Final Results - Year Ended 31 December 1999
Keller Group PLC
9 March 2000
Keller Group plc ('Keller'/'the Group')
14% INCREASE IN PRE-TAX PROFITS ON AN 18% INCREASE IN
TURNOVER
Keller Group, the global construction services group, announces
preliminary results for the year ended 31 December 1999.
Highlights
Pre-tax profits up 14% to £19.0m (1998: £16.7m); turnover rises 18% to
£314.9m (1998: £266.9m)
Earnings per share up 16% to 21.5p (1998: 18.6p)
Final dividend of 5.2p; total dividend for the year up 10% at 7.8p (1998:
7.1p)
Strong organic growth by Makers in the UK concrete repair and refurbishment
market
Excellent performance in North America; operating profit up 24%
Substantial progress made in Continental Europe and Overseas; operating profit
up 36% against a turnover increase of 18%
Good progress in France
Strong balance sheet with no gearing, giving scope to fund future acquisitions
Keller Chairman, Dr J M West, commented:
'The Group's proven combination of technical strength and market spread give
grounds for continued optimism. Our strategy remains to grow our core ground
engineering business by selective acquisition and penetration of new markets,
while increasing the range and scale of specialist services that the Group can
offer through our well established international network.
Specialist concrete repair and related services show considerable promise,
especially as the Government commits additional funding for the upgrading of
the country's housing stock, and I expect to see continued growth in this
segment of our business both in the UK and overseas.'
For more information:
Tom Dobson, Chief Executive Keller Group 020 7398 0800*
Justin Atkinson, Finance Director Keller Group 020 7398 0800*
* on Thursday 9 March - thereafter on 020 8341 6424
Stephanie Highett / Nick Lambert GCI Focus 020 7398 0800
Chairman's Statement
I am delighted to report a very strong performance by Keller Group with
another double digit increase in profits and earnings. Significantly, these
results come primarily from organic growth with the Group ending the year in a
very healthy financial position and well placed to pursue opportunities for
expansion.
In 1999 Group revenue increased 18% to £314.9m, Group profit before tax rose
14% to £19.0m while earnings per share were 21.5p, an improvement of 16% on
the previous year. Maintaining a progressive dividend policy, the Board are
recommending a final dividend of 5.2p per share. This brings the total
dividend for the year to 7.8p, an increase of 10% over the previous year. The
final dividend will be paid on 31 May 2000 to shareholders on the register at
the close of business on 8 May 2000.
Highlights of the year were a much improved performance from our operations in
Continental Europe, another excellent result from North America and strong
progress in developing our specialist concrete repair and refurbishment
business in the UK.
In Continental Europe, improved results in the core German and Austrian
operations were complemented by encouraging progress in other European
markets, most notably France and Poland. Group operations in North America
produced another exceptional result with all parts of the business performing
well despite some strengthening of competition on major projects. In the
UK, an excellent performance from our Makers specialist concrete repair and
refurbishment business was balanced by a continuing weakness in ground
engineering, a situation aggravated by a current lack of major infrastructure
work in the UK.
In the interim statement I announced the appointment of Dr. Kevin Bond and
Keith Payne as non-executive directors of the Group and they are already
making a valuable contribution to the Board. At the beginning of October we
announced the resignation of Rob Painting as finance director and we wish
him every success in pursuing new interests. Justin Atkinson was appointed
group finance director on 11 October 1999. Justin joined the Group in 1990
shortly after our management buy out and had been group financial controller
for the last four years.
During the latter part of the year we invited our senior managers from around
the world to join with the Board in reviewing the Group's strategy thus giving
them the opportunity to meet our new non-executive directors.
The Management Training Programme introduced in 1997 is now well established
and the first group of 18 senior managers have successfully completed this
executive programme. We are committed to offering our staff the opportunity to
broaden their skills and are indebted to them for their hard work and
commitment to the Group.
Looking ahead, the Group's proven combination of technical strength and market
spread give grounds for continued optimism. Our strategy remains to grow our
core ground engineering business by selective acquisition and penetration
of new markets, while increasing the range and scale of specialist services
that the Group can offer through our well established international network.
Specialist concrete repair and related services show considerable promise and
I expect to see continued growth in this segment of our business both in
the UK and elsewhere.
Earlier, I referred to the Group's good financial position and this, combined
with an increasing number of international opportunities, gives me every
confidence for the continued progress of the Group.
Dr J M West
Chairman
8 March 2000
Operating Review
Keller Group results for 1999 show strong growth in sales, operating profit
and earnings, despite the fact that no significant acquisitions were completed
in the period. These results underline the effectiveness of the Group's
strategy and the inherent strength provided by taking leading positions
in the major national markets of Europe and the USA.
The Group's well balanced geographical profile again proved successful in
reducing the effect of the cyclical nature of the markets in which it
operates. In the USA, our national coverage allowed Keller to take full
advantage of a strong market whilst, in Europe, we outperformed a flat market
in Germany, complemented by growth in France, Poland and Austria.
In market terms, the weakness of the UK foundation sector was mitigated by the
buoyant repair and renovation sector.
The Americas
Results from our North American operations were once again excellent in 1999
with sales growing 9% to £107.4m and operating profit increasing 24% to
£12.0m. The operating profit margin increased by over one percentage point on
last year to reach a record 11.2% with both major subsidiaries,
Hayward Baker and Case, performing well. In Hayward Baker, all regions of the
business performed at or above budget with a particularly strong performance
from the Southern and Central Regions.
The strength of these regions lies in their coverage of the local markets with
their sales derived from a large number of small to medium sized contracts.
The result from the Central Region includes a full year's trading from Denver
Grouting whose results were in line with expectations. In other regions, major
contracts completed included the third phase of a jet grouting job in Battery
Park, New York, and a substantial vibro contract for the extension of the
airport at Manchester, New Hampshire. Hayward Baker, along with Case and
a third partner, were the general contractors for a highway realignment and
slope stability contract on State Road 9 in Kentucky which was completed on
budget and some six months ahead of schedule. In the western half of the USA,
major projects included a tunnel grouting contract for the Los Angeles subway,
a jet grouting project in Idaho, an anchorage contract for a dam in
California, along with several large ground improvement projects using our
vibro systems.
The performance by Case was the best since acquisition in 1994 with sales
growing 18%. All divisions of Case performed well with the Western Division
producing an excellent result. Major projects included caissons and a
diaphragm wall and retention system for a high-rise development at the River
East Center in Chicago and caissons for a multistorey condominium development
at One North Wacker Drive, also in downtown Chicago. In the Eastern Division,
caissons were constructed to support a light rail transit system in New Jersey
and the Harborside Financial Center in Jersey City. Furthermore, work was
substantially completed on the I23 and I90 intersection contract in Boston.
Case's Florida based subsidiary, Case Atlantic, saw considerable benefit from
the TEA 21 money approved by Congress with work for the upgrading of highway
bridges in Florida, Alabama, Georgia and North Carolina.
Outside the USA, volumes fell below expectations with Keller Cimentaciones in
Mexico failing to meet budget after a very slow first half but showing steady
improvement in the second half of the year. In Canada, work was successfully
completed on the underpinning of the Capitol Building in Saskatchewan while
vibro work was undertaken in the port of Vancouver to support new wharf
structures. In Puerto Rico, several medium sized jobs were completed during
the year.
United Kingdom
In the UK, Keller Ground Engineering operated in a flat foundation sector
whilst Makers operated within the rapidly growing concrete repair and
refurbishment sector.
The ground engineering market remained very competitive in 1999 with little
sign of any real consolidation despite realignment within the wider general
construction market. This, combined with the lack of large projects, in
particular in the infrastructure sector, gave rise to difficult market
conditions. Despite this lack of opportunities, sales in the ground
engineering business increased over 1998 but at the expense of depressed
margins. Going forward, therefore, we will reposition our ground engineering
business in the UK to concentrate on sectors which produce higher margins.
Notable projects completed during the year included several contracts at
Canary Wharf and further work for both London Underground and Railtrack.
At the end of the year a major driven piling job in South Wales was completed
while, further north, Keller successfully relevelled the floor slab of a major
shopping centre where settlement has disrupted operations. In Scotland, work
commenced on compensation grouting to the Royal Scottish Academy in Edinburgh.
By contrast, the concrete repair and refurbishment markets in which Makers
operated were strong with a high level of opportunities available. Taking
advantage of this good market allowed Makers' volume to grow by some 40% with
obvious benefits to operating profit. It is anticipated that this good
market will continue as the Government commits additional funding for the
upgrading of the country's housing stock.
Major projects undertaken during the year included the repair of the
Hammersmith Bridge, London, which was completed in time to allow reopening
prior to the year end and also substantial completion of the refurbishment of
the Russell Coates Museum, Bournemouth. Several tower block renovations were
also undertaken in the year not only in the London area but also in
the Midlands and the North of England. The Car Park Division had a busy year
with the completion of several contracts and ongoing work at both Heathrow and
Gatwick airports.
Continental Europe and Overseas
Our Continental Europe and Overseas operations had a highly successful year in
1999 with operating profit some 35% ahead of last year on sales 18% up on
1998. In Continental Europe, we achieved improved performance in Germany
whilst successfully pushing ahead with aggressive growth in other
European countries. In Germany, we reversed the trend of declining sales
despite a flat market and, in addition, improved margins from productivity
gains in our major product lines and by tighter quality control at both design
stage and site level. We continued to achieve good results at the
Lausitz sites where up to six vibrators worked to densify deep deposits of
waste from old coal workings. In the fourth quarter we undertook a large void
filling contract on the Frankfurt to Cologne high speed railtrack which
required a rapid response and had to be completed to a very tight time
schedule.
Outside Germany, we continued our successful penetration of the French market
with sales growing strongly in part as a result of opening two new regional
offices to bring us closer to our clients. Our French company also performed a
major piling contract for EXPO 2002 at Neuchatel, Switzerland, with the work
for the second phase at Bienne to follow this year. The pile installations are
in the lakes to support a major deck structure. Significant growth was also
achieved in Poland where projects for foundation support of a Tesco
supermarket at Czestochowa and a deep soil mixed wall for flood control to
protect the city of Krakow were successfully completed. We will continue to
push ahead aggressively in Poland and prospects for 2000 are excellent.
Results from Austria were very good with major projects being undertaken to
rehabilitate both a quay wall and three historical gasometers near Vienna,
whilst in Italy a large excavation some 28 metres deep using Soilcrete and
anchors was undertaken. In Portugal, a major dewatering contract for a new dry
dock at Setubal was completed.
In our Overseas operations, the results from the Middle East were strong and
included for the first time a full year of results from Genco in Egypt. Genco
performed well with the completion of major contracts in Alexandria in the El
Mex industrial area and also a number of jobs in Cairo. Whilst opportunities
were weak in Saudi Arabia, our operations in the Gulf States were very busy
with major projects in Qatar, Abu Dhabi and Dubai. The Far East continues to
be difficult as the economic recovery is progressing at a slower than
anticipated pace. Despite this, however we continue to work at Changi
Airport in Singapore and also at Putra Jaya in Malaysia. Late in the year we
commenced work in the Phillipines on a ground improvement project at an on
shore gas receiving station.
Australia
In its first full year as a member of the Keller Group, Franki Pacific
Holdings performed well with sales slightly ahead of last year in the
equivalent period with profit however some 20% behind last year's excellent
result. The continuing uncertainties in Indonesia contributed to the decline
in profits as this market remains depressed. As anticipated at the time of the
acquisition, the New South Wales market declined in 1999 on completion of some
of the structures related to the 2000 Olympics and margins hardened as a
result. The decline in New South Wales was to some extent offset by strong
activity in Melbourne where several high rise residential developments were
completed using driven precast piles. Franki installed the piling for a major
shopping centre in Queensland whilst in Victoria we installed the bored piles
to support an important eye clinic.
Strategy
The Group will continue to pursue organic growth in its core ground
engineering business together with acquisitions to enhance geographical
coverage, product range and technical excellence. Continental Europe offers
opportunities for organic growth in countries such as France, Italy and Poland
while in North America and Australia there is scope for additional
acquisitions to reinforce our leading position in these markets. The success
of our Makers business in the UK concrete repair and refurbishment sector
gives us confidence to continue the expansion of these and related services in
both the UK and overseas.
While the dynamics of the markets in which we operate are constantly changing,
I am confident that the Group's well balanced geographical and product base
combined with an aggressive approach to those acquisitions which offer growth
opportunities, will ensure continued success in the future.
T Dobson
Chief executive
8 March 2000
Financial review
Turnover for the Group increased 18% year on year to £314.9m. Of this amount,
only 26% originated in the UK with one third coming from the USA and 40%
coming from more than 20 other countries in Continental Europe and Overseas.
This means that a large proportion of the Group's net assets are denominated
in currencies other than Sterling which gives the Group an exposure to
translational exchange risk. The difference in average exchange rates year on
year resulted in a positive effect on operating profit of £232,000 in 1999.
Of the two main currencies to which the Group is exposed, the US dollar
strengthened by 3% whilst the Euro weakened by 13% during the year. The Group
is present in a large number of national markets and therefore there is little
cross border activity necessary to service contracts. The Group's management
of currency risk is explained in detail on page 20.
The net interest charge for the year was similar to last year at £345,000.
Although the net cash positions improved during the year, such benefits were
primarily offset by a year on year reduction in interest rates in the UK.
In the period since flotation in 1994, the Group's gearing position has not
been higher than single figures in percentage terms at the end of each year.
At December 1999, however, the Group had net funds of some £5.3m. Indeed,
throughout the year, the gearing ratio was never more than single figures
compared to an average of 11% and a peak of 24% in 1998. This improved
position arose as a result of excellent cash inflows particularly in the USA
and Continental Europe and further because the Group did not have major
expenditure on acquisitions during the year. The controls of working capital
were particularly strong such that year end levels reduced over last year even
though activity levels increased considerably.
The Group increased its capital expenditure over recent years in its main
areas of operations to ensure that its fleet of equipment was either replaced
or enhanced appropriately to cope with the increasing volumes of activity.
The effective tax charge increased only marginally in the year to 35.4% but
was lower than the anticipated effective rate because there was a higher than
expected proportion of profits earned either in locations that were subject to
low tax rates or where there were prior year tax losses to utilise. The
effective rate is still considerably higher than the UK corporation tax rate
of 30% because of the proportion of profits earned in several countries where
the tax rate is higher than in the UK.
The minority interest charge for the year reduced over 1998 directly as a
result of the losses sustained in our Indonesian subsidiary where there is a
40% minority and because the activity from our Saudi operations, where there
is a 35% minority, was 30% lower than in 1998.
The weighted average number of shares in issue during the year increased by
some 306,000, as a result of the exercise of share options by senior
executives during the latter part of 1998 and during 1999. This had a
marginal impact on earnings per share which nevertheless increased by 16% to
21.5p. The share issue proceeds in 1999 were only £133,000 compared to
£658,000 last year leaving some 225,000 share options currently outstanding.
The dividend cover increased to a healthy 2.8 times based upon a dividend
increase of 10% on last year. The final ACT repayment of £0.9m, arising out
of the foreign income dividend regime, was received in October 1999.
The acquisitions that were made in 1998 all performed well in the first full
year of operations although the Franki business was affected by the losses in
Indonesia. An impairment review of the goodwill arising from these
acquisitions resulted in no change to the existing amortisation policy. No
acquisition of any size was made in 1999 although, as a result of our due
diligence process, a potential acquisition was aborted in mid year. During the
year cash payments of £550,000 were made in relation to deferred purchase
considerations in respect of acquisitions undertaken in prior years.
Compliance with the UK financial reporting standards numbers 12 and 13 which
were followed for the first time have had no material effect on the Group's
reporting this year.
The net asset base of the Group increased by some 15% to £51.9m over the last
year despite a negative impact of currency movement of £0.9m. With no gearing
and available headroom on unutilised banking facilities, the Group is in a
good position to make further acquisitions in 2000 and beyond.
J R Atkinson
Finance director
8 March 2000
Consolidated Profit and Loss account
For the year ended 31 December 1999
1999 1998
Continuing Continuing
operations operations
Total Total
£000 £000
Turnover 314,899 266,854
Operating costs (295,513) (249,811)
Operating profit 19,386 17,043
Net interest payable (345) (341)
Profit on ordinary
activities before taxation 19,041 16,702
Taxation (6,749) (5,870)
Profit on ordinary
activities after taxation 12,292 10,832
Equity minority interests (112) (354)
Profit for the financial
year 12,180 10,478
Dividends paid and proposed (4,428) (4,021)
Retained profit for the
financial year 7,752 6,457
Earnings per share 21.5p 18.6p
Diluted earnings per share 21.4p 18.5p
There is no difference between the profit on ordinary activities before
taxation and the retained profit for the financial year stated above, and
their historical cost equivalents.
Consolidated Statement of Total Recognised Gains and Losses
for the year ended 31 December 1999
1999 1998
£000 £000
Profit for the financial
year 12,180 10,478
Currency translation
differences on overseas
investments (1,039) 1,129
Tax effect of currency
translation differences 113 102
Total recognised gains and
losses relating to the year 11,254 11,709
Consolidated Balance Sheet
As at 31 December 1999
1999 1998
£000 £000
Fixed assets
Positive goodwill 1,613 1,594
Negative goodwill (314) (419)
1,299 1,175
Other intangible assets 305 331
Intangible assets 1,604 1,506
Tangible assets 43,688 42,839
Investments - -
45,292 44,345
Current assets
Stocks 6,149 5,929
Debtors 73,400 67,298
Cash at bank and in hand 16,965 14,131
96,514 87,358
Creditors: amounts falling due
within one year (72,668) (66,971)
Net current assets 23,846 20,387
Total assets less current
liabilities 69,138 64,732
Creditors: amounts falling due
after more than one year (11,451) (13,740)
Provision for liabilities and
charges (5,744) (5,958)
Net assets 51,943 45,034
Capital and reserves
Called up share capital 5,677 5,664
Share premium account 14,508 14,388
Capital redemption reserve 7,629 7,629
Profit and loss account 23,230 16,404
Equity shareholders' funds 51,044 44,085
Equity minority interests 899 949
51,943 45,034
Consolidated Cash Flow Statement
For the year ended 31 December 1999
1999 1999 1998 1998
£000 £000 £000 £000
Net cash inflow from
operating activities 27,402 22,676
Returns on investment and
servicing of finance
Interest received 619 820
Interest paid (991) (889)
Interest element of finance
lease rental payments (108) (154)
Finance costs of new bank
loans - (48)
Payments to minority
interests (243) (11)
(723) (282)
Taxation
UK corporation tax paid (679) (967)
Overseas tax paid (6,473) (4,279)
(7,152) (5,246)
Capital expenditure
Purchase of intangible
fixed assets (38) (342)
Purchase of tangible fixed
assets (8,861) (5,996)
Sale of tangible fixed
assets 621 776
(8,278) (5,562)
Acquisitions and disposals
Acquisition of subsidiary
undertakings (725) (7,091)
Net cash acquired with
subsidiary undertakings - 933
(725) (6,158)
Equity dividends paid (4,166) (3,767)
Net cash inflow before use
of liquid resources and
financing 6,358 1,661
Management of liquid
resources
Repayments from/(payments
into) short term bank
deposits 642 (1,428)
Financing
Issue of new shares 133 658
New bank loans drawn 3,935 5,972
Repayment of bank loans and
loan notes (7,101) (3,035)
Sale and lease back
transactions - 1,031
Capital element of finance
lease rental payments (339) (510)
Net cash (outflow) / inflow
from financing (3,372) 4,116
Increase in cash in the
year 3,628 4,349
Notes to the accounts
1. Geographical analysis
Turnover, operating profit and net assets may be analysed by geographical
segment as follows:
1999 1998
Continuing Continuing
operations operations
Total Total
£000 £000
Turnover
United Kingdom 82,301 67,674
The Americas 107,410 98,563
Continental Europe and overseas 104,382 88,361
Australia 20,806 12,256
314,899 266,854
Operating profit
United Kingdom 2,934 3,492
The Americas 12,042 9,716
Continental Europe and overseas 5,503 4,056
Australia 705 896
Unallocated central costs (1,798) (1,117)
19,386 17,043
Net interest payable (345) (341)
19,041 16,702
Net assets
United Kingdom 6,138 4,836
The Americas 22,857 22,319
Continental Europe and Overseas 13,352 15,261
Australia 4,332 3,266
46,679 45,682
Net funds / (debt) 5,264 (648)
51,943 45,034
In the opinion of the directors: (i) the Group does not operate in more than
one class of business as defined by SSAP 25; (ii) it is not deemed appropriate
to analyse net funds / (debt) and interest thereon by geographical segment,
and (iii) turnover by destination is not materially different from turnover by
origin.
2. Taxation
The taxation charge comprises:
1999 1998
£000 £000
UK corporation tax at 30.25%
(1998:31%) 747 2,938
Double Tax relief (163) (1,912)
Overseas tax 6,190 5,179
Deferred tax 231 (675)
(Over)/under provisions in respect of
prior years (256) 340
6,749 5,870
3. Dividends paid and proposed
1999 1998
Ordinary dividends on equity shares £000 £000
Interim paid 1,476 1,330
Final proposed 2,952 2,691
4,428 4,021
An interim ordinary dividend of 2.6p (1998: foreign income dividend 2.35p) per
share was paid on 29 October 1999. The final proposed ordinary dividend of
5.2p (1998: 4.75p) per share will be paid on 31 May 2000.
4. Earnings per share
Earnings per share is calculated as follows:
1999 1999 1998 1998
Basic Diluted Basic Diluted
Profit after tax and
minority interests £12,180,000 £12,180,000 £10,478,000 £10,478,000
No. of shares No. of shares No. of shares No. of shares
Weighted average of
ordinary shares in
issue during the
year 56,664,581 56,664,581 56,359,063 56,359,063
Add: Weighted
average of shares
under option during
the year - 257,414 - 640,937
Add: Weighted
average of own shares
held - 78,005 - -
Subtract: Number of
shares assumed
issued at fair value
during the year - (100,676) - (318,129)
Adjusted weighted
average ordinary
shares in issue 56,664,581 56,899,324 56,359,063 56,681,871
pence pence pence pence
Earnings per share 21.5 21.4 18.6 18.5
5. Foreign Currencies
Balance sheet items in foreign currencies are translated into Sterling at
closing rates of exchange at the balance sheet date. However, if amounts
receivable and payable in foreign currencies are covered by a forward
contract, the contract rate of exchange is used for translation. Profit and
loss accounts and cash flows of overseas subsidiary undertakings
are translated into Sterling at average rates for the year.
Exchange differences arising from the retranslation of opening net assets and
profit and loss accounts at closing rates of exchange are dealt with as
movements on reserves. All other exchange differences are charged to the
profit and loss account.
The exchange rates used in respect of principal currencies
are:
1999 1998
US Dollar: Average for year 1.62 1.66
US Dollar: Year end 1.61 1.66
Australian Dollar: Average for
year/period 2.51 2.71
Australian Dollar: Year End 2.46 2.71
Euro: Average for year 1.52 1.49
Euro: Year End 1.61 1.42
6. Basis of preparation
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 1998 or 1999 but is derived
from those accounts. Statutory accounts for 1998 have been delivered to the
Registrar of Companies and those for 1999 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those
accounts: their reports were unqualified and did not contain statements under
section 237 (2) or (3) of the Companies Act 1985.
Accounts will be posted to shareholders on 31 March 2000. The Annual General
Meeting will be held on 11 May 2000.
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