As expected, revenue and operating profit in Asia decreased
compared to 2012 primarily as a result of not having a major
contract in Malaysia to replace the contract for Vale that
completed early in 2013. The operating margin, however, increased
from 8.0% in 2012 to 9.4%.
In Australia, Australian dollar revenue was flat but revenue was
down 6% on 2012 expressed in sterling, due to the weakening of the
Australian dollar. However, operating profit increased from GBP8.7m
in 2012 to GBP15.6m in 2013, mainly due to a strong performance on
some of its larger contracts in the resources sector.
The Group's trading results are discussed more fully in the
Chairman's statement and the operating review.
Net finance costs
Net finance costs before exceptional items decreased from
GBP4.8m in 2012 to GBP3.7m in 2013. This decrease mainly reflects
higher non-cash income from financial assets. Net interest on debt
and cash was consistent with 2012.
Tax
The Group's effective tax rate before exceptional items was 32%,
slightly up from 31% in 2012, reflecting the different geographic
mix of profits.
Earnings and dividends
Earnings per share (EPS) before exceptional items increased to
73.0p (2012: 45.9p). The Board has recommended a final dividend of
16.0p per share, which brings the total dividend to be paid out of
2013 profits to 24.0p, a 5% increase on 2012. The 2013 dividend is
covered 3.0 times by earnings. Earnings per share after exceptional
items were 43.2p.
Exceptional items
The 2013 result includes a number of non-trading exceptional
items relating to acquisitions, which are required to be expensed
under IFRS. There were no such items in 2012.
The exceptional items totalled GBP22.1m, comprising GBP6.7m of
amortisation of intangible assets recognised on the 2013
acquisitions, GBP5.9m of acquisition costs, additional contingent
consideration and payments of GBP6.0m, GBP3.1m of goodwill
impairments and GBP0.4m of exceptional finance costs. The vast
majority of additional contingent consideration and payments
relates to the 2010 acquisition of Waterway Constructions in
Australia and is payable because its trading results exceeded
expectations.
Cash flow and financing
The Group has always placed a high priority on cash generation
and the active management of working capital. In 2013, cash
generated from operations was GBP132.0m, representing 106% of
EBITDA before exceptional items (2012: 118%). Year-end working
capital was GBP124.1m, which is slightly lower than 2012 after
adjusting for the impact of acquisitions. Net capital expenditure
totalled GBP42.6m, which compares to depreciation of GBP45.0m.
The Group made three strategic acquisitions during the year at a
total cash cost of GBP188.5m. These were financed through a
combination of drawing down on existing bank facilities, a placing
of ordinary shares, representing 10% of the then existing share
capital and which raised net proceeds of GBP57.6m, and a new
US$150m four year revolving credit facility. Including acquisition
costs, the contingent consideration paid on Waterway Constructions
and the acquisition of the minority shareholding in Keller-Terra in
Spain, the total expenditure on acquisitions in the year was
GBP200.4m.
At 31 December 2013, net debt amounted to GBP143.7m (2012:
GBP51.2m). Based on net assets of GBP372.6m, year-end gearing was
39% compared to 15% at the beginning of the year.
The Group's term debt and committed facilities mainly comprise
US$110m of US private placements, US$70m of which is repayable in
October 2014 and US$40m of which is repayable in August 2018, a
GBP170m multi-currency syndicated revolving credit facility
expiring in April 2015 and a US$150m multi-currency syndicated
revolving credit facility expiring in July 2017. At the year end,
the Group had undrawn committed and uncommitted borrowing
facilities totalling GBP165.3m.
The most significant 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
well within its covenant limits.
With US$70m of US private placement borrowings being repayable
in October 2014 and the GBP170m multi-currency syndicated revolving
credit facility expiring in April 2015, the Group anticipates
refinancing some of its debt facilities during the course of the
year.
Capital 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 2011, when the market value of the scheme's assets was
GBP31.8m and the scheme was 82% funded on an ongoing basis.
Following the valuation, the level of contributions remained at
GBP1.5m a year, a level which will be reviewed following the
finalisation of the triennial actuarial valuation as at 5 April
2014.
The 2013 year-end IAS 19 valuation of the UK scheme showed
assets of GBP35.0m, liabilities of GBP44.7m and a pre-tax deficit
of GBP9.7m.
In Germany and Austria, the defined benefit arrangements only
apply to certain employees who joined the Group prior to 1991.
There are no segregated funds to cover these defined benefit
obligations and the respective liabilities are included on the
Group balance sheet. These totalled GBP13.4m at 31 December
2013.
All other pension arrangements in the Group are of a defined
contribution nature.
Management of financial risks
Currency risk
The Group faces currency risk principally on its net assets,
most of which are in currencies other than sterling. The Group aims
to reduce the impact that retranslation of these assets might have
on the balance sheet by matching the currency of its borrowings,
where possible, with the currency of its assets. The majority of
the Group's borrowings are held in US dollars, Canadian dollars,
euros and Australian dollars, in order to provide a hedge against
these currency net assets.
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, intra-Group loan repayments and
any foreign currency cash flows associated with acquisitions. 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 2013, 86% of the Group's third-party borrowings bore
interest at floating rates.
Credit risk
The Group's principal financial assets are trade and other
receivables, bank and cash balances and a limited number of
investments and derivatives held to hedge certain of the Group's
liabilities. These represent the Group's maximum exposure to credit
risk in relation to financial assets.
The Group has stringent procedures to manage counterparty risk
and the assessment of customer credit risk is embedded in the
contract tendering processes. Customer credit risk is mitigated by
the Group's relatively small average contract size, its diversity,
both geographically and in terms of end markets, and by taking out
credit insurance in many of the countries in which the Group
operates. No individual customer represented more than 5% of
revenue in 2013.
The counterparty risk on bank and cash balances is managed by
limiting the aggregate amount of exposure to any one institution by
reference to their credit rating and by regular reviews of these
ratings.
Consolidated income statement
For the year ended 31 December 2013
2013 2013 2013 2012
Before Exceptional
exceptional items
items (Note
Note GBPm 5) GBPm GBPm
GBPm
------------------------------ ------- ------------- ------------ ---------- ----------
Revenue 3 1,438.2 - 1,438.2 1,317.5
Operating costs (1,360.4) (21.7) (1,382.1) (1,269.2)
------------------------------ ------- ------------- ------------ ---------- ----------
Operating profit 3 77.8 (21.7) 56.1 48.3
Finance income 3.1 - 3.1 1.9
Finance costs (6.8) (0.4) (7.2) (6.7)
------------------------------ ------- ------------- ------------ ---------- ----------
Profit before taxation 74.1 (22.1) 52.0 43.5
Taxation (23.8) 1.9 (21.9) (13.5)
------------------------------ ----------
Profit for the period 50.3 (20.2) 30.1 30.0
------------------------------ ------- ------------- ------------ ---------- ----------
Attributable to:
Equity holders of the parent 49.5 (20.2) 29.3 29.5
Non-controlling interests 0.8 - 0.8 0.5
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