Last checked at 2 Mar 2010 07:00
For immediate release Tuesday, 2 March 2010
Keller Group plc Full Year Results Announcement for the year ended 31 December 2009 Keller Group plc ("Keller" or "the Group"), the international groundengineering specialist, is pleased to announce its preliminary results for the year ended 31 December 2009.Results summary: 2009 2008*Revenue £1,037.9m £1,196.6mOperating profit £77.3m £119.4mProfit before tax £74.7m £113.2mEarnings per share 78.8p 111.1p
Cash from continuing operations £123.2m £143.5m Total dividend per share
21.75p 20.7p
*2008 comparators relate to results from continuing operations. There were no discontinued operations in 2009.
Highlights include:
- Good contract performance and firm cost control keep operating
margin high by historic standards
- Further geographical diversification, with 26% of 2009 revenue
coming from Australia and developing markets
- October acquisition of Resource Holdings Limited in Singapore for
an initial cash and debt-free consideration of £27.1m, bringing critical mass
to the Group's operations in South East Asia
- Cash generated from operations represents 109% of EBITDA,
reflecting strong focus on cash collection and working capital
- Year-end net debt of £78.8m (0.7x EBITDA); committed facilities
of over £200m with substantial covenant headroom
- Total dividend of 21.75p (2008: 20.7p), a 5% increase,
maintaining our track record of increasing the dividend every year since
flotation
Justin Atkinson, Keller Chief Executive said:
"The Group's 2009 results held up well, given that most of our markets were severely depressed throughout the year. Despite a general shortage of contract awards, resulting in intense competition and tighter pricing, good overall contract performance and our firm cost control mitigated the impact on the Group's operating margin.
"The Group is in a very sound financial position, which we willsafeguard through our constant focus on cash generation and costs. From thisposition of strength, we expect to continue to grow in those markets whichoffer good opportunities. In more mature markets, the actions taken to protectour profitability mean that we will emerge from the downturn even stronger andready to seize the advantage, as these regions recover.
"By focusing on what we do best, we are confident that we will maintain our track record of out-performing our markets over the medium to long term."
For further information, please contact:
Keller Group plc www.keller.co.ukJustin Atkinson, Chief Executive 020 7616 7575James Hind, Finance Director
Smithfield
Rupert Trefgarne/Will Henderson 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.ukChairman's Statement
In my first statement to shareholders since becoming your Chairman, I am pleased to report a resilient set of results for 2009, delivered against the most severe downturn in global construction seen in my lifetime and the harsh trading environment that has ensued in many of our markets.
Results
Group revenue reduced by 13% to £1,037.9m (2008: £1,196.6m). Theoperating margin, at 7.4%, was down from the previous year's excellent 10.0%,resulting in an operating profit of £77.3m (2008: £119.4m). Profit before taxwas £74.7m (2008: £113.2m) and earnings per share were 78.8p (2008: 111.1p).
(2008 comparators relate to revenue, operating margin, operating profit, profit before tax and earnings per share from continuing operations. There were no discontinued operations in 2009.)
Cash flow and net debt
Cash generated from continuing operations was £123.2m (2008:£143.5m), which represented 109% of EBITDA (2008: 99%). This continued theGroup's consistent track record of converting profits into cash and reflectsour strong focus on cash collection and the minimisation of working capital.After significantly reduced net capital expenditure of £35.5m (2008: £66.6m)and expenditure on acquisitions of £34.7m (2008: £14.1m), net debt at the endof the year stood at £78.8m (2008: £84.6m).
The Group has significant committed facilities and we are operating well within all the associated financial covenants.
(Net debt is cash and short-term deposits less total loans and borrowings.)
Dividends
The Board has declared a second interim dividend of 14.5p per sharein lieu of a final dividend (2008 final: 13.8p per share). This, together withthe first interim dividend paid of 7.25p, brings the total dividend for theyear to 21.75p, an increase of 5% on the previous year's 20.7p. Dividend coverfor the year is 3.6x (2008: 5.4x). The second interim dividend will be paid on1 April 2010 to shareholders on the register at 12 March 2010.
This maintains our record of increasing the dividend each year since the Company's flotation in 1994.
Strategy
We remain focused on our strategy: to extend further our global leadership in specialist ground engineering through both organic growth and targeted acquisitions. There are three key elements to our strategy:
- transfer of technologies and methods within our current geographic regions;
- expansion into new, higher growth geographic regions; and
- acquisition and development of new technologies and methods.
Key developments in 2009 in furtherance of this strategy included:
- acquiring Resource Holdings Limited in Singapore in October, which brought critical mass to the Group's operations in South East Asia and added further momentum to our move into heavy foundations in the region;
- strengthening our businesses through the deployment of more people and equipment in India, Egypt and Algeria; and
- extending our range of technologies in some of our more established regions, such as the introduction of wick drains in the US, pre-cast piles in Poland and the further expansion of soil mixing in many regions.
Sustainability
Over the past year, much of the Board's focus has inevitably beenon cash generation and ensuring that our cost base remains aligned with ourtrading environment, both of which will remain at the top of our agenda.However, we have also concentrated on other issues which underpin thelong-term health of the business, such as succession planning, health andsafety and environmental management. By developing common frameworks for theseareas of management, which provide for a consistency of approach and aim tobring all our businesses up to the standard of the best, we are confident thatwe will build on our strong track record in these disciplines, to support thelong-term sustainability of the Group.
People
After more than 45 years' service to Keller, Dr Michael Westretired as Chairman in July 2009. Having joined in 1964, Mike led a managementbuyout of Keller in 1990 and the Company's subsequent flotation in 1994,becoming Chairman a year later. It is a privilege to follow in the footstepsof someone whose role in the creation and development of the Keller Group wasso pivotal. He has left behind a strong legacy for which, on behalf ofshareholders, the Board and employees, I thank him.It has been a most demanding year for the Group and for itsemployees, throughout which they have demonstrated their continued support andcommitment. On behalf of shareholders and the Board, I would like to take thisopportunity to thank them for all their efforts.
Outlook
Clearly, 2010 will be another challenging year, not helped by the impact of the severe weather in the northern hemisphere in the first two months, which has greatly restricted our output. As a Group, we have not yet seen a sustained upturn in orders and this is reflected in our order book, which is 14% below the same time last year on a constant currency basis.
Looking to our markets, commercial construction in the developedworld is likely to contract further, particularly in the US, which willincrease the downward pressure on our margins. However, government spending inmost parts of the world is expected to remain at a relatively high level andwe expect to see some benefit from US stimulus spending in the second half.The underlying fundamentals in Australia and our developing markets (ourmarkets in Eastern Europe, North Africa, the Middle East & Asia) remainstrong.The Group is in a very sound financial position, which we willsafeguard through our constant focus on cash generation and costs. From thisposition of strength, we expect to continue to grow in those markets whichoffer good opportunities. In more mature markets, the actions taken to protectour profitability mean that we will emerge from the downturn even stronger andready to seize the advantage, as these regions recover.
Operating Review
The Group's 2009 results held up well, given that most of our markets were severely depressed throughout the year. Despite a general shortage of contract awards, resulting in intense competition and tighter pricing, good overall contract performance and our firm cost control mitigated the impact on the Group's operating margin.
A strong feature underpinning these results is the ongoingre-balancing of the Group, which over several years has resulted in improvedgeographical diversification and increased exposure to higher growth markets.As a consequence, £275m (26%) of our 2009 revenue came from Australia and ourdeveloping markets, more than four times the level in 2004.
Conditions in our major markets
Generally, across the world we witnessed a sharp reduction in privately-financed construction, whilst investment in public infrastructure remained relatively strong. This was reflected in our revenue, with infrastructure and public buildings accounting for 47% of our 2009 revenue, compared to 35% in 2008.
In the US, which remains our largest market and where we are marketleader, non-residential construction expenditure was down by 5% on theprevious year ( The US Census Bureau of the Department of Commerce, 1 February2010), despite modest growth in public infrastructure spending and, within theprivate sector, strong growth in investment in power and manufacturing.However, expenditure in the office, commercial and leisure sector was down by26%. This is expected to reduce further in 2010, as the full impact of themuch sharper fall in building starts in this sector feeds through intoconstruction spend as a whole. The residential sector continued to contract,with housing starts falling by a further 39% in the year, although the secondhalf showed an improvement on the first six months. Taken as a whole, USconstruction expenditure reduced in the year by approximately 12%.
Within our principal European markets: demand in Poland remained strong; Austria and Germany were flat; whilst France, the UK and, in particular, Spain continued to contract.
Elsewhere, construction activity in our markets in the Middle Eastwas significantly down on 2008, whereas Australia and our Asian marketsremained robust.OperationsUSResults summary: 2009 2008Revenue £467.0m £532.1mOperating profit £32.2m £52.1mOperating margin 6.9% 9.8%
In local currency, revenue from our US operations as a whole was down by 26%, whilst operating profit reduced by 48%, mainly reflecting a loss at Suncoast and pressure on margins across the US foundation businesses. In sterling terms, overall revenue was 12% lower, whilst operating profit was down by 38%.
Hayward Baker
Overall, Hayward Baker had a satisfactory year, responding well tothe challenges presented by the sharp downturn in commercial work. Withoffices in 15 states and a wide range of techniques at its disposal, thebusiness is closely tuned into local market conditions and able to respondaccordingly. This is reflected in the variety of work Hayward Baker undertookduring the year: from a design and construct sheet piling and soil mixingcontract for a new shipyard in Louisiana, to a vibro stone column contract fora new hospital in California. The result also benefited from jobs as diverseas further work on the levees at New Orleans, soil mixing for new bridgeabutments in Utah, vibro replacement and compaction grouting for a large powerplant expansion in Florida and jet grouting for a new transit tunnel in NewYork City.The ability to offer a particularly wide range of solutions haslong been one of the hallmarks of this business and in 2009 Hayward Bakeradded to its product offering wick drains - vertical drains which are used foraccelerating the consolidation of compressible soils. The company's first wickdrain project was for an extension to an oil refinery in Washington, where anunderlying layer of clay needed to be consolidated before construction couldbegin. Hayward Baker installed 348,000 linear feet of wick drains to depths ofup to 80 feet. The job was a success and the precursor to several morecontracts using this technique during the year.Further progress was made in integrating Olden, the businessacquired by Hayward Baker in October 2008 which, as expected, is proving to bea good fit. Olden's value-engineering capability has secured several importantjobs, such as a large contract for the Texas Department of Transport toinstall temporary shoring, shotcrete facia and tiebacks for a major roadwidening scheme.
Case, McKinney, Anderson and HJ
Amongst our US piling businesses, strong performances weredelivered by Case and Anderson, despite activity levels slowing down somewhattowards the end of the year. McKinney had a satisfactory year, whilst HJ didwell to remain profitable, given the sharp fall off in demand forprivately-funded projects in its Florida home market. In all of thesebusinesses, the headcount has been reduced to reflect the lower activitylevels.All four have managed to increase their exposure to the growingpower and renewable energy sectors, from which 27% of their combined revenuein 2009 was derived, approximately double the level in 2008. In addition, HJworked with the other US businesses in continuing the expansion of continuousflight augur piling outside of Florida.
The result for these businesses benefited from some large contracts, several of which were undertaken by two subsidiaries in partnership. These included the installation of foundations for the Populus to Ben Lomond Power Line in Utah (undertaken by Anderson); the Virginia City Power Plant (Case), the Edwardsport Power Plant in Indiana (Case and McKinney); the BP Refinery in Indiana (Case and HJ); a solar power plant in Florida (HJ); and a project to widen an existing 10-lane freeway in Arizona (Case).
This Arizona contract is one of many successful jobs performed by Case outside of its depressed Chicago home market. A more geographically-balanced business has resulted from the development of its regional offices such that, for the first time ever, the Arizona regional office generated more revenue than Chicago.
Suncoast
With no significant signs of improvement in the residential market as yet, and a further decline in demand for high-rise products, volume and prices have remained under pressure. As a result, further cost cutting measures have been taken, with headcount reduced by a further 25% in the year to below 400. With these measures and continuous improvements in efficiency over recent years, Suncoast is well placed to grow revenues and restore margins as the US housing market recovers over time.
Continental Europe, Middle East & Asia (CEMEA)
Results summary: 2009 2008Revenue £386.4m £442.2mOperating profit £33.6m £49.9mOperating margin 8.7% 11.3%
In local currency, revenue was down some 22% and operating profit was 40% below the previous year. Translated into sterling, revenue was 13% behind the previous year and operating profit was down by 33%.
Continental Europe
Overall, our businesses within the more mature Continental European markets gave another solid performance.
In Germany, despite a stagnant market and tight pricing, werecorded our best operating margin for many years, reflecting a process ofcontinuous improvement in our technical and business processes. Similarly, inAustria, notwithstanding a shortage of major projects and highly competitivepricing, a very good result was achieved through a sharp focus onvalue-engineered designs and excellent logistics, enabling small to mediumsized sites to be better managed.Keller France, which has traditionally had limited exposure to theinfrastructure sector, saw a sharp reduction in its domestic market, whichresulted in some ongoing streamlining measures. However, good opportunitieswere to be found in the energy sector in North Africa, such as involvement inthe construction of new LNG tanks for a major oil company at Arzew in Algeria.Here, a field team comprising operators from Algeria, UK, Germany and Franceworked together on a large jet grouting contract, with successful resultslikely to lead to further work at the same site during 2010.
In Spain, where the construction market is estimated to have shrunk by 22% in 2009 following a contraction of around 13% the previous year (Euroconstruct Country Report, November 2009), decisive management actions ensured that the business remained profitable; however, with a further market reduction expected in 2010 as spending on public infrastructure slows, the business will face further challenges in the near term.
In Europe's developing markets, our Polish business once againstood out for its strong performance. It benefitted in particular from heavydemand associated with road infrastructure upgrades, such as the A1 motorwaybetween Pyrzowice and Piekary Slaskie, where we are installing around 39,000linear metres of wet deep soil mixed columns. In 2009, Keller Polska added toits broad product range with the introduction of pre-cast piling, enabling itto provide a packaged solution comprising continuous flight augur piles, vibrostone columns and deep soil mixing in addition to around 800 pre-castdisplacement piles, for the construction of a new road bridge over the VistulaRiver in Warsaw.
The integration of the Group's small 2008 acquisition in the Czech Republic, Boreta, has progressed to plan and good co-operation has been established between Boreta and Keller's existing Czech business.
Middle East
Whilst our Middle Eastern markets remained generally quiet for most of last year, in recent weeks we have seen early signs of the markets stirring.
In the UAE, although there was little construction activity in Dubai, several opportunities arose in neighbouring Abu Dhabi, such as the development of the Khalifa Port, where we used vibro techniques to improve reclaimed land for the construction of a new container terminal.
Elsewhere in the region, our operations in Bahrain and Saudi Arabia were relatively quiet, although high levels of tendering activity throughout last year are now gradually being reflected in contract awards. In Egypt, where we have a long-established business, we built up our resources during 2009 to take advantage of an expected growth in demand.
Asia
An excellent result was delivered by our Asian business. Malaysia contributed strongly to this result, performing well on several large road and rail infrastructure projects, including the ongoing Ipoh to Padang Besar railway.
Further progress was made on building up our capacity and extending our product range in India where, during the year, we added anchors, dry vibro replacement, vibro compaction and piling services. Successful contracts employing these techniques included: temporary ground anchors for a multi-level underground car park in New Delhi; vibro stone columns for a gas-fired power plant, also in New Delhi; and piling together with stone columns for a new power plant at Anpara.
After a somewhat subdued first half, activity in our Singapore business picked up in the fourth quarter. 2009 saw our established ground improvement business introduce vibro concrete columns to the Singapore market, broadening the range of ground improvement techniques on offer in the region.
In October we announced the acquisition of Resource Holdings Limited ("Resource Piling"), a Singapore-based piling contractor, for an initial cash and debt-free payment of £27.1m, plus further payments based on future profits. Resource Piling has particular expertise in large diameter bored piling in soft clays.
This acquisition significantly strengthens the Group's existingoperations in Singapore. By adding piling to our product range, it enables usto offer packaged solutions which combine Keller's existing ground improvementtechniques with Resource Piling's piling products. The acquisition will alsoassist us in growing our heavy foundations capability in South East Asia. Acollaborative relationship has already been established, with Resource Pilingand Keller pooling their resources on certain piling activities in India andidentifying joint tendering opportunities in Singapore and Vietnam.AustraliaResults summary: 2009 2008Revenue £126.9m £137.1mOperating profit £16.6m £19.4mOperating margin 13.1% 14.2%Our Australian business had another very strong year although, asexpected, not reaching the exceptional level seen in 2008. In local currency,revenue was down by 16% and operating profit by 22% whilst in sterling terms,revenue and operating profit reduced by 7% and 14% respectively.Although investment in public infrastructure and construction forthe resources sector continued strongly throughout the year, commercialconstruction remained weak, particularly in Victoria. Vibro-Pile, which hashad the most exposure to this market, did a good job of diversifying into theinfrastructure sector, where it performed well. Frankipile, which has alsotraditionally served the commercial market, derived a substantial part of its2009 revenue from the resources sector, particularly in Western Australia.Piling Contractors had an excellent second half, as several of its largeinfrastructure projects ramped up. For Keller Ground Engineering, 2009 was ayear of further market penetration with its specialist ground improvementtechniques.As we have seen elsewhere in the Group, growing co-operationbetween Keller companies, which has enabled them to offer packaged solutionsand to take on large and complex contracts, has been an important driver ofgrowth. Two such contracts in 2009 were for heavy foundations work on theBrisbane Airport Link project, where Keller Ground Engineering, Vibro-Pile andPiling Contractors have been engaged, and a mine bulk infill project inQueensland, where Keller Ground Engineering and Piling Contractors are workingtogether, with significant engineering support from other parts of the KellerGroup.UKResults summary (continuing business): 2009 2008Revenue £57.6m £85.2mOperating profit £0.5m £2.7mOperating margin 0.9% 3.2%
Market conditions in the UK remained very challenging, with the housing and commercial sectors, which together used to account for much of the revenue from the UK business, being particularly weak.
Against this backdrop, the business reported revenue of £57.6m(2008: £85.2m) and operating profit of £0.5m (2008: £2.7m). After reporting anoperating loss of £0.4m at the half year, it is pleasing to note that thebusiness made a profit in the second half, reflecting the significant costreductions, including a 20% reduction in headcount, implemented in the firsthalf of the year.In order to increase the exposure to larger projects, which werethe mainstay of UK construction activity in 2009, the independent companieswhich made up Keller UK have been restructured and refocused to facilitategreater co-operation and sharing of resources and to better position thebusiness to win more major projects. This has already started to bear fruit,being reflected in several of the larger contracts undertaken in 2009,including work on the M1 and M74 upgrade projects, and the recent award of apiling contract at London's Tottenham Court Road tube station, as part of theCrossrail project.
Future Positioning and Market Drivers
Our strategy, to extend further our global leadership in specialist ground engineering, has not fundamentally changed in recent years. Its successful implementation has delivered significant shareholder value and we are positioned to ensure that this track record continues.
We will continue to focus on those sectors where the barriers to entry are highest and where we have capabilities which give us a clear competitive advantage:
- bigger and more sophisticated foundation systems, often requiring specialist equipment;
- foundations for safety- and quality-critical environments; and
- bespoke solutions with a high design content.
Throughout the world, we expect the growth in specialist ground engineering to exceed the growth in general construction, driven over the medium to long term by such trends as:
- increasing land shortage, driving a need to use brownfield and marginal land;
- climate change, triggering more river and dam flood protection projects;
- the prevalence of very large-scale development projects;
- the need for investment in energy capacity; and
- the renewal of outdated road and rail infrastructure.
In our developing markets, additional drivers, such as population growth, urbanisation, rapid industrialisation and increased overseas trade, are expected to sustain high levels of investment across the whole construction spectrum over the medium to long term and we continue to strengthen our position in these regions.
By focusing on what we do best, we are confident that we will maintain our track record of out-performing our markets over the medium to long term.
Financial Review
2009 was a challenging year for Keller but, despite reduced revenue and profits, the Group continued to generate excellent operating cash flows.
Comparisons of sterling-denominated headline numbers with 2008 aremade difficult by currency movements. Overseas revenue, profits and cash flowsare translated using average foreign exchange rates. The average US dollarexchange rate against sterling was US$1.57, 16% stronger than in 2008, whilstthe average euro exchange rate against sterling strengthened 11% from €1.26 to€1.12. The impact on the Group's consolidated assets and liabilities, whichare translated at year-end exchange rates, was somewhat less pronounced asboth the US dollar and the euro weakened against sterling by around 9% betweenthe beginning and end of 2009.
Results
Trading results
(2008 comparators relate to results from continuing operations. There were no discontinued operations in 2009)
Group revenue decreased by 13% in the year to £1,037.9m, reflectingreduced volumes in many of the Group's main markets, partially offset bycurrency benefits and a small contribution from acquisitions. Stripping outthe effects of acquisitions and foreign exchange movements, the Group's 2009revenue was 26% down on 2008. EBITDA was £113.2m, compared to £144.3m in 2008and operating profit was £77.3m, down from £119.4m in 2008. Adjusting for theeffects of acquisitions and currency movements, the Group's operating profitwas down 45% on 2008. This reflects a combination of the lower revenue and thefall in operating margin to 7.4% from the record highs of the last few years(2008: 10.0%), as a result of the depressed state of most of our markets.In the US, the Group's largest market, the US dollar-denominatedoperating profit was down 48% year-on-year, reflecting continued deteriorationin the residential and commercial construction markets. The decline in CEMEA'sconstant-currency results was less marked, with CEMEA overtaking the US as thedivision making the largest contribution to the Group's profits. Profits inAustralia were again strong, although below the excellent result achieved in2008. In the UK, profits were down, reflecting the continued downturn in theUK construction market.
The Group's trading results are discussed more fully in the Chairman's Statement and the Operating Review.
Net finance costs
Net finance costs decreased from £6.2m in 2008 to £2.6m in 2009. This decrease is due to non-cash items included in net finance costs under IFRS. The net interest payable on the Group's net debt reduced by £0.5m to £2.8m, with the effect of lower interest rates being offset by the impact of weaker sterling on the translation of non-sterling denominated interest.
Tax
The Group's underlying effective tax rate was 30%, down from 32% in 2008, as a higher proportion of the Group's profit was derived from lower tax countries. This lower rate is expected to be maintained in the short term.
Earnings and dividends
Earnings per share (EPS) from continuing operations decreased by29% to 78.8p (2008: 111.1p). The Board has declared a second interim dividendof 14.5p per share in lieu of a final dividend, which brings the totaldividend paid out of 2009 profits to 21.75p, a 5% increase on last year. The2009 dividend is covered 3.6 times by earnings.
Cash flow
The Group has always placed a high priority on cash generation. Thecurrent economic environment is inevitably putting pressure on working capitalin certain locations and we will therefore continue to focus on maximisingcash generation and minimising the Group's investment in working capital. In2009, the Group continued its excellent record of converting profits intocash. Net cash inflow from operations was £123.2m, representing 109% ofEBITDA. Year-end working capital was £85.0m, £7.2m less than at the end of2008. Stripping out the impact of currency movements and acquisitions,year-end working capital was down on 2008 by £13.0m. As planned, capitalexpenditure, net of disposals, decreased substantially to £35.5m, less thanhalf of the 2008 spend using like-for-like exchange rates.The Group spent £34.7m in cash on acquisitions in the year,including net debt assumed. Of this amount, £27.1m was the initialconsideration for Resource Piling, a business based in Singapore and acquiredin October 2009, and the vast majority of the remainder related to deferredconsideration in respect of the 2005 acquisition of Donaldson. We expect tomake further payments for Resource Piling based on its profits up to 31 March2013. At the year end, a total of £10.0m has been accrued as deferredconsideration for Resource Piling, the majority of which is not expected to bepayable until 2013. There is no other significant deferred consideration duein respect of acquisitions.Financing
As at 31 December 2009, year-end net debt amounted to £78.8m (2008: £84.6m). Based on net assets of £323.3m, year-end gearing was 24%, down slightly from 28% at the beginning of the year.
The Group's debt and committed facilities mainly comprise a US$100mprivate placement, repayable US$30m in 2011 and US$70m in 2014, an £80msyndicated revolving credit facility expiring in 2011 and a £65m syndicatedrevolving credit facility expiring in July 2010. This last facility isundrawn. The Group's lenders remain very supportive and we plan to refinanceour main bank facilities within the next twelve months.
At the year end, the Group also had other committed and uncommitted borrowing facilities totalling around £72m. The Group therefore has sufficient available financing to support our strategy of growth, both through organic means and targeted, bolt-on acquisitions.
The major covenants in respect of our main borrowing facilities relate to the ratio of net debt to EBITDA, EBITDA interest cover and the Group's net worth. The Group is operating very comfortably within its covenant limits, as is illustrated in the table below:
Test Covenant Current limit positionNet debt:EBITDA < 3x 0.7xEBITDA interest > 4x 43xcoverNet worth > £78m £323mCapital structure
The Group's capital structure is kept under constant review, taking account of the need for, availability and cost of various sources of finance.
Pensions
The Group has defined benefit pension arrangements in the UK, Germany and Austria. The Group closed its UK defined benefit scheme for future benefit accrual with effect from 31 March 2006 and existing active members transferred to a new defined contribution arrangement. The last actuarial valuation of the UK scheme was as at 5 April 2008, when the market value of the scheme's assets was £26.9m and the scheme was 77% funded on an ongoing basis. The level of contributions, currently set at £1.5m a year, will be reviewed at the next actuarial valuation, which will be as at April 2011.
The 2009 year-end IAS 19 valuation of the UK scheme showed assets of £27.8m, liabilities of £36.4m and a pre-tax deficit of £8.6m.
In Germany and Austria, the defined benefit arrangements only applyto certain employees who joined the Group prior to 1998. There are nosegregated funds to cover these defined benefit obligations and the respectiveliabilities are included on the Group balance sheet. These totalled £11.6m at31 December 2009. All other pension arrangements in the Group are of a definedcontribution nature.
Principal risks and uncertainties
The main areas of uncertainty facing the Group relate to marketconditions, acquisitions, technical risk and people. These also represent theGroup's greatest opportunities and how we manage risks is a key differentiatorbetween Keller and similar businesses.
Market cycles
Whilst our business will always be subject to economic cycles,market risk is reduced by the diversity of our markets, both in terms ofgeography and market segment. It is also partially offset by opportunities forconsolidation in our highly fragmented markets. Typically, even where we arethe clear leader, we still have a relatively small share of the market. Ourability to exploit these opportunities through bolt-on acquisitions isreflected in our track record of growing sales, and doing so profitably,across market cycles.
Acquisitions
We recognise the risks associated with acquisitions and ourapproach to buying businesses aims to manage these to acceptable levels.First, we try to get to know a target company, often working in joint venture,to understand the operational and cultural differences and potentialsynergies. This is followed by a robust due diligence process, most of whichis undertaken by our own managers, and we then develop a clear integrationplan which takes account of the unique character of the target company.
Technical risk
It is in the nature of our business that we continually assess andmanage technical, and other operational, risks. The controls we have in place,particularly at the crucial stage of bidding for contracts, will be set out inthe Internal Control section of our Corporate Governance Report in the AnnualReport and Accounts. Given the Group's relatively small average contract value(less than £200,000), it is unlikely that any one contract is able tomaterially affect the results of the Group. Our ability to manage technicalrisks will generally be reflected in our profitability.
People
The risk of losing, or not being able to attract, good people iskey. We pride ourselves in having some of the best professional and skilledpeople in the industry, who are motivated by our culture and the opportunitiesfor career growth. The approach to training and developing employees will bediscussed in our Social Responsibility Report in the Annual Report andAccounts.
Management of financial risks
Currency risk
The Group faces currency risk principally on its net assets, mostof which are 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 borrowings, where possible, with the currency ofits assets. The majority of the Group's borrowings are US dollar-denominated,in order to provide a hedge against the Group's US dollar-denominated netassets.
The Group manages its currency flows to minimise currency transaction exchange risk. Forward contracts and other derivative financial instruments are used to hedge significant individual transactions. The majority of such currency flows within the Group relate to repatriation of profits and intra-Group loan repayments. The Group's foreign exchange cover is executed primarily in the UK.
The Group does not trade in financial instruments, nor does it engage in speculative derivative transactions.
Interest rate risk
Interest rate risk is managed by mixing fixed and floating rate borrowings depending upon the purpose and term of the financing. As at 31 December 2009, virtually all the Group's third-party borrowings bear interest at floating rates.
Credit riskThe Group's principal financial assets are trade and otherreceivables and bank and cash balances. These represent the Group's maximumexposure to credit risk in relation to financial assets. The Group hasstringent procedures to manage counterparty risk and the assessment ofcustomer credit risk is embedded in the contract tendering processes. Customercredit risk is mitigated by the Group's relatively small average contract sizeand its diversity, both geographically and in terms of end markets.As a result, no customer represented more than 5% of revenue in2009. The counterparty risk on bank and cash balances is managed by limitingthe aggregate amount of exposure to any one institution by reference to theircredit rating and by regular reviews of these ratings.
Forward-looking statements
This announcement contains forward-looking statements. These havebeen made by the Directors in good faith based on the information available tothem up to the time of their approval of this report. The Directors can giveno assurance that these expectations will prove to have been correct. Due tothe inherent uncertainties, including both economic and business risk factorsunderlying such forward-looking information, actual results may differmaterially from those expressed or implied by these forward-lookingstatements. Except as required by law or regulation, the Directors undertakeno obligation to update any forward-looking statements whether as a result ofnew information, future events or otherwise.
Directors' responsibilities in respect of the financial statements
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
(b) the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of its principal risks and uncertainties.
Signed on behalf of the Board
J R Atkinson Chief Executive
J W G Hind Finance Director
Consolidated Income Statementfor the year ended 31 December 2009 2009 2008 Note £m £m Revenue 3 1,037.9 1,196.6 Operating costs (960.6) (1,077.2)Operating profit 3 77.3 119.4Finance income 3.7 2.0Finance costs (6.3) (8.2)Profit before taxation 74.7 113.2Taxation (22.6) (35.9)
Profit for the period from continuing operations 52.1
77.3
Discontinued operationLoss from discontinued operation net -
(1.7)of taxationProfit for the period 52.1 75.6 Attributable to:Equity holders of the parent 50.4 70.8Minority interests 1.7 4.8 52.1 75.6 Earnings per share from continuingoperationsBasic earnings per share 6 78.8p 111.1p Diluted earnings per share 6 77.4p 109.2p Earnings per share Basic earnings per share 6 78.8p 108.6p Diluted earnings per share 6 77.4p 106.7p Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2009 Note 2009 2008 £m £m Profit for the period 52.1 75.6 Other comprehensive incomeExchange differences on translation of foreign operations (14.5) 66.1Net investment hedge gains/(losses) 6.1 (19.0)Cash flow hedge gains/(losses) taken to equity 11.3 (35.1)Cash flow hedge transfers to income statement (11.3) 35.1Actuarial (losses)/gains on defined benefit pension (7.9) 1.6schemesTax on actuarial losses/(gains) on defined benefit 2.2 (0.5)pension schemesOther comprehensive income for the period, net of tax
(14.1) 48.2
Total comprehensive income for the period
38.0 123.8
Attributable to:Equity holders of the parent 37.2 115.9Minority interests 0.8 7.9 38.0 123.8Consolidated Balance Sheetas at 31 December 2009 2009 2008 Note £m £m Assets Non-current assetsIntangible assets 119.1 111.8Property, plant and equipment 264.4 254.7Deferred tax assets 8.1 7.7Other assets 12.7 12.5 404.3 386.7Current assetsInventories 37.4 50.9Trade and other receivables 299.9 364.4Current tax assets 5.9 2.3Cash and cash equivalents 35.3 48.6 378.5 466.2 Total assets 3 782.8 852.9 Liabilities Current liabilitiesLoans and borrowings (7.9) (4.8)Current tax liabilities (9.0) (15.1)Trade and other payables (252.3)(323.1)Provisions (6.3) (8.4) (275.5)(351.4)Non-current liabilitiesLoans and borrowings (106.2)(128.4)Retirement benefit liabilities (20.2) (13.6)Deferred tax liabilities (19.6) (16.5)Provisions (4.2) (4.4)Other liabilities (33.8) (36.0) (184.0)(198.9) Total liabilities 3 (459.5)(550.3) Net Assets 323.3 302.6 Equity Share capital 6.6 6.6Share premium account 38.0 37.6Capital redemption reserve 7.6 7.6Translation reserve 36.4 43.9Retained earnings 224.1 194.0Equity attributable to equity holders of the parent 312.7 289.7Minority interests 10.6 12.9Total equity 323.3 302.6Consolidated Statement of Changes in Equityfor the year ended 31 December 2009 Share Share Capital Translation Hedging
Retained Attributable Minority Total
capital premium redemption reserve reserve earnings to the interest equity account reserve equity holders of parent £m £m £m £m £m £m £m £m £mAt 1 January 2008 6.6 37.6 7.6 (0.1) - 150.6 202.3 9.2 211.5
Profit for the period - - - - -
70.8 70.8 4.8 75.6
Other comprehensive incomeExchange differences ontranslation of foreignoperations - - - 63.0 - - 63.0 3.1 66.1Net investment hedgelosses - - - (19.0) - - (19.0) - (19.0)Cash flow hedge lossestaken to equity - - - - (35.1) - (35.1) - (35.1)Cash flow hedge transfersto income statement - - - - 35.1 - 35.1 - 35.1Actuarial gains on definedbenefit pension schemes - - - - - 1.6 1.6 - 1.6Tax on actuarial gains ondefined benefit pensionschemes - - - - - (0.5) (0.5) - (0.5)Other comprehensiveincome for the period,net of tax - - - 44.0 -
1.1 45.1 3.1 48.2
Total comprehensiveincome for the period - - - 44.0 - 71.9 115.9 7.9 123.8Dividends - - - - - (12.3) (12.3) (4.2) (16.5)Share-based payments - - - - - 1.3 1.3 - 1.3Shares repurchased - - - - - (17.5) (17.5) - (17.5)At 31 December 2008and 1 January 2009 6.6 37.6 7.6 43.9 - 194.0 289.7 12.9 302.6Profit for the period - - - - -
50.4 50.4 1.7 52.1
Other comprehensiveincomeExchange differences ontranslation of foreignoperations - - - (13.6) - - (13.6) (0.9) (14.5)Net investment hedge gains - - - 6.1 - - 6.1 - 6.1Cash flow hedge gainstaken to equity - - - - 11.3 - 11.3 - 11.3Cash flow hedge transfersto income statement - - - - (11.3) - (11.3) - (11.3)Actuarial losses ondefinedbenefit pension schemes - - - - - (7.9) (7.9) - (7.9)Tax on actuarial losses ondefined benefit pensionschemes - - - - - 2.2 2.2 - 2.2Other comprehensiveincome for the period, netof tax - - - (7.5) -
(5.7) (13.2) (0.9) (14.1)
Total comprehensiveincome for the period - - - (7.5) - 44.7 37.2 0.8 38.0Dividends - - - - - (13.5) (13.5) (3.1) (16.6)Share-based payments - - - - - 0.5 0.5 - 0.5Share capital issued - 0.4 - - - - 0.4 - 0.4Shares repurchased - - - - - (1.6) (1.6) - (1.6)At 31 December 2009 6.6 38.0 7.6 36.4
224.1 312.7 10.6 323.3
Consolidated Cash Flow Statementfor the year ended 31 December 2009 2009 2008 £m £m Cash flows from operating activitiesOperating profit from continuing operations 77.3
119.4
Operating loss from discontinued operation -
(2.7)
77.3
116.7
Depreciation of property, plant and equipment 34.4
24.2
Amortisation of intangible assets 1.5
0.7
(Profit)/loss on sale of property, plant and (1.2)
0.3equipmentOther non-cash movements 0.5 1.3Foreign exchange gains (0.1) (1.2)Operating cash flows before movements 112.4
142.0
in working capitalDecrease/(increase) in inventories 10.2
(12.4)
Decrease in trade and other receivables 50.2
0.1
(Decrease)/increase in trade and other payables (52.5)
11.0
Change in provisions, retirement benefit and other 2.9
(2.3)
non-current liabilitiesCash generated from operations 123.2 138.4Interest paid (4.8) (4.7)Income tax paid (30.0) (27.9)Net cash inflow from operating activities 88.4
105.8
Cash flows from investing activitiesInterest received 0.3
0.6
Proceeds from sale of property, plant and equipment 4.5
3.0
Acquisition of subsidiaries, net of cash acquired (34.7)
(14.1)
Acquisition of property, plant and equipment (39.3)
(68.2)
Acquisition of intangible assets (0.7)
(1.4)
Acquisition of other non-current assets (0.8)
(1.7)
Net cash outflow from investing activities (70.7)
(81.8)
Cash flows from financing activitiesProceeds from the issue of share capital 0.4
-Repurchase of own shares (1.6) (17.5)New borrowings 7.0 25.3Repayment of borrowings (12.7) (6.6)Payment of finance lease liabilities (5.6)
(2.0)
Dividends paid (17.4)
(15.9)
Net cash outflow from financing activities (29.9)
(16.7)
Net (decrease)/increase in cash and cash equivalents (12.2)
7.3
Cash and cash equivalents at beginning of period 46.5
26.1
Effect of exchange rate fluctuations (5.0)
13.1
Cash and cash equivalents at end of period 29.3 46.51. Basis of preparation
The Group's 2009 results have been prepared in accordance with International Financial Reporting Standards (`IFRS') as adopted by the EU.
The financial information set out above does not constitute theCompany's statutory accounts for the years ended 31 December 2009 or 2008 butis derived from the 2009 accounts. Statutory accounts for 2008 have beendelivered to the Registrar of Companies. Those for 2009, prepared under IFRSas adopted by the EU, will be delivered to the Registrar of Companies and madeavailable on the Company's website at www.keller.co.uk in April 2010. Theauditors have reported on those accounts; their reports were (i) unqualified,(ii) did not include references to any matters to which the auditors drewattention by way of emphasis without qualifying their reports and (iii) didnot contain statements under section 498(2) or (3) of the Companies Act 2006.
2. Foreign currencies
The exchange rates used in respect of principal currencies are:
Average for period Period end 2009 2008 2009 2008US dollar 1.57 1.86 1.59 1.45Euro 1.12 1.26 1.11 1.03Australian dollar 1.99 2.19 1.78 2.103. Segmental analysisThe Group has adopted IFRS 8 Operating Segments with effect from 1January 2009. The Group continues to be managed as four geographical divisionsand has only one major product or service: specialist ground engineeringservices. This is reflected in the Group's management structure and in thesegment information reviewed by the Chief Operating Decision Maker. Theadoption of IFRS 8 has not resulted in changes to the composition of theoperating segments or the definition of segment measures previously reported.Where there is disclosure of additional measures, comparative information isalso shown. 2009 2009 2008 2008 Operating Operating Revenue profit Revenue profit £m £m £m £mUK 57.6 0.5 85.2 2.7US 467.0 32.2 532.1 52.1CEMEA1 386.4 33.6 442.2 49.9Australia 126.9 16.6 137.1 19.4 1,037.9 82.9 1,196.6 124.1
Central items and eliminations - (5.6) -
(4.7)Continuing operations 1,037.9 77.3 1,196.6 119.4 2009 2009 2009 2009 2009 Tangible Segment Segment 2009 Depreciation and Capital Capital and intangible assets liabilities employed additions amortisation assets £m £m £m £m £m £mUK 38.3 (17.6) 20.7 0.4 1.8 23.5US 290.7 (85.8) 204.9 7.6 13.3 154.8CEMEA1 330.3 (144.5) 185.8 58.5 16.3 162.7Australia 69.7 (25.6) 44.1 7.8 4.5 42.3 729.0 (273.5) 455.5 74.3 35.9 383.3
Central items and eliminations2 53.8 (186.0) (132.2) -
- 0.2 782.8 (459.5) 323.3 74.3 35.9 383.5 2008 2008 2008 Tangible 2008 2008 2008 Depreciation and Segment Segment Capital Capital and intangible assets liabilities employed additions amortisation assets £m £m £m £m £m £mUK 47.2 (24.0) 23.2 4.2 1.6 25.5US 367.4 (116.8) 250.6 23.9 9.8 176.6CEMEA1 315.5 (172.1) 143.4 43.2 10.2 131.5Australia 58.5 (25.6) 32.9 8.9 3.3 32.7 788.6 (338.5) 450.1 80.2 24.9 366.3
Central items and eliminations2 64.3 (211.8) (147.5) -
- 0.2 852.9 (550.3) 302.6 80.2 24.9 366.51 Continental Europe, Middle East and Asia. . 2 Central items includes netdebt and tax balances.4. AcquisitionsAcquisitions in 2009 Resource Piling Total Fair value Fair value Carrying amount adjustment Fair value Carrying amount adjustment Fair value £m £m £m £m £m £mNet assets acquiredIntangible assets - 2.7 2.7 - 2.7 2.7Property, plant andequipment 13.3 5.5 18.8 13.3 5.5 18.8
Cash and cash equivalents 5.8 - 5.8
5.8 - 5.8Other assets 10.0 3.8 13.8 10.0 3.8 13.8Loans and borrowings (3.8) - (3.8) (3.8) - (3.8)Other liabilities (9.8) (2.0) (11.8) (9.8) (2.0) (11.8) 15.5 10.0 25.5 15.5 10.0 25.5Goodwill 13.6 13.6Total consideration 39.1 39.1 Satisfied by:
Initial cash consideration 29.1
29.1Deferred consideration 10.0 10.0 39.1 39.1On 11th October 2009 the Group acquired 100% of the share capitalof Resource Holdings Limited with subsidiaries, collectively `ResourcePiling'. The fair value of the intangible assets acquired represents the fairvalue of customer contracts at the date of acquisition. The goodwill arisingon acquisition is attributable to the knowledge and expertise of the assembledworkforce and the operating synergies that arise from the Group's strengthenedmarket position. In the period to 31 December 2009 Resource Piling contributed(£0.4m) (SGD 1.0m) to the net profit of the Group. Had the acquisition takenplace on 1 January 2009, total Group revenue would have been £1,072.5m andtotal net profit would have been £58.7m.Acquisitions in 2008 Olden Boreta Total Carrying Fair value Fair Carrying Fair value Fair
Carrying Fair value Fair
amount adjustment value amount adjustment value amount adjustment value £m £m £m £m £m £m £m £m £mNet assetsacquiredIntangible assets - 0.5 0.5 - 0.5 0.5 - 1.0 1.0Property, plantand equipment 4.0 0.8 4.8 1.0 - 1.0 5.0 0.8 5.8Cash and cashequivalents 0.8 - 0.8 1.4 - 1.4 2.2 - 2.2Other assets 4.9 (0.1) 4.8 2.4 - 2.4 7.3 (0.1) 7.2Loans andborrowings (1.5) - (1.5) (0.5) - (0.5) (2.0) - (2.0)Other liabilities (2.6) (0.5) (3.1) (0.6) (0.1) (0.7) (3.2) (0.6) (3.8) 5.6 0.7 6.3 3.7 0.4 4.1 9.3 1.1 10.4Goodwill - 3.5 3.5Totalconsideration 6.3 7.6 13.9 Satisfied by:Initial cashconsideration 6.1 6.5 12.6Deferredconsideration 0.2 1.1 1.3 6.3 7.6 13.9On 31 October 2008 the Group acquired 100% of the share capital ofCraig Olden Inc. ('Olden'). The fair value of the intangible assets acquiredrepresents the fair value of non-compete undertakings and backlog at the dateof acquisition. In the period to 31 December 2008 Olden contributed £0.5m(US$0.9m) to the net profit of the Group.On 11 November 2008 the Group acquired 100% of the share capital ofBoreta Spol. sr.o. ('Boreta'). The goodwill arising on acquisition isattributable to the knowledge and expertise of the assembled workforce and theoperating synergies that arise from the Group's strengthened market position.The fair value of the intangible assets acquired represents the fair value ofnon-compete undertakings and backlog at the date of acquisition. In the periodto 31 December 2008 Boreta contributed £nil to the net profit of the Group.
Had both acquisitions taken place on 1 January 2008, total Group revenue from continuing operations for 2008 would have been £1,219.3m and total net profit from continuing operations would have been £79.5m.
5. Discontinued operation
The Board announced its decision to withdraw from Makers on 20 August 2007. By 31 December 2007 substantially all of the business had been disposed of. There were no discontinued operations in 2009.
Losses attributable to the discontinued operation during 2008 wereas follows: 2008 £mResults of discontinued operationRevenue 1.0Operating costs (3.7)Operating loss (2.7)Net finance costs (0.1)Loss before taxation (2.8)Taxation 1.1Loss for the period (1.7) Basic loss per share (pence) (note 6) (2.5)Diluted loss per share (pence) (note 6) (2.5) Cash flows from discontinued operationNet cash from operating activities (3.2)Net cash from investing activities 0.2Net cash from financing activities 4.0 1.0
6. Earnings per share
Basic and diluted earnings per share from continuing operations arecalculated as follows: 2009 2009 2008 2008 Basic Diluted Basic Diluted £m £m £m £mEarnings (after tax and minority interests),being net profits attributable to equityholders of the parent 50.4 50.4 72.5 72.5 No. of No. of No. of No. of shares shares shares shares millions millions millions millions
Weighted average of ordinary shares in issue 64.0 64.0 65.2
65.2
during the yearAdd: weighted average of shares under option - 1.1 -
1.2
during the yearAdd: weighted average of own shares held - 0.1 -
0.1
(excluding treasury shares)Less: no. of shares assumed issued at fair - (0.1) -
(0.1)
value during the yearAdjusted weighted average of ordinary shares 64.0 65.1 65.2
66.4in issue Pence Pence Pence Pence
Earnings per share from continuing operations 78.8p 77.4p 111.1
109.2
Total earnings per share from continuing and discontinued operations of 78.8p (2008: 108.6p) was calculated based on earnings of £50.4m (2008: £70.8m) and the weighted average number of ordinary shares in issue during the year of 64.0 million (2008: 65.2 million).
Total diluted earnings per share from continuing and discontinuedoperations of 77.4p (2008: 106.7p) was calculated based on earnings of £50.4m(2008: £70.8m) and the adjusted weighted average number of ordinary shares inissue during the year of 65.1 million (2008: 66.4 million).
Loss per share from discontinued operation of 0p (2008: 2.5p) was calculated based on a loss of £0m (2008: £1.7m) and the weighted average number of ordinary shares in issue during the year of 64.0 million (2008: 65.2 million).
Diluted loss per share from discontinued operation of 0p (2008: 2.5p) was calculated based on a loss of £0m (2008: £1.7m) and the adjusted weighted average number of ordinary shares in issue during the year of 65.1 million (2008: 66.4 million).
7. Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
2009 2008 £m £mAmounts recognised as distributions to equityholders in the period:Interim dividend for the year ended 31 December 4.7 4.42009 of 7.25p (2008: 6.9p) per shareFinal dividend for the year ended 31 December 8.8 7.9
2008 of 13.8p (2007: 12.0p) per share
13.5 12.3
The Board has declared a second interim dividend for the year ended 31 December 2009 of £9.6m, representing 14.5p (2008: 13.8p) per share, in lieu of a final dividend. The dividend was approved by the Board on 2 March 2010 and has not been included as a liability in these financial statements.
8. Capital and reserves
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.
During the period the Company repurchased nil (2008: 2.2 million)shares, all of which are held in Treasury. In addition, the Company purchaseda further 330,000 shares (2008: 325,000) specifically to satisfy PerformanceShare Plan awards. The average cost of purchased shares was £4.81 (2008:£6.81). All shares issued in 2009 related to share options exercised in thatperiod.
9. Related party transactions
Transactions between the parent, jointly controlled operations and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
During the year the Group undertook various contracts with a totalvalue of £9.0m (2008: £9.7m) for GTCEISU Construcci³n, S.A., a connectedperson of Mr L³pez Jim©nez, a Director of the Company. An amount of £6.9m(2008: £8.0m) is included in trade and other receivables in respect of amountsoutstanding as at 31 December 2009.
During the year the Group made purchases from GTCEISU Construcci³n, S.A. with a total value of £6.0m (2008: £5.6m). An amount of £3.8m (2008: £4.1m) is included in trade and other payables in respect of amounts outstanding as at 31 December 2009.
All amounts outstanding from related parties are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
The remuneration of the Directors, who are the key management personnel and related parties of the Group, will be set out in the audited part of the Directors' Remuneration Report of the Annual Report and Accounts.
vendor