TIDMKLR
RNS Number : 1061V
Keller Group PLC
04 August 2020
4 August 2020
Keller Group plc Interim Results for the half year period ended
28 June 2020
Keller Group plc ('Keller' or 'the Group'), the world's largest
geotechnical specialist contractor, announces its results for the
half year period ended 28 June 2020.
Strong performance despite the disruptive impact of COVID-19
H1 2020 H1 2019 Constant currency
GBPm GBPm % change % change
-------- -------- -----------
Revenue 1,039.1 1,091.7 -5% -5%
Underlying operating profit(1) 47.9 38.3 +25% +20%
Underlying profit before tax(1) 40.7 27.5 +48% +39%
Underlying diluted earnings per share(1) 39.5p 27.1p +46% +37%
Net debt (2) 155.1 333.5 -54% -54%
Interim dividend per share - 12.6p - -
Statutory operating profit 28.0 32.5
Statutory profit before tax 20.8 21.7
Statutory diluted earnings per share 13.8p 4.8p
------------------------------------------ -------- -------- ----------- ------------------
(1) Underlying operating profit, profit before tax and
underlying diluted earnings per share are non-statutory measures
which provide readers of this interim announcement with a balanced
and comparable view of the Group's performance by excluding the
impact of non-underlying items, as disclosed in note 7 of the
interim condensed consolidated financial statements.
(2) Net debt is presented on a lender covenant basis excluding
the impact of IFRS16 as disclosed in note 12 of the interim
condensed consolidated financial statements.
Highlights
-- Improved profitability and cash generation evidence a strong first half performance despite the disruptive impact
of COVID-19
-- Revenue of GBP1,039m, down 5%, largely due to the impact of COVID-19 in APAC and EMEA
-- Underlying operating profit of GBP47.9m, up 20% at constant currency, driven by strong North America performance
and return to profitability in APAC
-- Underlying EPS of 39.5p, up 37% at constant currency
-- Net debt of GBP155m, down 54%, equating to net debt/EBITDA (on a covenant and IAS17 basis) of 0.9x, slightly
favourable to our 1.0x-1.5x target range
-- Strong liquidity position maintained with GBP595m of undrawn funding available
-- Payment of the 2019 final dividend in August continues the Group's track record of maintaining or increasing the
dividend every year since flotation in 1994
-- Continued progress in conventional and COVID-19 related safety, with a 19% year-on-year improvement in the
accident frequency rate
-- Execution of the revised strategy continues, with the successful exit from Brazil and rationalisation of Franki
Africa including its integration into Middle East based operations
-- Order book at the half year remained steady at c.GBP1bn, despite a recent decline in order intake from increased
global macroeconomic uncertainty
-- As previously stated, the payment of a 2020 interim dividend will be considered by the Board later in the year
Outlook
-- The current order book supports trading through much of the second half of 2020 and, assuming no further material
lockdowns, we anticipate delivering a resilient full year result, albeit without the typical second half
weighting
-- We anticipate that any sustained continuation of the recent decline in order intake during the second half will
impact the forward order book, which, together with the macroeconomic uncertainty as a result of COVID-19, would
be likely to result in the 2021 outlook being more challenging than for 2020
Michael Speakman, Chief Executive Officer, said:
"I am very pleased with the way the Keller team has responded to
the challenges of COVID-19, and their actions are evidenced by our
strong financial performance in the first half, further good
progress in the implementation of our strategic actions and
expected resilient performance for the full year. The late cycle
nature of our business makes us naturally cautious about the
short-term economic outlook and we are proactively managing the
business accordingly. The long-term fundamentals for Keller
continue to be strong and we remain optimistic about the future
trading prospects and strategic opportunities for the Group."
For further information, please contact:
Keller Group plc www.keller.com
Michael Speakman, Chief Executive Officer
Mark Hooper, Interim Chief Financial Officer
Victoria Huxster, Co-Head of Investor
Relations
Caroline Crampton, Co-Head of Investor
Relations 020 7616 7575
Finsbury
Gordon Simpson 020 7251 3801
A webcast for investors and analysts will be held at 09.30am
and will also be available, on demand, from 2.00pm at
https://www.investis-live.com/keller/5f16c9d77b676e1e00950ba4/rgds
Conference call: Accessing the telephone replay:
Participants joining by telephone: A recording will be available until
United Kingdom 0800 640 6441 11 August 2020
United Kingdom (Local) 020 3936 UK: 020 3936 3001
2999 USA: 1 845 709 8569
All other locations +44 20 3936 All other locations: +44 20 3936
2999 3001
Participant access code 007715 Access Code: 387141
Notes to editors:
Keller is the world's largest geotechnical specialist contractor
providing a wide portfolio of advanced foundation and ground
improvement techniques used across the entire construction sector.
With around 10,000 staff and operations across six continents,
Keller tackles an unrivalled 7,000 projects every year, generating
annual revenue of more than GBP2bn.
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 Risk
Management approach and Principal Risks section of the Strategic
Report in the Annual Report and Accounts. All written or verbal
forward looking-statements, made in this document or made
subsequently, which are attributable to Keller or any other member
of the Group or persons acting on their behalf are expressly
qualified in their entirety by the factors referred to above.
Keller does not intend to update these forward-looking statements.
Nothing in this document should be regarded as a profits forecast.
This document is not an offer to sell, exchange or transfer any
securities of Keller Group plc or any of its subsidiaries and is
not soliciting an offer to purchase, exchange or transfer such
securities in any jurisdiction. Securities may not be offered, sold
or transferred in the United States absent registration or an
applicable exemption from the registration requirements of the US
Securities Act of 1933 (as amended).
LEI number: 549300QO4MBL43UHSN10
Classification: 1.2 (Half yearly financial reports)
Adjusted performance measures
In addition to statutory measures, a number of Adjusted
Performance Measures (APMs) are included in this interim
announcement to assist investors in gaining a clearer understanding
and balanced view of the Group's underlying performance 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. 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
period.
APMs are reconciled to the statutory equivalent in the final
section of this interim announcement and within other notes to the
interim condensed consolidated financial statements, as
relevant.
GROUP OVERVIEW
Financial performance
The Group performed strongly in the period, delivering a
significant improvement in profitability and cash generation on H1
2019, driven by a strong first quarter and a resilient second
quarter which was inevitably impacted by the disruptive effects of
COVID-19.
Group revenue was GBP1,039.1m, 5% down on last year, principally
reflecting the impact of COVID-19 in EMEA and APAC. By comparison,
North America revenue increased slightly despite the pandemic.
Underlying operating profit was strong, up 20% at constant
currency, despite the impact of COVID-19, driven by margin
improvement in North America and the return to profit in APAC. The
Group initiated a number of proactive measures to protect margin in
light of the lower revenues resulting from COVID-19. Operating
margin at 4.6% improved year on year (2019 H1: 3.5%).
Operating performance
The Group saw a strong performance in North America in terms of
both revenue and profit, with the benefits of the integration of
the foundations business starting to be realised. Underlying
operating margin in North America improved to 6.1% (H1 2019: 5.4%)
due to extreme adverse weather experienced in 2019 not repeating in
2020, operating efficiencies and cost reductions driven by the
reorganisation of our foundations businesses and a strong
performance at Suncoast. The effect of COVID-19 in the first half
was less than initially expected, with varying levels of
restrictions in different states and provinces. Construction was
considered an essential service in most parts of North America,
with the vast majority of our sites remaining open.
In EMEA, the impact of COVID-19 arrived earlier and was more
significant than in North America and varied markedly by country.
North East Europe, Central Europe and Mexico performed well with
activity levels generally maintained, whilst the more disrupted
operations in UK, Iberia and French speaking countries performed
less well. We continue to monitor the evolving situation with
regard to the virus in the Middle East, Africa and South America,
which have been impacted later than the rest of the division.
In APAC, trading patterns in the second quarter varied widely by
market with Australia largely operational, India and Malaysia
closed for a period and Singapore remaining largely closed for
construction at the period end. We are pleased that the division
continues to be profitable, building on its return to profit in the
second half of 2019. Austral in particular had a strong first half
benefiting from the Cape Lambert project for Rio Tinto.
The measures put in place across the Group since the start of
the COVID-19 pandemic have strengthened our resilience and
minimised both the human and financial impact of the crisis. These
measures have included enhanced safety protocols, operating cost
reductions, cancellation of discretionary projects, reduced capital
expenditure and an even greater focus on working capital. We have
selectively accessed relevant governmental support schemes across
our major markets. In the UK, the level of support has not been
material in the context of the overall Group and we have no plans
to access the new Coronavirus Job Retention Bonus. To date we have
not seen a deterioration in our receivables profile and have
actively managed our investment in capital and revenue projects.
Given the strong H1 performance and the payment of the 2019 final
dividend, the voluntary 20% reduction in fees and salary made by
the Board and senior management during the second quarter has now
been reinstated. We will continue to review and amend all of the
above actions as appropriate in response to trading in H2.
Cash flow and liquidity
Cash generation was strong during the first half, driven by
improved disciplines in working capital management as well as
heightened vigilance in response to the global pandemic. At 28 June
2020, on a lender covenant and IAS17 basis, our net debt was
GBP155m and net debt/EBITDA leverage was 0.9x, slightly below our
target range of 1.0x-1.5x.
The Group has access to substantial borrowing facilities. As at
28 June 2020, the Group had undrawn committed and uncommitted
borrowing facilities totalling GBP595m, comprising GBP221m of the
unutilised portion of the Group's GBP375m revolving credit facility
(which expires in November 2024 and has an option to extend by one
further year), GBP19m of other undrawn committed borrowing
facilities and undrawn uncommitted borrowing facilities of GBP355m,
as well as cash and cash equivalents of GBP129m.
Undrawn uncommitted facilities include GBP300m under the Covid
Corporate Financing Facility (CCFF), confirmed as available to us
by the Bank of England in June 2020 and which become committed only
at point of drawing. We have not drawn and do not expect to draw on
the CCFF. To be explicitly clear, the CCFF facility has only been
secured to provide additional protection, in extremis, should there
be an unexpected and significant deterioration in future market
conditions and client payment behaviours resulting in a very
material deterioration in cash flow performance.
Strategy
We have continued to make progress with our revised strategy, to
be the preferred international geotechnical specialist contractor
focused on sustainable markets and attractive projects, which will
enable us to generate increased shareholder value.
At the beginning of 2020 we announced our intention to make a
phased withdrawal from South America and complete a strategic
review of our Franki Africa business by the end of the first half.
The sale of Tecnogeo in April 2020 marked our successful exit from
the Brazilian market, and the strategic review of Franki Africa is
now complete. The Franki Africa business has faced challenging
market, economic and political conditions in a number of the
countries in which it operates, and despite the significant cost
reductions implemented in 2018 and 2019, the business has been
unable to deliver the required margins and returns. The business is
therefore being rationalised, with a small number of the profitable
operations being retained and integrated into our Middle East based
operations, which share similar market dynamics and conditions.
There remain major contract opportunities in the region,
particularly in the oil and gas sector, where we were recently
awarded a US$23m LNG contract in Mozambique. Our ability to compete
for and execute such contracts in Africa will not be diminished by
this action.
In line with our strategy, we will concentrate our resources on
those markets and activities where customers value our skills and
expertise, where we can achieve mutual benefits and deliver an
appropriate level of financial return. We will therefore continue
the rationalisation of our geographic presence, and exit from
certain non-core activities.
Safety
As always, safety has continued to be an area of focus, and our
accident frequency rate was 1.3 during the first half of the year;
a 19% improvement (2019 H1: 1.6). We have an industry-leading track
record but are not complacent in this regard and continue to
prioritise the health and safety of our employees. In respect of
the additional operational challenges posed by COVID-19, the
guidance and support we are providing to our employees continues to
follow World Health Organisation guidelines, supplemented by local
authority guidance in the regions in which we operate. This
approach has enabled us to work in a safe and productive manner on
sites wherever the local regulatory regime allows, using applicable
personal protective equipment and social distancing.
Interim dividend
The Board fully recognises the importance of dividends to
shareholders and, as announced in our trading update on 16 June
2020, decided that it would be both prudent and appropriate to
maintain the 2019 full year dividend at the prior year's level,
representing a full year total dividend of 35.9p. This reflected
the continued financial strength of the Group, its significantly
improved liquidity position, trading during the first half of the
year and the longer-term confidence in the performance of the
business. Payment of this dividend continues the Group's track
record of maintaining or increasing the full year dividend every
year since flotation in 1994.
As announced in the June trading update, the payment of a 2020
interim dividend will be considered by the Board later in the
year.
Outlook
The Group had a strong first quarter and a resilient second
quarter, with the business responding to the challenges of COVID-19
with a number of proactive measures taken to protect margin and
support strong cash generation. Whilst the order book has remained
steady at c.GBP1bn at the period end, there has been a recent
decline in order intake, reflecting a combination of the short-term
impact of the pandemic and more general restraint caused by the
increased macroeconomic uncertainty.
The current order book supports trading through much of the
second half of 2020 and, assuming no further material lockdowns, we
anticipate delivering a resilient full year result, albeit without
the typical second half weighting.
We anticipate that any sustained continuation of the recent
decline in order intake during the second half will impact the
forward order book which, together with the macroeconomic
uncertainty as a result of COVID-19, would be likely to result in
the 2021 outlook being more challenging than for 2020.
While the trading environment in the short term is expected to
be challenging, the Group remains well positioned to take advantage
of strong underlying growth drivers underpinned by the long-term
global demand for urbanisation and infrastructure growth. Keller
remains strategically well positioned as the world's largest
geotechnical specialist contractor and we are focused on re-shaping
and investing in the business to take advantage of the long term
positive market trends. Accordingly, we remain optimistic about the
longer term trading prospects and strategic opportunities for the
Group.
OPERATING REVIEW
North America
H1 2020 H1 2019 Constant
currency
GBPm GBPm
---------------------- -------- --------
Revenue 636.5 611.0 +2%
Underlying operating
profit 38.6 33.1 +14%
Underlying operating
margin 6.1% 5.4%
Order book* 677.3 624.3 +9%
---------------------- -------- -------- ----------
* Comparative order book stated at constant currency
In North America, revenue increased by 2% on a constant currency
basis. All the businesses had a strong first quarter in part due to
the extreme adverse weather experienced in 2019 not repeating in
2020. Second quarter revenue, however, was down on last year as
COVID-19 began to impact the business. Operating site closures as a
result of COVID-19 have varied across North America with some
states and provinces imposing tight restrictions, and others
imposing very few restrictions. Whilst overall the vast majority of
sites on which we were working remained open, a significant number
of project starts were postponed during the second quarter.
Underlying operating profit was GBP38.6m, up 14% and underlying
operating margin increased to 6.1% (2019 H1: 5.4%). The margin
improvement was driven by the less adverse weather conditions in
the first quarter, operating efficiencies and cost reductions
driven by the reorganisation of our North America foundations
businesses and a strong performance at Suncoast, partly offset by
the impact of COVID-19.
The reorganisation of the new North America foundations business
that was announced in 2019 successfully launched on 1 January 2020.
The new organisation is managed as eight business units, seven
geographically based, each with similar revenue and offering our
full product portfolio. The eighth business unit offers specialty
services across the whole of North America that were previously
only offered from a limited number of offices.
We expect the reorganisation, which offers our full range of
products and services into the whole of our North American
geographic footprint, to drive material incremental revenue and
profit growth in the future. We have already won more than US$30m
of customer projects which would not have been won under the old
structure and expect the 2020 full year cost and efficiency
benefits to be at the top end of the previously announced target of
GBP4.5m to GBP6m, and to be realised significantly earlier than
2022, as previously advised. The costs of delivering the
reorganisation were approximately GBP3.0m and have been absorbed by
the North America business through 2019 and 2020 as part of normal
operating costs.
After a strong start to the year, the impact of COVID-19 in the
second quarter meant that first half revenue at our US foundations
business was marginally down on 2019. The operating profit and
margin increased significantly however as a result of the cost
savings realised and more efficient use of resources following the
reorganisation. There were particularly strong performances by the
Northeast and Southeast business units from good revenues and the
benefit of some large infrastructure projects. Performance in the
Midwest however was disappointing, in a very competitive market.
Specialty Services also started the year slowly but with a good
order book is well set for the second half.
In recent years our Canadian business has been challenged by
softer market conditions, specifically in the natural resources
sector. Following completion of a strategic review, the Prairies
operations were restructured during the period resulting in a more
favourable cost base going forward.
Suncoast, the Group's post-tension business which mainly serves
the residential construction market, continued to perform strongly
carrying good momentum from 2019, with revenue up by 11% and a
significant increase in operating profit. Recent additional tariffs
on imported steel strand, Suncoast's main raw material, will reduce
margins in the high-rise sector in the near to medium term.
Moretrench Industrial continued to perform well during the first
half but not at the same levels as 2019, which benefitted from some
non-recurring highly profitable projects.
During the period the cash settlement was received for the scope
adjustment claim on the large long term contract completed by
Specialty Services, previously trading as Bencor, which was
resolved in 2019.
Our North America order book reached record levels during H1
including the award of a US$90m two-year contract for the Hampton
Roads Bridge Tunnel Expansion project in Virginia. However,
recently there has been a reduction in the levels of order intake,
leaving the H1 order book at GBP677.3m, down on the recent record
high but still up 9% on the prior year. This robust order book
provides good revenue coverage through into the fourth quarter of
the year. However, a continuation of the recent decline in order
intake or widespread deferral or cancellation of jobs already in
the order book, will potentially impact the result for the second
half and 2021.
With good momentum carried over from 2019 and having
successfully launched the reorganisation of the foundations
activities in January, the North America division delivered a
strong result during the first half of the year, despite the impact
of COVID-19. We are acutely focussed on monitoring the developing
macroeconomic conditions in North America and the differing impacts
they could have across our geographically diverse business
units.
Europe, Middle East and Africa (EMEA)
H1 2020 H1 2019 Constant
currency
GBPm GBPm
---------------------- -------- --------
Revenue 286.5 342.4 -15%
Underlying operating
profit 8.4 10.6 -26%
Underlying operating
margin 2.9% 3.1%
Order book* 335.9 263.6 +27%
---------------------- -------- -------- ----------
* Comparative order book stated at constant currency
In EMEA, revenue decreased by 15% on a constant currency basis,
with the majority of markets being impacted by COVID-19 shutdowns.
Our businesses in Continental Europe were those most significantly
impacted initially by COVID-19, however, these markets had largely
opened up by early H2 as lockdown restrictions were progressively
lifted. The businesses in the Middle East, Africa and Latin America
were impacted later during the first half and continue to
experience COVID-19 restrictions whether through government
restrictions or localised site closures.
Underlying operating profit was GBP8.4m, down 26% on a constant
currency basis, giving an underlying operating margin of 2.9% (2019
H1: 3.1%). The profit impact of COVID-19 was mitigated by a number
of cost containment initiatives and strong contract performances in
Mexico and Poland.
Our businesses in South East Europe and French speaking
countries were all subject to reduced activity arising from
COVID-19 related government lockdowns, as well as in-country and
cross border travel restrictions. As these restrictions eased,
activity levels increased back to near normal levels by the period
end. The Middle East reported lower revenue and reduced
profitability versus the comparative period last year, following
completion of a number of oil and gas projects in 2019 and
continued to be affected by travel restrictions in the key markets
in response to COVID-19.
The UK, representing 3% of overall Group revenue, started the
year slowly with a continuation of the hesitant investment climate
following the December 2019 general election, and ongoing Brexit
uncertainty before COVID-19 shutdowns closed a large part of the
construction sector from March onwards. During the period test
piling and early contractor works on two sections of HS2 were
completed as well as instrumentation and monitoring activities on
the London section.
Our business in North East Europe continued to benefit from
momentum seen at the end of 2019 with strong revenue and profit
growth as well as an improvement in margin in the first half. The
Iberia and Latin America business also reported strong revenue and
profit growth following delivery of an oil refinery project in
Mexico. During the period we completed the sale of our Brazil
business, as part of the previously announced phased withdrawal
from South America, which generated a non-underlying and largely
non-cash loss on disposal of GBP10.0m. The exit from the smaller
Chile business has been slightly delayed due to COVID-19
disruptions.
In June 2020 we announced the rationalisation of our Franki
Africa business, retaining a small number of profitable operations
which will be integrated into our Middle East-based operations,
which share similar markets and dynamics, during the second half of
the year. A resulting non-underlying restructuring charge of
GBP3.3m has been recognised during the period. The business
successfully mobilised on site at the recently awarded US$23m LNG
contract in Mozambique which will be completed in 2021.
Our EMEA order book at the end of the period was GBP335.9m, up
27% on the prior year. Tendering activities remained reasonably
high during the first quarter, however awards and order intake were
subdued during the second quarter.
EMEA performance during the first half of the year was
materially affected by the division wide consequences of COVID-19.
Some markets have returned to levels of activity experienced before
the pandemic and those outside of Europe continue to be affected by
ongoing restrictions in travel or activity. Second half performance
will be dependent on increasing activity levels within and outside
of Europe, including winning and execution of work on HS2 in the
UK, and successful contract delivery on the LNG project in
Mozambique.
Asia-Pacific (APAC)
H1 2020 H1 2019 Constant
currency
GBPm GBPm
------------------------------------ -------- --------
Revenue 116.1 138.3 -13%
Underlying operating profit/(loss) 4.6 (2.5) n/a
Underlying operating margin 4.0% (1.8%)
Order book* 154.7 154.0 +1%
------------------------------------ -------- -------- ----------
* Comparative order book stated at constant currency
In APAC, revenue decreased 13% on a constant currency basis. The
reduction in revenue was a result of the closure of the Waterway
business during 2019 and the impact of COVID-19 through government
enforced site closures on our ASEAN and Indian businesses,
compensated somewhat by a strong H1 for Austral. Country and state
border restrictions affected our Australian businesses, but sites
generally remained operational.
The division delivered underlying operating profit of GBP4.6m, a
significant turnaround from the GBP2.5m loss in H1 2019, driven by
increased profits in Austral and the benefit of the closure of the
loss-making Waterway business. All four APAC businesses were
profitable in the period.
ASEAN was the first Keller business unit to be impacted by
regional government actions taken in response to COVID-19 during
early March and, with ongoing caution in the easing of restrictions
in Singapore, trading continues to be significantly affected.
Despite the reduction in revenue, ASEAN delivered a profit in the
period benefitting from the recent restructuring activity to reduce
costs and from a sizeable project claim settled during the
period.
Austral had a strong start to 2020, in contrast to the slow
start in 2019 as a result of two major cyclones and extensive
flooding in the Pilbara region in Western Australia which affected
a number of mining projects. Good progress was made on the major
contract to procure and construct the replacement of berthing
structures at Rio Tinto's Cape Lambert Port in the Pilbara.
Our Australia business reported similar revenues and profits to
the same period last year, with a continued softness in some
markets. There are, however, a number of large infrastructure
projects that are currently being tendered that are expected to
generate revenue growth during the second half of the year, albeit
at typically lower margins.
Activity in India during Q2 was affected by the strict
country-wide lockdown implemented at very short notice in late
March that stopped all our operations. With the easing of the
lockdown during May, activity recommenced by the period end.
Despite the lower revenue, margins held up well from a number of
more profitable Ground Improvement contracts and a reduced overhead
base.
Our APAC order book was broadly flat, though tendering activity
and enquiries remained very strong. Project cancellations have been
minimal, although the award and commencement dates of some projects
have been pushed back later in 2020 or into 2021.
Whilst the APAC division has been significantly affected by
COVID-19, the restructuring actions of the organisation during 2018
and 2019 enabled resilience in responding to the pandemic. The
re-mobilisation of sites in Singapore, continued execution on Cape
Lambert and the winning and delivery of infrastructure jobs in
Australia are key to continued positive progress.
FINANCIAL REVIEW
This report comments on the key financial aspects of the Group's
interim results for half year period ended 28 June 2020.
Trading summary
2020 H1 2019 H1
GBPm GBPm
Revenue 1,039.1 1,091.7
-------- --------
Underlying operating
profit (1) 47.9 38.3
-------- --------
Underlying operating
profit % (1) 4.6% 3.5%
-------- --------
Non-underlying operating
loss (19.9) (5.8)
-------- --------
Statutory operating
profit 28.0 32.5
-------- --------
Geographic segmentation
Revenue Underlying Underlying
GBPm operating profit(1) operating profit(1)
GBPm margin
%
2020 2019 2020 2019 2020 2019
H1 H1 H1 H1 H1 H1
Division
-------- -------- ----------- ---------- --------- ------------
North America 636.5 611.0 38.6 33.1 6.1% 5.4%
-------- -------- ----------- ---------- --------- ------------
EMEA 286.5 342.4 8.4 10.6 2.9% 3.1%
-------- -------- ----------- ---------- --------- ------------
APAC 116.1 138.3 4.6 (2.5) 4.0% (1.8)%
-------- -------- ----------- ---------- --------- ------------
Central - - (3.7) (2.9)
-------- -------- ----------- ---------- --------- ------------
Group 1,039.1 1,091.7 47.9 38.3 4.6% 3.5%
-------- -------- ----------- ---------- --------- ------------
(1) Underlying operating profit is a non-statutory measure which
provides readers of this interim announcement with a balanced and
comparable view of the Group's performance by excluding the impact
of non-underlying items, as disclosed in note 7 of the interim
condensed consolidated financial statements
Revenue
Revenue for the half year of GBP1,039.1m (2019 H1: GBP1,091.7m)
was 5% less than the comparative period at both actual and constant
currency foreign exchange rates. Constant currency revenue growth
in North America was offset by a decline in both EMEA and APAC.
Trading during the first quarter was better than expected and
materially better than the first quarter in the prior year. The
winter weather conditions in North America and Europe during the
early months of 2020 were less extreme than in the prior year and
operations were less impacted. Additionally, there was no repeat of
cyclonic storms that affected the Australian businesses during
early 2019.
Levels of trading during the second quarter were adversely
affected by COVID-19. The impact was varied across the three
divisions and in individual geographic markets. In North America
whilst some states and provinces imposed tight restrictions, others
did not, and overall the vast majority of sites on which we were
working remained open. In EMEA, there was variation by country,
with an earlier and more significant impact overall. In APAC,
India, Singapore and Malaysia experienced countrywide lockdowns
whereas Australia largely remained operational throughout. Our
operations in APAC and EMEA generally emerged more decisively from
lockdown restrictions in Q2 than North America, which in contrast
remains regionally variable.
North America reported an increase in revenue of 2% (at constant
currency) with growth in Canada and at Suncoast. EMEA revenue
declined by 15% (at constant currency) including the reduction from
the disposal of our Brazilian entity mid-way through the first
half. The EMEA division recorded strong contract performances in
North East Europe and in Mexico mitigating the downside from those
markets more impacted by COVID-19. APAC revenue declined by 13% (at
constant currency) including the reduction from the closure of the
Waterway business completed during 2019. Austral revenue increased
year-on-year, with 2019 having been adversely impacted by cyclonic
storms and flooding in the Pilbara area that affected the level of
work in this mining sector.
The construction sector in many markets is categorised as an
'essential business' and has generally been impacted less than
certain other sectors in relation to COVID-19. Additionally, the
Group has clearly benefitted during the pandemic from its
geographic diversification and wide project portfolio. The Group
has a diversified spread of revenues across geographies, product
lines, market segments and end customers. Customers are generally
market specific and in 2019 the largest customer represented less
than 2% of the Group's revenue and the top ten customers
represented 7% of the Group's revenue. During 2019 the Group worked
on more than 7,000 projects at an average revenue of GBP325,000 per
project.
Underlying operating profit
Underlying operating profit for the half year was GBP47.9m (2019
H1: GBP38.3m), an improvement of 25% on 2019 of which 5% was from
the tailwind of favourable US dollar foreign exchange rates against
weaker sterling with 20% growth on a constant currency basis. The
Group operating profit percentage increased to 4.6% (2019 H1:
3.5%).
North America underlying operating profit increased by 14% (at
constant currency). This was driven both by increased revenue and
an improvement in margin which was a direct consequence of improved
operational performance and efficiencies realised through the
reorganisation of the foundations businesses . EMEA underlying
operating profit declined by 26% (at constant currency), a result
of reduced revenues and COVID-19 inefficiencies mitigated by cost
savings. APAC reported an underlying operating profit of GBP4.6m
(2019 H1: loss GBP2.5m) benefitting from the closure of the
Waterway business in 2019 and improved profitability in Austral
including contribution from the Cape Lambert project.
Non-underlying operating loss
Details of non -- underlying items are set out in note 7 to the
interim condensed consolidated financial statements. The
non-underlying operating loss for the half year period was GBP19.9m
(2019 H1: GBP5.8m).
Non-underlying operating costs
Non-underlying operating costs were GBP18.1m (2019 H1: GBP7.4m).
The largest single item is the GBP10.0m largely non-cash loss
recorded on the disposal of the Group's Brazil business in April
2020. Restructuring costs of GBP7.8m (2019 H1: GBP6.9m) have been
incurred in respect of strategic restructuring activity undertaken
during the period in North America (GBP4.6m) and in EMEA (GBP3.3m)
with a net credit in APAC (GBP0.1m) on reversal of charges made in
the prior year. The prior year charge was in respect of APAC
restructuring, comprising costs from the cessation of the Waterway
business and a reversal of provisions made during 2018 as part of
the ASEAN Heavy Foundations restructure. Other non-underlying
operating costs are in respect of contingent consideration and
acquisition related costs.
Amortisation of acquired intangibles
The amortisation charge of acquired intangible assets of GBP2.5m
(2019 H1: GBP1.7m) relates mainly to the Moretrench and Austral
acquisitions .
Other operating income
During the first half proceeds of GBP0.7m (2019 H1: GBP3.3m)
were received on settlement of a contributory claim relating to an
exceptional contract dispute, first reported in 2014.
Statutory operating profit
Statutory operating profit of GBP28.0m (2019 H1: GBP32.5m)
comprises underlying operating profit of GBP47.9m (2019 H1:
GBP38.3m) and non-underlying charges totalling GBP19.9m (2019 H1:
GBP5.8m).
Finance costs
Net finance costs were GBP7.2m (2019 H1: GBP10.8m). The decrease
in net finance costs is largely attributable to a reduction in
average debt levels throughout the period. In addition, we
benefitted from a fall in government base rates applicable on our
floating rate borrowings as well as a lower margin on borrowings
under the Group's revolving credit facility, as a consequence of
the improved year end leverage position. Net finance costs include
a GBP1.8m (2019 H1: GBP2.2m) interest charge on the IFRS 16 lease
liabilities.
Taxation
The Group's underlying effective tax rate was 29% (2019 H1 28%).
The increase in underlying effective tax for the period is a result
of a change in the expected geographic mix of the Group's taxable
profits for the full year.
A non-underlying tax credit of GBP1.2m (2019 H1: GBP10.2m
charge) has been determined by assessing the tax impact of each
component of the non-underlying loss of GBP19.9m (2019 H1 GBP5.8m).
The prior year non-underlying tax charge of GBP10.2m included a
non-underlying tax credit on the same basis of GBP0.3m and the
write-off of a deferred tax asset of GBP10.5m relating to the
Australian tax group, the write-off being triggered by the closure
of the Waterway business.
Earnings per share
Underlying diluted earnings per share increased by 46% to 39.5
pence per share (2019 H1: 27.1 pence per share), in line with the
increase in underlying profit for the period. Statutory diluted
earnings per share increased to 13.8 pence per share (2019 H1: 4.8
pence per share).
Dividend
The Group's policy on dividends has been to increase the
dividend sustainably so that the Group is able to grow, or at least
maintain, the level of dividend through market cycle volatility.
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.
Following the initial impact of COVID-19 on the Group's
operational and financial performance at the end of March 2020 and
the high level of uncertainty around future performance, the Board
announced that it would keep the 2019 final dividend under review
before the company's Annual General Meeting.
In June 2020 the Board decided that it would be both prudent and
appropriate to reduce the final 2019 dividend from 27.4 pence per
share to 23.3 pence per share and this recommendation was approved
at the AGM held on 30 June 2020. This final dividend of 23.3 pence
per share maintained the full year dividend for 2019 at the prior
year's level of 35.9 pence per share, continuing the Group's track
record of maintaining or increasing the dividend every year since
flotation in 1994.
The Board also announced in June 2020 that the payment of a 2020
interim dividend will be reviewed later in the year. Accordingly,
no interim dividend is declared at this time.
Acquisitions
There were no acquisitions in the period.
Working capital
Net working capital decreased from GBP210.5m at the 2019 year
end to GBP195.1m at 28 June 2020. Improved focus on the management
of collections contributed to the cash inflow from receivables of
GBP82.1m in the period. Local teams operate with a heightened
vigilance to the risks in this area arising from the global
pandemic. The benefit of year end payables management was not
repeated during the first half with a cash outflow from payables
during the period of GBP54.9m but a more sustainable position going
forward.
Capital expenditure
The Group manages its capital expenditure carefully whilst
investing in upgrading and replacing equipment where appropriate.
For the interim reporting period, the Asset Replacement Ratio,
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 83%, an increase on the
2019 interim period (78%) and a reduction from the 2019 full year
(91%).
Free cash flow
The Group generated free cash flow of GBP74.1m (2019 H1 outflow:
GBP31.9m). The basis of deriving free cash flow is set out
below.
Operating and free cash flow
GBPm 2020 H1 2019 H1
Underlying operating profit 47.9 38.3
-------- --------
Depreciation and amortisation 47.0 46.6
-------- --------
Underlying EBITDA 94.9 84.9
-------- --------
Non-cash items 0.6 0.5
-------- --------
Dividends from joint ventures 0.5 -
-------- --------
Decrease/(increase) in working capital 24.7 (65.9)
-------- --------
Outflows from provisions and retirement
benefit liabilities (0.1) (3.3)
-------- --------
Net capital expenditure (24.9) (25.3)
-------- --------
Additions to IFRS 16 right-of-use assets (7.9) (9.9)
-------- --------
Sale of other non-current assets - 1.5
-------- --------
Operating cash inflow/(outflow) 87.8 (17.5)
-------- --------
Operating cash inflow/(outflow) to
operating profit 183% (46%)
-------- --------
Net interest paid (7.2) (10.9)
-------- --------
Cash tax paid (6.5) (3.5)
-------- --------
Free cash outflow 74.1 (31.9)
-------- --------
Dividends paid to shareholders - (17.2)
-------- --------
Acquisitions/disposals (0.1) -
-------- --------
Non-underlying items 2.7 8.9
-------- --------
Right-of-use assets/lease liability (0.6) -
modifications
-------- --------
Foreign exchange movements (18.7) (6.1)
-------- --------
Movement in net debt 57.4 (46.3)
-------- --------
Opening net debt (289.8) (373.3)
-------- --------
Closing net debt (232.4) (419.6)
-------- --------
Closing net debt on a lender covenant
basis (155.1) (333.5)
-------- --------
Net debt and financing facilities
Net debt, excluding IFRS 16 leases, at the half year was
GBP155.1m (2019 H1: GBP333.5m) an improvement of GBP58.0m during
the first half (2019 YE: GBP213.1m) a result of strong operating
cashflow during the period across all three divisions. Average
month end net debt, on the same basis, during the first half was
GBP223.9m, a significant improvement on the prior year (2019 H1:
GBP334.3m). The period end position also benefitted from the
deferral of the payment of the final 2019 dividend into the second
half of the year.
The Group's term debt and committed facilities principally
comprise US$125m of US private placements which mature between 2021
and 2024 and a GBP375m multi-currency syndicated Revolving Credit
Facility (RCF) which expires in November 2024 and has an option to
extend by one further year. In June 2020 we had confirmation from
the Bank of England of available funding of up to GBP300m under
their Covid Corporate Financing Facility (CCFF) . This funding
becomes committed only at the point of drawing. The Group has not
drawn on the CCFF and nor does it expect to. The CCFF facility has
only been secured to provide additional protection, should there be
an unexpected and significant deterioration in future market
conditions and client payment behaviours resulting in a very
material deterioration in cash flow performance.
At 28 June 2020, the Group had undrawn committed and uncommitted
borrowing facilities totalling GBP595m, including the funds
available under the Bank of England CCFF, comprising GBP221m of the
unutilised portion of the RCF, GBP19m of other undrawn committed
borrowing facilities and undrawn uncommitted borrowing facilities
of GBP355m, including GBP300m under the CCFF, as well as cash of
GBP129m of which GBP62m was used to pay down debt drawn on the
revolving credit facility at the June calendar end.
The most significant lender covenants in respect of the Group's
principal borrowing facilities relate to the ratio of net debt to
underlying EBITDA, underlying EBITDA interest cover and the Group's
net worth. The Group has and continues to operate well within all
of its covenant limits. The most important covenant is net debt to
underlying EBITDA, excluding the impact of any IFRS changes,
including IFRS 16 which was adopted in 2019. At the 2020 interim
reporting date the Group's net debt to underlying EBITDA ratio,
calculated on this basis, was 0.9x, well within the limit of 3.0x
and marginally below the Group's previously advised debt leverage
guidance of 1.0x to 1.5x. The current year end leverage is expected
to be at the lower end of that range. Leverage calculated on a
statutory basis, including IFRS 16, was 1.1x at 28 June 2020.
During the first half the minimum headroom on the Group's main
banking facility was GBP129m, in addition to a cash balance held at
that time of GBP81m. The Group had no material discounting or
factoring in place during the period and, given the small value and
short-term nature of the majority of the Group's contracts, the
incidence of prepayments is very low. The Group had drawn upon
GBP183m of bank guarantee and bonding facilities at the 2020
interim reporting date.
Principal risks
The Group operates globally across many geotechnical market
sectors and in a number of geographic markets. The Group's
performance and prospects may be affected by risks and
uncertainties in relation to the industry and the environments in
which it operates across its geographic footprint. A full review of
the Group's principal risks and uncertainties is given in the
Strategic Report within the Group's 2019 Annual Report and Accounts
page 30.
Those principal risks include: financial risk, the inability to
finance our business; market risk, a rapid downturn in our markets;
strategic risk, the failure to procure new contracts on
satisfactory terms, losing market share, ethical misconduct and
non-compliance with regulations, inability to maintain our
technological advantage, changing environmental factors;
operational risk; product and/or solution failure, the ineffective
management of our contracts, causing a serious injury or fatality
to an employee or member of the public, not having the right skills
to deliver and a loss of security of our data and systems.
The principal risks have been re-assessed in light of the
emergence of COVID-19. Two risk items are deemed to have increased.
These items are a rapid downturn in markets and failure to procure
new contracts on satisfactory terms. All other risk items are
deemed not to have changed in the period.
In response to the COVID-19 pandemic the Group established a
COVID-19 Committee made up of the Executive Committee, which met
weekly throughout Q2. The purpose of the Committee was to monitor
the actual and potential impact of the pandemic on the Group and
its stakeholders and to agree the response, which included our
priority of employee safety and actions required to ensure business
continuity in scenarios, which assumed different severities and
lengths of time.
The actions implemented as part our response have supported the
business to continue to operate and supply our customers. Controls
and mitigations put in place in response to the risks presented by
COVID-19 include additional health and safety procedures throughout
the locations where our people work, more frequent monitoring of
cash and financial performance, enhanced financial scenario
planning and targeted cost and cash mitigation actions.
Going concern
After making the appropriate enquiries, the Directors have
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. The
Group therefore continues to adopt the going concern basis in
preparing its interim condensed consolidated financial
statements.
The uncertainty as to the future impact on the financial
performance and cash flows of the Group as a result of the recent
COVID-19 outbreak has been considered as part of the Group's
adoption of the going concern basis.
At 28 June 2020, net debt was GBP232m or GBP155m excluding
IFRS16 lease liabilities net of cash and cash equivalents of
GBP129m. At that date the Group had undrawn committed and
uncommitted borrowing facilities totalling GBP595m, including
GBP221m of the unutilised portion of the revolving credit facility
that expires in 2024 and GBP300m available under the recently
confirmed Bank of England CCFF.
The Directors have prepared projected profit and cash flow
scenarios for eighteen months from the balance sheet date until
December 2021 and have considered various scenarios in assessing
the impact of COVID-19 including a post pandemic recession and
other risks to future financial performance and cash flows applying
appropriate mitigating actions where appropriate.
Statement of Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules ('DTR') of the United
Kingdom's Financial Conduct Authority ('FCA').
The DTR require that the accounting policies and presentation
applied to the half yearly figures must be consistent with those
applied in the latest published annual accounts, except where the
accounting policies and presentation are to be changed in the
subsequent annual accounts, in which case the new accounting
policies and presentation should be followed, and the changes and
the reasons for the changes should be disclosed in the Interim
report, unless the FCA agrees otherwise.
The Directors confirm that to the best of their knowledge the
condensed set of financial statements, which have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting' as adopted by the European Union give a true
and fair view of the assets, liabilities, financial position and
profit and loss of the Group, as required by DTR 4.2 and in
particular include a fair review of:
-- the important events that have occurred during the first six
months of the financial year and their impact on the interim
condensed consolidated set of financial statements as required by
DTR 4.2.7R;
-- the principal risks and uncertainties for the remaining half
of the year as required by DTR 4.2.7R; and
-- related party transactions that have taken place in the first
half of the current financial year and changes in the related party
transactions described in the previous annual report that have
materially affected the financial position or performance of the
Group during the first half of the current financial year as
required by DTR 4.2.8R.
The Directors of Keller Group plc are listed in the 2019 Annual
Report and Accounts.
Approved by the Board of Keller Group plc and signed on its
behalf by:
Michael Speakman
Chief Executive Officer
Mark Hooper
Interim Chief Financial Officer
4 August 2020
INDEPENT REVIEW REPORT TO KELLER GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Interim Results of Keller Group plc
for the half year period ended 28 June 2020 which comprises the
consolidated income statement, consolidated statement of
comprehensive income, consolidated balance sheet, consolidated
statement of changes in equity, consolidated cash flow statement,
and the related explanatory notes. We have read the other
information contained in the Interim Results and considered whether
it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Interim Results are the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half yearly financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in the Interim Results has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim Results
based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half yearly financial report for the interim period ended 28
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
E r ns t & Y ou ng L LP Reading, UK
4 August 2020
Interim condensed consolidated income statement (unaudited)
For the half year period ended 28 June 2020
2020 2019
-------------------------- ---- ------------------------------------- ---------- -------------- -----------
Non-underlying Non-underlying
items items
Underlying (note 7) Statutory Underlying (note 7) Statutory
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Revenue 4,5 1,039.1 - 1,039.1 1,091.7 - 1,091.7
Operating costs (991.4) (18.1) (1,009.5) (1,053.5) (7.4) (1,060.9)
Amortisation of acquired
intangible assets - (2.5) (2.5) - (1.7) (1.7)
Other operating income - 0.7 0.7 - 3.3 3.3
Share of post-tax results
of joint ventures 0.2 - 0.2 0.1 - 0.1
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Operating profit/(loss) 4 47.9 (19.9) 28.0 38.3 (5.8) 32.5
Finance income 0.4 - 0.4 0.6 - 0.6
Finance costs (7.6) - (7.6) (11.4) - (11.4)
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Profit/(loss) before
taxation 40.7 (19.9) 20.8 27.5 (5.8) 21.7
Taxation 8 (11.8) 1.2 (10.6) (7.7) (10.2) (17.9)
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Profit/(loss) for the
period 28.9 (18.7) 10.2 19.8 (16.0) 3.8
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Attributable to:
Equity holders of the
parent 28.7 (18.7) 10.0 19.5 (16.0) 3.5
Non-controlling interests 0.2 - 0.2 0.3 - 0.3
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
28.9 (18.7) 10.2 19.8 (16.0) 3.8
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Earnings per share
Basic 10 39.8p 13.9p 27.1p 4.8p
Diluted 10 39.5p 13.8p 27.1p 4.8p
-------------------------- ---- ---------- -------------- --------- ---------- -------------- -----------
Interim condensed consolidated statement of comprehensive income
(unaudited)
For the half year period ended 28 June 2020
2020 2019
GBPm GBPm
----------------------------------------------------------- ----- -----
Profit for the period 10.2 3.8
----------------------------------------------------------- ----- -----
Other comprehensive income
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translation of foreign operations 28.1 1.8
Transfer of translation reserve on disposal of subsidiary 2.9 -
Items that will not be reclassified subsequently to profit
or loss:
Remeasurements of defined benefit pension schemes (2.0) 0.5
Tax on remeasurements of defined benefit pension schemes 0.4 (0.1)
----------------------------------------------------------- ----- -----
Other comprehensive income for the period, net of tax 29.4 2.2
----------------------------------------------------------- ----- -----
Total comprehensive income for the period 39.6 6.0
----------------------------------------------------------- ----- -----
Attributable to:
Equity holders of the parent 39.4 5.7
Non-controlling interests 0.2 0.3
----------------------------------------------------------- ----- -----
39.6 6.0
----------------------------------------------------------- ----- -----
Interim condensed consolidated balance sheet (unaudited)
As at 28 June 2020
As at As at As at
28 June 30 June 31 December
2020 2019(1) 2019
Note GBPm GBPm GBPm
------------------------------------------ ----- --------- ---------- -------------
Assets
Non-current assets
Goodwill and intangible assets 129.9 153.3 124.7
Property, plant and equipment 11 464.3 488.0 460.6
Investments in joint ventures 3.9 4.6 3.8
Deferred tax assets 15.0 14.1 13.3
Other assets 27.2 25.6 22.3
------------------------------------------- ----- --------- ---------- -------------
640.3 685.6 624.7
------------------------------------------ ----- --------- ---------- -------------
Current assets
Inventories 74.9 84.5 70.6
Trade and other receivables 573.3 675.1 626.7
Current tax assets 9.6 13.8 4.2
Cash and cash equivalents 12 129.0 68.0 98.9
------------------------------------------- ----- --------- ---------- -------------
786.8 841.4 800.4
------------------------------------------ ----- --------- ---------- -------------
Total assets 1,427.1 1,527.0 1,425.1
------------------------------------------- ----- --------- ---------- -------------
Liabilities
Current liabilities
Loans and borrowings (41.1) (37.5) (41.0)
Current tax liabilities (31.7) (18.8) (21.1)
Trade and other payables (453.1) (465.4) (486.8)
Provisions (20.3) (12.8) (17.7)
------------------------------------------- ----- --------- ---------- -------------
(546.2) (534.5) (566.6)
------------------------------------------ ----- --------- ---------- -------------
Non-current liabilities
Loans and borrowings (320.3) (450.1) (347.7)
Retirement benefit liabilities (29.5) (26.2) (27.7)
Deferred tax liabilities (28.9) (38.1) (26.1)
Provisions (41.4) (43.7) (40.0)
Other liabilities (22.8) (19.3) (19.5)
------------------------------------------- ----- --------- ---------- -------------
(442.9) (577.4) (461.0)
------------------------------------------ ----- --------- ---------- -------------
Total liabilities (989.1) (1,111.9) (1,027.6)
------------------------------------------- ----- --------- ---------- -------------
Net assets 438.0 415.1 397.5
------------------------------------------- ----- --------- ---------- -------------
Equity
Share capital 14 7.3 7.3 7.3
Share premium account 38.1 38.1 38.1
Capital redemption reserve 7.6 7.6 7.6
Translation reserve 50.1 43.0 19.1
Other reserve 56.9 56.9 56.9
Retained earnings 272.5 257.0 263.2
------------------------------------------- ----- --------- ---------- -------------
Equity attributable to equity holders of
the parent 432.5 409.9 392.2
Non-controlling interests 5.5 5.2 5.3
------------------------------------------- ----- --------- ---------- -------------
Total equity 438.0 415.1 397.5
------------------------------------------- ----- --------- ---------- -------------
(1) Trade and other payables, provisions and retained earnings
presented here do not agree to the published 2019 interim condensed
consolidated financial statements as a result of re-presenting the
comparative balance sheet as outlined in note 16 to the interim
financial statements.
Interim condensed consolidated statement of changes in equity
(unaudited)
For the half year period ended 28 June 2020
Share Capital
Share premium redemption Translation Other Retained Non-controlling Total
capital account reserve reserve reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- -------- ----------- ------------- --------- ---------- ---------------- -----------
At 31 December
2019 7.3 38.1 7.6 19.1 56.9 263.2 5.3 397.5
--------------- --------- -------- ----------- ------------- --------- ---------- ---------------- ---------
Total
comprehensive
income for
the
period - - - 31.0 - 8.4 0.2 39.6
--------------- --------- -------- ----------- ------------- --------- ---------- ---------------- ---------
Share-based
payments - - - - - 0.9 - 0.9
At 28 June
2020 7.3 38.1 7.6 50.1 56.9 272.5 5.5 438.0
--------------- --------- -------- ----------- ------------- --------- ---------- ---------------- ---------
Share Capital
Share premium redemption Translation Other Retained Non-controlling Total
capital account reserve reserve reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31 December
2018 7.3 38.1 7.6 41.2 56.9 270.5 4.9 426.5
--------------- --------- --------- ----------- ------------- ---------- ---------- ---------------- ---------
Total
comprehensive
income for
the
period - - - 1.8 - 3.9 0.3 6.0
--------------- --------- --------- ----------- ------------- ---------- ---------- ---------------- ---------
Dividends - - - - - (17.2) - (17.2)
Share-based
payments - - - - - (0.2) - (0.2)
At 30 June
2019(1) 7.3 38.1 7.6 43.0 56.9 257.0 5.2 415.1
--------------- --------- --------- ----------- ------------- ---------- ---------- ---------------- ---------
(1) Retained earnings and total equity presented here do not
agree to the published 2019 interim condensed consolidated
financial statements as a result of re-presenting the comparative
balance sheet as outlined in note 16 to the interim financial
statements.
Interim condensed consolidated cash flow statement
(unaudited)
For the half year period ended 28 June 2020
2020 2019
Note GBPm GBPm
------------------------------------------------------ ----- ------- -------
Cash flows from operating activities
Profit before taxation 20.8 21.7
Non-underlying items 19.9 5.8
Finance income (0.4) (0.6)
Finance costs 7.6 11.4
------------------------------------------------------- ----- ------- -------
Underlying operating profit 4 47.9 38.3
Depreciation of property, plant and equipment 46.8 46.3
Amortisation of intangible assets 0.2 0.3
Share of post-tax results of joint ventures (0.2) (0.1)
Profit on sale of property, plant and equipment 11 (1.2) (0.6)
Other non-cash movements 0.9 1.5
Foreign exchange losses/(gains) 0.5 (0.3)
------------------------------------------------------- ----- ------- -------
Operating cash flows before movements in working
capital 94.9 85.4
Increase in inventories (2.5) (4.0)
Decrease/(increase) in trade and other receivables 82.1 (60.9)
Decrease in trade and other payables (54.9) (1.1)
Decrease in provisions, retirement benefit and
other non-current liabilities (0.1) (3.3)
------------------------------------------------------- ----- ------- -------
Cash generated from operations before non-underlying
items 119.5 16.1
Cash inflows from non-underlying items: contract
dispute 0.7 3.3
Cash inflows from non-underlying items: assets
held for sale - 8.1
Cash inflows/(outflows) from non-underlying items:
restructuring costs 2.0 (2.1)
Cash outflows from non-underlying items: acquisition
costs - (0.4)
Cash generated from operations 122.2 25.0
Interest paid (including IFRS 16) (7.6) (11.2)
Income tax paid (6.5) (3.5)
------------------------------------------------------- ----- ------- -------
Net cash inflow from operating activities 108.1 10.3
------------------------------------------------------- ----- ------- -------
Cash flows from investing activities
Interest received 0.4 0.3
Proceeds from sale of property, plant and equipment 2.9 1.6
Proceeds from sale of other non-current assets - 1.5
Proceeds on disposal of subsidiary (net of cash
disposed) 6 (0.1) -
Acquisition of property, plant and equipment 11 (27.8) (26.8)
Acquisition of intangible assets - (0.1)
Dividends received from joint ventures 0.5 -
Net cash outflow from investing activities (24.1) (23.5)
------------------------------------------------------- ----- ------- -------
Cash flows from financing activities
New borrowings - 35.7
Repayment of borrowings (40.3) (35.2)
Cash flows from derivative instruments - (0.1)
Payment of lease liabilities (12.6) (11.3)
Dividends paid 9 - (17.2)
------------------------------------------------------- ----- ------- -------
Net cash outflow from financing activities (52.9) (28.1)
------------------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash and cash equivalents 31.1 (41.3)
Cash and cash equivalents at beginning of period 87.5 103.7
Effect of exchange rate fluctuations 2.8 (0.7)
------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at end of period 12 121.4 61.7
------------------------------------------------------- ----- ------- -------
1. Corporate information
The interim condensed consolidated financial statements of
Keller Group plc and its subsidiaries (collectively, 'the Group')
for the half year period ended 28 June 2020 were authorised for
issue in accordance with a resolution of the directors on 4 August
2020.
Keller Group plc ('the company') is a limited company,
incorporated and domiciled in the United Kingdom, whose shares are
publicly traded on the London Stock Exchange. The registered office
is located at 5(th) floor, 1 Sheldon Square, London W2 6TT. The
Group is principally engaged in the provision of specialist
geotechnical engineering services.
2. Basis of preparation
The condensed financial statements included in this interim
financial report have been prepared in accordance with IAS 34,
'Interim Financial Reporting', as adopted by the European Union.
They do not include all of the information required for full annual
financial statements and should be read in conjunction with the
consolidated financial statements of the Group as at and for the
year ended 31 December 2019. The interim report does not constitute
statutory accounts. The financial information for the year ended 31
December 2019 does not constitute the Group's statutory financial
statements for that period as defined in section 435 of the
Companies Act 2006 but is instead an extract from those financial
statements. The Group's financial statements for the year ended 31
December 2019 have been delivered to the Registrar of Companies.
The Auditor's Report on those financial statements contained an
unqualified opinion, did not draw attention to any matters by way
of emphasis and did not contain any statement under section 498 of
the Companies Act 2006.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2019. The Group has not early adopted any standard, interpretation
or amendment that has been issued but is not yet effective. Several
amendments and interpretations apply from 1 January 2020 which do
not have a material impact on the interim condensed consolidated
financial statements of the Group.
In light of the COVID-19 global pandemic experienced in 2020,
and subsequent global uncertainty, the Group has undertaken a
detailed viability analysis and applied appropriate mitigating
actions to ensure the protection of future profits and liquidity.
The operational activity of the Group has been adversely impacted
by COVID-19 site closures, travel restrictions and other actions
necessary to ensure safe working practices. The proactive measures
taken by the Group in response to the disruptive effect of the
pandemic have mitigated the impact on the financial performance of
the Group. However, the potential impact of a second wave of
infections or the onset of a post pandemic recession give rise to
uncertainty in future near to mid-term financial performance.
As part of the interim going concern review management ran a
series of downside scenarios on the latest forecast profit and cash
flow projections to assess covenant headroom against available
funding facilities for the period to 31 December 2021. This process
involved linking the Group's principal risks to potential pandemic
or recessionary effects. The focus was on the ability to secure or
retain future work and potential downward pressure on margins. The
financial effects of these were modelled individually and in
combination. 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. Even in the most extreme downside
scenario modelled, which showed a reduction in full year 2021
revenue and operating profit of approximately 20% and 90% compared
with 2019, the adjusted projections do not show a breach of
covenants. Considerations were 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 18 months to 31 December 2021.
Accordingly, the Group continues to adopt the going concern basis
in preparing these interim condensed consolidated financial
statements.
At 28 June 2020, the Group had undrawn committed and uncommitted
borrowing facilities, including the funds available under the Bank
of England Covid Corporate Financing Facility, totalling GBP595m;
comprising GBP221m of the unutilised portion of the RCF, GBP19m of
other undrawn committed borrowing facilities and undrawn
uncommitted borrowing facilities of GBP355m, as well as cash of
GBP129m. At 28 June 2020 the Group's net debt to underlying EBITDA
ratio (calculated on an IAS 17 covenant basis) was 0.9x, well
within the limit of 3.0x.
3. Foreign currencies
The exchange rates used in respect of principal currencies
are:
Average for period Period end
------------------------------------- -----------------------------------
Half year Half year Year to As at As at As at
period period 31 December 28 June 30 June 31 December
to to 2019 2020 2019 2019
28 June 30 June
2020 2019
------------------- ---------- ---------- ------------- --------- --------- -------------
US dollar 1.26 1.29 1.28 1.23 1.27 1.33
Canadian dollar 1.72 1.72 1.70 1.69 1.66 1.72
Euro 1.14 1.14 1.14 1.10 1.12 1.18
Singapore dollar 1.76 1.76 1.74 1.72 1.72 1.78
Australian dollar 1.92 1.83 1.84 1.80 1.81 1.89
------------------- ---------- ---------- ------------- --------- --------- -------------
4. Segmental analysis
In accordance with IFRS 8, the Group has determined its
operating segments based upon the information reported to the Chief
Operating Decision Maker. The Group comprises of three geographical
divisions which have only one major product or service: specialist
geotechnical services. North America, Europe, Middle East and
Africa and Asia-Pacific continue to be managed as separate
geographical divisions. This is reflected in the Group's management
structure and in the segment information reviewed by the Chief
Operating Decision Maker.
Half year period to 28 Half year period to
June 2020 30 June 2019
-------------------------------- ------------------------- ----------------------
Operating Operating
Revenue profit Revenue profit
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ------------ --------- -----------
North America 636.5 38.6 611.0 33.1
Europe, Middle East and
Africa 286.5 8.4 342.4 10.6
Asia-Pacific 116.1 4.6 138.3 (2.5)
1,039.1 51.6 1,091.7 41.2
Central items and eliminations - (3.7) - (2.9)
-------------------------------- ----------- ------------ --------- -----------
Before non-underlying items 1,039.1 47.9 1,091.7 38.3
Non-underlying items (note
7) - (19.9) - (5.8)
-------------------------------- ----------- ------------ --------- -----------
1,039.1 28.0 1,091.7 32.5
-------------------------------- ----------- ------------ --------- -----------
As at 28 June 2020
---------------------------------- --------------------------------------------------------------------------
Tangible
Depreciation(2) and(3)
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
North America 753.7 (248.2) 505.5 8.5 24.2 332.0
Europe, Middle East and
Africa 362.0 (216.0) 146.0 11.3 15.9 185.9
Asia-Pacific 155.0 (69.5) 85.5 8.0 6.7 74.8
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,270.7 (533.7) 737.0 27.8 46.8 592.7
Central items and eliminations(1) 156.4 (455.4) (299.0) - 0.2 1.5
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,427.1 (989.1) 438.0 27.8 47.0 594.2
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
As at 30 June 2019 (4)
---------------------------------- --------------------------------------------------------------------------
Tangible
Depreciation(2) and (3)
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
North America 812.2 (292.5) 519.7 10.4 22.6 367.1
Europe, Middle East and
Africa 430.1 (244.6) 185.5 13.5 15.8 195.5
Asia-Pacific 181.4 (84.7) 96.7 2.9 8.0 77.4
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,423.7 (621.8) 801.9 26.8 46.4 640.0
Central items and eliminations(1) 103.3 (490.1) (386.8) - 0.2 1.3
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,527.0 (1,111.9) 415.1 26.8 46.6 641.3
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
As at 31 December 2019
---------------------------------- --------------------------------------------------------------------------
Tangible
Depreciation(2) and (3)
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
North America 766.5 (262.9) 503.6 25.5 46.6 324.5
Europe, Middle East and
Africa 382.8 (214.4) 168.4 27.3 32.1 185.4
Asia-Pacific 166.1 (83.0) 83.1 10.1 15.5 74.3
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,315.4 (560.3) 755.1 62.9 94.2 584.2
Central items and eliminations(1) 109.7 (467.3) (357.6) - 0.4 1.1
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,425.1 (1,027.6) 397.5 62.9 94.6 585.3
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
(1) Central items include net debt and tax balances, which are
managed at Group.
(2) Depreciation and amortisation excludes amortisation of
acquired intangible assets.
(3) Tangible and intangible assets comprise goodwill, intangible
assets and property plant and equipment.
(4) Central liabilities and capital employed presented in the
note do not agree to the published 2019 interim condensed
consolidated financial statements as a result of re-presenting the
comparative balance sheet as outlined in note 16 to the interim
financial statements.
5. Revenue
The Group's revenue is derived from contracts with customers. In
the following table, revenue is disaggregated by primary
geographical market, being the Group's operating segments (see note
4) and timing of revenue recognition:
Half year period to 28 Half year period to 30 June
June 2020 2019
-------------------- ---------------------------------------------- ----------------------------------------------
Revenue Revenue
Revenue recognised Revenue recognised
recognised on performance recognised on performance
on performance obligations on performance obligations
obligations satisfied obligations satisfied
satisfied at a point Total satisfied at a point Total
over time in time Revenue over time in time Revenue
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---------------- ---------------- ---------- ---------------- ---------------- ----------
North America 568.1 68.4 636.5 546.6 64.4 611.0
Europe, Middle East
and Africa 286.5 - 286.5 342.4 - 342.4
Asia-Pacific 116.1 - 116.1 138.3 - 138.3
-------------------- ---------------- ---------------- ---------- ---------------- ---------------- ----------
970.7 68.4 1,039.1 1,027.3 64.4 1,091.7
-------------------- ---------------- ---------------- ---------- ---------------- ---------------- ----------
6. Disposals
On 6 April 2020, the Group disposed of the Brazil operation,
being 100% of the issued share capital of Keller Tecnogeo Fundacoes
Ltda, for a cash consideration received of GBP0.5m (BRL3.0m). The
loss on disposal is analysed as follows:
GBPm
--------------------------------------------------
Proceeds 0.5
------------------------------------------ -------
Cash disposed (0.6)
Net disposal proceeds (0.1)
Net assets disposed excluding cash (see
below) (7.0)
Currency translation losses transferred
from translation reserve (2.9)
Non-underlying loss on disposal (10.0)
------------------------------------------ -------
GBPm
------------------------------------------ -------
Non-current assets 3.0
Inventories 1.9
Trade and other receivables 5.3
Trade and other payables (3.4)
Other net assets 0.2
------------------------------------------ -------
Net assets disposed excluding cash 7.0
------------------------------------------ -------
The results for the period are presented below. The 2020 results
represent activity prior to the sale.
Half Half
year year
period period
to to
28 June 30 June
2020 2019
GBPm GBPm
------------------ --------- ---------
Revenue 4.3 11.5
------------------ --------- ---------
Operating costs (3.9) (11.5)
Operating profit 0.4 -
------------------ --------- ---------
7. 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 and other
non-trading amounts, including those relating to acquisitions and
disposals. Non-underlying items comprise the following:
Half year Half year
period period
to to
28 June 30 June
2020 2019
GBPm GBPm
------------------------------------------------------- ---------- ----------
Exceptional restructuring costs (7.8) (6.9)
-------------------------------------------------------- ---------- ----------
Loss on disposal of operations (10.0) -
------------------------------------------------------- ---------- ----------
Contingent consideration: additional amounts provided (0.2) -
------------------------------------------------------- ---------- ----------
Acquisition costs (0.1) (0.5)
Non-underlying items in operating costs (18.1) (7.4)
Amortisation of acquired intangible assets (2.5) (1.7)
Exceptional contract dispute 0.7 3.3
Non-underlying items in other operating income 0.7 3.3
Total non-underlying items in operating profit
and before taxation (19.9) (5.8)
-------------------------------------------------------- ---------- ----------
Taxation 1.2 (10.2)
-------------------------------------------------------- ---------- ----------
Total non-underlying items after taxation (18.7) (16.0)
-------------------------------------------------------- ---------- ----------
In North America total restructuring costs of GBP4.6m were
incurred during the period. In Canada costs relate to the decision
to exit the Prairies region, these comprise redundancy and other
restructuring costs of GBP0.5m and asset write-downs of GBP1.4m.
Following a specific market rationalisation exercise in the US,
affecting local markets in the Central and Southeast regions,
restructuring costs of GBP0.8m have been incurred in respect of
redundancy and other restructuring costs and asset write-downs of
GBP1.9m.
In June 2020 the Group announced the decision to rationalise the
Franki Africa business, retaining a small number of profitable
operations which will be integrated into the Middle East operation,
giving rise to a restructuring cost of GBP3.3m in the period,
comprising redundancy and other restructuring costs.
In Asia-Pacific there was a GBP0.4m restructuring provision
release in Waterway during the period, offset by restructuring
costs in India and Malaysia, resulting in a net credit of GBP0.1m.
In the half year period to 30 June 2019 restructuring costs related
to the cessation of the Waterway operation, offset by a
restructuring provision release in ASEAN in relation to the
activities started in the second half of 2018.
A loss of disposal of GBP10.0m was recognised on disposal of the
Group's Brazil operation. Further details are set out in note
6.
Additional contingent consideration provided relates to the
acquisition of the GeoConstruction Group (Bencor) in 2015.
Acquisition costs in 2020 relate to professional fees associated
with the wind-up of an employee share ownership plan at Moretrench,
following acquisition in March 2018 (30 June 2019: GBP0.5m).
Amortisation of acquired intangible assets primarily relate to
Moretrench and Austral acquisitions.
During 2020 GBP0.7m of proceeds were received on final
settlement of a contributory claim relating to an exceptional
contract dispute, first reported in 2014. The proceeds received in
2019 are in respect of the same contract dispute.
8. Taxation
The Group's effective tax rate on underlying profit of 29.0%
(2019: 28.0%) is calculated using management's best estimate of the
average annual effective income tax rate expected for the full
year. The tax credit on non-underlying items has been calculated by
assessing the tax impact of each component of the charge to the
income statement in the interim accounts.
The Group is subject to continuing enquiries from HM Revenue
& Customs in relation to historic intercompany financing
arrangements which are potentially subject to a recovery of tax
benefits received as a consequence of the European Commission
ruling that the relevant tax provisions were in breach of State Aid
rules. The UK government has challenged the decision and the Group
has also made an application to the EU General Court to overturn
the ruling. No provision has been made for any additional tax that
might become payable due to the significant uncertainty involved in
quantifying any amounts that might eventually be payable. The
cumulative benefits that have been recognised in relation to the
arrangements are approximately GBP4.0m.
9. Dividends
Ordinary dividends on equity shares:
Half Half
year year
period period
to to Year to
28 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Amounts recognised as distributions to equity
holders in the period:
Interim dividend for the year ended 31 December
2019 of 12.6p - - 9.1
Final dividend for the year ended 31 December
2018 of 23.9p per share - 17.2 17.2
------------------------------------------------- ---------- --------- -------------
- 17.2 26.3
------------------------------------------------------------ --------- -------------
A decision was made at the AGM on 30 June 2020 to reduce the
full year dividend from the 27.4p previously recommended by the
Board in March to 23.3p, representing a full year 2019 dividend of
35.9p. This dividend will be paid on 21 August 2020 to shareholders
on the register at 31 July 2020.
The 2019 final dividend of 23.3p per share has not been included
as a liability in these financial statements and will be accounted
for in the period in which it is paid.
The declaration and payment of a 2020 interim dividend will be
reviewed later in the year.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
When the Group makes a profit, diluted earnings per share equals
the profit attributable to equity holders of the parent divided by
the weighted average diluted number of shares. When the Group makes
a loss, diluted earnings per share equals the loss attributable to
the equity holders of the parent divided by the basic average
number of shares. This ensures that earnings per share on losses is
shown in full and not diluted by unexercised share awards.
Basic and diluted earnings per share are calculated as
follows:
Underlying earnings
attributable to Earnings attributable
the equity holders to equity holders
of the parent of the parent
--------------------------------------------- ---------------------- ------------------------
Half year Half year Half year Half year
period period period period
to to to to
28 June 30 June 28 June 30 June
2020 2019 2020 2019
--------------------------------------------- ---------- ---------- ----------- -----------
Basic and diluted earnings (GBPm) 28.7 19.5 10.0 3.5
--------------------------------------------- ---------- ---------- ----------- -----------
Weighted average number of shares
(m)
Basic number of ordinary shares outstanding 72.1 72.1 72.1 72.1
Effect of dilution from:
Share options and awards (1) 0.6 - 0.6 -
--------------------------------------------- ---------- ---------- ----------- -----------
Diluted number of ordinary shares 72.7 72.1 72.7 72.1
--------------------------------------------- ---------- ---------- ----------- -----------
Earnings per share
--------------------------------------------- ---------- ---------- ----------- -----------
Basic earnings per share (p) 39.8 27.1 13.9 4.8
--------------------------------------------- ---------- ---------- ----------- -----------
Diluted earnings per share (p) 39.5 27.1 13.8 4.8
--------------------------------------------- ---------- ---------- ----------- -----------
(1) The weighted average number of shares takes into account the
weighted average effect of changes in treasury shares during the
year.
11. Property, plant and equipment
During the half year period to 28 June 2020 the Group acquired
property, plant and equipment with a cost of GBP27.8m (30 June
2019: GBP26.8m). Right-of-use asset additions during the period
were GBP7.9m (30 June 2019: GBP9.9m). Assets with a net book value
of GBP1.7m were disposed of during the half year period to 28 June
2020 (30 June 2019: GBP1.0m), resulting in a net gain on disposal
of GBP1.2m (30 June 2019: GBP0.6m).
12. Analysis of closing net debt
As at As at As at
28 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------------------------------------- --------- --------- -------------
Bank balances 123.6 64.3 95.0
Short-term deposits 5.4 3.7 3.9
-------------------------------------------- --------- --------- -------------
Cash and cash equivalents in the balance
sheet 129.0 68.0 98.9
Bank overdrafts (7.6) (6.3) (11.4)
-------------------------------------------- --------- --------- -------------
Cash and cash equivalents in the cash flow
statement 121.4 61.7 87.5
Bank and other loans (275.3) (393.7) (298.9)
Finance leases (1.2) (1.5) (1.7)
Lease liabilities (77.3) (86.1) (76.7)
-------------------------------------------- --------- --------- -------------
Closing net debt (232.4) (419.6) (289.8)
-------------------------------------------- --------- --------- -------------
13. Financial assets and financial liabilities
Set out below is an overview of financial assets and liabilities
held by the Group:
As at
As at 28 30 (1) As at
June June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------------------------------------------- --------- -------- -------------
Financial assets measured at fair value through
profit or loss
* Non-qualifying deferred compensation plan 17.5 20.1 17.1
- Interest rate swaps 7.8 3.5 3.4
Financial assets measured at amortised cost
- Trade receivables 434.5 494.5 483.9
- Contract assets 92.9 127.2 102.1
- Cash and cash equivalents 129.0 68.0 98.9
Financial liabilities at fair value through
profit or loss
- Loans and borrowings (2) (109.3) (101.8) (97.2)
- Contingent consideration (2.6) (2.8) (2.4)
Financial liabilities measured at amortised
cost
- Trade payables (227.6) (271.8) (291.5)
- Contract liabilities (49.5) (44.9) (42.0)
- Loans and borrowings (174.8) (299.7) (214.8)
- Lease liabilities (77.3) (86.1) (76.7)
-------------------------------------------------- --------- -------- -------------
(1) Loans and borrowings measured at fair value through profit
and loss as at 30 June 2019 have decreased by GBP87.5m and loans
and borrowings measured at amortised cost have increased by GBP1.4m
to correct certain misclassifications, relating to the recording of
lease liabilities of GBP86.1m.
(2) This loan is carried at amortised cost adjusted for the fair
value movement due to the hedged interest rate risk.
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
consideration and payables, receivables and contract assets.
Derivatives
The fair value 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 the Group's derivative financial
instruments carried at fair value are categorised as Level 2. Level
2 assets are financial assets and liabilities that do not have
regular market pricing, but whose fair value can be determined
based on other data values or market prices.
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and
interest cash flows discounted using appropriate discount rates
prevailing at the balance sheet date.
Contingent consideration
Fair value is calculated based on the amounts expected to be
paid, determined by reference to forecasts of future performance of
the acquired businesses discounted using appropriate discount rates
prevailing at the balance sheet date and the probability of
contingent events and targets being achieved.
The valuation methods of the Group's contingent consideration
carried at fair value are categorised as Level 3. Level 3 assets
are financial assets and liabilities that are considered to be the
most illiquid. Their values have been estimated using available
management information including subjective assumptions. There has
been additional contingent consideration provided of GBP0.2m during
the half year period to 28 June 2020 relating to the acquisition of
GeoConstruction Group (Bencor) in 2015.
Payables, receivables and contract assets
For payables and receivables with a remaining life of one year
or less, the carrying amount is deemed to reflect the fair
value.
14. Share capital and reserves
As at As at As at
28 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------------------------- --------- --------- -------------
Allotted, called up and fully paid
Equity share capital:
73,099,735 ordinary shares of 10p each
(30 June 2019 and 31 December 2019: 73,099,735) 7.3 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 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 is a non-distributable reserve created when
merger relief was applied to an issue of shares under section 612
of the Companies Act 2006 to part fund the acquisition of Keller
Canada. The reserve becomes distributable should Keller Canada be
disposed of.
At 28 June 2020 the total number of shares held in treasury was
1,001,590 (30 June 2019: 1,039,855 and 31 December 2019 1,029,451
).
15. Related party transactions
Transactions between the parent, its subsidiaries and joint
operations, which are related parties, have been eliminated on
consolidation.
16. Prior year restatement
The accounting policies set out in the Group's annual
consolidated financial statements were applied in preparing the
financial statements for the half year period ended 28 June 2020
and the comparative information presented for the half year period
ended 30 June 2019. In preparing the comparative consolidated
balance sheet, the Group restated amounts reported previously in
the condensed consolidated interim financial statements as a result
of a change in accounting policy and a reclassification of
liabilities as outlined below. The change of accounting policy
occurred as at 31 December 2019 and thus corresponding adjustments
were made to the 30 June 2019 balance sheet.
Presented below is a reconciliation of the consolidated interim
balance sheet previously reported as at 30 June 2019 to the 28 June
2020 comparative consolidated balance sheet:
2019 2019
Presented Restatements Re-presented
Note GBPm GBPm GBPm
-------------------------------------- ------- ----------- ------------- -------------
Trade and other payables a (474.3) 8.9 (465.4)
Provisions b (12.6) (0.2) (12.8)
Current liabilities (543.2) 8.7 (534.5)
Provisions a,b (16.2) (27.5) (43.7)
Non-current liabilities a,b (549.9) (27.5) (577.4)
Total liabilities a,b (1,093.1) (18.8) (1,111.9)
Net assets a,b 433.9 (18.8) 415.1
Retained earnings a,b 275.8 (18.8) 257.0
Equity attributable to equity holders
of the parent a,b 428.7 (18.8) 409.9
Total equity a,b 433.9 (18.8) 415.1
-------------------------------------- ------- ----------- ------------- -------------
The 30 June 2019 interim condensed consolidated balance sheet
previously reported has been restated as follows:
a) The Group previously classified legal claims within trade and
other payables. This classification has been revised and legal
claims have been reclassified to provisions. As a result,
previously reported trade and other payables have decreased by
GBP8.9m and previously reported non-current provisions have
increased by GBP8.9m to reflect the revised classification.
b) The Group has a captive insurance arrangement whereby
contractual claims against the Group are held. Recognition of
contractual claims more fairly reflect the liabilities of the
Group, and as such, a change was made to reflect the requirements
of IAS 37. Claims provisions are based on assumptions regarding
past claims experience and an assessment by an independent actuary.
The total estimated provision as at 30 June 2019 is GBP18.8m.
Previously reported current provisions have increased by GBP0.2m
and previously reported non-current provisions have increased by
GBP18.6m. As there were no change in circumstances in the half year
period to 30 June 2019 the valuation as at December 2018 was not
revisited.
17. Post balance sheet events
There were no material post balance sheet events between the
balance sheet date and the date of this report.
Adjusted performance measures
The Group's results as reported under International Financial
Reporting Standards (IFRS) and presented in the interim condensed
consolidated financial statements (the 'statutory results') are
significantly impacted by movements in exchange rates relative to
sterling, as well as by exceptional items and non-trading amounts
including those relating to acquisitions and disposals.
Adjusted performance measures have been used throughout this
report to describe the Group's underlying performance. The Board
and Executive Committee use these adjusted measures to assess the
performance of the business as they consider them more
representative of the underlying ongoing trading result and allow
more meaningful comparison to prior periods.
Underlying measures
The term 'underlying' excludes the impact of items which are
exceptional by their size and, or, are non-trading in nature,
including amortisation of acquired intangible assets and other
non-trading amounts relating to acquisitions and disposals
(collectively 'non-underlying items'), net of any associated tax.
Underlying measures allow management and investors to compare
performance without the potentially distorting effects of one-off
items or non-trading items. Non-underlying items are disclosed
separately in the interim financial statements where it is
necessary to do so to provide further understanding of the
financial performance of the Group.
Constant currency measures
The constant currency basis ('constant currency') adjusts the
comparative to exclude the impact of movements in exchange rates
relative to sterling. This is achieved by retranslating the 2019
results of overseas operations into sterling at the 2020 average
exchange rates.
A reconciliation between the underlying results and the reported
statutory results is shown on the face of the consolidated income
statement, with non-underlying items detailed in note 7. A
reconciliation between the 2019 underlying result to the 2019
constant currency result is shown below and compared to the
underlying 2020 performance:
Revenue by segment
Impact of
exchange Constant Constant
Statutory Statutory movements currency Statutory currency
2020 2019 2019 2019 change change
GBPm GBPm GBPm GBPm % %
---------------------- ---------- ---------- ----------- ---------- ---------- ----------
North America 636.5 611.0 13.3 624.3 +4% +2%
Europe, Middle East
and Africa 286.5 342.4 (6.0) 336.4 -16% -15%
Asia-Pacific 116.1 138.3 (4.5) 133.8 -16% -13%
---------------------- ---------- ---------- ----------- ---------- ---------- ----------
Group 1,039.1 1,091.7 2.8 1,094.5 -5% -5%
---------------------- ---------- ---------- ----------- ---------- ---------- ----------
Underlying operating profit by segment
Impact of
exchange Constant Constant
Underlying Underlying movements currency Underlying currency
2020 2019 2019 2019 change change
GBPm GBPm GBPm GBPm % %
----------------------------- ----------- ----------- ---------- ----------- ----------
North America 38.6 33.1 0.7 33.8 +17% +14%
Europe, Middle East
and Africa 8.4 10.6 0.7 11.3 -21% -26%
Asia-Pacific 4.6 (2.5) 0.2 (2.3) n/a n/a
Central items (3.7) (2.9) - (2.9) n/a n/a
---------------------- ------ ----------- ----------- ---------- ----------- ----------
Group 47.9 38.3 1.6 39.9 +25% +20%
---------------------- ------ ----------- ----------- ---------- ----------- ----------
Underlying operating margin
Underlying operating margin is underlying operating profit as a
percentage of revenue.
Other adjusted measures
Where not presented and reconciled on the face of the interim
condensed consolidated income statement, balance sheet or cash flow
statement, the adjusted measures are reconciled to the IFRS
statutory numbers below:
EBITDA (IFRS 16 basis)
28 June 30 June
2020 2019
GBPm GBPm
----------------------------------------------------- -------- ----------
Operating profit before non-underlying items 47.9 38.3
Depreciation of owned property, plant and equipment 33.5 34.4
Depreciation of right-of-use assets 13.3 11.9
Amortisation of intangible assets 0.2 0.3
----------------------------------------------------- -------- --------
Underlying EBITDA 94.9 84.9
Non-underlying items in operating costs (18.1) (7.4)
Non-underlying items in other operating income 0.7 3.3
----------------------------------------------------- -------- --------
EBITDA 77.5 80.8
----------------------------------------------------- -------- --------
EBITDA (IAS 17 basis)
28 June 30 June
2020 2019
GBPm GBPm
---------------------------------------------------- -------- ----------
Operating profit before non-underlying items 46.8 37.5
Depreciation of owned property plant and equipment 33.5 34.4
Amortisation of intangible assets 0.2 0.3
---------------------------------------------------- -------- --------
Underlying EBITDA 80.5 72.2
Non-underlying items in operating costs (18.1) (7.4)
Non-underlying items in other operating income 0.7 3.3
---------------------------------------------------- -------- --------
EBITDA 63.1 68.1
---------------------------------------------------- -------- --------
Net finance costs
28 June 30 June
2020 2019
GBPm GBPm
------------------------------------- -------- ----------
Finance income (0.4) (0.6)
Finance costs 7.6 11.4
------------------------------------- -------- ----------
Net finance costs (IFRS 16 basis) 7.2 10.8
------------------------------------- -------- ----------
Finance charge on lease liabilities (1.8) (2.2)
------------------------------------- -------- ----------
Net finance costs (IAS 17 basis) 5.4 8.6
------------------------------------- -------- ----------
Net capital expenditure
28 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
--------------------------------------- -------- -------- ------------
Acquisition of property, plant and
equipment 27.8 26.8 62.2
Acquisition of intangible assets - 0.1 0.7
Proceeds from sale of property, plant
and equipment (2.9) (1.6) (10.9)
--------------------------------------- -------- -------- ------------
Net capital expenditure 24.9 25.3 52.0
--------------------------------------- -------- -------- ------------
Net debt
28 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
---------------------------------- -------- -------- ------------
Current loans and borrowings 41.1 37.5 41.0
Non-current loans and borrowings 320.3 450.1 347.7
Cash and cash equivalents (129.0) (68.0) (98.9)
---------------------------------- -------- -------- ------------
Net debt (IFRS 16 basis) 232.4 419.6 289.8
---------------------------------- -------- -------- ------------
Lease liabilities (77.3) (86.1) (76.7)
---------------------------------- -------- -------- ------------
Net debt (IAS 17 basis) 155.1 333.5 213.1
---------------------------------- -------- -------- ------------
Order book
The Group's disclosure of its order book is aimed to provide
insight into its backlog of work and future performance. The
Group's order book is not a measure of past performance and
therefore cannot be derived from its financial statements. The
Group's order book comprises the unexecuted elements of orders on
contracts that have been awarded. Where a contract is subject to
variations, only secured variations are included in the reported
order book.
Leases
IFRS 16 'Leases' became effective from 1 January 2019. The
financial impact of this standard compared to the accounting under
the previous leasing standard, IAS 17, is excluded when calculating
borrowing leverage under the principal lender covenants and is
summarised in the table below:
28 June 30 June 31 December
2020 2019 2019
-------------------------------- -------- -------- ------------
GBPm GBPm GBPm
-------------------------------- -------- -------- ------------
Lease charges removed 14.4 12.9 27.9
Depreciation of right-of-use
assets (13.3) (12.1) (22.9)
-------------------------------- -------- -------- ------------
Increase in operating profit 1.1 0.8 5.0
Finance charge (1.8) (2.2) (4.3)
-------------------------------- -------- -------- ------------
(Reduction)/increase in profit
before tax (0.7) (1.4) 0.7
Tax effect 0.2 0.4 (0.2)
-------------------------------- -------- -------- ------------
(Reduction)/increase in profit
for the period (0.5) (1.0) 0.5
Right-of-use assets at balance
sheet date 73.5 84.4 74.0
Lease liabilities at balance
sheet date (77.3) (86.1) (76.7)
-------------------------------- -------- -------- ------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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