Keller Regulatory News (KLR)

3 Mar 2008 07:01

Keller Group PLC03 March 2008 Monday, 3 March 2008 Keller Group plc Preliminary results for the year ended 31 December 2007 Keller Group plc ("Keller" or "the Group"), the international ground engineeringspecialist, is pleased to announce its preliminary results for the year ended 31December 2007. Highlights include: • Revenue* of £955.1m (2006: £857.7m), up 11% • Strong organic growth, particularly from outside of US, and good contribution from acquisitions • Record operating margin* of 11.2% (2006: 10.4%) • Profit before tax* up 23% to £103.2m (2006: £83.7m) • Earnings per share* up 24% to 97.6p (2006: 79.0p before one-off tax credit) • Proposed final dividend of 12.0p (2006: 11.4p), taking the total dividend for the year to 18.0p (2006: 15.6p), a 15% increase • Buy-back programme for up to 5% of share capital announced *from continuing operations Justin Atkinson, Keller Chief Executive said: "This third consecutive year of excellent growth reflects not only the strengthof our markets, but also the successful execution of our strategy. As a result,the size of our business has significantly increased, particularly outside ofthe US, creating opportunities, economies of scale and better geographicbalance. "In the first few weeks of 2008, new orders, tendering and trading have all beenencouraging. At the end of January, we had a record order book, with all fourregions ahead of the same time last year, giving us a good platform for theremainder of this year." For further information, please contact: Keller Group plc www.keller.co.ukJustin Atkinson, Chief Executive 020 7616 7575James Hind, Finance DirectorSmithfieldReg Hoare/Rupert Trefgarne 020 7360 4900 A presentation for analysts will be held at 9.15 for 9.30am at The Theatre & Gallery, London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS Print resolution images are available for the media to download from www.vismedia.co.uk Chairman's Statement Results I am pleased to report a record set of results, which build on the successes ofthe previous two years. This third consecutive year of excellent growth, whichreflects not only the strength of our markets but also the successful executionof our strategy, has transformed the scale and profitability of the Group. The Group reported a significant increase in both revenue and profit,particularly from the divisions outside of the US which now account for 44% oftotal Group profit, compared to only 28% two years ago. This has resulted inexcellent profit contributions from a broad range of geographies. Group revenue from continuing operations rose by 11% to £955.1m (2006: £857.7m)and our operating margin on the same basis reached an all-time high of 11.2%(2006: 10.4%). Profit before tax from continuing operations was up 23% to£103.2m (2006: £83.7m) and earnings per share from continuing operations grew by24% to 97.6p (2006: 79.0p before the benefit of a one-off tax credit). Cash flow and net debt The very strong trading result was supported by an increase in cash generatedfrom operations to £117.2m (2006: £98.3m). Net debt at the end of the year stoodat £54.5m (2006: £38.6m), after expenditure of £34.5m on acquisitions. Weincreased capital expenditure to £48.1m (2006: £29.4m), which enabled us to makefurther progress in modernising and expanding our equipment fleets, particularlyin those parts of the Group offering the best growth potential. Dividends Last year, the Board reviewed the Group's dividend policy and indicated that wewould increase the dividend by 15% per annum for the foreseeable future, subjectto maintaining three times' dividend cover. We remain committed to this policyand also to continuing to reinvest our cash flow in the growth of the Group, aswe have successfully done to date. The Board is therefore recommending a final dividend of 12.0p per share (2006:11.4p) which, together with the interim dividend paid of 6.0p (2006: 4.2p),brings the total dividend for the year to 18.0p, an increase of 15% on theprevious year's 15.6p. The final dividend will be paid on 30 May 2008 toshareholders on the register at 2 May 2008. Share buy-back programme Given the continuing and growing strength of the Group's balance sheet, theBoard proposes to use its existing authority to buy back up to 5% of theCompany's ordinary shares during the remainder of 2008. The Directors believethat such a buy-back programme will be earnings per share enhancing and it willonly be pursued on this basis. In any event, the Group will retain sufficientfinancial flexibility to be able to successfully pursue its strategy and toinvest in opportunities for profitable growth. Any shares bought back willinitially be held in treasury. Strategy Our strategy remains the same: to extend our global leadership in specialistground engineering through both targeted acquisitions and organic growth. In 2007, we made two further acquisitions: HJ in the US and Systems Geotechniquein the UK. The HJ acquisition gives us expertise in the growing technology ofContinuous Flight Auger piles which is new to Keller in the US and furtherextends our clear leadership in this market. The acquisition of SystemsGeotechnique, following on from the Phi acquisition in 2006, increases ourpresence and broadens our product range in the UK. We also invested heavily in the fastest-growing parts of the Group, particularlyin the Middle East, Eastern Europe and Australia. This was rewarded with strongorganic growth. In addition, we continued our expansion into new geographicregions, with additions to our network of offices around the world and theperformance of our first contracts in Brazil, Greece, Romania and Vietnam. In 2008, we shall continue to make strategic progress by allocating resources tomarkets which offer good growth and by taking advantage of the opportunitiespresented by our highly fragmented industry. Makers In the UK, after several years of underperformance, we have now substantiallyexited our non-core Makers business and its results have been shown as adiscontinued operation. The combined trading losses and exit costs totalled£14.2m before tax, in line with the guidance previously given. Our Employees Some of the real challenges of the past few years have been to retain our bestemployees who, in strong markets, have been much in demand; and to attract anddevelop others who share our priorities with regard to safety, quality andproductivity. The recent expansion of our business has demanded significantrecruitment and skills training, particularly of new engineers and fieldoperators. Most of this training is highly specialised and requires substantialinput from our managers. They have risen to the challenge and devised new andincreasingly effective ways of ensuring that our employees are properly equippedto do the excellent work we require of them. The hard work, commitment and long service of our employees is not somethingwhich we take for granted and we are as determined as ever in our aim to providea working environment in which all can prosper. Our Board We were pleased to appoint Mr Roy Franklin, OBE to the Board in July 2007. Roy'sappointment strengthens the Board and brings extensive experience to Keller,particularly with regard to international and strategic matters. Mr Keith Payne, who joined the Board in 1999, stood down at the end of January2008 and I would like to thank Keith for the valued contribution he has made tothe Group over the years. Outlook Whilst the likely impact of the current global economic uncertainty remainsunclear, we believe that the increased scale of our business, particularlyoutside of the US, gives the Group better geographic balance and means that wenow have greater protection against economic cycles. Furthermore, thecomplementary nature of our businesses and their increased ability to poolresources have strengthened the Group's capacity to participate in large-scaledevelopment projects around the world. The US, which still accounts for around half of our revenue, remains our biggestmarket. Here, non-residential construction, which generates the vast majority ofour US business, is forecast to show further modest growth in 2008 (The AmericanInstitute of Architects Consensus Construction Forecast, 11 January 2008), although residential is not expected to pick up for some time. Within non-residential, public infrastructure is likely to continue to grow at a good pace, whilst the private sector is expected to be broadly flat. Elsewhere, we expect our growth markets - particularly the Middle East and Eastern Europe - toremain strong in the medium term. In our other main regions, we do not foresee any significant change in market conditions overall. In the first few weeks of 2008, new orders, tendering and trading have all beenencouraging. At the end of January, we had a record order book, with all fourregions ahead of the same time last year, giving us a good platform for theremainder of this year. Operating Review 2007 was another excellent year for the Group, in which we maintained, and builtupon, the growth of the previous two years and demonstrated the benefits of ourincreased geographic and operational scale. Conditions in our major markets In the US, the public infrastructure and commercial sectors remained verystrong, with 2007 non-residential expenditure as a whole around 16% higher thanthe previous year*. As expected, there was further contraction in theresidential sector, with housing starts for single-family homes ending the yearsome 29% down on 2006**. Taken as a whole, construction expenditure in the USreduced, year on year, by around 2.5%*. Our principal European markets - France, Germany, Spain, UK and Eastern Europe -showed good growth overall, particularly in the infrastructure sector to whichour businesses have a significant exposure. Elsewhere, the Middle East and Australia both experienced unprecedented levelsof construction activity. \* The US Census Bureau of the Department of Commerce, 1 February 2008**Monthly housing starts published by the National Association of Home Buildersin February 2008 Operations US Results summary: 2007 2006Revenue £473.2m £476.9mOperating profit £61.6m £64.1mMargin 13.0% 13.4% Our US operations as a whole had another good year with total US revenue andoperating profit ahead of last year by 8% and 4% respectively on a constantcurrency basis, despite a significant reduction in both revenue and profit atSuncoast. Translated into sterling, overall revenue was 1% down, whilstoperating profit was down by 4%, reflecting the significant weakening of the USdollar. Hayward Baker 2007 was another extremely busy year for Hayward Baker, the largest of our USfoundation businesses. By strengthening the business infrastructure and refiningits risk management and operating procedures, management delivered furtherimprovement in contract performance, at a time of continued business expansion.In addition, they capitalised on the opportunities offered by a thrivingmarketplace to report record revenue and margins. During the year, new offices were established in Houston, Kansas City,Minneapolis and San Diego, bringing the total network up to 22 offices, fromwhich we worked in every state in the US. Product and process development continued to have a strong focus, as illustratedby the introduction to the US of a special trench remixing tool (TRD),incorporating a large, chainsaw-like mixing blade. Hayward Baker is now usingTRD on a small test section of the dyke at Lake Okeechobee in Florida. As one ofthree contractors selected to compete for additional sections of the dyke asthey are released, and with the advantage of TRD, we are well-positioned toparticipate further in this potential long-term project. Dry soil mixing and the vibro piers system, which were introduced to the marketin 2005 and 2006 respectively, both made good contributions in 2007, as interestin these products continues to grow. Dry soil mixing proved to be an effectivesolution for providing load support at a biofuel storage tank site in GalenaPark, Texas. Having previously been used for oil storage, the site wascontaminated which would usually mean expensive pre-drilling and spoil removalbefore its re-use. As dry soil mixing uses the existing soil as part of thestructural element and thereby eliminates the need to remove contaminated spoil,the client, with whom Hayward Baker had worked on other projects, was offeredthis as a cost-effective alternative solution. Case, McKinney, Anderson and HJ Our US piling businesses also had a very good year, with two familiar themes totheir success: a pooling of their expertise and resources on contracts whichcall for time-critical delivery or the use of several different techniques; andinvestment in efficient, powerful and durable equipment to increase theircapacity and capability for bigger and technically more demanding jobs. One of the year's most notable piling contracts in the US was for thefoundations of The Chicago Spire - a 150-storey, 610-metre high residentialtower which is expected to be the tallest building in the US. Case is installing34 steel-reinforced concrete caissons, 36 metres in length, drilled intobedrock, whilst Hayward Baker is constructing a 32-metre diameter sheet-piledwall to create a dry environment and to serve as the foundation for the core ofthe building. The contract, which is proceeding to plan and to budget, willcomplete in the first half of 2008. Anderson, the West Coast business which we acquired in 2006, had an excellentfirst full year under Keller's ownership and is now well integrated into theGroup, as is illustrated by the knowledge-sharing and co-operation on projectswith our other US businesses. For example, Case and Anderson worked together onthe foundation system for the replacement of the I-35 road bridge inMinneapolis, Minnesota, following the structural failure of the original bridgein August 2007. This high profile job needed to be completed within a very shorttimescale, which the two businesses were able to achieve by pooling theirresources. Once again, McKinney worked with Case on several large projects during the year- a sign of the valuable relationship which has developed between thesebusinesses. McKinney is also currently working in joint venture with Anderson atthe site of a new power plant for Formosa Plastics in Port Comfort, Texas, wheretheir combined resources have secured the first two phases of the foundationswork, with a potential for further awards as the project develops. In the last quarter of the year we acquired the business and assets of HJ, themarket leader in Florida in Continuous Flight Auger (CFA) piling, for an initialcash consideration of $47.3m (£23.6m). The acquisition gives Keller much betteraccess to the piling market in Florida, as well as enabling the Group toaccelerate the introduction of CFA piling in its other US businesses. A contractin Pittsburgh, Pennsylvania, to install 1,700 CFA piles for the new MajesticStar Casino, is currently being undertaken jointly by HJ and Case, marking thefirst teaming up of HJ's CFA expertise with the resources of another Kellerbusiness. Suncoast Suncoast's performance was impacted by the continuing decline in the USresidential sector. This was reflected in reduced revenue from both itsslab-on-grade and high rise markets, although the reduction in slab-on-graderevenue, most of which comes from single family homes, was less than the marketdecline*, indicating a further gain in market share. Inevitably, this situation has led to pricing pressure. However, Suncoast'smanagement has taken a very proactive approach to cost control, with productioncosts tightly controlled and headcount reduced by around 40% from its peak levelin 2006. These actions, together with Suncoast's leading market position, meanthat margin erosion has been partly contained and the business is better placedto weather a continued period of reduced demand. *As indicated by single family home permits; data published by US Census Bureauof the Department of Commerce Continental Europe, Middle East & Asia (CEMEA) Results summary: 2007 2006Revenue £296.8m £255.0mOperating profit £30.4m £17.9mMargin 10.2% 7.0% 2007 saw an excellent performance from our CEMEA business. Revenue was up some16% and operating profit was almost 70% above the previous year, having morethan doubled since 2005. This growth reflects the measures we have taken toimprove the geographic balance of the Group: by targeting, and investing in,Eastern Europe and the Middle East; and in particular, by expanding our pilingservices, which had historically been under-represented in these regions. The significant improvement in margin in part reflects the strength of CEMEA'smarkets, but also reflects strong risk management and a trend towards contractswith a higher in-house design element. Continental Europe Our businesses within the more mature Continental European markets all faredwell, undertaking their usual spread of contracts across the constructionspectrum, including a significant element of public infrastructure projects. In Central Europe, for example, we undertook stabilisation works for railtunneling projects in Amsterdam and Leipzig. The Leipzig tunnel goes directlyunderneath many of the city's historic buildings and, in order to avoidsettlement, these buildings are being lifted by up to 10mm using a specialgrouting technique. Other key projects include a 'value engineered' remediationscheme for embankment works along the A2 motorway in Austria. This is one of anincreasing number of schemes where our redesign, deploying specialist techniquesnot included in the original specification, reduces the overall programme timeand cost. In Spain, we saw an excellent margin recovery after a disappointing 2006. Ourbiggest Spanish contract in the year was for the provision of grouting works atthe Port of Huelva redevelopment project Our French business took advantage ofopportunities at home and in French-speaking territories abroad, including theFrench West Indies, where it was involved in the development of the newGrand'Riviere Harbour at Martinique. In Eastern Europe, where we have seen growth of nearly 50% per annum over thepast three years, our Polish business once again led the way, with revenueboosted by the addition of piling services which now account for some 25% of itssales. However, our biggest contract in Poland was for the provision of groundimprovement works using jet-assisted wet deep soil mixing for the new A1motorway between Sonica and Bek. Under the watchful eye of the Polishmanagement, the fledgling business in Ukraine made a small profit, establishingits reputation in what, over the longer term, could become a significant market.Elsewhere, we undertook our first work in Romania, where we prepared thefoundations for a bio-diesel factory on behalf of a Portuguese client for whomwe have worked on several similar projects in the past. This sure-footedapproach to extending into new countries, where we initially link up with aclient with whom we have an existing relationship, has stood us in good stead inthe past and is likely to be a feature of further geographic expansion in thisregion. Middle East The growth of our business in the Middle East, where revenue has more thantrebled since 2004, was an important feature of the Group's overall performancein 2007. Here, we worked on a number of major contracts, several of which havebeen for the provision of piling services, justifying our increased strategicfocus in this area. These include contracts at the new Saudi Kayan petrochemicalcomplex in Saudi Arabia and the Al Salaam Resort in Bahrain. At Palm Deira, thethird of the palm-shaped, man-made islands being built off the coast of Dubai,our contract performance was helped by the deployment of our latest generationtwin-paddled S700 vibrators, which we build for our exclusive use and which arean important factor in achieving high levels of productivity. Asia In Asia, we have recently added deep soil mixing technology to our offering ofground improvement projects and one of the contracts which we secured as aresult was at Sentosa Island, Singapore, where we are working on the site of aresort which is being created partly on reclaimed land. Because of a shortage ofsand in the region, the project is using excavated spoil and we have developed aground treatment solution which treats this fill in situ, using deep mixingmethods. In both the Middle East and Asia, we have considerable experience in providingfoundation solutions for complex industrial installations, such as petrochemicaland power plants. Many more such developments are in prospect over the next fewyears and, as in the past, we expect our high quality execution and stronghealth and safety record to give us a significant advantage in competing forsuch work. Australia Results summary: 2007 2006Revenue £107.1m £65.1mOperating profit £14.7m £7.0mMargin 13.7% 10.7% Helped by the successful acquisition of Piling Contractors in 2006, ourAustralian business has almost trebled, in revenue terms, since 2005. With a2007 operating margin of 13.7%, it is now a clear leader in a very strongmarket. Our most notable Australian project in the year was undoubtedly the GatewayUpgrade project in Brisbane, where all four of our businesses, in a jointventure led by Piling Contractors, are working together to execute thefoundations for the largest road and bridge infrastructure project inQueensland's history. Our work involves a package of different techniquesincluding bored piles, pre-cast piles and ground improvement works. Despite thescope of the work being extended over recent months, the job is still scheduledto complete in autumn 2008, as originally planned. Following the success of our earlier contract at the Melbourne ConventionCentre, we were invited back in 2007 to work on the second stage of the projectknown as South Wharf - a promenade and mixed use development. The biggestelement of the job was installation of deep CFA piles, founded on various typesof rock at depths of 30 to 40 metres. In addition, we undertook a range ofenabling works which involved jet grouting, dry soil mixing and the installationof a slurry wall. We have been involved in an exceptional number of large infrastructure projectsin Australia over the past 18 months, including the Tugun Bypass, theNorth-South Tunnel, the Inner-Northern Busway and now the Gateway Upgrade. Witha number of such projects still in the pipeline, we see this trend continuing inthe medium term. UK Results summary (continuing business): 2007 2006Revenue £78.0m £60.7mOperating profit £3.8m £3.4mMargin 4.9% 5.6% The UK results benefited from a good contribution from Phi, which we acquired in2006 and whose retaining wall systems have proved to be very complementary tothe other solutions offered by our UK business. At a development of industrial units at Hemel Hempstead, where differing soilconditions and very uneven ground limited the amount of usable space, Phi'sretaining walls were used in conjunction with vibro stone columns and CFApiling. Our innovative design solution, using these three techniques, is thoughtto have extended the usable ground by around 20%. As in previous years, foundations for distribution centres featured within KGE'sdiverse contract portfolio and one of these, for Amazon in Swansea, used acombination of vibro stone column and dynamic compaction ground improvementtechniques to deliver a cost-effective solution within an extremely tightdeadline. Despite June and July being the wettest months in the region sincerecords began, causing many logistical problems across the site, our work wascompleted well within schedule and the facility was operational by October, asplanned. 2007 marked the start of what we anticipate will be a steady stream of workrelated to London's 2012 Olympics. We carried out ground improvement works forthe construction of warehouses which were then used to re-locate businesses fromStratford Park, the main site for the Olympics. In addition, we installedanchors to retain the new Prescott Lock, which will create a 'green gateway' forbarges entering the Olympic Park, helping to eliminate up to 1,000 lorryjourneys a week from local roads. In April, we completed the acquisition of Systems Geotechnique for an initialconsideration of £9.1m, which now gives us a lead in the drilling and groutingsector. We have been impressed with the strengths of the business in terms ofits people, equipment and design-and-construct know-how and it is encouraging tosee the good co-operation which has developed between Systems and the rest ofour UK business. Makers Following a strategic review of our structural refurbishment business in thefirst half of the year, we announced at the time of our interim results that thevarious divisions of Makers would be sold or discontinued, as appropriate. As weanticipated, this has been a difficult process, but it is now substantiallycomplete, with all four divisions sold for a nominal consideration and with thevast majority of employees' jobs preserved. The pre-tax one-off charge in the second half of the year was £8.9m, which is inline with the guidance we gave with our interim results announcement in Augustand results in a total loss before tax for the full year of £14.2m. After tax,the loss was £10.5m. Sustaining our growth Our success in taking full advantage of the widespread strong demand for ourproducts over recent years has been due to our ongoing investment in the Group.We have long since recognised the need to sustain and grow our business byinvesting time and money in people, equipment and acquisitions. This meansrecruiting people with great potential, providing training, motivation and asafe work environment for our employees and reinforcing our strong relationshipswith industry partners. It means ongoing modernisation of our equipment fleetsand updating our methods of work. It also means identifying businesses which aregood strategic fits, acquiring them at sensible prices and ensuring that wedeliver value from their integration into the Group. We will continue to investin all these aspects of our business which we see as being crucial to ourcontinued success. Financial Review Results (from continuing operations) Trading results 2007 was another outstanding year for Keller, with revenue, profits and marginsfrom continuing operations all again at record levels. These results excludeMakers, which has been treated as a discontinued business. Group revenue increased by 11% in the year to £955.1m, reflecting strong organicgrowth in most of the Group's main markets, together with a good contributionfrom acquisitions. Movements in reported revenue and profits were adverselyinfluenced by fluctuations in foreign currency exchange rates. The average USdollar exchange rate against sterling was US$2.00, 9% weaker than in 2006, whilethe average euro exchange rate weakened slightly from €1.47 to €1.46. Strippingout the effects of acquisitions and currency movements, the Group's 2007 revenuewas 7% up on 2006. EBITDA was £125.8m, compared to £105.1m in 2006. Operating profit was £107.4m,up from £89.3m in 2006, despite profits in the US, the Group's largest market,being slightly down year-on-year when translated into sterling. In the US, anincrease in the profits coming from the Group's foundation contractingbusinesses was offset by lower profits at Suncoast, the business most exposed tothe US residential market. The benefit from the acquisitions of Anderson inOctober 2006 and HJ in October 2007 was matched by adverse currency movements. The improvement in the Group operating profit was therefore largely derived fromCEMEA, where profits increased by nearly 70%, and Australia where operatingprofit doubled, helped by the acquisition of Piling Contractors in August 2006.In the UK, profits were boosted by a good first full-year result from the 2006Phi acquisition and the first-time contribution from Systems Geotechnique,acquired in April 2007. Adjusting for the effects of acquisitions and currency movements, the Group'soperating profit was up 17% on 2006. Operating margins increased to anotherrecord high of 11.2% from 10.4% in 2006. As the Group grows, margins arebenefiting from economies of scale; in 2007 overheads were 13% of revenue, downfrom 15% in 2004. Interest The net interest charge decreased from £5.6m in 2006 to £4.2m in 2007. Interestcover is very comfortable at around 30 times EBITDA. Tax The Group's underlying effective tax rate was 35%, down from 37% in 2006,reflecting the fact that a higher proportion of the Group's profit was derivedfrom lower tax countries. However, the Group's underlying effective tax rateremains relatively high compared to most UK domiciled businesses, as about halfof the Group's profits are still earned in the US where the effective federaland state tax rates total around 39%. Discontinued operation In August, we announced the intention to exit from Makers in the UK andindicated that this would result in a one-off charge of up to £10m in the secondhalf of 2007. This process is now substantially complete. The second-halfpre-tax cost was £8.9m which, together with the first-half trading losses of£5.3m, brings the total 2007 Makers' loss before tax to £14.2m (loss after taxof £10.5m). Makers has been treated as a discontinued operation in the Group financialstatements. Consequently, its trading is not included in the headline revenueand costs on the face of the income statement. Instead, its post-tax result hasbeen shown as a single-line item towards the bottom of the consolidated incomestatement. Makers' result is analysed in more detail in note 4 of thisstatement. Earnings and dividends Earnings per share (EPS) from continuing operations (and before the benefit ofthe one-off tax credit in 2006) increased by 24% to 97.6p. Basic earnings pershare, stated after the losses related to Makers, was 81.8p. The Board announced last year that it intends to increase dividends by 15% perannum for the foreseeable future, subject to the dividends being three timescovered. The Board is therefore recommending a final dividend of 12.0p pershare, which brings the total dividend paid out of 2007 profits to 18.0p, a 15%increase on last year. The 2007 dividend is covered 5.4 times by EPS fromcontinuing operations. Cash flow In 2007, the Group continued its excellent record of converting profits intocash. Net cash inflow from operations (excluding Makers) was £127.4m,representing 101% of EBITDA. The net cash outflow from operations relating toMakers was £10.2m. Year-end working capital, at £55.7m, was only £0.9m higherthan the previous year, despite the two acquisitions in the year and the Group'sstrong organic growth. Capital expenditure totalled £48.1m, more than 60% up on 2006. This significantincrease is due both to the Group's substantial growth in recent years and toadditional capital expenditure being committed to ensure continued long-termgrowth. The additional capital has been targeted either at geographies whichhave excellent growth prospects or where a lack of available equipment wasconstraining the ability to undertake further work. Financing Year-end net debt increased to £54.5m from £38.6m at 31 December 2006, as aresult of the additional capital expenditure and spending £34.5m on acquisitions(net of cash and debt acquired) in the year. Net debt at the year end wasapproximately 0.4 times EBITDA. Based on net assets of £212.1m, gearing was 26%,up only slightly from 24% at the beginning of the year.The Group's debt and committed facilities mainly comprise a US$100m privateplacement, repayable US$30m in 2011 and US$70m in 2014, and an £80m syndicatedrevolving credit facility expiring in 2011. At the year end, the Group also hadother committed and uncommitted borrowing facilities totalling around £49m. TheGroup therefore has sufficient available financing to support our strategy ofgrowth, both through organic means and targeted, bolt-on acquisitions. Capital Structure The Group's capital structure is kept under constant review, taking account ofthe need for, availability and cost of various sources of finance. Given thecontinuing strength of the Group's balance sheet, the Board proposes to buy backup to 5% of the Company's ordinary shares during the remainder of 2008. Such ashare buy-back programme will be earnings per share enhancing and the Group willbe left with sufficient financial flexibility to successfully pursue itsstrategy and to invest in opportunities for profitable growth. Any shares boughtback will initially be held in treasury. Pensions The Group has defined benefit pension arrangements in the UK, Germany andAustria. The last actuarial valuation of the UK scheme, which has been closed tonew members since 1999, was as at 5 April 2005. At this date, the market valueof the scheme's assets was £17.3m and the valuation concluded that the schemewas 61% funded on an ongoing basis. The Group closed its UK defined benefit scheme for future benefit accrual witheffect from 31 March 2006 and existing active members transferred to a newdefined contribution arrangement. The level of contributions, currently set at£1.2m a year, will be reviewed at the next actuarial valuation, which will be asat April 2008. The 2007 year-end IAS 19 valuation of the UK scheme showed assets of £26.8m,liabilities of £31.4m and a pre-tax deficit of £4.6m. In Germany and Austria, the defined benefit arrangements only apply to certainemployees who joined the Group prior to 1998. There are no segregated funds tocover these defined benefit obligations and the respective liabilities areincluded on the Group balance sheet. All other pension arrangements in the Group are of a defined contributionnature. Management of financial risks Currency risk The Group faces currency risk principally on its net assets, of which a largeproportion is in currencies other than sterling. The Group aims to reduce theimpact that retranslation of these assets might have on the balance sheet, bymatching the currency of its borrowing, where possible, with the currency of itsassets. The majority of the Group's borrowings are US dollar-denominated, inorder to provide a hedge against the Group's US dollar denominated net assets. The Group manages its currency flows to minimise currency transaction exchangerisk. Forward contracts and other derivative financial instruments are used tohedge significant individual transactions. The majority of such currency flowswithin the Group relate to repatriation of profits and intra-Group loanrepayments. The Group's foreign exchange cover is executed primarily in the UK.At 31 December 2007, there were no material forward exchange contractsoutstanding (2006: None).The Group does not trade in financial instruments nor does it engage inspeculative derivative transactions. Interest rate risk Interest rate risk is managed by mixing fixed and floating rate borrowingsdepending upon the purpose and term of the financing. Credit risk The Group's principal financial assets are bank and cash balances and trade andother receivables. These represent the Group's maximum exposure to credit riskin relation to financial assets. This risk is managed by limiting the aggregateamount of exposure to any such institution or customer by reference to theircredit rating and by regular review of these ratings. The possibility ofmaterial loss in this way is considered unlikely. Consolidated Income Statementfor the year ended 31 December 2007 2007 2006 Restated* Note £m £m-------------------------------- ----- -------- --------Revenue 3 955.1 857.7Operating costs (847.7) (768.4)-------------------------------- ----- -------- --------Operating profit 3 107.4 89.3Finance income 2.5 1.9Finance costs (6.7) (7.5)-------------------------------- ----- -------- --------Profit before taxation 103.2 83.7-------------------------------- ----- -------- --------Taxation before one-off tax credit (35.9) (30.7)One-off tax credit - 3.8-------------------------------- ----- -------- --------Total taxation 5 (35.9) (26.9)-------------------------------- ----- -------- --------Profit for the period from continuing operations 67.3 56.8 Discontinued operationLoss from discontinued operation net of taxation 4 (10.5) --------------------------------- ----- -------- --------Profit for the period 56.8 56.8-------------------------------- ----- -------- -------- Attributable to:Equity holders of the parent 54.0 55.7Minority interests 2.8 1.1-------------------------------- ----- -------- -------- 56.8 56.8-------------------------------- ----- -------- -------- Earnings per share from continuing operationsBasic earnings per share 6 97.6p 84.8pEarnings per share before one-off tax credit 6 n/a 79.0pDiluted earnings per share 6 96.4p 83.7pDiluted earnings per share before one-off tax credit 6 n/a 78.0p-------------------------------- ----- -------- -------- Earnings per shareBasic earnings per share 6 81.8p 84.8pEarnings per share before one-off tax credit 6 n/a 79.0pDiluted earnings per share 6 80.7p 83.7pDiluted earnings per share before one-off tax credit 6 n/a 78.0p-------------------------------- ----- -------- -------- * See Note 1, Basis of preparation, regarding discontinued operation Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2007 2007 2006 £m £m-------------------------------- -------- -------- Foreign exchange translation differences 4.9 (8.0)Actuarial gains/(losses) on defined benefit pension schemes 2.0 (0.1)Tax on items taken directly to equity (0.6) 0.1-------------------------------- -------- --------Net income/(expense) recognised directly in equity 6.3 (8.0)Profit for the period 56.8 56.8-------------------------------- -------- --------Total recognised income and expense for the period 63.1 48.8-------------------------------- -------- -------- Attributable to:Equity holders of the parent 59.8 47.9Minority interests 3.3 0.9-------------------------------- -------- -------- 63.1 48.8-------------------------------- -------- -------- Consolidated Balance SheetAs at 31 December 2007 2007 2006 Note £m £m-------------------------------- ----- -------- --------Assets Non-current assetsIntangible assets 80.8 57.5Property, plant and equipment 155.8 114.6Deferred tax assets 9.2 7.9Other assets 13.7 8.8-------------------------------- ----- -------- -------- 259.5 188.8-------------------------------- ----- -------- --------Current assetsInventories 26.9 25.5Trade and other receivables 273.6 221.7Cash and cash equivalents 30.9 25.2-------------------------------- ----- -------- -------- 331.4 272.4-------------------------------- ----- -------- -------- Total assets 590.9 461.2-------------------------------- ----- -------- -------- Liabilities Current liabilitiesLoans and borrowings (7.6) (6.8)Current tax liabilities (12.4) (9.4)Trade and other payables (244.8) (192.4)-------------------------------- ----- -------- -------- (264.8) (208.6)-------------------------------- ----- -------- --------Non-current liabilitiesLoans and borrowings (77.8) (57.0)Employee benefits (14.6) (18.8)Deferred tax liabilities (5.4) (6.2)Other liabilities (16.8) (11.5)-------------------------------- ----- -------- -------- (114.6) (93.5)-------------------------------- ----- -------- -------- Total liabilities (379.4) (302.1)-------------------------------- ----- -------- -------- Net Assets 211.5 159.1-------------------------------- ----- -------- -------- Equity Share capital 6.6 6.6Share premium account 37.6 37.1Capital redemption reserve 7.6 7.6Translation reserve (0.1) (4.5)Retained earnings 150.6 105.6-------------------------------- ----- -------- --------Equity attributable to equity holders of the parent 8 202.3 152.4Minority interests 9.2 6.7-------------------------------- ----- -------- --------Total equity 211.5 159.1-------------------------------- ----- -------- -------- Consolidated Cash Flow Statementfor the year ended 31 December 2007 2007 2006 £m £m-------------------------------- -------- --------Cash flows from operating activitiesOperating profit from continuing operations 107.4 89.3Operating loss from discontinued operation (13.3) (0.2)-------------------------------- -------- -------- 94.1 89.1Depreciation of property, plant and equipment 17.4 13.4Amortisation of intangible assets 1.0 2.4Loss/(profit) on sale of property, plant and equipment 0.4 (0.6)Other non-cash movements 1.0 0.2Foreign exchange losses/(gains) 0.2 (0.2)-------------------------------- -------- --------Operating cash flows before movements in working capital 114.1 104.3Movement in long-term liabilities and employee benefits 1.9 (1.7)Increase in inventories (0.9) (3.0)Increase in trade and other receivables (32.8) (30.6)Increase in trade and other payables 34.9 29.3-------------------------------- -------- --------Cash generated from operations 117.2 98.3Interest paid (5.3) (6.2)Income tax paid (32.0) (30.7)-------------------------------- -------- --------Net cash inflow from operating activities 79.9 61.4-------------------------------- -------- -------- Cash flows from investing activitiesInterest received 1.3 1.1Proceeds from sale of property, plant and equipment 1.0 2.0Acquisition of subsidiaries, net of cash acquired (34.5) (26.4)Acquisition of property, plant and equipment (48.1) (29.4)Acquisition of other non-current assets (2.8) (2.6)-------------------------------- -------- --------Net cash outflow from investing activities (83.1) (55.3)-------------------------------- -------- -------- Cash flows from financing activitiesProceeds from the issue of share capital 0.5 0.8New borrowings 22.2 6.6Repayment of borrowings (0.7) (3.6)Payment of finance lease liabilities (1.9) (2.1)Dividends paid (12.3) (9.0)-------------------------------- -------- --------Net cash inflow/(outflow) from financing activities 7.8 (7.3)-------------------------------- -------- -------- Net increase/(decrease) in cash and cash equivalents 4.6 (1.2)Cash and cash equivalents at beginning of period 20.3 23.3Effect of exchange rate fluctuations 1.2 (1.8)-------------------------------- -------- --------Cash and cash equivalents at end of period 26.1 20.3-------------------------------- -------- -------- 2007 2006 £m £m-------------------------------- -------- --------Analysis of closing net debtCash in hand 30.8 25.1Short term deposits 0.1 0.1Bank overdrafts (4.8) (4.9)-------------------------------- -------- --------Net cash 26.1 20.3Bank and other loans (76.1) (56.1)Finance leases (4.5) (2.8)-------------------------------- -------- --------Closing net debt (54.5) (38.6)-------------------------------- -------- -------- 1. Basis of preparation The Group's 2007 results have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"). The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2007 or 2006 but is derivedfrom the 2007 accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies, and those for 2007, prepared under IFRS as adopted bythe EU, will be delivered in due course. The auditors have reported on thoseaccounts; their reports were (i) unqualified, (ii) did not include references toany matters to which the auditors drew attention by way of emphasis withoutqualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. In accordance with IFRS 5 - Non-current assets held for sale and discontinuedoperations - the loss from discontinued operation is shown separately in theincome statement net of tax and the comparative figures have been restatedaccordingly. 2. Foreign currencies The exchange rates used in respect of principal currencies are: 2007 2006------------------------------------------ ------- -------US dollar: average for period 2.00 1.84US dollar: period end 2.00 1.96Euro: average for period 1.46 1.47Euro: period end 1.36 1.49Australian dollar: average for period 2.39 2.45Australian dollar: period end 2.28 2.49------------------------------------------ ------- ------- 3. Segmental analysis Geographical segment information including an analysis of the Group's revenuesby geographical market, irrespective of the origin the services, is presentedbelow: 2007 2007 2006 2006 Revenue Operating Revenue Operating profit profit £m £m £m £m------------------------------- ------- ------- ------- -------United Kingdom 78.0 3.8 60.7 3.4North America 473.2 61.6 476.9 64.1Continental Europe,Middle East & Asia 296.8 30.4 255.0 17.9Australia 107.1 14.7 65.1 7.0------------------------------- ------- ------- ------- ------- 955.1 110.5 857.7 92.4Central items andeliminations - (3.1) - (3.1)------------------------------- ------- ------- ------- -------Continuingoperations 955.1 107.4 857.7 89.3Discontinuedoperation 36.8 (13.3) 62.5 (0.2)------------------------------- ------- ------- ------- ------- 991.9 94.1 920.2 89.1------------------------------- ------- ------- ------- ------- 2007 2006 Capital Capital employed employed £m £m------------------------------- ------- -------United Kingdom 14.5 7.5North America 163.1 130.3Continental Europe, Middle East & Asia 82.8 57.2Australia 23.7 17.0------------------------------- ------- ------- 284.1 212.0Central items (72.6) (52.9)------------------------------- ------- ------- 211.5 159.1------------------------------- ------- ------- In the opinion of the Directors the Group operates only one class of business. 4. Discontinued operation The Board announced its decision to withdraw from Makers on 20 August 2007. By31 December 2007 substantially all of the business had been disposed of. Thebusiness was not a discontinued operation or classified as held for sale as at31 December 2006 and the comparative consolidated income statement has beenre-presented to show the discontinued operation separately from continuingoperations. Losses attributable to the discontinued operation were as follows: 2007 2006 £m £m------------------------------------------ ------- -------Results of discontinued operationRevenue 36.8 62.5Operating costs (50.1) (62.7)------------------------------------------ ------- -------Operating loss (13.3) (0.2)Net finance (costs)/income (0.2) 0.2------------------------------------------ ------- -------Loss before taxation (13.5) -Taxation 3.7 ------------------------------------------- ------- ------- (9.8) -Loss on sale of discontinued operation (0.7) -Taxation on gain on sale of discontinued operation - ------------------------------------------- ------- -------Loss for the period (10.5) ------------------------------------------- ------- ------- Basic earnings per share (pence) (note 6) (15.8) -Diluted earnings per share (pence) (note 6) (15.7) ------------------------------------------- ------- ------- Cash flows from discontinued operationNet cash from operating activities (10.2) (4.2)Net cash from investing activities 0.3 0.2Net cash from financing activities 9.0 1.4------------------------------------------ ------- ------- (0.9) (2.6)------------------------------------------ ------- ------- The loss on sale of discontinued operation arose on disposal of net currentassets of £0.9m for a total consideration of £0.2m. 5. Taxation The taxation charge comprises: 2007 2006 £m £m------------------------------------------ ------- -------Current tax expenseCurrent year 36.6 29.7Prior years 0.7 (0.1)------------------------------------------ ------- -------Total current tax 37.3 29.6------------------------------------------ ------- -------Deferred tax expenseCurrent year (1.2) 0.9Prior years:One-off tax credit - (3.8)Other (0.2) 0.2------------------------------------------ ------- -------Total deferred tax (1.4) (2.7)------------------------------------------ ------- ------- 35.9 26.9------------------------------------------ ------- ------- The one-off tax credit arose following an intra-Group financial restructuringduring 2006, as a result of which it is now anticipated that prior year UK taxlosses can be utilised against future UK taxable profits. Consequently, theGroup recognised a £3.8m deferred tax asset in respect of those losses, whichresulted in a one-off tax credit in the 2006 Income Statement. The total UK taxcredit for the year was £1.4m (2006: £2.8m). 6. Earnings per share Basic and diluted earnings per share from continuing operations are calculatedas follows: 2007 2007 2006 2006 Basic Diluted Basic Diluted £m £m £m £m------------------------------- --------- --------- --------- ---------Earnings (after tax andminority interests) being netprofits attributable to equityholders of theparent 64.5 64.5 55.7 55.7------------------------------- --------- --------- --------- --------- No. of No. of No. of No. of shares shares shares shares millions millions millions millions------------------------------- --------- --------- --------- ---------Weighted average of ordinaryshares in issue duringthe year 66.0 66.0 65.6 65.6Add: weighted average ofshares under option duringyear - 1.3 - 1.6Add: weighted average of ownshares held - 0.1 - 0.1Less: no. of shares assumedissued at fair value duringyear - (0.5) - (0.8)------------------------------- --------- --------- --------- ---------Adjusted weighted average ordinary shares in issue 66.0 66.9 65.6 66.5------------------------------- --------- --------- --------- --------- Pence Pence Pence Pence------------------------------- --------- --------- --------- ---------Earnings per share fromcontinuing operations 97.6 96.4 84.8 83.7------------------------------- --------- --------- --------- --------- Total earnings per share from continuing and discontinued operations of 81.8p(2006: 84.8p) was calculated based on earnings of £54.0m (2006: £55.7m) and theweighted average number of ordinary shares in issue during the year of 66.0million (2006: 65.6 million). Total diluted earnings per share from continuing and discontinued operations of80.7p (2006: 83.7p) was calculated based on earnings of £54.0m (2006: 55.7m) andthe adjusted weighted average number of ordinary shares in issue during the yearof 66.9 million (2006: 66.5 million). Earnings per share from discontinued operation of (15.8)p (2006: nil) wascalculated based on a loss of £10.5m (2006: £nil) and the weighted averagenumber of ordinary shares in issue during the year of 66.0 million (2006: 65.6million). Diluted earnings per share from discontinued operation of (15.7)p (2006: nil)was calculated based on a loss of £10.5m (2006: £nil) and the adjusted weightedaverage number of ordinary shares in issue during the year of 66.9 million(2006: 66.5 million). Earnings per share in 2006 of 79.0p, before the one-off tax credit, wascalculated based on earnings of £55.7m less the one-off tax credit of £3.8m andthe weighted average number of ordinary shares in issue during the year of 65.6million. Diluted earnings per share in 2006 of 78.0p, before the one-off tax credit, wascalculated based on earnings of £55.7m less the one-off tax credit of £3.8m andthe adjusted weighted average number of ordinary shares in issue during the yearof 66.5 million. 7. Dividends payable to equity holders of the parent Ordinary dividends on equity shares: 2007 2006 £m £m------------------------------------------ ------- -------Amounts recognised as distributions to equity holders in theperiod:Interim dividend for the year ended 31 December 2007 of 6.0p(2006: 4.2p) per share 4.0 2.8Final dividend for the year ended 31 December 2006 of 11.4p(2005: 8.2p) per share 7.5 5.3------------------------------------------ ------- ------- 11.5 8.1------------------------------------------ ------- ------- The Directors have proposed a final dividend for the year ended 31 December 2007of £8.0m, representing 12.0p (2006:11.4p) per share. The proposed dividend issubject to approval by shareholders at the Annual General Meeting on 13 May 2008and has not been included as a liability in these financial statements. 8. Reconciliation of movements in equity attributable to equity holdersof the parent 2007 2006 £m £m------------------------------------------ ------- -------Equity at start of period 152.4 111.1Total recognised income and expense 59.8 47.9Dividends to shareholders (11.5) (8.1)Share-based payments 1.1 0.8Share capital issued 0.5 0.7------------------------------------------ ------- -------Equity at end of period 202.3 152.4------------------------------------------ ------- ------- -------------------------- 1 The American Institute of Architects Consensus Construction Forecast, 11 January 2008 2 The US Census Bureau of the Department of Commerce, 1 February 2008 3 Monthly housing starts published by the National Association of Home Builders in February 2008 4 As indicated by single family home permits; data published by US Census Bureau of the Department of Commerce This information is provided by RNS The company news service from the London Stock Exchange