukraine, and the resulting macro-economic challenges in Europe.
The significant escalation in supplier costs and energy prices experienced
following the Russian invasion in February 2022 and subsequent delays
obtaining materials resulted in some non-productive time, particularly in the
first half. Material price inflation and supply shortages receded to some
extent in the second half of the year. We were able to include price
adjustment measures into most of our contracts and therefore were largely able
to pass price increases onto customers.
Our North-East Europe business was the most affected by the war in Ukraine,
both from a financial and humanitarian perspective. Despite these challenges,
Poland, which benefited from the successful completion of a large oil refinery
project, delivered record revenue. Cost inflation and resource scarceness were
felt most acutely in Poland and the surrounding countries and, accordingly,
contract margins were adversely impacted.
Following a strong 2021, South-East Europe and Nordics delivered another year
of record revenue, up by 20% year-on-year, with the largest gains reported in
Austria, Italy, Norway, Slovakia and the Czech Republic. The Nordic countries
received two substantial multi-year contract awards during the year,
Tangenvika, a bridge project in Norway worth c£39m and Södertäliye, a lock
project in Sweden worth c£34m. Work will start on both projects in 2023. In
November 2022, the business acquired Nordwest Fundamentering AS, a specialist
geotechnical contractor based in Trondheim, in the west of Norway.
The UK business reported revenue growth following increased levels of activity
through the core Foundations and Geotechnique businesses and continued good
delivery on the High Speed 2 (HS2) rail contract.
Our business in Central Europe increased revenue and profit with good trading
activity across the region. Despite delays to contract starts during the early
part of the year in Germany, the businesses benefited from strong activity
levels by year end, including expansion into Belgium, where we registered a
new branch.
South West Europe was our business most affected by the impact of COVID-19
during 2021, with extended country lockdowns and delays to contract starts.
However, in 2022 the business delivered growth in both revenue and profit in
the period.
As part of our continuing strategic review of our asset portfolio we took the
decision to exit our businesses in Denmark and the legacy business in Ivory
Coast. We continue to review our diverse European markets to ensure that we
focus only on sustainable markets and attractive projects, including those in
the energy sectors, that generate long-term returns.
During 2022 the European core business responded well to the prevailing
macro-economic conditions. The robust year-end order book provides good near
term coverage with some of the recent larger contract wins extending beyond
2023. Nevertheless, the threat of recession that hangs over a number of the
European markets will provide additional challenges during the year and we
will respond appropriately. We expect to manage the risks and maintain the
recent levels of profit margin.
The Europe order book at the end of the period was £347.5m, broadly flat on
the prior year on a constant currency basis.
Asia-Pacific, Middle East and Africa (AMEA)
2022 2021 Constant
Restated(1) currency
£m £m
Revenue 399.2 350.2 +9.0%
Underlying operating profit 6.6 (0.9) n/a
Underlying operating margin 1.7% (0.3)% n/a
Order book(2) 298.4 182.4 +55.8%
(1) Restated for prior period accounting error arising from the financial
reporting fraud at Austral
(2) Comparative order book stated at constant currency
In AMEA, revenues increased by 9% on a constant currency basis, driven by a
recovery in trading in Keller Australia, in Middle East and Africa (MEA) and
in India. Underlying operating profit increased to £6.6m driven by the
recovery in trading and an asset impairment reversal related to equipment in
Mozambique that has been repatriated, partly offset by challenges on marine
projects in Austral which will be completed during 2023, and mobilisation at
NEOM. The accident frequency rate increased to 0.02, with the division
reporting two injuries compared to zero in the prior period.
On 9 January 2023, Keller announced that it had identified a financial
reporting fraud discrete to its Austral Business Unit in Australia. The
financial reporting fraud related to the overstatement of Austral's
performance from 2019 onwards by two senior individuals in the finance
function. An external forensic investigation has confirmed there was no cash
leakage and the impact of the financial reporting fraud on the Group's
historical operating profits was c£7.3m in the first half of 2022, £4.3m in
2021 and £6.7m in the years prior to 2021. The strengthening of project
reviews at Austral has been implemented and will improve financial control and
management reporting. Following the investigation, we have relocated one of
the Group's experienced Managing Directors into the business while we review
and develop a longer-term succession plan. In light of the reporting fraud at
Austral, a goodwill impairment of £7.7m has been taken reflecting the current
more cautious view taken of its future profitability.
Excluding Austral, the AMEA Division performed well. Keller Australia
rebounded strongly from a loss in the prior year due to COVID-19. The recovery
of trading activity reported in the first half further strengthened in the
second half and was accompanied by a high level of tendering activity. The
ASEAN business continues to experience market softness with low levels of
activity, though it is expected that trading will improve in 2023 with several
sizeable projects in the pipeline. The Indian business continued to perform
strongly, growing revenue and profit in the period. Our MEA business delivered
strong growth in revenue, and recovered in terms of profitability following a
loss in the prior year. In Mozambique, whilst the LNG project remained
suspended in the period, underlying profit improved year on year by £6.1m
from the impact of an asset impairment reversal related to equipment
previously deployed in the country and will be brought back into use elsewhere
in the Group.
In Saudi Arabia our longstanding presence has enabled us to undertake work on
the prestigious NEOM Giga project in the Tabuk Province in the North West of
the country. The first major element of the NEOM project is The Line, a 170
kilometre long mega city, starting in the west at the Gulf of Aqaba,
continuing through the Sharma Valley and terminating at the NEOM International
Airport within the upper valley region. Following the signing of the overall
Framework Agreement, we received the first Works Order worth c£40m and
started piling in December. We completed the piling work in February 2023,
ahead of schedule, and we are in advanced discussions on sizeable packages.
The majority of mobilisation costs were taken in 2022. The Framework Agreement
paves the way for multiple contract awards. While we are in the early stages
of this project, it is evolving into a significant and material opportunity
for the future.
The AMEA order book strengthened strongly and at the end of the period was at
£298.4m, up 55.8% (on a constant currency basis) on the prior year. The
increase is predominantly driven by the strengthening opportunities in
Australia, India, the UAE and Saudi Arabia.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's 2022 results.
2022 2021(1)
£m £m
Revenue 2,944.6 2,222.5
Underlying operating profit(2) 108.6 88.5
Underlying operating profit %(2) 3.7% 4.0%
Non-underlying items in operating profit (40.8) (12.1)
Statutory operating profit 67.8 76.4
Statutory operating profit % 2.3% 3.4%
(1 ) Restated for prior period accounting error arising from the
financial reporting fraud at Austral and prior period measurement adjustments
as detailed in notes 3 and 6 to the consolidated financial statements
(2 ) Details of non-underlying items are set out in note 9 to the
consolidated financial statements. Reconciliations to statutory numbers are
set out in the adjusted performance measures section
Revenue and underlying operating profit split by geography
Revenue Underlying operating profit(2) Underlying operating profit margin(2)
£m £m %
Year ended 2022 2021(1) 2022 2021(1) 2022 2021(1)
Division
North America 1,896.1 1,323.1 82.0 73.0 4.3% 5.5%
Europe 649.3 549.2 29.1 24.3 4.5% 4.4%
AMEA 399.2 350.2 6.6 (0.9) 1.7% -
Central - - (9.1) (7.9) - -
Group 2,944.6 2,222.5 108.6 88.5 3.7% 4.0%
Austral financial reporting fraud
On 9 January 2023, the Group announced that it had identified a financial
reporting fraud in the Austral business based in Australia which resulted in
an overstatement of revenue and profit in 2021 and prior years. A forensic
investigation of the fraud incident has now completed. This confirmed the
fraud was financial reporting in nature and there was no cash leakage from the
business. We will take the lessons learned from this incident and embed any
identified improvements into our management and financial control processes.
Due to the overstatement of revenue and profits, there is now sufficient
uncertainty over the future profitability of the Austral business such that we
have recognised a goodwill impairment of £7.7m in respect of the total
balance of goodwill associated with this cash generating unit.
Prior year restatement
The impact of the fraud on the prior periods was material, and we have
therefore restated the comparative results for 2021 presented in the Annual
Report to show the corrected amounts. The retained earnings at 31 December
2021 have been reduced by £15.4m, comprising an opening reserves reduction of
£8.7m and a reduction in profit after tax in 2021 of £6.7m.
Revenue for 2021 has been reduced by £1.9m to £2,222.5m, underlying
operating profit has been reduced by £4.3m to £88.5m and underlying diluted
earnings per share has been reduced by 4.2p to 84.2p.
The statutory operating profit has been reduced by £4.3m to £76.4m and the
statutory diluted earnings per share has been reduced by 8.9p to 77.2p. The
impact on statutory earnings includes the restatement of the non-underlying
deferred tax credit recognised last year in respect of Australia tax losses.
In addition to the prior year restatement for Austral, the 2021 income
statement and balance sheet have been restated for the prior year measurement
period adjustments in respect of acquisitions in 2021 as required by IFRS 3,
'Business combinations'. The fair value of net assets acquired has been
finalised, resulting in adjustments to the value of goodwill, intangible
assets, trade receivables and deferred tax liabilities as at 31 December 2021.
The detail of these adjustments is set out in note 3 to the consolidated
financial statements.
Revenue
Revenue of £2,944.6m (2021(1): £2,222.5m) was up 32%, and up by 24% at
constant currency, driven by increased trading volumes across all three
divisions. In North America, organic growth from RECON, acquired in July 2021,
combined with increased volume across all businesses delivered a revenue
increase of 29%. In Europe, revenue increased by 19%, with growth across all
business units despite the macro economic backdrop and the impact of the
Ukraine war. In AMEA, a recovery in volumes in Keller Australia and Middle
East and Africa, combined with continuing strength in India, led to a revenue
increase of 9%.
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 6% of the Group's revenue. The top 10 customers
represent 17% of the Group's revenue (2021: 15%). The Group worked on more
than 6,000 projects in the year with 54% of contracts having a value between
£25,000 and £250,000, demonstrating a low customer concentration and a wide
project portfolio.
Underlying operating profit
The underlying operating profit of £108.6m was 23% up on prior year (2021(1):
£88.5m), which on a constant currency basis was 12% up despite the
significant operational challenges at Austral that had been masked by the
financial reporting fraud. In North America, despite contract losses in the
foundations business, supply chain issues, inflationary pressures and a
non-repeat claim resolution in the prior year, underlying operating profit
increased marginally, up 1%, on a constant currency basis, with these issues
more than offset by the benefit from the increased volume at Suncoast and
RECON. In Europe, operating profit was 20% up on a constant currency basis
reflecting the growth in trading activity and the ability to largely pass on
inflationary pressures. In AMEA, operating profit grew to £6.6m from a
restated £0.9m loss in the prior year, despite the poor performance at
Austral. Keller Australia contributed to the profit growth and the division
benefited from an asset impairment reversal related to equipment previously in
Mozambique that will be brought back into use elsewhere in the Group. The
result was partly offset by challenges on marine projects in Austral which
will be completed during 2023. Central costs have increased by £1.2m from
£7.9m to £9.1m.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of £1.5m in the year
(2021: £0.4m) from its share of the post-tax results from joint ventures. The
share of the post-tax amortisation charge of £1.2m (2021: £0.6m) arising
from the acquisition of NordPile by our joint venture KFS Oy in 2021 is
included as a non-underlying item. No dividends (2021: nil) were received from
joint ventures in the year.
Statutory operating profit
Statutory operating profit comprising underlying operating profit of £108.6m
(2021(1): £88.5m) and non-underlying items comprising net costs of £40.8m
(2021(1): £12.1m), decreased by 11% to £67.8m (2021(1): £76.4m). The
reduction in statutory operating profit is a reflection of the increase in
non-underlying operating costs in 2022 to £40.8m. This includes non-cash
costs of £24.0m comprising goodwill impairments and amortisation of acquired
intangible assets, including the Austral goodwill impairment cost of £7.7m
and increased amortisation of acquired intangible assets of £8.9m on the
RECON intangibles. Cash non-underlying costs of £16.8m includes the new ERP
implementation costs of £6.3m and exceptional restructuring costs of £5.3m.
The non-underlying costs are set out in further detail below.
Net finance costs
Net underlying finance costs increased by 69.7% to £15.1m (2021: £8.9m). The
increase has been driven by the increase in underlying interest rates and an
increase in the average net debt levels through the year. The average net
borrowings, excluding IFRS 16 lease liabilities, during the year were £252.1m
(2021: £147.6m).
Taxation
The Group's underlying effective tax rate decreased to 22% (2021(1): 24%),
largely due to the change in the profit mix of where the Group is subject to
tax. Cash tax paid in the year of £5.9m (2021: £15.9m) was a decrease of
£10.0m over the prior year and was mainly attributable to a delay in paying
the estimated US tax charge for 2022. The Group was awaiting a possible US law
change on the timing of deductions for research and development expenditure
which has not materialised. As such, the Group will pay its estimated US tax
charge of £17m in April 2023. Further details on tax are set out in note 12
of the consolidated financial statements.
Non-underlying items
The items below have been excluded from the underlying results and further
details of non-underlying items are included in note 9 to the financial
statements. The total pre-tax non-underlying items in the year increased to
£37.2m (2021(1): £12.1m), due to the start of the ERP implementation
project, exceptional historic contract dispute costs and the amortisation of
intangible assets acquired with RECON in 2021.
2022 2021(1)
£m £m
ERP implementation costs 6.3 -
Goodwill impairment 12.5 -
Exceptional restructuring costs 5.3 7.3
Exceptional historic contract dispute 3.5 -
Claims related to closed business 2.5 -
Impairment costs 0.3 -
Contingent consideration: additional amounts provided 0.1 1.3
Change in fair value of contingent consideration (0.7) -
Acquisition costs 0.2 0.5
Loss on disposal of operations - 0.5
Amortisation of acquired intangible assets 10.3 2.6
Amortisation of joint venture acquired intangibles 1.2 0.6
Contingent consideration received (0.7) (0.7)
Total non-underlying items in operating profit 40.8 12.1
Non-underlying items in finance income (3.6) -
Total non-underlying items before taxation 37.2 12.1
Non-underlying taxation (9.0) (7.0)
Total non-underlying items 28.2 5.1
1 Restated for prior period accounting error resulting from
the financial reporting fraud at Austral and prior year measurement
adjustments in respect of business combinations as detailed in note 3 to the
consolidated financial statements
Non-underlying items in operating profit
The Group has commenced a strategic project to implement a new cloud computing
enterprise resource planning (ERP) system across the Group. As this is a
complex implementation, project costs are expected to be incurred over the
next five years. Non-underlying ERP costs of £6.3m include only costs
relating directly to the implementation, including external consultancy costs
and the cost of the dedicated implementation team. Non-underlying costs does
not include operational post-deployment costs such as licence costs for
businesses that have transitioned.
The goodwill impairment of £12.5m relates mainly to Austral (£7.7m) due to
uncertainty over the future profitability of the business, following the
discovery of the financial reporting fraud and Sweden (£4.5m); due to a
downward revision to the medium-term forecast, forward projections did not
fully support the carrying value of the goodwill.
Exceptional restructuring costs of £5.3m comprises £3.4m in the North
America Division, £1.8m in the Europe Division, a credit of £0.6m in AMEA
and £0.7m incurred centrally. In North America, the costs arose as a result
of a management and property reorganisation within the parts of the business
located in Texas. Costs include redundancy costs and property duplication
costs. In Europe, the costs related to the scheduled exit of Ivory Coast and
Morocco businesses, including asset impairments and redundancy costs. In AMEA,
the credit arose from restructuring costs provided for in prior years as costs
incurred were lower than originally anticipated.
The £3.5m exceptional historic contract charge relates to a provision made
for additional legal costs relating to the historical Avonmouth contract
dispute following a negotiation with insurers during 2022. In addition, a
£2.5m provision for a legal claim in respect of a closed business has been
recognised.
An impairment charge of £0.3m by the North-East Europe Business Unit is in
respect of trade receivables in Ukraine that are not expected to be recovered
due to the ongoing conflict.
Additional contingent consideration of £0.1m relates to the acquisition of
the Geo Instruments US business in 2017.
A credit of £0.7m arose from the reduction in the fair value of contingent
consideration payable in respect of the RECON and GKM acquisitions. The
contingent consideration paid in respect of RECON has been finalised and was
settled during the year.
Acquisition costs of £0.2m in the year comprised professional fees relating
to the NWF acquisition in Norway..
Non-underlying finance costs
During the year the Group entered into an interest rate derivative with the
purpose of hedging a highly probable forecast transaction. The forecast
transaction did not take place and as a result the amount arising from the
hedging instrument has been recognised in the income statement. This has
resulted in the recognition of £3.6m of finance income which has been
included in non-underlying as it is material in size and is not reflective of
the underlying finance income and costs of the Group.
Non-underlying taxation
A non-underlying tax credit of £9.0m (2021(1): £7.0m) includes the £4.7m
(2021(1): £1.3m) tax impact of the non-underlying loss. The remaining £4.3m
(2021(1): £5.7m) arises from the re-recognition of deferred tax assets in
Canada, as the de-recognition of the deferred tax asset was booked through the
non-underlying tax charge in prior years, the credit from the re-recognition
of the deferred tax asset has also been treated as a non-underlying item.
Earnings per share
Underlying diluted earnings per share increased by 20% to 100.7p (2021(1):
84.2p) driven by higher operating profit and the effective tax rate reduction
partially offset by the increase in finance costs. Statutory diluted earnings
per share was 62.4p (2021(1): 77.2p) which includes the impact of the
non-underlying items.
Dividend
Keller has an unbroken record of dividends, having consistently and materially
grown its dividend in the 28 years since listing which clearly demonstrates
the Group's ability to continue to prosper through economic downturns,
including both the global financial crisis and the pandemic. The Board is
committed to paying dividends through the cycle, and despite the increase in
debt, driven by growth in the year, the Board is recommending an increased
dividend for 2022 in keeping with its confidence in the future. The Board has
recommended a 5% increase in the final dividend which follows the 5% increase
in the interim dividend and marks the resumption of the Group's progressive
dividend policy. The final dividend of 24.5p (2021: 23.3p) will be paid on 23
June 2023 to shareholders on the register as at the close of business on 2
June 2023. This brings the 2022 total dividend payable to 37.7p (2021: 35.9p).
The 2022 dividend earnings cover, before non-underlying items, was 2.7x (2021:
2.3x).
Keller Group plc has distributable reserves of £122.1m at 31 December 2022
(2021: £122.9m) that are available to support the dividend policy, which
comfortably covers the proposed full-year dividend for 2022 of £17.7m. Keller
Group plc is a non-trading investment company that derives its profits from
dividends paid by subsidiary companies. The dividend policy is therefore
impacted by the performance of the Group, which is subject to the Group's
principal risks and uncertainties as well as the level of headroom on the
Group's borrowing facilities and future cash commitments and investment plans.
Free cash flow
The Group's free cash flow was an outflow of £33.8m (2021(1): inflow of
£62.5m) as a result of the increased working capital demands of the Group in
the year. The basis of deriving free cash flow is set out below.
Free cash flow
2022 2021(1)
£m £m
Underlying operating profit 108.6 88.5
Depreciation, amortisation and impairment 97.0 97.4
Underlying EBITDA 205.6 185.9
Non-cash items (1.1) -
Dividends from joint ventures - -
(Increase)/decrease in working capital (110.5) 1.2
(Decrease)/increase in provisions and retirement benefit liabilities (13.4) (7.8)
Net capital expenditure (73.5) (72.2)
Additions to right-of-use assets (24.8) (23.4)
Free cash flow before interest and tax (17.7) 83.7
Free cash flow before interest and tax to underlying operating profit (16%) 95%
Net interest paid (10.2) (5.3)
Cash tax paid (5.9) (15.9)
Free cash flow (33.8) 62.5
Dividends paid to shareholders (26.4) (25.9)
Purchase of own shares (1.2) (3.7)
Acquisitions (22.4) (31.8)
Business disposals 0.7 7.1
Non-underlying items (6.2) (3.9)
Fair value movements in net debt 2.6 -
Right-of-use assets/lease liability modifications (1.6) (4.0)
Foreign exchange movements (17.3) (1.1)
Movement in net debt (105.6) (0.8)
Opening statutory net debt (193.3) (192.5)
Closing statutory net debt (298.9) (193.3)
1 Restated for prior period accounting error resulting from
the financial reporting fraud at Austral, prior year measurement adjustments
in respect of business combinations and the reclassification of proceeds from
the sale of assets held for sale as detailed in note 3 to the consolidated
financial statements
Working capital
Net working capital increased by £110.5m (2021(1): decrease of £1.2m), the
net movement comprises £44.2m increase in inventories and a £110.0m increase
in trade and other receivables, offset by an increase in trade and other
payables of £43.7m. The increase in inventory mainly arose at Suncoast as we
bought steel strand upfront given the volatility in the market following the
Ukraine war, the subsequent slowdown in the residential market resulted in
levels being higher at year end. Organic revenue growth of 22% has driven a
significant increase in the trade and other receivables, which has been only
partly matched by the increase in trade and other payables. We have seen the
impact of the supply side disruption on the payment terms demanded by some
suppliers, particularly in the US.
A reduction in provisions and retirement benefit liabilities increased the
cash outflow in respect of working capital by £13.4m (2021: £7.8m). This
mainly comprises payments in respect of amounts previously provided for
contracts or legal claims. The 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 £73.5m (2021: £72.2m) was net of proceeds from
the sale of equipment of £8.2m (2021: £12.2m). The asset replacement ratio,
which is calculated by dividing gross capital expenditure, excluding sales
proceeds on disposal of items of property, plant and equipment and those
assets capitalised under IFRS 16, by the depreciation charge on owned
property, plant and equipment, was 115% (2021: 127%).
Acquisitions
On 1 May 2022, the Group acquired GKM Consultants Inc. for an initial cash
consideration of £3.4m, including a £0.1m working capital adjustment, and
conditional consideration with an initial fair value of £1.2m of contingent
consideration. The business is an instrumentation and monitoring provider
based in Quebec, Canada and is included in the North America Division.
On 15 November 2022, the Group acquired Nordwest Fundamentering AS for cash
consideration of £5.8m and deferred consideration of £0.5m. Nordwest
Fundamentering is a small specialist geotechnical contractor based in Norway
and is included in the Europe Division.
As noted above, the accounting for the 2021 RECON and Subterranean
acquisitions was finalised during 2022, giving rise to prior period
measurement adjustments which are set out in note 3 to the consolidated
financial statements.
Deferred and contingent consideration in respect of prior period acquisitions
of £12.4m was paid in the year.
Financing facilities and net debt
The Group's total net debt of £298.9m (2021: £193.3m) comprises loans and
borrowings and related derivatives of £319.0m (2021: £200.6m), lease
liabilities of £81.0m (2021: £75.4m) net of cash and cash equivalents of
£101.1m (2021: £82.7m). The Group's term debt and committed facilities
principally comprise a US$75m US private placement repayable in December 2024
and a £375m multi-currency syndicated revolving credit facility, which
matures in November 2025. In addition, in November 2022, the Group increased
committed borrowing facilities by agreeing a US$115m bilateral term loan
facility, expiring in November 2024. At the year end, the Group had undrawn
committed and uncommitted borrowing facilities totalling £273.8m (2021:
£291.9m).
The most significant covenants in respect of the main borrowing facilities
relate to the ratio of net debt to underlying EBITDA, underlying EBITDA
interest cover and the Group's net worth. The covenants are required to be
tested at the half year and the year end. The Group operates comfortably
within all of its covenant limits. Net debt to underlying EBITDA leverage,
calculated excluding the impact of IFRS 16, was 1.2x (2021: 0.8x), well within
the covenant limit of 3.0x and within the Group's leverage target of between
0.5x-1.5x. Calculated on a statutory basis, including the impact of IFRS 16,
net debt to EBITDA leverage was 1.5x at 31 December (2021: 1.0x). Underlying
EBITDA, excluding the impact of IFRS 16, to net finance charges was 15.7x
(2021: 29.5x), well above the limit of 4.0x.
On an IFRS 16 basis, year-end gearing, defined as statutory net debt divided
by net assets, was 60% (2021: 44%).
The average month-end net debt during 2022, excluding IFRS 16 lease
liabilities, was £252.1m (2021: £147.6m). The Group had no material
discounting or factoring in place during the year. Given the relatively low
value and short-term nature of the majority of the Group's projects, the level
of advance payments is typically not significant, although we do look to
negotiate advance payments on larger projects such as NEOM.
At 31 December 2022 the Group had drawn upon uncommitted overdraft facilities
of £6.9m (2021: £0.9m) and had drawn £190.6m of bank guarantee facilities
(2021: £150.4m).
Retirement benefits
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 £2.8m a
year with effect from 1 January 2022 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 2022 year-end IAS 19 valuation of the UK scheme showed assets of
£42.2m, liabilities of £39.0m and a pre-tax surplus of £3.2m before an
IFRIC 14 adjustment to reflect the minimum funding requirement for the scheme,
which adjusts the closing position to a deficit of £4.1m.
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 £13.2m at 31 December (2021: £15.9m).
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 £3.5m at 31 December 2022 (2021:
£3.0m).
Currencies
The Group is exposed to both translational and, to a lesser extent,
transactional foreign currency gains and losses through movements in foreign
exchange rates as a result of its global operations. The Group's primary
currency exposures are US dollar, Canadian dollar, euro, Singapore dollar and
Australian dollar.
As the Group reports in sterling and conducts the majority of its business in
other currencies, movements in exchange rates can result in significant
currency translation gains or losses. This has an effect on the primary
statements and associated balance sheet metrics, such as net debt and working
capital.
A large proportion of the Group's revenues are matched with corresponding
operating costs in the same currency. The impacts of transactional foreign
exchange gains or losses are consequently mitigated and are recognised in the
period in which they arise.
The following exchange rates applied during the current and prior year:
2022 2021
Closing Average Closing Average
USD 1.21 1.24 1.35 1.38
CAD 1.63 1.61 1.71 1.72
EUR 1.12 1.17 1.19 1.16
SGD 1.62 1.70 1.82 1.85
AUD 1.76 1.78 1.86 1.83
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 2022 was 14.9% (2021(1): 13.9%).
Consolidated income statement
For the year ended 31 December 2022
2022 2021 (Restated(1))
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
items items
(note 9) (note 9)
Note £m £m £m £m £m £m
Revenue 4,5 2,944.6 - 2,944.6 2,222.5 - 2,222.5
Operating costs 7 (2,837.5) (30.0) (2,867.5) (2,134.4) (9.6) (2,144.0)
Amortisation of acquired intangible assets - (10.3) (10.3) - (2.6) (2.6)
Other operating income - 0.7 0.7 - 0.7 0.7
Share of post-tax results of joint ventures 17 1.5 (1.2) 0.3 0.4 (0.6) (0.2)
Operating profit/(loss) 4 108.6 (40.8) 67.8 88.5 (12.1) 76.4
Finance income 10 0.5 3.6 4.1 0.4 - 0.4
Finance costs 11 (15.6) - (15.6) (9.3) - (9.3)
Profit/(loss) before taxation 93.5 (37.2) 56.3 79.6 (12.1) 67.5
Taxation 12 (20.3) 9.0 (11.3) (18.9) 7.0 (11.9)
Profit/(loss) for the year 73.2 (28.2) 45.0 60.7 (5.1) 55.6
Attributable to:
Equity holders of the parent 74.2 (28.2) 46.0 61.6 (5.1) 56.5
Non-controlling interests 34 (1.0) - (1.0) (0.9) - (0.9)
73.2 (28.2) 45.0 60.7 (5.1) 55.6
Earnings per share
Basic 14 102.1p 63.3p 85.2p 78.1p
Diluted 14 100.7p 62.4p 84.2p 77.2p
1 The 31 December 2021 consolidated income statement has been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
(Restated(1))
Note £m £m
Profit for the year 45.0 55.6
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations 46.3 (3.8)
Exchange movements on translation of non-controlling interests - -
Transfer of translation reserve on disposal of subsidiaries - (0.4)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 33 2.8 1.2
Tax on remeasurements of defined benefit pension schemes 12 (0.6) (0.2)
Other comprehensive income/(loss) for the year, net of tax 48.5 (3.2)
Total comprehensive income for the year 93.5 52.4
Attributable to:
Equity holders of the parent 94.0 53.3
Non-controlling interests (0.5) (0.9)
93.5 52.4
1 The 31 December 2021 consolidated statement of comprehensive
income has been restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the consolidated
financial statements.
Consolidated balance sheet
As at 31 December 2022
At 31 December At 31 December At 1 January
2022 2021 2021
(Restated(2)) (Restated(1))
Note £m £m £m
Assets
Non-current assets
Goodwill and intangible assets 15 137.2 139.5 118.8
Property, plant and equipment 16 486.5 443.4 434.9
Investments in joint ventures 17 4.4 4.0 4.4
Deferred tax assets 12 15.1 8.8 8.3
Other assets 18 60.8 88.5 60.3
704.0 684.2 626.7
Current assets
Inventories 19 124.4 72.1 60.1
Trade and other receivables 20 764.6 585.5 495.4
Current tax assets 5.0 8.9 2.1
Cash and cash equivalents 21 101.1 82.7 66.3
Assets held for sale 22 2.8 3.4 8.7
997.9 752.6 632.6
Total assets 4 1,701.9 1,436.8 1,259.3
Liabilities
Current liabilities
Loans and borrowings 26 (34.2) (29.8) (67.0)
Current tax liabilities (52.5) (17.9) (17.1)
Trade and other payables 23 (585.6) (508.0) (381.9)
Provisions 24 (52.7) (53.8) (54.4)
(725.0) (609.5) (520.4)
Non-current liabilities
Loans and borrowings 26 (365.8) (246.2) (191.8)
Retirement benefit liabilities 33 (20.8) (25.7) (31.1)
Deferred tax liabilities 12 (5.3) (28.3) (21.3)
Provisions 24 (66.9) (77.9) (71.4)
Other liabilities 25 (21.3) (21.2) (22.0)
(480.1) (399.3) (337.6)
Total liabilities 4 (1,205.1) (1,008.8) (858.0)
Net assets 4 496.8 428.0 401.3
Equity
Share capital 28 7.3 7.3 7.3
Share premium account 38.1 38.1 38.1
Capital redemption reserve 28 7.6 7.6 7.6
Translation reserve 57.9 12.1 16.3
Other reserve 28 56.9 56.9 56.9
Retained earnings 326.7 303.2 271.4
Equity attributable to equity holders of the parent 494.5 425.2 397.6
Non-controlling interests 34 2.3 2.8 3.7
Total equity 496.8 428.0 401.3
1 The 1 January 2021 consolidated balance sheet has been
restated in respect of the correction of prior period errors arising from the
fraud at Austral as outlined in note 3 to the consolidated financial
statements.
2 The 31 December 2021 consolidated balance sheet has been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
These consolidated financial statements were approved by the Board of
Directors and authorised for issue on 6 March 2023.
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 2022
Capital Attributable Non-
Share Share redemption Other Hedging to equity controlling
capital premium reserve Translation reserve reserve Retained holders of interests Total
(note 28) account (note 28) reserve (note 28) (note 26) earnings the parent (note 34) equity
£m £m £m £m £m £m £m £m £m £m
At 1 January 2021 (as presented) 7.3 38.1 7.6 16.3 56.9 - 280.1 406.3 3.7 410.0
Prior year adjustment - - - - - - (8.7) (8.7) - (8.7)
At 1 January 2021 (restated(1)) 7.3 38.1 7.6 16.3 56.9 - 271.4 397.6 3.7 401.3
Profit/(loss) for the year (restated(1)) - - - - - - 56.5 56.5 (0.9) 55.6
Other comprehensive income
Exchange movements on translation of foreign operations (restated(1)) - - - (3.8) - - - (3.8) - (3.8)
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 (restated(1)) - - - (4.2) - - 1.0 (3.2) - (3.2)
Total comprehensive (loss)/ income for the year (restated(1)) - - - (4.2) - - 57.5 53.3 (0.9) 52.4
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 (restated(1)) 7.3 38.1 7.6 12.1 56.9 - 303.2 425.2 2.8 428.0
Profit/(loss) for the year - - - - - - 46.0 46.0 (1.0) 45.0
Other comprehensive income
Exchange movements on translation of foreign operations - - - 45.8 - - - 45.8 0.5 46.3
Remeasurements of defined benefit pension schemes - - - - - - 2.8 2.8 - 2.8
Tax on remeasurements of defined benefit pension schemes - - - - - - (0.6) (0.6) - (0.6)
Other comprehensive (loss)/income for the year, net of tax - - - 45.8 - - 2.2 48.0 0.5 48.5
Total comprehensive (loss)/ income for the year - - - 45.8 - - 48.2 94.0 (0.5) 93.5
Dividends - - - - - - (26.4) (26.4) - (26.4)
Purchase of own shares for ESOP trust - - - - - - (1.2) (1.2) - (1.2)
Share-based payments - - - - - - 2.9 2.9 - 2.9
At 31 December 2022 7.3 38.1 7.6 57.9 56.9 - 326.7 494.5 2.3 496.8
1 Retained earnings as at 1 January 2021 have been
restated in respect of the correction of prior period errors arising from the
fraud at Austral, as outlined in note 3 to the consolidated financial
statements. Retained earnings as at 31 December 2021 have been restated in
respect of the correction of prior period errors arising from the fraud at
Austral and prior period business combination measurement adjustments, as
outlined in notes 3 and 6 to the consolidated financial statements
Consolidated cash flow statement
For the year ended 31 December 2022
2022 2021 (Restated(1))
Note £m £m
Cash flows from operating activities
Profit before taxation 56.3 67.5
Non-underlying items 9 40.8 12.1
Finance income 10 (4.1) (0.4)
Finance costs 11 15.6 9.3
Underlying operating profit 4 108.6 88.5
Depreciation/impairment of property, plant and equipment 16 96.6 90.6
Amortisation of intangible assets 15 0.4 0.6
Share of underlying post-tax results of joint ventures 17 (1.5) (0.4)
Profit on sale of property, plant and equipment (3.3) (1.8)
Other non-cash movements (including charge for share-based payments) 3.7 8.3
Foreign exchange losses - 0.1
Operating cash flows before movements in working capital and other underlying 204.5 185.9
items
(Increase)/decrease in inventories (44.2) (18.3)
(Increase)/decrease in trade and other receivables (110.0) (102.5)
Increase/(decrease) in trade and other payables 43.7 121.4
(Decrease)/increase in provisions, retirement benefit and other non-current (13.4) (7.8)
liabilities
Cash generated from operations before non-underlying items 80.6 178.7
Cash outflows from non-underlying items: ERP costs (5.4) -
Cash outflows from non-underlying items: restructuring costs (0.6) (3.9)
Cash outflows from non-underlying items: acquisition costs (0.2) (0.5)
Cash generated from operations 74.4 174.3
Interest paid (10.1) (2.0)
Interest element of lease rental payments (3.6) (3.1)
Income tax paid (5.9) (15.9)
Net cash inflow from operating activities 54.8 153.3
Cash flows from investing activities
Interest received 4.0 0.4
Proceeds from sale of property, plant and equipment 8.2 12.2
Proceeds on disposal of businesses 6 0.7 7.1
Acquisition of businesses, net of cash acquired 6 (20.2) (29.9)
Acquisition of property, plant and equipment 16 (81.6) (84.0)
Acquisition of other intangible assets 15 (0.1) (0.4)
Net cash outflow from investing activities (89.0) (94.6)
Cash flows from financing activities
Increase in borrowings 99.3 91.2
Cash flows from derivative instruments 0.2 -
Repayment of borrowings (1.4) (69.4)
Payment of lease liabilities (29.5) (29.8)
Purchase of own shares for ESOP trust (1.2) (3.7)
Dividends paid 13 (26.4) (25.9)
Net cash outflow from financing activities 41.0 (37.6)
Net increase/(decrease) in cash and cash equivalents 6.8 21.1
Cash and cash equivalents at beginning of year 81.8 61.6
Effect of exchange rate movements 5.6 (0.9)
Cash and cash equivalents at end of year 21 94.2 81.8
1 Operating cash flows before movements in working capital and
the movements in trade and other receivables and trade and other payables for
the year ended 31 December 2021 have been restated in respect of the
correction of prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in notes 3
and 6 to the consolidated financial statements. Cash generated from operations
and proceeds from the disposal of property, plant and equipment have been
restated to reclassify cash received on the disposal of assets held from sale.
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 2022 were
authorised for issue in accordance with the resolution of the Directors on 6
March 2023.
Keller Group plc (the 'company') is a public limited company, incorporated and
domiciled in the United Kingdom, whose shares are publicly traded on the
London Stock Exchange. The registered office is located at 2 Kingdom Street,
London W2 6BD. The Group is principally engaged in the provision of specialist
geotechnical services.
2 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.
The financial information for the year ended 31 December 2021 does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The independent auditors' report on the full financial
statements for the year ended 31 December 2021 was unqualified and did not
contain an emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006. This preliminary announcement does not constitute the
Group's full financial statements for the year ended 31 December 2022.
The Group's full financial statements will be approved by the Board of
Directors and reported on by the auditors in March 2023. Accordingly, the
financial information for 2022 is presented unaudited in the preliminary
announcement.
The consolidated financial statements have been prepared on an historical cost
basis, except for derivative financial instruments that have been measured at
fair value. The carrying values of recognised assets and liabilities that are
designated as hedged items in fair value hedges that would otherwise be
carried at amortised cost are adjusted to recognise changes in the fair values
attributable to the risks that are being hedged in effective hedge
relationships. The consolidated financial statements are presented in pounds
sterling and all values are rounded to the nearest hundred thousand, expressed
in millions to one decimal point, except when otherwise indicated.
Prior year restatements
Prior year financial reporting fraud
Following an internal management operational review at the Austral business in
Australia, the Group has identified a historical overstatement of revenue and
profit relating to the years ended 31 December 2021, 31 December 2020 and 31
December 2019 due to a financial reporting fraud. This reporting error has
been corrected by restating the prior year comparatives, reducing contract
assets and prepayments (included with trade and other receivables) by £8.1m
and £0.3m respectively, and increasing other payables (included within trade
and other payables) by £2.3m at 31 December 2021. Contract assets were
reduced by £6.5m and other payables were increased by £0.2m as at 1 January
2021.
The impact on the consolidated income statement for the year ended 31 December
2021 is a decrease in revenue of £1.9m and an increase in operating costs of
£2.4m, resulting in a decrease in operating profit and profit before tax of
£4.3m.
The lower profit before tax recognised within the consolidated Australia group
of entities as a result, has impacted the recognition of deferred tax assets
recognised in respect of tax losses carried forward as the asset is no longer
regarded as recoverable. The deferred tax asset at 31 December 2021 is reduced
by £4.2m and the deferred tax asset at 1 January 2021 is reduced by £2.0m.
The deferred tax charge for the year ended 31 December 2021 is increased by
£2.4m.
Net assets are £14.9m lower than previously reported at 31 December 2021 and
£8.7m lower at 1 January 2021. The consolidated cash flow statement has been
restated to show the change in profit before tax and the change in trade and
other receivables and trade and other payables. There is no impact on the cash
generated from operations for the year ended 31 December 2021.
The restatement decreased diluted statutory earnings per share from 86.1p to
77.2p and diluted underlying earnings per share from 88.4p per share to 84.2p
per share for the year ended 31 December 2021. The basic statutory earnings
per share was reduced from 89.5p to 85.2p. Notes 4, 5, 7, 9, 12, 14, 15, 20,
23 and the alternative performance measures set out on pages x have also
been restated, where relevant, to incorporate these changes.
A reconciliation of the changes made to the restated financial results for the
year ended 31 December 2021 are set out in detail in note 3.
Prior year measurement period adjustment
In the year to 31 December 2021, the Group acquired RECON Services Inc. and
the trade and assets of Subterranean (Manitoba) Ltd. At 31 December 2021, the
purchase price allocation for both business combinations was prepared on a
provisional basis in accordance with IFRS 3 'Business Combinations'. Under
IFRS 3 'Business Combinations' there is a measurement period of no longer than
12 months in which to finalise the valuation of the acquired assets and
liabilities.
During the measurement period, the Group finalised the valuation of intangible
assets recognised on acquisition of RECON in respect of the tradename and
customer relationships and the associated deferred tax liabilities. The Group
also finalised the valuation of trade receivables acquired with Subterranean.
The impact of the measurement period adjustments has been applied
retrospectively, meaning that the results and financial position for the year
to 31 December 2021 have been restated. The impact of these adjustments on the
comparatives for the year ended 31 December 2021 is included in note 3 and
further detail is set out in note 6.
Going concern
At 31 December 2022, the Group had undrawn committed and uncommitted borrowing
facilities totalling £273.8m, comprising £113.6m of the unutilised portion
of the revolving credit facility, £114.1m of other undrawn committed
borrowing facilities and undrawn uncommitted borrowing facilities of £46.1m,
as well as cash and cash equivalents of £101.1m. At 31 December 2022, the
Group's net debt to underlying EBITDA ratio (calculated on an IAS 17 covenant
basis) was 1.2x, well within the limit of 3.0x.
The Group has prepared a forecast of financial projections for the three-year
period to 31 December 2025. The forecast underpins the going concern
assessment which has been made for the period through to 31 March 2024, , a
period of at least 12 months from when the financial statements are authorised
for issue and aligning with the period in which the Group's banking covenants
are tested. The base case reflects the assumptions made by the Group with
respect to increased market penetration including key project wins, organic
growth, a focus on cost reduction, and mobilisation and delivery of the NEOM
project. The forecast shows significant headroom and supports the position
that the Group can operate within its available banking facilities and
covenants throughout this period.
For the going concern assessment, management ran a series of downside
scenarios over the base case forecast to assess covenant headroom against
available funding facilities. This process involved constructing scenarios to
reflect the Group's current assessment of its principal risks, including those
that would threaten its business model, future performance, solvency or
liquidity. The principal risks and uncertainties modelled by management align
with those disclosed within the 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 £42.9m over the period to 31
March 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.
The most extreme downside scenario modelled, included an aggregation of all
risks considered and showed a decrease in operating profit of 29.8% and an
increase in net debt of 45.2% against the Group's latest forecast profit and
cash flow projections for the review period up to 31 March 2024. The adjusted
projections within this scenario does not forecast 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
2024, a period of at least 12 months from when the financial statements are
authorised for issue. Accordingly, the consolidated financial statements are
prepared on a going concern basis.
Climate change
In preparing the consolidated financial statements, management has considered
the impact of climate change, particularly in the context of the risks
identified through our risk management processes including consideration of
the Task Force on Climate-related Disclosures (TCFD) framework. There has
been no material impact identified on the financial reporting judgements and
estimates. In particular, management considered the impact of climate change
in respect of the following areas:
· estimates of future cash flows used in impairment assessments of the
carrying value of goodwill;
· the useful economic life of plant, equipment and other intangible
assets; and
· going concern and viability of the Group over the next three years.
Whilst there is currently no medium-term impact expected from climate change,
management are aware of the variable risks arising from climate change and
will regularly assess these risks against judgement and estimates made in
preparation of the Group's financial statements.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The following applicable amendments became effective during the year to 31
December 2022:
· Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a
Contract'.
· Amendments to IAS 16 'Property, Plant and Equipment: Proceeds
before Intended Use'.
· IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for
derecognition of financial liabilities'.
These amendments have a limited impact on the consolidated financial
statements of the Group.
The Group has not early adopted any standards, interpretations or amendments
that have been issued but are not yet effective.
Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a Contract'
An onerous contract is a contract under which the unavoidable costs (ie, the
costs that the Group cannot avoid because it has the contract) of meeting the
obligations under the contract exceed the economic benefits expected to be
received under it. The amendments specify that when assessing whether a
contract is onerous or loss-making, an entity needs to include costs that
relate directly to a contract to provide goods or services including both
incremental costs (eg, the costs of direct labour and materials) and an
allocation of costs directly related to contract activities (eg, depreciation
of equipment used to fulfil the contract as well as costs of contract
management and supervision). General and administrative costs do not relate
directly to a contract and are excluded unless they are explicitly chargeable
to the counterparty under the contract. This amendment does not have an impact
on the consolidated financial statements of the Group as an allocation of
costs directly related to contract activities was previously included in the
unavoidable costs used in the costs to complete assessment for onerous
contracts and the Group does not include an allocation of general overheads.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds before Intended
Use'
The amendments prohibit entities from deducting from the cost of an item of
property, plant and equipment, any proceeds of the sale of items produced
while bringing that asset to the location and condition necessary for it to be
capable of operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of producing
those items, in profit or loss. These amendments had no impact on the
consolidated financial statements of the Group as there were no sales of such
items produced by property, plant and equipment made available for use on or
after the beginning of the earliest period presented.
IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for derecognition
of financial liabilities'
The amendment clarifies the fees that an entity includes when assessing
whether the terms of a new or modified financial liability are substantially
different from the terms of the original financial liability. These fees
include only those paid or received between the borrower and the lender,
including fees paid or received by either the borrower or lender on the
other's behalf. This amendment had no impact on the consolidated financial
statements of the Group as there were no modifications of the Group's
financial instruments during the period.
Basis of consolidation
The consolidated financial statements consolidate the accounts of the parent
and its subsidiary undertakings to 31 December each year. Subsidiaries are
entities controlled by the company. Control exists when the company has power
over an entity, exposure to variable returns from its involvement with the
entity and the ability to use its power over the entity to affect its returns.
Where subsidiary undertakings were acquired or sold during the year, the
accounts include the results for the part of the year for which they were
subsidiary undertakings using the acquisition method of accounting.
Intra-group balances, and any unrealised income and expense arising from
intra‑group transactions, are eliminated in preparing the consolidated
financial statements.
Joint operations
Where the Group undertakes contracts jointly with other parties, these are
accounted for as joint operations as defined by IFRS 11. In accordance with
IFRS 11, the Group accounts for its own share of assets, liabilities, revenues
and expenses measured according to the terms of the joint operations
agreement.
Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the joint
arrangement. The consolidated financial statements incorporate a share of the
results, assets and liabilities of joint ventures using the equity method of
accounting, whereby the investment is carried at cost plus post-acquisition
changes in the share of net assets of the joint venture, less any provision
for impairment. Losses in excess of the consolidated interest in joint
ventures are not recognised except where the Group has a constructive
commitment to make good those losses. The results of joint ventures acquired
or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date
of disposal, as appropriate.
Summary of 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 2022 2021
US dollar 1.24 1.38
Canadian dollar 1.61 1.72
Euro 1.17 1.16
Singapore dollar 1.70 1.85
Australian dollar 1.78 1.83
Year-end rates 2022 2021
US dollar 1.21 1.35
Canadian dollar 1.63 1.71
Euro 1.12 1.19
Singapore dollar 1.62 1.82
Australian dollar 1.76 1.86
Revenue from construction contracts
The Group's operations involve the provision of specialist geotechnical
services. The majority of the Group's revenue is derived from construction
contracts. Typically, the Group's construction contracts consist of one
performance obligation; however, for certain contracts (for example where
contracts involve separate phases or products that are not highly
interrelated) multiple performance obligations exist. Where multiple
performance obligations exist, total revenue is allocated to performance
obligations based on the relative standalone selling prices of each
performance obligation.
For each contract, revenue is the amount that is expected to be received from
the customer. Revenue is typically invoiced in stages during the contracts,
however smaller contracts are usually invoiced on completion. Variable
consideration and contract modifications are assessed on a
contract-by-contract basis, according to the terms, facts and circumstances of
the project. Variable consideration is recognised only to the extent that it
is highly probable that there will not be a significant reversal. The effects
of contract modifications 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 12.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities, and their carrying amounts
for financial reporting purposes at the reporting date.
Deferred tax is recognised on temporary differences in line with IAS 12
'Income Taxes'. Deferred tax assets are recognised when it is considered
likely that they will be utilised against future taxable profits or deferred
tax liabilities.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited to the income statement, except when it relates to items
charged or credited directly to equity or to OCI, in which case the related
deferred tax is also dealt with in equity or in OCI.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Interest income and expense
All interest income and expense is recognised in the income statement on an
accruals basis, using the effective interest method.
Employee benefit costs
The Group operates a number of defined benefit pension schemes, and also makes
payments into defined contribution schemes.
The liability in respect of defined benefit schemes is the present value of
the defined benefit obligations at the balance sheet date, calculated using
the projected unit credit method, less the fair value of the schemes' assets
where applicable. The Group recognises the administration costs, current
service cost and interest on scheme net liabilities in the income statement,
and remeasurements of defined benefit plans in OCI in full in the period in
which they occur. Any surplus resulting from this calculation is limited to
the present value of any economic benefits available in the form of refunds
from the plans or reductions in future contributions to the plans. Where there
is no legal right to a refund from the plan, the liability is calculated as
the minimum funding requirement to the plan that exists at the balance sheet
date.
The Group also has long service arrangements in certain overseas countries.
These are accounted for in accordance with IAS 19 'Employee Benefits' and
accounting follows the same principles as for a defined benefit scheme.
Payments to defined contribution schemes are accounted for on an accruals
basis.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any. Further details are
set out in note 16 for impairments recognised in the year. Subsequent
expenditure on property, plant and equipment is capitalised when it enhances
or improves the condition of the item of property, plant and equipment beyond
its original assessed standard of performance. Maintenance expenditure is
expensed as incurred.
Depreciation
Depreciation is provided to write off the cost less the estimated residual
value of property, plant and equipment using the straight-line method by
reference to their estimated useful lives as follows:
Buildings 50 years
Plant and equipment 3 to 12 years
Motor vehicles 4 years
Computers 3 years
Depreciation is not provided for on freehold land.
An item of property, plant and equipment is derecognised upon disposal (ie at
the date the recipient obtains control) or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the
income statement when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property,
plant and equipment are reviewed at each financial year end and adjusted where
appropriate.
Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as lessee
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets (less than
£3,000). The Group recognises lease liabilities to make payments and
right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(ie the date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease term and
estimated useful lives as follows:
Land and buildings 3 to 15 years
Plant and equipment 2 to 8 years
Motor vehicles 3 to 5 years
Right-of-use assets are tested for impairment in accordance with IAS 36
'Impairment of Assets'.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments less any lease incentives
receivable, variable lease payments that depend on an index or a rate, and
amounts expected to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase option reasonably
certain to be exercised by the Group and payments of penalties for terminating
a lease, if the lease term reflects the Group exercising the option to
terminate. Variable lease payments that do not depend on an index or a rate
are recognised as an expense in the period in which the event or condition
that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date, if the interest
rate implicit in the lease is not readily determinable. The incremental
borrowing rate applied to each lease is determined by taking into account the
risk-free rate of the country where the asset under lease is located, matched
to the term of the lease and adjusted for factors such as the credit risk
profile of the lessee. Incremental borrowing rates applied to individual
leases range from 1.07% to 16.78%.
After the commencement date, the amount of lease liabilities is increased to
reflect the addition of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in lease payments (eg
changes to future payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an option to
purchase the underlying asset. The Group's lease liabilities are included in
interest-bearing loans and borrowings. Refer to note 26 for details.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases of plant, machinery and vehicles (ie those leases that have a lease
term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition
exemption to leases of office equipment that are considered of low asset value
(below £3,000). Lease payments on short-term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over the lease
term.
Business combinations
Business combinations are accounted for using the acquisition method as at the
acquisition date, which is the date on which control is transferred to the
Group. Control is the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities. In assessing control,
the Group takes into consideration potential voting rights that currently are
exercisable. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at the fair value at the
acquisition date. Acquisition-related costs are expensed as incurred and
included in administrative expenses. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. The excess of
cost of an acquisition over the fair value of the Group's share of the
identifiable net assets acquired, including assets identified as intangibles
on acquisition, is recorded as goodwill.
The results of subsidiaries which have been disposed are included up to the
effective date of disposal.
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of
the consideration transferred. After initial recognition, goodwill is measured
at cost less any accumulated impairment losses. Goodwill is reviewed for
impairment annually and whenever there is an indication that the goodwill may
be impaired in accordance with IAS 36, any impairment losses are recognised
immediately in the income statement. Goodwill arising prior to 1 January 1998
was taken directly to equity in the year in which it arose. Such goodwill has
not been reinstated on the balance sheet. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group's cash-generating units (CGUs) that are
expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is measured
based on the relative values of the disposed operation and the portion of the
CGU retained.
Other intangible assets
Intangible assets, other than goodwill, include purchased licences, software
(including internally generated software), customer relationships, customer
contracts and trade names. Intangible assets are capitalised at cost and
amortised on a straight-line basis over their useful economic lives from the
date that they are available for use and are stated at cost less accumulated
amortisation and impairment losses. The estimated useful economic lives are as
follows:
Licences 1 to 4 years
Software 3 to 7 years
Patents 2 to 7 years
Customer relationships 5 to 7 years
Customer contracts 1 to 2 years
Trade names 5 to 7 years
Software-as-a-service arrangements
The Group's current SaaS arrangements are arrangements in which the Group does
not control the underlying software used in the arrangement.
Software development costs incurred to configure or customise application
software provided under a cloud computing arrangement and associated fees are
recognised as operating expenses as and when the services are received where
the costs represent a distinct service provided to the Group.
When such costs incurred do not provide a distinct service, the costs are
recognised as expenses over the duration of the SaaS contract. The Group
capitalises other software costs when the requirements of IAS 38 'Intangible
Assets' are satisfied, including configuration and customisation costs which
are distinct and within the control of the Group. Such software costs are
capitalised and carried at cost less any accumulated amortisation and
impairment, and amortised on a straight-line basis over the period
which the developed software is expected to be used.
Amortisation commences when the development is complete and the asset is
available for use and is included in the operating costs item of the
consolidated income statement. The amortisation is reviewed at least at the
end of each reporting period and any changes are treated as changes in
accounting estimates.
Impairment of assets excluding goodwill
The carrying values of property, plant and equipment, right-of-use assets and
other intangibles are reviewed for impairment when events or changes in
circumstances indicate the carrying value may be impaired. If any such
indication exists, the recoverable amount, being the lower of their carrying
amount and fair value less costs to sell, of the asset is estimated in order
to determine the extent of impairment loss.
Capital work in progress
Capital work in progress represents expenditure on property, plant and
equipment in the course of construction. Transfers are made to other property,
plant and equipment categories when the assets are available for use.
Inventories
Inventories are measured at the lower of cost and estimated net realisable
value with allowance made for obsolete or slow-moving items. Cost comprises
direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition.
Write-downs to net realisable value are made for slow-moving, damaged or
obsolete items based on evaluations made at the local level by reference to
frequency of stock turnover or specific factors affecting the items concerned.
Assets held for sale
Assets are classified as held for sale if their carrying amount will be
recovered by sale rather than by continuing use in the business. Assets held
for sale are measured at the lower of their carrying amount and fair value
less costs to sell, with reference to comparable market transactions. Assets
that are classified as held for sale are not depreciated.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The principal financial assets and liabilities of the Group
are as follows:
(a) Trade receivables and trade payables
Trade receivables are initially recorded at fair value and subsequently
measured at cost and reduced by allowances for estimated irrecoverable
amounts.
Trade receivables and contract assets are stated net of expected credit losses
(ECLs). At each reporting date, the Group evaluates the estimated
recoverability of trade receivables and contract assets and records allowances
for ECLs based on experience.
The Group applies the simplified approach to measurement of ECLs in respect of
trade receivables, which requires expected lifetime losses to be recognised
from initial recognition of the receivable. Immediately after an individual
trade receivable or contract asset is assessed to be unlikely to be recovered,
an impairment is recognised as the difference between the carrying amount of
the receivable and the present value of estimated future cash flows. Customer
specific factors are considered when identifying impairments, which can
include the geographic location and credit rating of a customer.
Where there are no specific concerns over recovery, other than the increasing
age of a trade receivable or contract asset balance past payment terms, the
Group uses a provision matrix, where provision rates are based on days past
due. The provision matrix used reflects estimates based on past experience,
current economic factors and consideration of forward looking estimates of
economic conditions. Generally, trade receivables are written-off completely
if past due for more than 180 days. Default is defined as the point where
there is no further legal address available for the Group to recover the
receivable amount.
The information about the ECLs on the Group's trade receivables and contract
assets is disclosed in note 20.
Trade payables that are not interest bearing are initially recognised at fair
value and carried at amortised cost.
(b) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on
hand and short-term deposits with a maturity of three months or less. For the
purpose of the consolidated statement of cash flows, cash and cash equivalents
consist of cash and short-term deposits, as defined above, net of outstanding
bank overdrafts as they are considered an integral part of the Group's cash
management. Bank overdrafts are included within financial liabilities in
current liabilities in the balance sheet.
(c) Bank and other borrowings
Interest-bearing bank and other borrowings are recorded at the fair value of
the proceeds received, net of direct issue costs. Subsequent to initial
recognition, borrowings are stated at amortised cost, where applicable.
Bank or other borrowings are derecognised when the obligation under the
liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in the consolidated income
statement.
Financial assets and financial liabilities are offset and the net amount is
reported in the consolidated balance sheet if there is a currently enforceable
legal right to offset the recognised amounts and there is an intention to
settle on a net basis, i.e. to realise the assets and settle the liabilities
simultaneously.
(d) Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to manage interest rate risk
and to hedge fluctuations in foreign currencies in accordance with its risk
management policy. In cases where these derivative instruments are
significant, hedge accounting is applied as described below. The Group does
not use derivative financial instruments for speculative purposes.
Derivatives are initially recognised in the balance sheet at fair value on the
date the derivative contract is entered into and are subsequently remeasured
at reporting periods to their fair values. Derivatives are carried as
financial assets when the fair value is positive and as financial liabilities
when the fair value is negative.
Changes in the fair value of the effective portion of derivatives that are
designated and qualify as cash flow hedges are recognised in other
comprehensive income (OCI). Changes in the fair value of the ineffective
portion of cash flow hedges are recognised in the income statement. Amounts
originally recognised in OCI are transferred to the income statement when the
underlying transaction occurs or if the transaction results in the recognition
of a non-financial asset or liability, the amount accumulated in equity is
included in the initial cost or carrying amount of the hedged asset or
liability.
Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the income statement as they
arise.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting.
At that time, any cumulative gain or loss on the hedging instrument recognised
in OCI is retained in equity until the hedged transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss
recognised in OCI is transferred to the income statement in the period.
For the purpose of hedge accounting, hedges are classified as:
● Cash flow hedges when hedging the exposure or variability
in cash flows that is either attributable to a particular risk associated with
a recognised asset or liability or a highly probable transaction.
● Fair value hedges when hedging the exposure to changes in
the fair value of a recognised asset or liability.
● Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which it wishes to apply hedge accounting
and the risk management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged
item, the nature of the risk being hedged and how the Group will assess
whether the hedging relationship meets the hedge effectiveness requirements
(including the analysis of sources of hedge ineffectiveness and how the hedge
ratio is determined). A hedging relationship qualifies for hedge accounting if
it meets all of the following effectiveness requirements:
● There is 'an economic relationship' between the hedged
item and the hedging instrument.
● The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
● The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group actually
hedges and the quantity of the hedging instrument that the Group actually uses
to hedge that quantity of hedged item.
Provisions
Provisions have been made for employee-related liabilities, restructuring
commitments, onerous contracts, insured liabilities and legal claims, and
other property-related commitments. These are recognised as management's best
estimate of the expenditure required to settle the Group's liability at the
reporting date.
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event and where it is
probable that an outflow will be required to settle the obligation and the
amount of the obligation can be estimated reliably. If the effect is material,
expected future cash flows are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to unwinding the
discount is recognised as a finance cost. Details of provisions are set out in
note 24.
Provisions for insured liabilities and legal claims include the full estimated
value of the liability. Any related insurance reimbursement asset that is
virtually certain to be received is separately presented gross within trade
and other receivables or other non-current assets on the consolidated balance
sheet.
Contingent liabilities
Contingent liabilities are possible obligations of the Group of which the
timing and amount are subject to significant uncertainty. Contingent
liabilities are not recognised in the consolidated balance sheet, unless they
are assumed by the Group as part of a business combination. They are however
disclosed, unless they are considered to be remote. If a contingent liability
becomes probable and the amount can be reliably measured it is no longer
treated as contingent and recognised as a liability on the balance sheet.
Contingent assets
Contingent assets are possible assets of the Group of which the timing and
amount are subject to significant uncertainty. Contingent assets are not
recognised in the consolidated balance sheet. They are however disclosed, when
they are considered to be probable. A contingent asset is recognised in the
financial statements when the inflow of economic benefits is virtually
certain.
Share-based payments
The Group operates a number of equity-settled executive and employee share
plans. For all grants of share options and awards, the fair value of the
employee services received in exchange for the grant of share options is
recognised as an expense, calculated using appropriate option pricing models.
The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted, excluding the impact of
any non-market vesting conditions, with a corresponding increase in retained
earnings. The charge is adjusted to reflect expected actual levels of options
vesting due to non-market conditions.
Shares purchased and held in trust in connection with the Group's share
schemes are deducted from retained earnings. No gain or loss is recognised
within the income statement on the market value of these shares compared with
the original cost.
Segmental reporting
During the year the Group comprised three geographical divisions which have
only one major product or service: specialist geotechnical services. North
America; Europe; and Asia-Pacific, Middle East and Africa continue to be
managed as separate geographical divisions. This is reflected in the Group's
management structure and in the segment information reviewed by the Chief
Operating Decision Maker.
Dividends
Interim dividends are recorded in the Group's consolidated financial
statements when paid. Final dividends are recorded in the Group's consolidated
financial statements in the period in which they receive shareholder approval.
Non-underlying items
Non-underlying items are disclosed separately in the financial statements
where it is necessary to do so to provide further understanding of the
financial performance of the Group. They are items which are exceptional by
their size and/or are non-trading in nature, including amortisation of
acquired intangibles, goodwill impairment, restructuring costs and other
non-trading amounts, including those relating to acquisitions and disposals.
Tax arising on these items, including movement in deferred tax assets arising
from non-underlying provisions, is also classified as a non-underlying item.
Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements in conformity
with IFRS requires management to make judgements, estimates and assumptions
that affect the application of policies, reported amounts of assets and
liabilities, revenue and expenses and the accompanying disclosures, and the
disclosure of contingent liabilities. The estimates are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not
readily apparent from other sources. Uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods. Actual
results may also differ from these estimates.
The estimates are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the
revision affects only that and prior periods, or in the period of the revision
and future periods if the revision affects both current and future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
Construction contracts
The Group's approach to key estimates and judgements relating to construction
contracts is set out in the revenue recognition policy. In the Group
consolidated balance sheet this impacts contract assets, contract liabilities
and contract provisions (refer to notes 5 and 24). As described in the policy
the default revenue recognition approach is the output method. When revenue is
recognised based on the output method, there is little judgement involved in
accounting for construction contracts as the amount of revenue that has not
been certified/accepted by the client is typically small and is usually based
on volumes achieved at agreed rates. These contracts can still be subject to
claims and variations resulting in an adjustment to the revenue recognised.
When revenue is recognised based on the input (cost) method, the main factors
considered when making estimates and judgements include the cost of the work
required to complete the contract in order to estimate the percentage
completion, and the outcome of claims raised against the Group by customers or
third parties. The Group performed around 6,000 contracts during 2022, at an
average revenue of approximately £500,000 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. Contract assets are £105.3m and contract liabilities are
£85.6m at 31 December 2022. 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. The amount included within provisions in respect of
contract provisions is £37.8m (2021: £41.9m).
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.
The restatement of the prior period financial statements for the impact of the
financing reporting fraud at Austral has involved the use of estimates.
Primarily this has been in calculating the correct accrued cost inputs at a
project level and therefore the relevant revenue to be recognised on a
percentage of completion basis. The estimated costs to complete included in
the restatement of the 31 December 2020 and 2021 balance sheets are
management's best estimate and no individual estimate or judgement would
result in a materially different outcome.
Non-underlying items
Non-underlying items are disclosed separately in the financial statements
where it is necessary to do so to provide further understanding of the
financial performance of the Group. They are items which are exceptional by
their size and/or are non-trading in nature, including amortisation of
acquired intangibles, goodwill impairment, restructuring costs and other
non-trading amounts, including those relating to acquisitions and disposals.
Tax arising on these items, including movement in deferred tax assets arising
from non-underlying provisions, is also classified as a non-underlying item.
The Group exercises judgement in assessing whether restructuring items should
be classified as non-underlying. This assessment covers the nature of the
item, cause of the occurrence and scale of impact of that item on the reported
performance. Typically, management will categorise restructuring costs
incurred to exit a specific geography as non-underlying, in addition
restructuring programmes which are incremental to normal operations undertaken
to add value to the business are included in non-underlying items. The value
of exceptional restructuring costs in 2022 (£5.3m) is lower than in 2021
(£7.3m).
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 15 for further
information.
Deferred tax assets
Deferred tax assets are recognised for unused tax losses and other timing
differences to the extent that it is probable that future taxable profits will
be available against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax assets that can
be recognised, based upon the likely timing and the level of future taxable
profits (based on the same Board-approved information to support the going
concern and goodwill impairment assessments). The Group uses judgement in
assessing the recoverability of deferred tax assets, for which the significant
assumption is forecast taxable profits. A 10% shortfall in expected profits
would have a proportional impact on the value of the deferred tax assets
recoverable.. Refer to note 12 for further information.
The restatement of the prior period financial statements for the impact of the
financing reporting fraud at Austral has involved the use of estimates in
determining the amount of deferred tax assets that should be recognised on the
restated balance sheets as at 31 December 2020 and 2021. The restatement
impact was to reduce the deferred tax assets by £2.0m at 31 December 2020 and
by £4.2m at 31 December 2021. This is the maximum impact, an increase in the
forecast taxable profit of 10% would not have a material impact on the value
of these adjustments.
Insurance and legal provisions
The recognition of provisions for insurance and legal disputes is subject to a
significant degree of estimation. In making its estimates, management seek
specialist input from legal advisers and the Group's insurance claims handler
to estimate the most likely legal outcome. Provisions are reviewed regularly
and amounts updated where necessary to reflect developments in the disputes.
The ultimate liability may differ from the amount provided depending on the
outcome of court proceedings and settlement negotiations or if investigations
bring to light new facts. Refer to note 24 for further information.
3 Prior year correction of errors arising from the fraud at Austral and
business combination measurement period adjustments as at 31 December 2021
As set out in the basis of preparation, following an internal management
operational review at the Austral business in Australia, the Group has
identified a historical overstatement of revenue and profit relating to the
years ended 31 December 2021, 31 December 2020 and 31 December 2019 due to a
financial reporting fraud.
The errors have been corrected by restating each of the affected financial
statement line items for the prior periods.
In addition, the results and financial position for the year to 31 December
2021 have been restated to reflect the final purchase price allocation
adjustments in respect of 2021 business combinations. The impact of the
measurement period adjustments has been applied retrospectively, in accordance
with IFRS 3 Business Combinations. Further detail is included in note 6.
The following tables summarise the impacts on the Group's financial
statements.
Restatement of consolidated income statement for the year ended 31 December
2021 (statutory results)
2021 Statutory Impact of prior Impact of measurement 2021 Statutory
(as presented) period error period adjustments (as restated)
£m £m £m £m
Revenue 2,224.4 (1.9) - 2,222.5
Operating costs (2,141.6) (2.4) - (2,144.0)
Amortisation of acquired intangible assets (2.8) - 0.2 (2.6)
Other operating income 0.7 - - 0.7
Share of post-tax results of joint ventures (0.2) - - (0.2)
Operating profit/(loss) 80.5 (4.3) 0.2 76.4
Finance income 0.4 - - 0.4
Finance costs (9.3) - - (9.3)
Profit/(loss) before taxation 71.6 (4.3) 0.2 67.5
Taxation (9.5) (2.4) - (11.9)
Profit/(loss) for the year 62.1 (6.7) 0.2 55.6
Attributable to:
Equity holders of the parent 63.0 (6.7) 0.2 56.5
Non-controlling interests (0.9) - - (0.9)
62.1 (6.7) 0.2 55.6
Earnings per share
Basic 87.1p (9.3p) 0.3p 78.1p
Diluted 86.1p (9.2p) 0.3p 77.2p
Restatement of consolidated income statement for the year ended 31 December
2021 (underlying results)
2021 Underlying Impact of prior Impact of measurement period adjustments 2021 Underlying
(as presented) period error (as restated)
£m £m £m £m
Revenue 2,224.4 (1.9) - 2,222.5
Operating costs (2,132.0) (2.4) - (2,134.4)
Share of post-tax results of joint ventures 0.4 - - 0.4
Operating profit/(loss) 92.8 (4.3) - 88.5
Finance income 0.4 - - 0.4
Finance costs (9.3) - - (9.3)
Profit/(loss) before taxation 83.9 (4.3) - 79.6
Taxation (20.1) 1.2 - (18.9)
Profit/(loss) for the year 63.8 (3.1) - 60.7
Attributable to:
Equity holders of the parent 64.7 (3.1) - 61.6
Non-controlling interests (0.9) - - (0.9)
63.8 (3.1) - 60.7
Earnings per share
Basic 89.5p (4.3p) - 85.2p
Diluted 88.4p (4.2p) - 84.2p
The impact of the restatement of deferred tax in respect of the Austral
accounting error is split between underlying and non-underlying as it
comprises the reversal of a £1.2m underlying deferred tax charge and a £3.6m
non-underlying deferred tax credit originally recognised in 2021. The
restatement results in a net £2.4m increase in the Group's statutory tax
charge for 2021.
Restatement of consolidated statement of comprehensive income for the year
ended 31 December 2021
2021 Impact of prior period error Impact of measurement period adjustments 2021
(as presented) (as restated)
£m £m £m £m
Profit for the year 62.1 (6.7) 0.2 55.6
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations (4.3) 0.5 - (3.8)
Transfer of translation reserve on disposal of subsidiaries (0.4) - - (0.4)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 1.2 - - 1.2
Tax on remeasurements of defined benefit pension schemes (0.2) - - (0.2)
Other comprehensive loss for the year, net of tax (3.7) 0.5 - (3.2)
Total comprehensive income for the year 58.4 (6.2) 0.2 52.4
Attributable to:
Equity holders of the parent 59.3 (6.2) 0.2 53.3
Non-controlling interests (0.9) - - (0.9)
58.4 (6.2) 0.2 52.4
Restatement of consolidated balance sheet at 1 January 2021
At 1 January 2021 Impact of prior At
(as presented) period error 1 January 2021
(as restated)
£m £m £m
Assets
Non-current assets
Goodwill and intangible assets 118.8 - 118.8
Property, plant and equipment 434.9 - 434.9
Investments in joint ventures 4.4 - 4.4
Deferred tax assets 10.3 (2.0) 8.3
Other assets 60.3 - 60.3
628.7 (2.0) 626.7
Current assets
Inventories 60.1 - 60.1
Trade and other receivables 501.9 (6.5) 495.4
Current tax assets 2.1 - 2.1
Cash and cash equivalents 66.3 - 66.3
Assets held for sale 8.7 - 8.7
639.1 (6.5) 632.6
Total assets 1,267.8 (8.5) 1,259.3
Liabilities
Current liabilities
Loans and borrowings (67.0) - (67.0)
Current tax liabilities (17.1) - (17.1)
Trade and other payables (381.7) (0.2) (381.9)
Provisions (54.4) - (54.4)
(520.2) (0.2) (520.4)
Non-current liabilities
Loans and borrowings (191.8) - (191.8)
Retirement benefit liabilities (31.1) - (31.1)
Deferred tax liabilities (21.3) - (21.3)
Provisions (71.4) - (71.4)
Other liabilities (22.0) - (22.0)
(337.6) - (337.6)
Total liabilities (857.8) (0.2) (858.0)
Net assets 410.0 (8.7) 401.3
Equity
Share capital 7.3 - 7.3
Share premium account 38.1 - 38.1
Capital redemption reserve 7.6 - 7.6
Translation reserve 16.3 - 16.3
Other reserve 56.9 - 56.9
Retained earnings 280.1 (8.7) 271.4
Equity attributable to equity holders of the parent 406.3 (8.7) 397.6
Non-controlling interests 3.7 - 3.7
Total equity 410.0 (8.7) 401.3
Restatement of consolidated balance sheet at 31 December 2021
At Impact of measurement At
31 December 2021 Impact of prior period adjustments 31 December 2021
(as presented) period error (as restated)
£m £m £m £m
Assets
Non-current assets
Goodwill and intangible assets 141.5 - (2.0) 139.5
Property, plant and equipment 443.4 - - 443.4
Investments in joint ventures 4.0 - - 4.0
Deferred tax assets 13.0 (4.2) - 8.8
Other assets 88.5 - - 88.5
690.4 (4.2) (2.0) 684.2
Current assets
Inventories 72.1 - - 72.1
Trade and other receivables 592.0 (8.4) 1.9 585.5
Current tax assets 8.9 - - 8.9
Cash and cash equivalents 82.7 - - 82.7
Assets held for sale 3.4 - - 3.4
759.1 (8.4) 1.9 752.6
Total assets 1,449.5 (12.6) (0.1) 1,436.8
Liabilities
Current liabilities
Loans and borrowings (29.8) - - (29.8)
Current tax liabilities (17.9) - - (17.9)
Trade and other payables (505.7) (2.3) - (508.0)
Provisions (53.8) - - (53.8)
(607.2) (2.3) - (609.5)
Non-current liabilities
Loans and borrowings (246.2) - - (246.2)
Retirement benefit liabilities (25.7) - - (25.7)
Deferred tax liabilities (28.6) - 0.3 (28.3)
Provisions (77.9) - - (77.9)
Other liabilities (21.2) - - (21.2)
(399.6) - 0.3 (399.3)
Total liabilities (1,006.8) (2.3) 0.3 (1,008.8)
Net assets 442.7 (14.9) 0.2 428.0
Equity
Share capital 7.3 - - 7.3
Share premium account 38.1 - - 38.1
Capital redemption reserve 7.6 - - 7.6
Translation reserve 11.6 0.5 - 12.1
Other reserve 56.9 - - 56.9
Retained earnings 318.4 (15.4) 0.2 303.2
Equity attributable to equity holders of the parent 439.9 (14.9) 0.2 425.2
Non-controlling interests 2.8 - - 2.8
Total equity 442.7 (14.9) 0.2 428.0
Restatement of consolidated cash flow statement for the year ended 31 December
2021:
2021 Impact of prior period error Impact of Presentation reclassification for proceeds from assets 2021
(as presented) measurement period held for sale(1) (as restated)
adjustments
£m £m £m £m £m
Cash flows from operating activities
Profit before taxation 71.6 (4.3) 0.2 - 67.5
Non-underlying items 12.3 - (0.2) - 12.1
Finance income (0.4) - - - (0.4)
Finance costs 9.3 - - - 9.3
Underlying operating profit 92.8 (4.3) - - 88.5
Depreciation of property, plant and equipment 90.6 - - - 90.6
Amortisation of intangible assets 0.6 - - - 0.6
Share of underlying post-tax results of joint ventures (0.4) - - - (0.4)
Profit on sale of property, plant and equipment (1.8) - - - (1.8)
Other non-cash movements 8.3 - - - 8.3
Foreign exchange losses 0.1 - - - 0.1
Operating cash flows before movements in working capital and other underlying 190.2 (4.3) - - 185.9
items
(Increase)/decrease in inventories (18.3) - - - (18.3)
(Increase)/decrease in trade and other receivables (104.4) 1.9 - - (102.5)
Increase/(decrease) in trade and other payables 119.0 2.4 - - 121.4
(Decrease)/increase in provisions, retirement benefit and other non-current (7.8) (7.8)
liabilities
- - -
Cash generated from operations before non-underlying items 178.7 - - - 178.7
Cash inflows from non-underlying items (2.0) - - (2.4) (4.4)
Cash generated from operations 176.7 - - (2.4) 174.3
Interest paid (2.0) - - - (2.0)
Interest element of lease rental payments (3.1) - - - (3.1)
Income tax paid (15.9) - - - (15.9)
Net cash inflow from operating activities 155.7 - - (2.4) 153.3
Net cash outflow from investing activities (97.0) - - 2.4 (94.6)
Net cash outflow from financing activities (37.6) - - - (37.6)
Net increase/(decrease) in cash and cash equivalents 21.1 - - - 21.1
Cash and cash equivalents at beginning of year 61.6 - - - 61.6
Effect of exchange rate movements (0.9) - - - (0.9)
Cash and cash equivalents at end of year 81.8 - - - 81.8
1 The consolidated cash flow statement has also been restated to
reclassify cash flows arising from the disposal of assets held for sale. These
proceeds were previously disclosed as cash inflows from non-underlying items
and have now been classified within proceeds from disposal of property, plant
and equipment within net cash outflow from investing activities.
4 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.
2022 2021 (Restated(4))
Revenue Operating Revenue Operating
profit profit
£m £m £m £m
North America 1,896.1 82.0 1,323.1 73.0
Europe 649.3 29.1 549.2 24.3
Asia-Pacific, Middle East and Africa 399.2 6.6 350.2 (0.9)
2,944.6 117.7 2,222.5 96.4
Central items - (9.1) - (7.9)
Underlying 2,944.6 108.6 2,222.5 88.5
Non-underlying items (note 9) - (40.8) - (12.1)
2,944.6 67.8 2,222.5 76.4
2022
Depreciation(2) Tangible(3)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 1,016.3 (349.1) 667.2 33.8 54.6 352.5
Europe 338.2 (208.0) 130.2 23.2 27.8 158.9
Asia-Pacific, Middle East and Africa 251.1 (163.4) 87.7 24.7 13.7 109.6
1,605.6 (720.5) 885.1 81.7 96.1 621.0
Central items(1) 96.3 (484.6) (388.3) - 0.9 2.7
1,701.9 (1,205.1) 496.8 81.7 97.0 623.7
2021(4)
Depreciation(2) Tangible(3)
and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
£m £m £m £m £m £m
North America 826.9 (349.6) 477.3 36.4 46.1 332.7
Europe 273.9 (184.7) 89.2 23.8 25.0 143.7
Asia-Pacific, Middle East and Africa 209.6 (102.2) 107.4 24.2 19.5 103.5
1,310.4 (636.5) 673.9 84.4 90.6 579.9
Central items(1) 126.4 (372.3) (245.9) - 0.6 3.0
1,436.8 (1,008.8) 428.0 84.4 91.2 582.9
1 Central items include net debt and tax balances, which are
managed by the Group.
2 Depreciation and amortisation excludes amortisation of
acquired intangible assets.
3 Tangible and intangible assets comprise goodwill, intangible
assets and property, plant and equipment.
4 The 31 December 2021 consolidated income statement and balance
sheet have been restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the consolidated
financial statements.
Revenue analysed by country:
2022 2021
(Restated(1))
£m £m
United States 1,758.0 1,197.6
Australia 228.4 200.5
Canada 137.9 125.1
United Kingdom 127.4 100.4
Germany 115.9 110.0
Other 577.0 488.9
2,944.6 2,222.5
1 The 31 December 2021 consolidated revenue has been restated in
respect of the correction of prior period errors arising from the fraud at
Austral, as outlined in note 3 to the consolidated financial statements.
5 Revenue
The Group's revenue is derived from contracts with customers. In the following
table, revenue is disaggregated by primary geographical market, being the
Group's operating segments (see note 4) and timing of revenue recognition:
Year ended 31 December 2022 Year ended 31 December 2021 (Restated(1))
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 1,434.7 461.4 1,896.1 1,005.0 318.1 1,323.1
Europe 649.3 - 649.3 549.2 - 549.2
Asia-Pacific, Middle East and Africa 399.2 - 399.2 350.2 - 350.2
2,483.2 461.4 2,944.6 1,904.4 318.1 2,222.5
1 The 31 December 2021 consolidated revenue has been restated in
respect of the correction of prior period errors arising from the fraud at
Austral, as outlined in note 3 to the consolidated financial statements.
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 2022 from performance
obligations satisfied in previous periods is £15.7m (2021: £28.0m).
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 2022, the total order book is £1,407.1m (2021: £1,302.1m). The
order book as at 31 December 2021 has been restated in respect of prior period
measurement adjustments.
The order book for contracts with a total duration over one year is £384.5m
(2021: £402.0m). Revenue on these contracts is expected to be recognised as
follows:
2022 2021
£m £m
Less than one year 289.3 279.7
One to two years 87.1 103.7
More than two years 8.1 18.6
384.5 402.0
The following table provides information about trade receivables, contract
assets and contract liabilities arising from contracts with customers:
2022 2021
(Restated(1))
£m £m
Trade receivables 615.4 450.7
Contract assets 105.3 99.2
Contract liabilities (85.6) (46.5)
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
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 £121.3m
(2021: £85.9m) in respect of retentions anticipated to be receivable within
one year. Included in non-current other assets is £16.3m (2021: £24.4m)
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:
2022 2021 (Restated(1))
Contract assets Contract liabilities Contract assets Contract liabilities
£m £m £m £m
As at 1 January 99.2 (46.5) 64.7 (43.9)
Revenue recognised in the current year 911.2 824.2 652.4 516.0
Acquired with businesses 0.6 - 2.0 (0.3)
Amounts transferred to trade receivables (914.1) - (619.5) -
Cash received/invoices raised for performance obligations not yet satisfied - (858.9) - (518.3)
Exchange movements 8.4 (4.4) (0.4) -
As at 31 December 105.3 (85.6) 99.2 (46.5)
1 The 31 December 2021 consolidated contract asset has been
restated in respect of the correction of prior period errors arising from the
fraud at Austral as outlined in note 3 to the consolidated financial
statements.
6 Acquisitions and disposals
Acquisitions
Current period
GKM Consultants Inc.
On 1 May 2022, the Group acquired 100% of the issued share capital of GKM
Consultants Inc., an instrumentation and monitoring provider in Quebec,
Canada, for an initial cash consideration of £3.3m (CAD$5.3m). In addition,
contingent consideration is payable dependent on the cumulative EBITDA in the
three-year period post acquisition. At the acquisition date, the fair value of
the contingent consideration was £1.2m (CAD $2.0m), based on expected
cashflows generated by the business over a three year period at that point in
time. At 31 December 2022, the fair value of the contingent consideration has
been revised to £0.9m, with the reduction in the amount payable recognised in
the income statement as a non-underlying item. The maximum value of the
contingent consideration is £1.2m, the minimum payable would be zero.
The fair value of intangible assets acquired represents the fair value of
customer contracts at the date of acquisition, customer relationships and the
tradename. Goodwill arising on acquisition is attributable to the knowledge
and expertise of the assembled workforce, the expectation of future contracts
and customer relationships and the operating synergies that arise from the
Group's strengthened market position. The goodwill is not expected to be
deductible for tax purposes.
In the period to 31 December 2022, the acquisition contributed £6.8m to
revenue and a profit before tax of £nil. Had the acquisition taken place on 1
January 2022, total Group revenue would have been £2,984.0m and statutory
profit before tax for the period would have been £64.4m.
The identifiable assets and liabilities as at the date of acquisition were:
Carrying Fair value Fair
amount adjustment value
£m £m £m
Assets
Intangible assets - 1.5 1.5
Property, plant and equipment 0.3 - 0.3
Inventories 0.6 - 0.6
Trade and other receivables(1) 2.8 (0.1) 2.7
Current tax assets 0.1 - 0.1
Cash and cash equivalents 0.2 - 0.2
4.0 1.4 5.4
Liabilities
Trade and other payables (1.9) - (1.9)
Deferred tax liabilities (0.1) (0.4) (0.5)
(2.0) (0.4) (2.4)
Total identifiable net assets 2.0 1.0 3.0
Goodwill 1.6
Total consideration 4.6
Satisfied by:
Initial cash consideration 3.3
Contingent consideration 1.2
Purchase price adjustment 0.1
4.6
Acquisition of businesses per the cash flow statement:
Initial cash consideration 3.3
Purchase price adjustment paid 0.1
Less cash acquired (0.2)
3.2
1 ( ) The fair value of trade receivables amounts to £2.7m. The
gross amount of trade receivables before the expected credit loss provision is
£2.8m and it is expected that the full contractual amounts can be collected.
Nordwest Fundamentering AS
On 15 November 2022, the Group acquired 100% of the issued share capital of
Nordwest Fundamentering AS, a small specialist geotechnical contractor
provider in Norway, for an initial cash consideration of £5.5m (NOK65m). In
addition, deferred consideration of £0.5m (NOK6m) is payable.
Due to the timing of the acquisition, the review of the fair value of net
assets acquired is expected to be completed in H1 2023. The value of assets
acquired is therefore provisional and will be finalised within 12 months of
the acquisition date. All asset values, other than for cash and cash
equivalents, are provisional, including the value of any intangible assets
that have been acquired with the business but not yet separated from the
goodwill balance. The provisional value of net assets acquired was £1.0m,
resulting in a goodwill and other intangibles value of £5.3m.
In the period to 31 December 2022, the acquisition contributed £2.0m to
revenue and a profit before tax of £nil. Had the acquisition taken place on 1
January 2022, total Group revenue would have been £2,956.5m and statutory
profit before tax for the period would have been £66.2m.
The identifiable assets and liabilities as at the date of acquisition were:
Carrying Fair value Fair
amount adjustment value
£m £m £m
Assets
Property, plant and equipment 0.3 - 0.3
Property, plant and equipment - right of use asset 2.1 - 2.1
Trade and other receivables 1.5 - 1.5
Cash and cash equivalents 1.1 - 1.1
5.0 - 5.0
Liabilities
Trade and other payables (1.5) - (1.5)
Loans and borrowings, including lease liabilities (2.2) - (2.2)
Deferred tax liabilities (0.3) - (0.3)
(4.0) - (4.0)
Total identifiable net assets 1.0 - 1.0
Goodwill 5.3
Total consideration 6.3
Satisfied by:
Initial cash consideration 5.5
Deferred consideration 0.5
Purchase price adjustment 0.3
6.3
Acquisition of businesses per the cash flow statement:
Initial cash consideration 5.5
Purchase price adjustment paid 0.3
Less cash acquired (1.1)
4.7
Prior year 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.
On 29 September 2021, the Group acquired the trade and assets of Subterranean
(Manitoba) Ltd., a geotechnical contractor in Canada.
On 1 November 2021, the Group acquired the trade and assets of Voges Drilling,
a geotechnical foundation company based in Texas, US.
Total contingent and deferred consideration in respect of prior year
acquisitions of £12.3m was paid during the period, comprising £8.1m in
respect of the RECON Services Inc. acquisition in 2021 and £3.8m in respect
of the Geo Construction Group (Bencor) acquisition in 2015. These both
represent final agreements. Additionally, £0.2m was paid in respect of the
Geo Instruments acquisition and £0.2m deferred consideration in respect of
the Voges Drilling acquisition.
Prior period measurements adjustments
Under IFRS 3 'Business Combinations' there is a measurement period of no
longer than 12 months in which to finalise the valuation of the acquired
assets and liabilities. During the measurement period, the acquirer
retrospectively adjusts the provisional amounts recognised at the acquisition
date to reflect any new information obtained about facts and circumstances
that existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date.
The valuation of the RECON Services Inc. acquired assets and liabilities is
now final and the adjustments to the provisional fair values that were made
during the measurement period are set out in the table below:
Provisional fair value Adjustments during Revised provisional
recognised on measurement fair value recognised
acquisition period on acquisition
£m £m £m
Assets
Intangible assets(1) 18.9 (1.4) 17.5
Property, plant and equipment 4.7 - 4.7
Other non-current assets 0.1 - 0.1
Trade and other receivables 20.4 - 20.4
Current tax assets 1.4 - 1.4
Cash and cash equivalents 0.9 - 0.9
46.4 (1.4) 45.0
Liabilities
Lease liabilities (1.4) - (1.4)
Trade and other payables (11.2) - (11.2)
Current tax liabilities (1.1) - (1.1)
Deferred tax liabilities(2) (5.1) 0.3 (4.8)
Provisions (1.4) - (1.4)
Other non-current assets (0.3) - (0.3)
(20.5) 0.3 (20.2)
Total identifiable net assets 25.9 (1.1) 24.8
Goodwill 3.7 1.1 4.8
Total consideration 29.6 - 29.6
Satisfied by:
Initial cash consideration 20.2 - 20.2
Initial valuation of contingent consideration 9.5 - 9.5
Purchase price adjustment (0.1) - (0.1)
29.6 - 29.6
1 ( ) The adjustment to intangible assets relates to
the revised valuation of the tradename and customer relationships acquired.
2 ( ) The adjustment to deferred tax liabilities
relates to the updated value of intangible assets.
The impact of these adjustments has been applied retrospectively, meaning that
the results and financial position for the year to 31 December 2021 have been
restated, as detailed in note 2. The adjustment to intangible assets at
acquisition resulted in a lower amortisation charge in the year to 31 December
2021 of £0.2m, resulting in a net adjustment to the net book value of
intangible assets of £1.2m as at 31 December 2021.
The valuation of the Subterranean (Manitoba) Ltd. and Voges Drilling acquired
assets and liabilities is now final and the adjustments to the provisional
fair values that were made during the measurement period are set out in the
table below:
Provisional fair value Adjustments during Revised provisional
recognised on measurement fair value recognised
acquisition period on acquisition
£m £m £m
Assets
Intangible assets 0.4 - 0.4
Property, plant and equipment 6.1 - 6.1
Trade and other receivables(1) 2.7 1.9 4.6
9.2 1.9 11.1
Liabilities
Trade and other payables (1.3) - (1.3)
(1.3) - (1.3)
Total identifiable net assets 7.9 1.9 9.8
Goodwill 1.9 1.9 -
Total consideration 9.8 - 9.8
Satisfied by:
Initial cash consideration 9.2 - 9.2
Deferred consideration 0.8 - 0.8
Purchase price adjustment (0.2) - (0.2)
9.8 - 9.8
1 ( ) The adjustment to trade and other receivables
relates to the revised valuation of fair value of the billed and unbilled
receivables acquired with Subterranean in relation to their recoverability.
The impact of these adjustments has been applied retrospectively, meaning that
the results and financial position for the year to 31 December 2021 have been
restated, as detailed in note 3. The adjustments did not result in any impact
on the income statement for the year ended 31 December 2021. A summary of the
prior period acquisitions after the final measurement period adjustments is
set out in the table below.
Goodwill Acquired intangible assets Acquired deferred tax liabilities Fair value of other identifiable assets and liabilities Consideration paid Cash acquired Non-cash elements Net cash outflow
Acquisition £m £m £m £m £m £m £m £m
RECON 4.8 17.5 (4.8) 12.1 29.6 0.9 8.0 (20.7)
Subterranean and Voges - 0.4 - 9.4 9.8 - 0.6 (9.2)
4.8 17.9 (4.8) 21.5 39.4 0.9 8.6 (29.9)
Disposals
Current year
There were no material disposals during the year to 31 December 2022.
Contingent consideration of £0.7m was received in accordance with the terms
of the sale and purchase agreement of Wannenwetsch GmbH, which was disposed of
in 2020.
Prior year
In 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). A non-underlying loss on disposal of
£0.2m was recognised.
In 2021, the Group completed the disposal of its Colcrete business, being 100%
of the issued share capital of Keller Colcrete Limited, for a cash
consideration of £0.4m. A non-underlying loss of disposal of £0.4m was
recognised in 2020. Contingent consideration of £0.7m in relation to the
disposal of Wannenwetsch GmbH was received in 2021 in addition to the initial
cash consideration received in 2020.
7 Operating costs 2022 2021
(Restated(1))
Note £m £m
Raw materials and consumables 1,054.3 711.8
Staff costs 8 699.8 580.7
Other operating charges 764.7 583.2
Amortisation of intangible assets 15 0.5 0.6
Expenses relating to short-term leases and leases of low-value assets 201.7 154.8
Depreciation:
Owned property, plant and equipment 16a 71.1 64.1
Right-of-use assets 16b 29.7 26.5
Net expected credit loss of trade receivables and contract assets(2) 20 15.7 12.7
Underlying operating costs 2,837.5 2,134.4
Non-underlying items 9 30.0 9.6
Statutory operating costs 2,867.5 2,144.0
Other operating charges include:
Redundancy and other reorganisation costs - -
Fees payable to the company's auditor for the audit of the company's Annual 1.4 1.1
Report and Accounts
Fees payable to the company's auditor for other services:
The audit of the company's subsidiaries, pursuant to legislation 2.0 1.9
Other assurance services 0.1 0.1
1 The 31 December 2021 other operating charges has been restated
in respect of the correction of prior period errors arising from the fraud at
Austral and prior period business combination measurement adjustments, as
outlined in notes 3 and 6 to the consolidated financial statements.
2 Of this amount £11.5m (2021: £15.3m) are subject to
enforcement activity.
During the year, the Group received £nil (2021: £2.4m) 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.
8 Employees
The aggregate staff costs of the Group were:
2022 2021
£m £m
Wages and salaries 606.7 505.6
Social security costs 66.7 57.5
Other pension costs 23.1 13.7
Share-based payments 3.3 3.9
699.8 580.7
These costs include Directors' remuneration. Fees payable to Non-executive
Directors totalled £0.5m (2021: £0.5m).
In the United States, the Coronavirus Aid, Relief, and Economic Security Act
allowed employers to defer the payment of the employer's share of social
security taxes otherwise required to be paid between 27 March and 31 December
2020. The payment of the deferred taxes is required in two instalments; the
first half was paid on 3 January 2022 and the remainder was paid on 3 January
2023.
The average number of staff, including Directors, employed by the Group during
the year was:
2022 2021
Number Number
North America 4,604 4,722
Europe 3,043 2,922
Asia-Pacific, Middle East and Africa 2,174 2,080
9,821 9,724
9 Non-underlying items
Non-underlying items include items which are exceptional by their size and/or
are non-trading in nature, including amortisation of acquired intangibles,
goodwill impairment, restructuring costs and other non-trading amounts,
including those relating to acquisitions and disposals. Tax arising on these
items, including movement in deferred tax assets arising from non-underlying
provisions, is also classified as a non-underlying item. These are detailed in
the table below.
As underlying results include the benefits of restructuring programmes and
acquisitions but exclude significant costs (such as major restructuring costs
and the amortisation of acquired intangible assets) they should not be
regarded as a complete picture of the Group's financial performance, which is
presented in its total statutory results. The exclusion of non-underlying
items may result in underlying earnings being materially higher or lower than
total statutory earnings. In particular, when significant impairments and
restructuring charges are excluded, underlying earnings will be higher than
total statutory earnings.
2022 2021
(Restated(1))
£m £m
ERP implementation costs 6.3 -
Goodwill impairment 12.5 -
Exceptional restructuring costs 5.3 7.3
Exceptional historic contract dispute 3.5 -
Claims related to closed business 2.5 -
Impairment costs 0.3 -
Contingent consideration: additional amounts provided 0.1 1.3
Change in fair value of contingent consideration (0.7) -
Loss on disposal of operations - 0.5
Acquisition costs and other costs 0.2 0.5
Non‑underlying items in operating costs 30.0 9.6
Amortisation of acquired intangible assets 10.3 2.6
Contingent consideration received (0.7) (0.7)
Non-underlying items in other operating income (0.7) (0.7)
Amortisation of joint venture acquired intangibles 1.2 0.6
Total non-underlying items in operating profit 40.8 12.1
Non-underlying items in finance income (3.6) -
Total non-underlying items before taxation 37.2 12.1
Taxation (9.0) (7.0)
Total non-underlying items after taxation 28.2 5.1
1 The 31 December 2021 consolidated amortisation of acquired
intangible assets has been restated in respect of prior period business
combination measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
Non-underlying items in operating costs
ERP implementation costs
The Group has commenced a strategic project to implement a new cloud computing
enterprise resource planning (ERP) system across the Group. Due to the size,
nature and incidence of the relevant costs expected to be incurred, the costs
are presented as a non-underlying item, as they are not reflective of
underlying performance of the Group. As this is a complex implementation,
project costs are expected to be incurred over the next five years.
Non-underlying ERP costs of £6.3m include only costs relating directly to the
implementation including external consultancy costs and the cost of the
dedicated implementation team. Non-underlying costs does not include
operational post-deployment costs such as licence costs for businesses that
have transitioned. There were no ERP implementation costs in 2021.
Goodwill impairment
The goodwill impairment of £12.5m relates to Austral (£7.7m) due to
uncertainty over the future profitability of the cash-generating unit
following the discovery of the financial reporting fraud; and Sweden (£4.8m)
due to a downward revision to the medium-term forecast as forward projections
did not fully support the carrying value of the goodwill. Refer to note 15 for
further information. There was no goodwill impairment cost in 2021.
Exceptional restructuring costs
Exceptional restructuring costs of £5.3m comprises £3.4m in the North
America Division, £1.8m in the Europe Division, a credit of £0.6m in AMEA
and £0.7m incurred centrally. In North America, the costs arose as a result
of a management and property reorganisation within the parts of the business
located in Texas. Costs include redundancy costs and property duplication
costs. In Europe, the costs related to the scheduled exit of the Ivory Coast
and Morocco businesses, including asset impairments and redundancy costs. In
AMEA, the credit arose from restructuring costs provided for in prior years as
costs incurred were lower than originally anticipated.
The Group exercises judgement in assessing whether restructuring items should
be classified as non-underlying. This assessment covers the nature of the
item, cause of the occurrence and scale of impact of that item on the reported
performance. Typically, management will categorise restructuring costs
incurred to exit a specific geography as non-underlying, in addition
restructuring programmes which are incremental to normal operations undertaken
to add value to the business are included in non-underlying items. The value
of exceptional restructuring costs in 2022 (£5.3m) is lower than in 2021
(£7.3m).
In 2021, exceptional restructuring costs 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 asset 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.
Exceptional historic contract dispute and claims related to closed business
The £3.5m exceptional charge relates to a provision made for additional legal
costs relating to the historical Avonmouth contract dispute following a
negotiation with insurers during 2022. In addition, a £2.5m provision for a
legal claim in respect of a closed business has been recognised.
Impairment costs
An impairment charge of £0.3m by the North-East Europe Business Unit is in
respect of trade receivables in Ukraine that are not expected to be recovered
due to the ongoing conflict.
Contingent consideration
Additional contingent consideration of £0.1m relates to the acquisition of
the Geo Instruments US business in 2017. A credit of £0.7m arose from the
reduction in the fair value of contingent consideration payable in respect of
the RECON and GKM acquisitions. The contingent consideration paid in respect
of RECON has been finalised and was settled during the year.
In 2021, 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.
Loss on disposal of operations
In 2021, 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
Acquisition costs of £0.2m in the year comprised professional fees relating
to the NWF acquisition in Norway and centrally incurred project costs. In
2021, acquisition costs of £0.5m in the year comprised professional fees
relating to the RECON and Subterranean acquisitions.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets relates to the RECON, GKM,
Moretrench and Voges acquisitions, as restated for the prior period
measurement adjustment to the RECON acquired intangible assets.
Non-underlying items in other operating income
During 2022, the second instalment of contingent consideration was received in
relation to the Wannenwetsch disposal in September 2020, in accordance with
the terms of the sale and purchase agreement. The first instalment was
received during 2021.
Amortisation of joint venture acquired intangibles
Amortisation of joint venture intangibles relates to NordPile, an acquisition
by the Group's joint venture interest KFS Finland Oy on 8 September 2021.
Non-underlying finance income
During the year the Group entered into an interest rate derivative with the
purpose of hedging a highly probable forecast transaction. The forecast
transaction did not take place and as a result the amount arising from the
hedging instrument has been recognised in the income statement. This has
resulted in the recognition of £3.6m of finance income which has been
included in non-underlying as it material in size and is not reflective of the
underlying finance income and costs of the Group.
Non-underlying taxation
Refer to note 12 for details of the non-underlying tax items.
10 Finance income
2022 2021
£m £m
Bank and other interest receivable 0.3 0.2
Net pension interest income 0.1 -
Other finance income 0.1 0.2
Underlying finance income 0.5 0.4
Non-underlying finance income 3.6 -
Total finance income 4.1 0.4
11 Finance costs
2022 2021
£m £m
Interest payable on bank loans and overdrafts 7.8 3.1
Interest payable on other loans 2.4 1.3
Interest on lease liabilities 3.6 3.1
Net pension interest cost 0.1 0.2
Other interest costs 1.5 1.0
Total interest costs 15.4 8.7
Unwinding of discount and effect of changes in discount rates on provisions 0.2 0.6
Total finance costs 15.6 9.3
12 Taxation
2022 2021
(Restated(1))
£m £m
Current tax expense:
Current year 46.6 14.0
Prior years (2.5) (3.0)
Total current tax 44.1 11.0
Deferred tax expense:
Current year (32.0) 0.7
Prior years (0.8) 0.2
Total deferred tax (32.8) 0.9
11.3 11.9
UK corporation tax is calculated at 19% (2021: 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%
(2021: 19%) as follows:
2022 2021 (Restated(1))
Non- Non-
underlying underlying
items items
Underlying (note 9) Statutory Underlying (note 9) Statutory
£m £m £m £m £m £m
Profit/(loss) before tax 93.5 (37.2) 56.3 79.6 (12.1) 67.5
UK corporation tax charge/(credit) at 19% (2021: 19%) 17.8 (7.1) 10.7 15.1 (2.3) 12.8
Tax charged at rates other than 19% (2021: 19%) 3.1 (1.0) 2.1 5.1 (0.5) 4.6
Tax losses and other deductible temporary differences not recognised 6.6 0.8 7.4 3.3 1.2 4.5
Utilisation of tax losses and other deductible temporary differences (0.7) (4.3) (5.0) (1.4) (5.5) (6.9)
previously unrecognised
Permanent differences (2.8) 2.6 (0.2) (0.5) 0.1 (0.4)
Adjustments to tax charge in respect of previous periods (3.3) - (3.3) (2.8) - (2.8)
Other (0.4) - (0.4) 0.1 - 0.1
Tax charge/(credit) 20.3 (9.0) 11.3 18.9 (7.0) 11.9
Effective tax rate 21.7% 24.1% 20.1% 23.7% 57.9% 17.6%
1 The 31 December 2021 consolidated profit/(loss) before
tax and tax charge/(credit) have been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior period
business combination measurement adjustments, as outlined in notes 3 and 6 to
the consolidated financial statements.
The tax credit of £9.0m on non-underlying losses includes £4.7m as the tax
benefit of amounts which are expected to be deductible for tax purposes and
£4.3m from the re-recognition of deferred tax assets in Canada at 31 December
2022. The deferred tax asset has been reassessed as recoverable following the
improved performance of the business demonstrating a more reliable source of
taxable income in order to utilise the tax losses. As the de-recognition of
the deferred tax asset was booked through the non-underlying tax charge, the
credit from the re-recognition of the deferred tax asset has also been treated
as a non-underlying item. The 2021 restated tax credit on non-underlying items
is £7.0m. This includes a partial re-recognition of Canadian deferred tax
assets of £5.5m and the benefit of a net tax credit on other non-underlying
charges which are expected to be deductible for tax purposes.
The effective tax rate in 2022 on non-underlying items before the
re-recognition of the deferred tax asset is lower than the effective tax rate
on underlying items due to the inclusion of goodwill impairment costs for
which there is no corresponding tax credit.
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 UK government has released draft legislation introducing a global minimum
tax of 15% in line with the OECD's Pillar 2 rules. If enacted the rules will
apply to Keller from 1 January 2024. Based on the draft legislation, it is not
expected that the Pillar 2 rules will have a material impact on the group's
overall tax charge.
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(2)
tax capital benefit related Bad temporary
losses allowances obligations liabilities debts differences Total
£m £m £m £m £m £m £m
At 1 January 2021 (Restated(1)) (8.9) 34.4 (4.0) (6.5) (6.2) 4.2 13.0
(Credit)/charge to the income statement (4.2) 3.2 (0.7) 0.3 (2.4) 4.5 0.7
Charge to other comprehensive income - - 0.2 - - - 0.2
Acquisition and disposal of businesses - 0.3 4.7
- - - 4.4
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 and 1 January 2022 (Restated(1)) (13.0) 38.2 (4.2) (6.3) (8.7) 13.5 19.5
(Credit)/charge to the income statement (1.0) (31.2) 0.3 0.9 (0.3) (1.6) (32.9)
Charge to other comprehensive income - - 0.6 - - - 0.6
Acquisition of businesses - - 0.8
- - - 0.8
Exchange movements (0.5) 3.9 0.1 (0.7) (1.1) 0.6 2.3
Other reallocations/transfers - - - - - (0.1) (0.1)
At 31 December 2022 (14.5) 10.9 (3.2) (6.1) (10.1) 13.2 (9.8)
1 The 1 January 2021 and 31 December 2021 consolidated deferred
tax assets have been restated in respect of the correction of prior period
errors arising from the fraud at Austral and prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the consolidated
financial statements.
2 Other temporary differences are mainly in respect of
intangible assets.
The movement from a net deferred tax liability of £19.5m at 31 December 2021
to a net deferred tax asset of £9.8m at 31 December 2022 is largely as a
result of a change in law in the US with regards to the timing of the
deductibility of R&D expenditure (totalling £29.3m included in the charge
in accelerated capital allowances for the year). Previously, R&D
expenditure was tax deductible in the year that it was incurred, whereas
following the law change in 2022 R&D expenditure is capitalised for tax
purposes and amortised over five years.
Deferred tax assets include amounts of £15.1m (2021 as restated: £8.8m)
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 (£9.1m),
the US (£4.1m) and the UK (£1.8m). The amount of profits in each territory
which are necessary to be realised over the forecast period to support these
assets are £37m, £16m and £7m respectively. Canadian tax rules currently
allow tax losses to be carried forward up to 20 years. The UK and the US 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:
2022 2021
(Restated)
£m £m
Deferred tax liabilities 5.3 28.3
Deferred tax assets (15.1) (8.8)
(9.8) 19.5
At the balance sheet date, the Group had unused tax losses of £140.9m (2021:
£125.0m), 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, £118.2m (2021: £74.3m) may be carried forward
indefinitely. Of the remaining losses, £19.2m expire in 2025 and £3.5m
expire in 2035.
At the balance sheet date, the aggregate of other deductible temporary
differences for which no deferred tax asset has been recognised was £18.0m
(2021: £13.9m). 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 £156.7m (2021: £124.9m), on
the basis that the Group can control the reversal of temporary differences and
it is probable that the temporary differences will not reverse in the
foreseeable future. The unprovided deferred tax liability in respect of these
timing differences is £10.2m (2021: £7.6m).
13 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
2022 2021
£m £m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 23.3p (2020: 23.3p) per 16.8 16.8
share
Interim dividend for the year ended 31 December 2022 of 13.2p (2021: 12.6p) 9.6 9.1
per share
26.4 25.9
The Board has recommended a final dividend for the year ended 31 December 2022
of £17.7m, representing 24.5p (2021: 23.3p) per share. The proposed dividend
is subject to approval by shareholders at the Annual General Meeting on 17 May
2023 and has not been included as a liability in these financial statements.
14 Earnings per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
When the Group makes a profit, diluted earnings per share equals the profit
attributable to equity holders of the parent adjusted for the dilutive impact
divided by the weighted average diluted number of shares. When the Group makes
a loss, diluted earnings per share equals the loss attributable to the equity
holders of the parent divided by the basic average number of shares. This
ensures that earnings per share on losses is shown in full and not diluted by
unexercised share awards.
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of authorisation of
these financial statements.
Basic and diluted earnings per share are calculated as follows:
Underlying earnings attributable to the equity holders of the parent Earnings attributable to the equity holders of the parent
2022 2021 2022 2021
(Restated(1)) (Restated(1))
Basic and diluted earnings (£m) 74.2 61.6 46.0 56.5
Weighted average number of ordinary shares (m)(2)
Basic number of ordinary shares outstanding 72.7 72.3 72.7 72.3
Effect of dilution from:
Share options and awards 1.0 0.9 1.0 0.9
Diluted number of ordinary shares outstanding 73.7 73.2 73.7 73.2
Earnings per share
Basic earnings per share (p) 102.1 85.2 63.3 78.1
Diluted earnings per share (p) 100.7 84.2 62.4 77.2
1 The 31 December 2021 consolidated earnings attributable to the
equity holders of the parent has been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior period
business combination measurement adjustments, as outlined in notes 3 and 6 to
the consolidated financial statements.
2( ) The weighted average number of shares takes
into account the weighted average effect of changes in treasury shares during
the year. The weighted average number of shares excludes those held in the
Employee Share Ownership Plan Trust and those held in treasury, which for the
purpose of this calculation are treated as cancelled.
15 Goodwill and intangible assets
Arising on
Goodwill acquisition Other Total
£m £m £m £m
Cost
At 1 January 2021 219.6 58.9 23.3 301.8
Additions - - 0.4 0.4
Acquired with businesses(1) 4.8 17.9 - 22.7
Disposals - - (0.7) (0.7)
Exchange movements 1.1 0.5 (0.6) 1.0
At 31 December 2021 and 1 January 2022(1) 225.5 77.3 22.4 325.2
Additions - - 0.1 0.1
Acquired with businesses (note 6)(2) 6.9 1.5 - 8.4
Exchange movements 15.8 3.2 4.6 23.6
At 31 December 2022 248.2 82.0 27.1 357.3
Accumulated amortisation and impairment
At 1 January 2021 104.4 56.5 22.1 183.0
Amortisation charge for the year(1) - 2.6 0.6 3.2
Disposals - - (0.7) (0.7)
Exchange movements 0.6 (0.1) (0.3) 0.2
At 31 December 2021 and 1 January 2022(1) 105.0 59.0 21.7 185.7
Impairment charge for the year 12.5 - - 12.5
Amortisation charge for the year - 10.3 0.4 10.7
Exchange movements 5.4 1.4 4.4 11.2
At 31 December 2022 122.9 70.7 26.5 220.1
Carrying amount
At 1 January 2021 115.2 2.4 1.2 118.8
At 31 December 2021 and 1 January 2022(1) 120.5 18.3 0.7 139.5
At 31 December 2022 125.3 11.3 0.6 137.2
1 The 31 December 2021 consolidated balance sheet has been
restated in respect of prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
2 Goodwill arising on acquisition during the year relates to the
acquisition of GKM Consultants Inc. and Nordwest Fundamentering AS.
Intangible assets arising on acquisition represent customer contracts and
relationships with a carrying amount of £5.5m (2021: £12.4m) and trade names
with a carrying amount of £5.8m (2021: £5.9m). Other intangibles represent
internally developed software and licences. There are no indicators of
impairment for these assets at 31 December 2022.
For the purposes of impairment testing, goodwill has been allocated to ten
(2021: 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 95% of the total (2021: 92%). 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:
2022 2021
Carrying Pre-tax Forecast Carrying Pre-tax Forecast
value discount rate(1) growth rate value discount rate(1) growth rate
CGU Geographical segment £m % % £m % %
Keller US North America 51.9 13.6 2.0 45.0 11.6 2.0
Suncoast North America 35.5 13.5 2.0 31.9 11.6 2.0
Keller Canada North America 13.7 12.7 2.0 15.0 11.8 2.0
Keller Limited Europe 12.1 13.2 2.0 12.1 10.1 3.0
Austral Asia-Pacific, Middle East and Africa - - - 7.3 12.9 2.0
Other North America and Europe 12.1 10.0
125.3 121.3
( )
1 Pre-tax discount rates and forecast growth rates are defined
by market.
The recoverable amount of the goodwill allocated to each CGU has been
calculated on a value-in-use basis. The calculations use cash flow projections
based on financial budgets and forecasts approved by management and cover a
three-year period.
The Group's businesses operate in a diverse geographical set of markets, some
of which are expected to continue to face uncertain conditions in future
years. The most important factors in the value-in-use calculations are the
forecast revenues and operating margins during the forecast period, the growth
rates and discount rates applied to future cash flows. The key assumptions
underlying the cash flow forecasts are revenue and operating margins assumed
throughout the forecast period. Revenue and operating margins are prepared as
part of the Group's three-year forecast in line with the Group's annual
business planning process. The Group's budget for 2023 and financial
projections for 2024 and 2025 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 2025 which
are deemed to be on a continuing basis have been extrapolated using the
forecast growth rates above and do not exceed the long-term average growth
rates for the markets in which the relevant CGUs operate. The growth rates
used in the Group's value-in-use calculation into perpetuity are based on
forecasted growth in the construction sector in each region where a CGU is
located and adjusted for longer-term compound annual growth rates for each CGU
as estimated by management. The discount rates used in the value-in-use
calculations are based on the weighted average cost of capital of companies
comparable to the relevant CGUs, adjusted as necessary to reflect the risk
associated with the asset being tested. Management's assessment for Keller
Limited is sensitive to the future successful execution of business plans
designed to address the reduction in revenue, margins and profits from HS2
contracts, scheduled to be completed within the three year-forecast period.
Following the discovery of the financial reporting fraud at Austral and the
uncertainty over the forecast operating profit of this CGU, the goodwill in
Austral of £7.7m has been impaired. The goodwill in Keller Grundlaggning was
impaired during the year by £4.5m, and the goodwill in Keller Getec impaired
during the year by £0.3m. For the remaining CGUs, management believes that
any reasonable possible change in the key assumptions on which the recoverable
amounts of the CGUs are based would not cause any of their carrying amounts to
exceed their recoverable amounts.
A number of sensitivities were run on the projections to identify the changes
required in each of the key assumptions that, in isolation, would give rise to
an impairment of the following goodwill balances.
Increase in(1) Reduction in(1) Reduction in
discount future growth final year cash
rate rate flow
CGU Geographical segment % % %
Keller US North America 28.1 48.9 89.6
Suncoast North America 45.1 112.9 101.0
Keller Canada North America 15.1 21.9 74.3
Keller Limited Europe 4.3 5.3 35.7
( )
1 The increase in discount rate and reduction in future growth
rate are presented as gross movements.
16 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets.
2022 2021
Note £m £m
Property, plant and equipment - owned assets 16a 409.5 375.5
Right-of-use assets - leased assets 16b 77.0 67.9
At 31 December 486.5 443.4
16 a) Property, plant and equipment - owned assets
Plant,
Land and machinery Capital work
buildings and vehicles in progress Total
£m £m £m £m
Cost
At 1 January 2021 68.9 878.7 7.3 954.9
Additions 3.4 79.3 1.3 84.0
Acquired with businesses 0.7 8.7 - 9.4
Disposals (2.5) (41.4) - (43.9)
Net transfers to held for sale - 1.3 - 1.3
Disposal of businesses - (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 and 1 January 2022 69.0 910.9 5.5 985.4
Additions 1.9 72.4 7.3 81.6
Acquired with businesses (note 6) - 0.7 - 0.7
Disposals - (34.8) - (34.8)
Net transfers to held for sale(1) - (1.5) - (1.5)
Reclassification - 2.2 (2.2) -
Exchange movements 5.3 68.2 0.6 74.1
At 31 December 2022 76.2 1,018.1 11.2 1,105.5
Accumulated depreciation and impairment
At 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 - 0.9 - 0.9
Disposal of businesses - (0.3) - (0.3)
Impairments - 3.4 - 3.4
Exchange movements (0.5) (11.3) - (11.8)
At 31 December 2021 and 1 January 2022 21.9 588.0 - 609.9
Charge for the year 1.9 69.2 - 71.1
Disposals - (30.1) - (30.1)
Net transfers to held for sale(1) - (1.2) - (1.2)
Exchange movements 1.6 44.7 - 46.3
At 31 December 2022 25.4 670.6 - 696.0
Carrying amount
At 1 January 2021 47.5 310.6 7.3 365.4
At 31 December 2021 and 1 January 2022 47.1 322.9 5.5 375.5
At 31 December 2022 50.8 347.5 11.2 409.5
1 The carrying amount of assets held for sale at the balance
sheet date are detailed in note 22.
The Group had contractual commitments for the acquisition of property, plant
and equipment of £17.6m (2021: £7.2m) at the balance sheet date. These
amounts were not included in the balance sheet at the year end.
In 2021, impairments included 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 was not 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 9. Also included are
impairments related 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 of £nil, which resulted in an underlying impairment charge of
£1.8m.
16 b) Right-of-use assets - leased assets
The Group has lease contracts for various items of land and buildings, plant,
machinery and vehicles used in its operations. Leases of land and buildings
generally have lease terms between three and 15 years, while plant, machinery
and vehicles generally have lease terms between two and eight years. The
Group's obligations under its leases are secured by the lessor's title to the
lease assets. Generally, the Group is restricted from assigning and
sub-leasing its leased assets. There are several lease contracts that include
extension and termination options.
The Group has certain leases of machinery with lease terms of 12 months or
less and leases of office equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions for
these leases.
Set out below are the carrying amounts of the right-of-use assets recognised
and the movements during the year:
Plant,
Land and machinery
buildings and vehicles Total
£m £m £m
At 1 January 2021 42.2 27.3 69.5
Additions 11.3 12.1 23.4
Acquired with businesses 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 and 1 January 2022 42.9 25.0 67.9
Additions 5.9 18.9 24.8
Acquired with businesses - 2.1 2.1
Depreciation expense (14.1) (15.6) (29.7)
Impairment reversal - 4.2 4.2
Contract modifications 6.0 (4.4) 1.6
Exchange movements 3.4 2.7 6.1
At 31 December 2022 44.1 32.9 77.0
The carrying amounts of lease liabilities (included within note 26 within
loans and borrowings) and the movements during the year are set out in note
27.
Impairments in 2021 related to assets that were inaccessible due to a contract
suspension in AMEA. 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. The impairment was subsequently reversed in the current year as the
assets were transported off site and their value-in-use was reassessed.
17 Investments in joint ventures
The Group's investment in joint ventures relates to a 50% interest in the
ordinary shares of KFS Finland Oy, an entity incorporated in Finland.
2022
£m
At 1 January 2022 4.0
Share of underlying post-tax results 1.5
Share of non-underlying post-tax results (note 9) (1.2)
Exchange movements 0.1
At 31 December 2022 4.4
2021
£m
At 1 January 2021 4.4
Share of underlying post-tax results 0.4
Share of non-underlying post-tax results (note 9) (0.6)
Exchange movements (0.2)
At 31 December 2021 4.0
In 2022, KFS Finland Oy earned total revenue of £20.7m (2021: £36.8m) and a
statutory profit after tax for the year of £0.3m (2021: statutory loss after
tax of £0.2m).
The joint venture had no contingent liabilities or commitments as at 31
December 2022 (2021: £nil).
Aggregate amounts relating to joint ventures:
2022 2021
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
items items
(note 9) (note 9)
£m £m £m £m £m £m
Revenue 20.7 - 20.7 18.4 - 18.4
Operating costs(1) (19.2) (1.2) (20.4) (17.9) (0.6) (18.5)
Operating profit/(loss) 1.5 (1.2) 0.3 0.5 (0.6) (0.1)
Finance costs (0.1) - (0.1) (0.1) - (0.1)
Profit/(loss) before taxation 1.4 (1.2) 0.2 0.4 (0.6) (0.2)
Taxation 0.1 - 0.1 - - -
Share of post-tax results 1.5 (1.2) 0.3 0.4 (0.6) (0.2)
( )
1 Included within operating costs is depreciation on
owned assets of £1.1m (2021: £0.8m).
KFS Finland Oy Group's portion of
(100% of results) the joint venture
2022 2021 2022 2021
£m £m £m £m
Non-current assets 18.0 20.4 9.0 10.2
Cash and cash equivalents 1.4 1.2 0.7 0.6
Other current assets 4.4 7.8 2.2 3.9
Total assets 23.8 29.4 11.9 14.7
Other current liabilities (3.4) (8.4) (1.7) (4.2)
Non-current loans and borrowings (10.8) (11.2) (5.4) (5.6)
Other non-current liabilities (0.8) (1.8) (0.4) (0.9)
Total liabilities (15.0) (21.4) (7.5) (10.7)
Share of net assets 8.8 8.0 4.4 4.0
On 8 September 2021, KFS Finland Oy acquired NordPile, a driven 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.
18 Other non-current assets
2022 2021
£m £m
Fair value of derivative financial instruments - 2.6
Non-qualifying deferred compensation plan assets 19.4 20.6
Customer retentions 16.3 24.4
Other assets 1.7 2.1
Insurance receivables 23.4 38.8
60.8 88.5
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 2022, non-current assets in relation to the investments held in
the trust were £19.4m (2021: £20.6m). The fair value movement on these
assets was £3.5m (2021: £2.0m). During the period proceeds from the sale of
NQ-related investments were £nil (2021: £nil). At 31 December 2022,
non-current liabilities in relation to the participant investments were
£14.7m (2021: £15.8m). These are accounted for as financial liabilities at
fair value through profit or loss. The fair value movement on these
liabilities was £3.5m (2021: £2.1m). During the year £1.2m (2021: £1.4m)
of compensation was deferred.
19 Inventories
2022 2021
£m £m
Raw materials and consumables 56.3 40.6
Work in progress 1.9 1.8
Finished goods 66.2 29.7
124.4 72.1
During 2022, £2.0m (2021: £2.4m) of inventory write-downs were recognised as
an expense for inventories carried at net realisable value. This is recognised
within operating costs in the consolidated income statement.
20 Trade and other receivables
2022 2021
(Restated(1))
£m £m
Trade receivables 615.5 450.7
Contract assets 105.3 99.2
Other receivables 20.7 15.9
Fair value of derivative financial instruments - -
Prepayments 23.1 19.6
Insurance receivables - 0.1
764.6 585.5
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6 to the
consolidated 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 allowance for expected credit losses of trade receivables
and contract assets is as follows:
2022 2021
£m £m
At 1 January 53.7 42.9
Used during the year (4.4) (3.1)
Additional provisions 13.8 24.6
Unused amounts reversed (29.5) (11.9)
Acquisition with businesses 0.2 2.4
Exchange movements 2.2 (1.2)
At 31 December 36.0 53.7
Set out below is information about the credit risk exposure on the Group's
trade receivables and contract assets, detailing past due but not impaired,
based on agreed terms and conditions with the customer:
2022
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
£m £m £m £m £m £m
Expected credit loss rate 1% 1% 0% 0% 43% 5%
Estimated total gross carrying amount at default 106.4 395.9 112.3 91.2 67.3 666.7
Expected credit loss (1.1) (5.3) (0.3) (0.4) (28.9) (34.9)
Carry amount as shown in the balance sheet 105.3 390.6 112.0 90.8 38.4 631.8
2021 (Restated(1))
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
£m £m £m £m £m £m
Expected credit loss rate 1% 7% 0% 1% 63% 10%
Estimated total gross carrying amount at default 99.9 288.9 125.3 60.0 53.9 528.1
Expected credit loss (0.7) (18.8) (0.1) (0.4) (33.7) (53.0)
Carry amount as shown in the balance sheet 99.2 270.1 125.2 59.6 20.2 475.1
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
21 Cash and cash equivalents
2022 2021
£m £m
Bank balances 97.0 77.9
Short-term deposits 4.1 4.8
Cash and cash equivalents in the balance sheet 101.1 82.7
Bank overdrafts (6.9) (0.9)
Cash and cash equivalents in the cash flow statement 94.2 81.8
Cash and cash equivalents include £8.5m (2021: £2.7m) of the Group's share
of cash and cash equivalents held by joint operations, and £1.4m (2021:
£1.7m) of restricted cash which is subject to local country restrictions as
it is held as collateral in support of bank guarantees.
22 Assets held for sale
2022 2021
£m £m
Plant and machinery 2.8 3.1
Inventories - 0.3
Trade receivables - -
2.8 3.4
Assets held for sale in 2022 and 2021 mainly comprises equipment in North
America of £1.2m (2021: £1.3m), following a rationalisation exercise, and
machinery in the AMEA Division of £1.4m (2021: £1.6m) as a result of the
wind-down of the Waterway business.
During the year, £0.9m of the North American assets were disposed of. The
Waterway assets remain in assets held for sale as they are currently being
marketed for sale. No new assets have been added to the assets held for sale
category during the year.
23 Trade and other payables
2022 2021
(Restated(1))
£m £m
Trade payables 229.4 268.8
Other taxes and social security payable 21.5 25.2
Other payables 139.4 119.5
Contract liabilities 85.6 46.5
Accruals 109.7 48.0
585.6 508.0
1 The 31 December 2021 consolidated other payables have been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
Other payables includes contingent and deferred consideration of £0.8m (2021:
£12.3m) and contract specific accruals of £117.6m (2021: £78.7m).
24 Provisions
Employee Restructuring Contract Insurance Other
and legal
provisions provisions provisions provisions provisions Total
£m £m £m £m £m £m
As at 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
Charge for the year 3.6 4.3 38.8 24.1 0.1 70.9
Acquired with businesses (note 6) - - - - - -
Disposal of businesses (note 6) - - - - - -
Used during the year (3.2) (3.0) (30.2) (28.9) (1.4) (66.7)
Unused amounts reversed (0.9) (1.0) (16.1) (4.7) (0.3) (23.0)
Unwinding of discount and changes in the discount rate 0.1 - - 0.1 - 0.2
Exchange movements 0.9 0.3 3.4 1.6 0.3 6.5
At 31 December 2022 10.4 4.1 37.8 65.0 2.3 119.6
Current 3.6 3.8 32.4 10.8 2.1 52.7
Non-current 6.8 0.3 5.4 54.2 0.2 66.9
At 31 December 2022 10.4 4.1 37.8 65.0 2.3 119.6
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 2022, the provision in respect of workers' compensation was
£7.1m (2021: £6.5m). 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 2022, the provision in respect of long service leave was £1.9m
(2021: £1.7m). A provision is recognised at the point an employee joins the
company, with an adjustment made to factor the likelihood that the employee
will remain in continuous service with the company to meet the threshold to
receive the benefits. It is measured on an IAS 19 basis, at the present value
of expected future benefit for services provided by employees up to the
reporting date. The actual costs that may be incurred are dependent on the
length of service for employees and amended for any starters and leavers. The
provision is utilised when the leave is taken by the employee or when unused
leave is paid on termination of employment.
Employee provisions also includes an amount of £0.8m (2021: £1.4m) 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 2022 relate primarily to the relevant
activities in the North America and Europe 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.
Provisions for insurance and legal claims are made based on the best estimate
of the likely total settlement value of a claim against the Group. Management
seek specialist input from legal advisers and the Group's insurance claims
handler to estimate the most likely legal outcome. The outcome of legal
negotiations is inherently uncertain; as a result, there can be no guarantee
that the assumptions used to estimate the provision will result in an accurate
prediction of the actual costs that may be incurred.
A provision is recognised when it is judged likely that a legal claim will
result in a payment to the claimant and the amount of the claim can be
reliably estimated. Provisions are utilised as insurance claims are settled,
which may take a number of years. A separate insurance receivable is
recognised to the extent that confirmed third-party insurance is expected to
cover any element of an estimated claim value and is virtually certain to be
recovered. The asset is recognised within other non-current assets (refer to
note 18) and trade and other receivables (refer to note 20). Management
considers that there are no instances of reimbursable assets which are
probable in nature.
Other provisions
Other provisions are in respect of property dilapidation arising from lease
obligations and other operational provisions. Where a lease includes a
'make-good' requirement, provision for the cost is recognised as the
obligation is incurred, either at the commencement of the lease or as a
consequence of using the asset, and the cost of the expected work required can
be reliably estimated. These are expected to be utilised over the relevant
lease term which ranges from 3 to 15 years across the Group.
25 Other non-current liabilities
2022 2021
£m £m
Non-qualifying compensation plan liabilities 14.7 15.8
Other liabilities 6.6 5.4
21.3 21.2
Other liabilities include deferred and contingent consideration of £1.1m
(2021: contingent consideration of £0.4m) and £5.2m (2021: £4.7m) in
respect of US social security tax deferrals, refer to note 8 for further
information.
Refer to note 18 for further information on the non-qualifying deferred
compensation plan.
26 Financial instruments
Exposure to credit, interest rate and currency risks arise in the normal
course of the Group's business and have been identified as risks for the
Group. Derivative financial instruments are used to hedge exposure to
fluctuations in foreign exchange and interest rates.
The Group does not trade in financial instruments nor does it engage in
speculative derivative transactions.
Currency risk
The Group faces currency risk principally on its net assets, most of which are
in currencies other than sterling. The Group aims to reduce the impact that
retranslation of these net assets might have on the consolidated balance sheet
by matching the currency of its borrowings, where possible, with the currency
of its assets. The majority of the Group's borrowings are held in sterling, 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 2022, the fair value of outstanding foreign exchange forward
contracts was £nil (2021: £nil) included in current assets/liabilities.
Interest rate risk
Our objectives are to add stability to the interest expense and to manage our
exposure to interest rate movements. To accomplish these objectives, we
primarily use external debt and interest rate swaps as part of our interest
rate risk management strategy.
Interest rate risk is managed by either fixed or floating rate borrowings
dependent upon the purpose and term of the financing.
As at 31 December 2022, approximately 80% (2021: 99%) 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.
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 6% of revenue in 2022 (2021: 3%).
The ageing of trade receivables that were past due but not impaired is shown
in note 20.
The Group evaluates each new customer and assesses their creditworthiness
before any contract is undertaken.
The Group reviews customer receivables (including contract assets) on an
ageing basis and provides against expected unrecoverable amounts. Experience
has shown the level of historical provision required to be relatively low.
Credit loss provisioning reflects past experience, economic factors and
specific conditions.
The Group's estimated exposure to credit risk for trade receivables and
contract assets is disclosed in note 20. This amount is the accumulation of
several years of provisions for known or expected credit losses.
Liquidity risk and capital management
The Group's capital structure is kept under constant review, taking into
account the need for availability and cost of various sources of funding. The
capital structure of the Group consists of net debt and equity as shown in the
consolidated balance sheet. The Group maintains a balance between the
certainty of funding and a flexible, cost-effective financing structure, with
all main borrowings being from committed facilities. The Group's policy
ensures that its capital structure is appropriate to support this balance and
the Group's operations.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt. The Group's debt and committed
facilities mainly comprise a $75m private placement repayable in December 2024
and a £375m syndicated revolving credit facility expiring in November 2025.
In November 2022 the Group increased borrowing facilities by a $115m bilateral
term loan facility, expiring November 2024. This facility has not been used to
date. 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 covenants are calculated on an IAS 17 basis, EBITDA to
net debt leverage must be below three times and EBITDA interest cover must be
above four times. The Group has complied with these covenants throughout the
year.
At the year end, the Group also had other borrowing facilities available of
£75.8m (2021: £76.0m), including overdraft facilities, of which £3.2m was
undrawn at 31 December 2022.
Private placements
In October and December 2014, $50m and $75m were 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 and are retranslated at the
exchange rate at each period end. The carrying value of the $75m private
placement liability at 31 December 2022 was £62.0m (2021: £58.1m).
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'). In October 2021, the interest rate swap hedging the tranche of the
$50m private placement liability repaid in the year was closed out in line
with the agreed terms. The outstanding 2014 swaps hedging the $75m private
placement liability that held the same maturity and were designated as fair
value hedges were settled on 18 May 2022 at a net loss of £0.4m, which was
reflected within finance costs in the income statement. The swaps were settled
before the maturity of the private placement as a result of the implementation
of Group's interest management strategy.
The fair value of the 2014 swaps at 31 December 2022 was £nil (2021: £2.6m);
no amount was included in other non-current assets (2021: £6.2m). The
effective portion of the changes in the fair value of the 2014 swaps was £nil
(2021: loss of £3.6m), which has been taken to the income statement along
with the equal and opposite movement in fair value of the corresponding hedged
items.
The Group entered into a Treasury lock on 25 August 2022. A Treasury lock is a
synthetic forward sale of a US Treasury note, which is settled in cash based
upon the difference between an agreed-upon treasury rate and the prevailing
treasury rate at settlement. Such Treasury locks are entered into to
effectively fix the treasury component of an upcoming debt issuance. This was
in order to hedge the treasury rates on the highly probable launch of a new US
private placement issuance between the date the Treasury lock was entered into
and the intended finalisation of the transaction on 28 September 2022. The
financing transaction was deferred; therefore, the Treasury lock was settled
on maturity. The treasury reference rates increased over the relevant period,
and a net credit was received of £3.6m, which was recognised as finance
income in the income statement as a non-underlying item.
All hedges are tested for effectiveness every six months. All hedging
relationships remained effective during the year while they were in place.
There are no designated hedging relationships at 31 December 2022.The interest
rate hedging relationship in place during 2021 as referred to above remained
effective in 2021.
Accounting classifications
2022 2021
(Restated(1))
£m £m
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 19.4 20.6
Interest rate swaps - 2.6
Financial assets measured at amortised cost
Trade receivables 615.5 450.7
Contract assets 105.3 99.2
Cash and cash equivalents 101.1 82.7
Financial liabilities at fair value through profit or loss
Contingent consideration payable (0.9) (12.7)
Financial liabilities measured at amortised cost
Trade payables (229.4) (268.8)
Contract liabilities (85.6) (46.5)
Bank and other loans (319.0) (200.6)
Lease liabilities (81.0) (75.4)
Deferred consideration payable (1.0) -
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
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:
2022
Due after Carrying amount
Effective Due within Due within Due within more than as shown in the
interest rate 1 year 1-2 years 2-5 years 5 years Total balance sheet
% £m £m £m £m £m £m
Bank loans and overdrafts 5.0 10.4 0.4 245.7 0.1 256.6 256.4
Other loans 4.2 3.2 64.6 - - 67.8 62.6
Lease liabilities - 28.3 21.4 32.9 7.1 89.7 81.0
Contract liabilities - 85.6 - - - 85.6 85.6
Trade payables - 229.4 - - - 229.4 229.4
Contingent and deferred consideration - 0.8 1.1 - - 1.9 1.9
357.7 87.5 278.6 7.2 731.0 716.9
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
Loans and borrowings analysis
2022 2021
£m £m
$75m private placement (due December 2024) 62.0 58.1
£375m syndicated revolving credit facility (expiring November 2025) 248.1 138.5
Bank overdrafts 6.9 0.9
Other bank borrowings 1.4 2.4
Other loans 0.6 0.7
Lease liabilities (note 27) 81.0 75.4
Total loans and borrowings 400.0 276.0
The Group has substantial borrowing facilities available to it. The undrawn
committed facilities available at 31 December 2022 amounted to £227.6m (2021:
£235.5m). 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 £46.1m at 31
December 2022 (2021: £56.4m). Other uncommitted bank borrowing facilities are
normally reaffirmed by the banks annually, although they can theoretically be
withdrawn at any time. Facilities totalling £1.5m (2021: £3.2m) are secured
against certain assets. Future obligations under finance leases on a former
IAS 17 basis totalled £0.9m (2021: £1.5m), including interest of £0.1m
(2021: £0.1m).
Changes in loans and borrowings were as follows:
Foreign
2021 Cash flows Other(1) New leases Acquisition of businesses exchange movements Fair value changes 2022
£m £m £m £m £m £m £m £m
Bank overdrafts (0.9) (5.9) - - - (0.1) - (6.9)
Bank loans (140.9) (98.2) (0.5) - (0.1) (9.8) - (249.5)
Other loans (58.8) 0.3 - - - (6.5) 2.4 (62.6)
Lease liabilities (note 27) (75.4) 33.1 (5.2) (24.8) (2.1) (6.6) - (81.0)
Total loans and borrowings (276.0) (70.7) (5.7) (24.8) (2.2) (23.0) 2.4 (400.0)
Derivative financial instruments 2.6 (0.2) - - - - (2.4) -
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities and the amortisation of deferred
financing costs on bank loans.
The Group has managed 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 was limited. The
changes only applied to one hedge relationship associated with managing the
fixed rate on the US private placement expiring in December 2024 (refer to
note 25) which was closed out in May 2022. 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.
Cash flow hedges
At 31 December 2022, the Group held no instruments to hedge exposures to
changes in foreign currency rates (2021: £nil). At 31 December 2021, the
Group's net value of instruments held to hedge exposures to changes in foreign
currency rates was £nil (2021: £nil).
Fair value hedges
The Group held the following instruments to hedge exposures to changes in
interest rates:
2022
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 - - - - - - - -
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
1 Included within other assets.
2 The average fixed interest rate is 4.2%.
The Group had the following hedged items relating to the above instruments:
2022 2021
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 - - - (58.1) - -
Fair value hedge adjustments - - - 3.6 - -
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 £315.8m (2021: £315.3m), 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 contract
assets, cash and cash equivalents.
Derivatives
The fair values of interest rate and cross-currency swaps are calculated based
on expected future principal and interest cash flows, discounted using market
rates prevailing at the balance sheet date. The valuation methods of all 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. During the period, the
interest rate swaps on the $75m private placement were terminated.
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and interest cash
flows discounted using appropriate discount rates prevailing at the balance
sheet date.
Contingent and deferred consideration
Fair value is calculated based on the amounts expected to be paid, determined
by reference to forecasts of future performance of the acquired businesses,
discounted using appropriate discount rates prevailing at the balance sheet
date and the probability of contingent events and targets being achieved.
The valuation methods of the Group's contingent consideration carried at fair
value are categorised as Level 3. Level 3 assets are financial assets and
liabilities that are considered to be the most illiquid. Their values have
been estimated using available management information, including subjective
assumptions. The one individually significant unobservable input used in the
fair value measurement of the Group's contingent consideration as at 31
December 2022 is the estimation of future profits at GKM in order to determine
the expected outcome of the earnout arrangement.
The following table shows a reconciliation from the opening to closing
balances for contingent and deferred consideration:
2022 2021
£m £m
At 1 January 12.7 3.0
Acquisition of businesses (note 6) 1.7 8.8
Additional amounts provided (note 9) 0.1 1.3
Paid during the period (12.3) (0.4)
Fair value in the income statement during the period (note 9) (0.7) (0.1)
Exchange movements 0.4 0.1
At 31 December 1.9 12.7
( )
On 1 May 2022, the Group acquired GKM Consultants Inc. Contingent
consideration is payable dependent on the cumulative EBITDA in the three-year
period post acquisition. The fair value of the contingent consideration was
recognised at the date of acquisition at £1.2m, but has been subsequently
reduced following movements in its fair value to £0.8m at 31 December 2022.
On 15 November 2022, the Group acquired Nordwest Fundamentering AS and the
deferred contingent consideration payable relating to this acquisition is
£0.5m.
Additional contingent consideration provided of £0.1m relates to the
acquisition of the Geo Instruments US business in 2017.
Total contingent and deferred consideration of £12.3m was paid during the
period, comprising £8.1m in respect of the RECON Services Inc. acquisition in
2021 and £3.8m in respect of the Geo Construction Group (Bencor) acquisition
in 2015. These both represent final agreements. Additionally, £0.2m was paid
in respect of the Geo Instruments acquisition and £0.2m deferred
consideration in respect of the Voges Drilling acquisition in 2021.
Fair value movements during the period of £0.7m relate to a fair value
adjustment of the RECON contingent consideration on finalisation of the amount
payable (£0.3m) and the reduction in the GKM payable noted above (£0.4m).
Payables, receivables and contract assets
For payables, receivables and contract assets with an expected maturity of one
year or less, the carrying amount is deemed to reflect the fair value.
Non-qualifying deferred compensation plan assets and liabilities
The value of both the employee investments and those held in trust by the
company are measured using Level 1 inputs per IFRS 13 ('quoted prices in
active markets for identical assets or liabilities that the entity can access
at the measurement date') based on published market prices at the end of the
period. Adjustments to the fair value of the assets and related liabilities
are recorded within net finance costs in the consolidated income statement.
Refer to note 18 for further information on the non-qualifying deferred
compensation plan.
Interest rate and currency profile
The profile of the Group's financial assets and financial liabilities after
taking account of the impact of hedging instruments was as follows:
2022
GBP USD EUR CAD AUD Other Total
Weighted average fixed debt interest rate (%) - 4.2 1.4 - - 3.5 -
Weighted average fixed debt period (years) - 2.0 3.2 - - 0.1 -
£m £m £m £m £m £m £m
Fixed rate financial liabilities - (62.0) (1.4) - - (0.6) (64.0)
Floating rate financial liabilities (75.3) (153.8) (0.2) - (25.6) (0.1) (255.0)
Lease liabilities (2.9) (48.4) (10.4) (4.4) (4.6) (10.3) (81.0)
Financial assets 7.1 4.4 14.9 4.7 11.6 58.4 101.1
Net debt (71.1) (259.8) 2.9 0.3 (18.6) 47.4 (298.9)
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)
1 Included within other floating rate financial liabilities are
AUD revolver loans of £21.5m. Included within other financial assets are AUD
cash balances of £4.1m.
Sensitivity analysis
At 31 December 2022, 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 £1.5m (2021: £1.2m).
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
£8.8m for the year ended 31 December 2022 (2021: £5.0m). The estimated
impact of a 10 percentage point decrease in the value of sterling is an
increase of £7.2m (2021: £6.1m) in the Group's profit before taxation and
non-underlying items. This sensitivity relates to the impact of retranslation
of foreign earnings only. The impact on the Group's earnings of currency
transaction exchange risk is not significant. These sensitivities assume all
other factors remain constant.
27 Lease liabilities
Set out below are the carrying amounts of lease liabilities (included within
note 26 within loans and borrowings) and the movements during the year:
2022 2021
£m £m
At 1 January 75.4 73.8
Additions 24.9 24.8
Acquired with businesses 2.1 -
Contract modifications 1.6 4.0
Interest expense 3.6 3.1
Payments (33.1) (29.8)
Exchange movements 6.5 (0.5)
At 31 December 81.0 75.4
Current 24.5 27.5
Non-current 56.5 47.9
28 Share capital and reserves
2022 2021
£m £m
Allotted, called up and fully paid equity share capital:
73,099,735 ordinary shares of 10p each (2021: 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 2022, the total number of shares held in treasury was
328,954 (2021: 777,917).
During the year to 31 December 2022, 135,050 ordinary shares were purchased by
the Keller Group Employee Benefit Trust (2021: 417,240), to be used to satisfy
future obligations of the company under the Keller Group plc Long Term
Incentive Plan. This brings the total ordinary shares held by the Employee
Benefit Trust to 552,290 (2021: 417,240). The cost of the market purchases was
£1.2m (2021: £3.7m).
There is a dividend waiver in place for both shares held in treasury and by
the Keller Group Employee Benefit Trust.
29 Related party transactions
Transactions between the parent, its subsidiaries and joint operations, which
are related parties, have been eliminated on consolidation. Other related
party transactions are disclosed below:
Compensation of key management personnel
The remuneration of the Board and Executive Committee, who are the key
management personnel, comprised:
2022 2021
£m £m
Short-term employee benefits 4.5 8.2
Post-employment benefits 0.3 0.3
Termination payments 0.4 0.4
5.2 8.9
Other related party transactions
As at 31 December 2022, there was a net balance of £0.1m owed by (2021:
£0.1m owed by) the joint venture. These amounts are unsecured, have no fixed
date of repayment and are repayable on demand.
30 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not
yet incurred was £17.6m (2021: £7.2m) and relates to property, plant and
equipment purchases.
31 Guarantees, contingent liabilities and contingent assets
Claims and disputes arise, both in the normal course of business and in
relation to the historic construction activities of the Group, some of which
lead to litigation or arbitration procedures. Such claims are predominantly
covered by the Group's insurance arrangements. The Group recognises provisions
for liabilities when it is more likely than not that a settlement will be
required and the value of such a payment can be reliably estimated.
At 31 December 2022, the Group had outstanding standby letters of credit and
surety bonds for the Group's captive insurance arrangements totalling £28.1m
(2021: £26.5m). The Group enters into performance and advance payment bonds
and other undertakings in the ordinary course of business, using guarantee
facilities with financial institutions to provide these bonds to customers. At
31 December 2022, the Group has £190.6m outstanding related to performance
and advanced payment bonds (2021: £138.3m). These are treated as a contingent
liability until such time it becomes probable that payment will be required
under the individual terms of each arrangement. It is judged to be a remote
possibility that a payment will be required under any of the current
performance or advance payment bonds.
At 31 December 2022, the Group had no contingent assets (2021: £nil).
32 Share-based payments
The Group operates a Long Term Incentive Plan (the 'Plan'). Under the Plan,
Executive Directors and certain members of senior management are granted
nil-cost share options with a vesting period of three years. The awards are
exercised automatically on vesting with the exception of Executive Directors
who are subject to a two-year post-vesting holding period.
Performance share awards are granted to Executive Directors and key management
personnel which are subject to performance conditions including total
shareholder return, earnings per share, return on capital employed and
operating profit margin. Conditional awards are granted under which senior
management receive shares subject only to service conditions, ie the
requirement for participants to remain in employment with the Group over the
vesting period. Participants are entitled to receive dividend equivalents on
these awards.
Outstanding awards are as follows:
Number
Outstanding at 1 January 2021 2,063,410
Granted during 2021 805,367
Lapsed during 2021 (782,525)
Exercised during 2021 (111,816)
Outstanding at 31 December 2021 and 1 January 2022 1,974,436
Granted during 2022 817,381
Lapsed during 2022 (365,677)
Exercised during 2022 (448,963)
Outstanding at 31 December 2022 1,977,177
Exercisable at 1 January 2021 -
Exercisable at 31 December 2021 and 1 January 2022 -
Exercisable at 31 December 2022 -
The average share price during the year was 759.3p (2021: 865.1p).
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.
2022 2021
The inputs into the stochastic model are as follows:
Share price at grant 800.0p 856.0p
Weighted average exercise price 0.0p 0.0p
Expected volatility 41.2% 47.3%
Expected life 3 years 3 years
Risk-free rate 1.35% 0.14%
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 £2.9m
(2021: £3.9m) related to equity-settled, share-based payment transactions.
The weighted average fair value of options granted in the year was 724.2p
(2021: 827.6p). Options outstanding at the year-end have a weighted average
remaining contractual life of 1.2 years (2021: 1.1 years).
The awards, which are taken as shares, are intended to be satisfied from
shares held under the Keller Group Employee Benefit Trust (the 'Trust') or
from treasury shares held. The shares held by the Trust are accounted for as a
deduction from equity in retained earnings. At 31 December 2022, 552,290
(2021: 417,240) ordinary shares were held by the Trust with a value of £4.9m
(2021: £3.7m).
33 Retirement benefit liabilities
The Group operates pension schemes in the UK and overseas.
In the UK, the Group operates the Keller Group Pension Scheme (the 'Scheme'),
a defined benefit scheme, which has been closed to new members since 1999 and
was closed to all future benefit accrual with effect from 31 March 2006. Under
the Scheme, employees are normally entitled to retirement benefits on
attainment of a retirement age of 65. The Scheme is subject to UK pensions
legislation which, inter alia, provides for the regulation of work‑based
pension schemes by The Pensions Regulator. The trustees are aware of and
adhere to the Codes of Practice issued by The Pensions Regulator. The Scheme
trustees currently comprise one member-nominated trustee and two
employer-nominated trustees. An employer-nominated trustee is also the Chair
of the trustees. The Scheme exposes the Group to actuarial risks, such as
longevity risk, interest rate risk and market (investment) risk, which are
managed through the investment strategy to acceptable levels established by
the trustees. The Scheme can invest in a wide range of asset classes including
equities, bonds, cash, property, alternatives (including private equity,
commodities, hedge funds, infrastructure, currency, high yield debt and
derivatives) and annuity policies. Any investment in derivative instruments is
only made to contribute to a reduction in the overall level of risk in the
portfolio or for the purposes of efficient portfolio management. With effect
from the most recent actuarial valuation date (5 April 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 2022. 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
2022 (2021: £nil). The total UK defined contribution pension charge for the
year was £1.6m (2021: £1.4m).
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 £14.6m (2021: £6.4m).
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 10.5% (2021: 10.0%). The total Australian pension charge for the
year was £4.6m (2021: £3.8m).
Details of the Group's defined benefit schemes are as follows:
The Keller German,(1) German,(1)
Group Pension The Keller Austrian Austrian
Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2022 2021 2022 2021
£m £m £m £m
Present value of the scheme liabilities (39.0) (58.3) (16.7) (18.9)
Fair value of assets 42.2 63.7 - -
Surplus/(deficit) in the scheme 3.2 5.4 (16.7) (18.9)
Irrecoverable surplus (7.3) (12.2) - -
Net defined benefit liability (4.1) (6.8) (16.7) (18.9)
( )
1 ( ) Included in this balance is £3.5m (2021: £3.0m)
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 2022 and the committed payments under the Schedule of
Contributions agreed on 17 November 2020, there is a irrecoverable surplus of
£7.3m (2021: £12.2m). 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 Austrian German and
Group Pension Scheme (UK) Group Pension Scheme (UK) schemes Austrian
schemes
2022 2021 2022 2021
% % % %
Discount rate 4.8 2.0 3.5 0.8
Interest on assets 4.8 2.0 - -
Rate of increase in pensions in payment 3.4 3.5 2.5 2.0
Rate of increase in pensions in deferment 2.7 2.9 8.3 3.2
Rate of inflation 3.3 3.5 8.3 3.2
The mortality rate assumptions are based on published statistics. The average
remaining life expectancy, in years, of a pensioner retiring at the age of 65
at the balance sheet date is:
The Keller The Keller German and Austrian German and
Group Penson Scheme (UK) Group Pension Scheme (UK) schemes Austrian
schemes
2022 2021 2022 2021
Male currently aged 65 21.0 21.0 19.9 19.5
Female currently aged 65 23.4 23.3 23.3 22.8
The assets of the schemes were as follows:
The Keller The Keller German, German,
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) and other and other
schemes schemes
2022 2021 2022 2021
£m £m £m £m
Equities 7.8 16.8 - -
Target return funds(1) 5.0 8.1 - -
Gilts - - - -
Bonds 13.6 19.7 - -
Liability driven investing (LDI) portfolios(2) 12.9 15.9 - -
Cash 2.9 3.2 - -
42.2 63.7 - -
1( ) A diversified growth fund split between mainly UK listed
equities, bonds and alternative investments which are capped at 20% of the
total fund.
2 A portfolio of gilt and swap contracts, backed by
investment-grade credit instruments, that is designed to hedge the majority of
the interest rate and inflation risks associated with the schemes'
obligations.
The Keller The Keller German,(1) German,(1)
Austrian Austrian
Group Pension Scheme (UK) Group Pension Scheme (UK)
and other and other
schemes
schemes
2022 2021 2022 2021
£m £m £m £m
Changes in scheme liabilities
Opening balance (58.3) (65.0) (18.9) (21.9)
Current service cost - - (0.8) (0.6)
Interest cost (1.1) (0.8) - (0.1)
Benefits paid 2.1 2.1 1.0 1.5
Exchange movements - - (0.8) 1.0
Experience loss on defined benefit obligation (0.5) - - -
Changes to demographic assumptions - (0.6) - -
Changes to financial assumptions 18.8 6.0 2.8 1.2
Closing balance (39.0) (58.3) (16.7) (18.9)
Changes in scheme assets
Opening balance 63.7 58.0 - -
Interest on assets 1.2 0.7 - -
Administration costs (0.2) (0.2) - -
Employer contributions 2.8 2.7 - -
Benefits paid (2.1) (2.1) - -
Return on plan assets less interest (23.2) 4.6 - -
Closing balance 42.2 63.7 - -
Actual return on scheme assets (22.0) 5.3 - -
Statement of comprehensive income
Return on plan assets less interest (23.2) 4.6 - -
Experience gain on defined benefit obligation (0.5) - - -
Changes to demographic assumptions - (0.6) - -
Changes to financial assumptions 18.8 6.0 2.8 1.2
Change in irrecoverable surplus 4.9 (10.0) - -
Remeasurements of defined benefit plans - - 2.8 1.2
Cumulative remeasurements of defined benefit plans (25.6) (25.6) (6.4) (9.2)
Expense recognised in the income statement
Current service cost - - 0.8 0.6
Administration costs 0.2 0.2 - -
Operating costs 0.2 0.2 0.8 0.6
Net pension interest cost (0.1) 0.1 - 0.1
Expense recognised in the income statement 0.1 0.3 0.8 0.7
Movements in the balance sheet liability
Net liability at start of year 6.8 9.2 18.9 21.9
Expense recognised in the income statement 0.1 0.3 0.8 0.7
Employer contributions (2.8) (2.7) - -
Benefits paid - - (1.0) (1.5)
Exchange movements - - 0.8 (1.0)
Remeasurements of defined benefit plans - - (2.8) (1.2)
Net liability at end of year 4.1 6.8 16.7 18.9
schemes
German,(1)
Austrian
and other
schemes
2022
2021
2022
2021
£m
£m
£m
£m
Changes in scheme liabilities
Opening balance
(58.3)
(65.0)
(18.9)
(21.9)
Current service cost
-
-
(0.8)
(0.6)
Interest cost
(1.1)
(0.8)
-
(0.1)
Benefits paid
2.1
2.1
1.0
1.5
Exchange movements
-
-
(0.8)
1.0
Experience loss on defined benefit obligation
(0.5)
-
-
-
Changes to demographic assumptions
-
(0.6)
-
-
Changes to financial assumptions
18.8
6.0
2.8
1.2
Closing balance
(39.0)
(58.3)
(16.7)
(18.9)
Changes in scheme assets
Opening balance
63.7
58.0
-
-
Interest on assets
1.2
0.7
-
-
Administration costs
(0.2)
(0.2)
-
-
Employer contributions
2.8
2.7
-
-
Benefits paid
(2.1)
(2.1)
-
-
Return on plan assets less interest
(23.2)
4.6
-
-
Closing balance
42.2
63.7
-
-
Actual return on scheme assets
(22.0)
5.3
-
-
Statement of comprehensive income
Return on plan assets less interest
(23.2)
4.6
-
-
Experience gain on defined benefit obligation
(0.5)
-
-
-
Changes to demographic assumptions
-
(0.6)
-
-
Changes to financial assumptions
18.8
6.0
2.8
1.2
Change in irrecoverable surplus
4.9
(10.0)
-
-
Remeasurements of defined benefit plans
-
-
2.8
1.2
Cumulative remeasurements of defined benefit plans
(25.6)
(25.6)
(6.4)
(9.2)
Expense recognised in the income statement
Current service cost
-
-
0.8
0.6
Administration costs
0.2
0.2
-
-
Operating costs
0.2
0.2
0.8
0.6
Net pension interest cost
(0.1)
0.1
-
0.1
Expense recognised in the income statement
0.1
0.3
0.8
0.7
Movements in the balance sheet liability
Net liability at start of year
6.8
9.2
18.9
21.9
Expense recognised in the income statement
0.1
0.3
0.8
0.7
Employer contributions
(2.8)
(2.7)
-
-
Benefits paid
-
-
(1.0)
(1.5)
Exchange movements
-
-
0.8
(1.0)
Remeasurements of defined benefit plans
-
-
(2.8)
(1.2)
Net liability at end of year
4.1
6.8
16.7
18.9
( )
1 ( ) Other comprises end of service schemes in the
Middle East of £3.5m (2021: £3.0m).
A reduction in the discount rate of 0.5% would increase the deficit in the
schemes by £2.5m (2021: reduction in the discount rate of 0.1% would increase
the deficit in the scheme by £1.1m), whilst a reduction in the inflation
assumption of 0.5%, including its impact on the revaluation in deferment and
pension increases in payment, would decrease the deficit by £1.3m (2021:
reduction in the inflation assumption of 0.1% would decrease the deficit by
£0.7m). A decrease in the mortality rate by one year would decrease the
deficit in the schemes by £1.8m. Note that these sensitivities do not include
end of service schemes in the Middle East as these are not material to the
Group.
The weighted average duration of the defined benefit obligation is
approximately 13 years for the UK scheme and 12 years for the German and
Austrian schemes. The history of experience adjustments on scheme assets and
liabilities for all the Group's defined benefit pension schemes, including the
end of service schemes in the Middle East, are as follows:
2022 2021 2020 2019 2018
£m £m £m £m £m
Present value of defined benefit obligation (55.7) (77.2) (86.9) (81.1) (71.7)
Fair value of scheme assets 42.2 63.7 58.0 52.2 45.2
Deficit in the schemes (13.5) (13.5) (28.9) (28.9) (26.5)
Irrecoverable surplus (7.3) (12.2) (2.2) (1.8) (1.4)
Net defined benefit liability (20.8) (25.7) (31.1) (30.7) (27.9)
Experience adjustments on scheme liabilities 21.1 6.6 (7.9) (8.2) 3.7
Experience adjustments on scheme assets (23.2) 4.6 6.1 5.4 (1.5)
34 Non-controlling interests
Financial information of subsidiaries that have a material non-controlling
interest is provided below:
Name Country of incorporation 2022 2021
Keller Fondations Speciales SPA Algeria 49% 49%
Keller Turki Company Limited Saudi Arabia 35% 35%
Loss attributable to non-controlling interests:
2022 2021
£m £m
Keller Fondations Speciales SPA (0.5) (0.5)
Keller Turki Company Limited (0.3) (0.3)
Other interests (0.2) (0.1)
(1.0) (0.9)
Share of net assets of non-controlling interests:
2022 2021
£m £m
Keller Fondations Speciales SPA 2.7 2.9
Keller Turki Company Limited (0.6) (0.3)
Other interests 0.2 0.2
2.3 2.8
Aggregate amounts relating to material non-controlling interests:
2022 2022 2021 2021
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Revenue 0.1 4.6 0.9 4.2
Operating costs (0.6) (4.9) (1.2) (4.5)
Operating loss (0.5) (0.3) (0.3) (0.3)
Finance costs - - - -
Loss before taxation (0.5) (0.3) (0.3) (0.3)
Taxation - - (0.2) -
Loss attributable to non-controlling interests (0.5) (0.3) (0.5) (0.3)
2022 2022 2021 2021
£m £m £m £m
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Non-current assets 0.8 0.7 0.9 0.7
Current assets 2.8 6.0 2.8 2.4
Current liabilities (0.9) (6.2) (0.8) (2.8)
Non-current liabilities - (1.1) - (0.6)
Share of net assets/(liabilities) 2.7 (0.6) 2.9 (0.3)
35 Post balance sheet events
There were no material post balance sheet events between the balance sheet
date and the date of this report.
Adjusted performance measures
The Group's results as reported under International Financial Reporting
Standards (IFRS) and presented in the 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
results announcement 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 2021 results of overseas operations into
sterling at the 2022 average exchange rates.
A reconciliation between the underlying results and the reported statutory
results is shown on the face of the consolidated income statement, with
non-underlying items detailed in note 9 to the consolidated financial
statements. A reconciliation between the 2021 underlying result and the 2021
constant currency result is shown below and compared to the underlying 2022
performance:
Revenue by segment
2022 2021 (Restated(1))
Statutory Statutory Impact of exchange movements Constant Statutory Constant currency
currency change change
£m £m £m £m % %
North America 1,896.1 1,323.1 143.6 1,466.7 +43% +29%
Europe 649.3 549.2 (5.4) 543.8 +18% +19%
Asia-Pacific, Middle East and Africa 399.2 350.2 15.9 366.1 +14% +9%
Group 2,944.6 2,222.5 154.1 2,376.6 +32% +24%
1 The 31 December 2021 consolidated revenues have been restated
in respect of the correction of prior period errors arising from the fraud at
Austral and prior period business combination measurement adjustments, as
outlined in notes 3 and 6 to the consolidated financial statements.
Underlying operating profit by segment
2022 2021 (Restated(1))
Underlying Underlying Impact of exchange Constant Underlying Constant currency
movements currency change change
£m £m £m £m % %
North America 82.0 73.0 8.2 81.2 +12% +1%
Europe 29.1 24.3 (0.1) 24.2 +20% +20%
Asia-Pacific, Middle East and Africa 6.6 (0.9) 0.8 (0.1) n/a n/a
Central items (9.1) (7.9) - (7.9) n/a n/a
Group 108.6 88.5 8.9 97.4 +23% +12%
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
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)
2022 2021
(Restated(1))
£m £m
Underlying operating profit 108.6 88.5
Depreciation and impairment of owned property, plant and equipment 71.1 65.9
Depreciation and impairment of right-of-use assets 25.5 30.9
Amortisation of intangible assets 0.4 0.6
Underlying EBITDA 205.6 185.9
Non-underlying items in operating costs (excluding goodwill impairment) (17.6) (9.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 188.7 177.0
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
EBITDA (IAS 17 covenant basis)
2022 2021
(Restated(1))
£m £m
Underlying operating profit 108.6 88.5
Depreciation and impairment of owned property, plant and equipment 71.1 65.9
Depreciation and impairment of right-of-use assets 25.5 30.9
Legacy IAS 17 operating lease charges (27.9) (32.7)
Amortisation of intangible assets 0.4 0.6
Underlying EBITDA 177.7 153.2
Non-underlying items in operating costs (excluding goodwill impairment) (17.6) (9.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 160.8 144.3
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated financial
statements.
Net finance costs
2022 2021
£m £m
Finance income (0.5) (0.4)
Underlying finance costs 15.6 9.3
Net finance costs (statutory) 15.1 8.9
Finance charge on lease liabilities(1) (3.6) (3.0)
Lender covenant adjustments (0.2) (0.7)
Net finance costs (IAS 17 covenant basis) 11.3 5.2
1 Excluding legacy IAS 17 finance leases.
Net capital expenditure
2022 2021
(Restated(1))
£m £m
Acquisition of property, plant and equipment 81.6 84.0
Acquisition of other intangible assets 0.1 0.4
Proceeds from sale of property, plant and equipment (8.2) (12.2)
Net capital expenditure 73.5 72.2
Net debt
2022 2021
£m £m
Current loans and borrowings 34.2 29.8
Non-current loans and borrowings 365.8 246.2
Cash and cash equivalents (101.1) (82.7)
Net debt (statutory) 298.9 193.3
Lease liabilities(1) (80.1) (73.9)
Net debt (IAS 17 covenant basis) 218.8 119.4
1 Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying EBITDA.
Statutory
2022 2021
£m (Restated(1))
£m
Net debt 298.9 193.3
Underlying EBITDA 205.6 185.9
Leverage ratio (x) 1.5 1.0
IAS 17 covenant basis
2022 2021
£m (Restated(1))
£m
Net debt 218.8 119.4
Underlying EBITDA 177.7 153.2
Leverage ratio (x) 1.2 0.8
Order book
The Group's disclosure of its order book is aimed to provide insight into its
backlog of work and future performance. The Group's order book is not a
measure of past performance and therefore cannot be derived from its
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
2013 2014 2015 2016 2017 2018 2019 2020 2021(1) 2022
£m £m £m £m £m £m £m £m £m £m
Consolidated income statement
Continuing operations
Revenue 1,438.2 1,599.7 1,562.4 1,780.0 2,070.6 2,224.5 2,300.5 2,062.5 2,222.5 2,944.6
Underlying EBITDA 124.2 141.9 155.5 158.6 177.2 167.5 198.4 205.0 185.9 205.6
Underlying operating profit 77.8 92.0 103.4 95.3 108.7 96.6 103.8 110.1 88.5 108.6
Underlying net finance costs (3.7) (6.9) (7.7) (10.2) (10.0) (16.1) (22.5) (13.2) (8.9) (15.1)
Underlying profit before taxation 74.1 85.1 95.7 85.1 98.7 80.5 81.3 96.9 79.6 93.5
Underlying taxation (23.8) (29.7) (33.0) (29.8) (24.7) (22.5) (22.4) (28.3) (18.9) (20.3)
Underlying profit for the year 50.3 55.4 62.7 55.3 74.0 58.0 58.9 68.6 60.7 73.2
Non-underlying items(2) (20.2) (56.6) (36.4) (7.3) 13.5 (71.8) (37.2) (27.5) (5.1) (28.2)
Profit/(loss) for the year 30.1 (1.2) 26.3 48.0 87.5 (13.8) 21.7 41.1 55.6 45.0
Underlying EBITDA (IAS 17 covenant basis) 124.2 141.9 155.5 158.6 177.2 167.5 170.8 175.0 153.2 177.7
Consolidated balance sheet
Working capital 124.1 104.1 97.1 152.5 181.3 225.4 200.9 180.3 149.6 303.4
Property, plant and equipment 281.9 295.6 331.8 405.6 399.2 422.0 460.6 434.9 443.4 486.5
Intangible and other non-current assets 202.8 203.4 183.0 218.2 198.3 179.5 192.3 183.5 228.0 202.4
Net debt (statutory) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (289.8) (192.5) (193.3) (298.9)
Other net liabilities (92.5) (154.6) (94.9) (41.1) (77.1) (114.2) (166.5) (196.2) (199.7) (196.6)
Net assets 372.6 346.3 334.0 429.6 472.2 426.5 397.5 410.0 428.0 496.8
Net debt (IAS 17 covenant basis) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (213.1) (120.9) (119.4) (218.8)
Underlying key performance indicators
Diluted earnings per share from continuing operations (p) 71.9 74.2 85.4 74.8 101.8 79.1 81.3 96.3 84.2 100.7
Dividend per share (p) 24.0 25.2 27.1 28.5 34.2 35.9 35.9 35.9 35.9 37.7
Operating margin 5.4% 5.8% 6.6% 5.4% 5.2% 4.3% 4.5% 5.3% 4.0% 3.7%
Return on capital employed(3) 16.7% 18.3% 20.5% 15.3% 15.1% 13.2% 14.4% 16.4% 13.9% 14.9%
Net debt: EBITDA (statutory) 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.5x 0.9x 1.0x 1.5x
Net debt: EBITDA (IAS 17 covenant basis) 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.2x 0.7x 0.8x 1.2x
1 Intangible and other non-current assets and other net liabilities
presented here do not correspond to the published 2021 consolidated financial
statements. The 31 December 2021 consolidated income statement, balance sheet
and key performance indicators have been restated in respect of the prior
period reporting errors at Austral and prior period measurement business
combinations adjustments, as outlined in notes 3 and 6 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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