In November, we acquired Esorfranki Geotechnical, the largest
ground engineering business in South Africa, for an initial
consideration of GBP31m. The business, since re-branded as Franki
Africa, offers design and build services to the mining, civil
engineering and construction industries and has a strong track
record of executing projects in other Sub-Saharan African
countries, which accounted for around half of its revenue in recent
years.
These acquisitions, together with our success in winning work by
offering value-engineered solutions and a continuation of our
business improvement initiatives, now embedded in our day-to-day
operations, have all combined to strengthen the Group's global
leadership position.
Employees
We could not have accomplished so much in the year without the
hard work of our employees across the world. The Board and the
Executive Committee truly appreciate the care and skill with which
colleagues approach their work and, in particular, their
contribution towards our safety improvement efforts. We will
continue to strive to create an environment in which our employees
can thrive and feel proud to work.
Board
Gerry Brown and Bob Rubright served on the Board until 23 May
2013. David Savage stood down on 3 October 2013, creating a vacancy
on the Board for a Non-executive Director. We thank all three for
their contributions. We commenced an externally facilitated search
in November 2013, which is progressing positively and we will
report on the outcome in due course.
Outlook
Looking ahead, we expect to see a continuation of the gradual
improvement in certain of our markets, notably in the US. However,
most of our European markets are expected to remain subdued and we
anticipate that the current uncertain market conditions in
Australia will continue for some time.
For the Group as a whole, contract awards remain at a healthy
level and accordingly, the value of the like-for-like order book at
the end of January 2014, for work to be executed over the following
12 months, was 6% higher than at the previous January.
In 2014, our focus will be on continuing to drive margin
improvement in our established businesses, together with delivering
value from our recent acquisitions and achieving the synergies
between them and other parts of the Group. We have made good
progress in integrating the acquisitions and their full-year 2014
contribution is forecast to be in line with our expectations at the
time of acquisition.
Overall, we expect 2014 to be another year of progress, despite
the adverse impact of foreign exchange movements and the extreme
weather conditions in North America in the first two months of the
year.
Looking further ahead, we remain optimistic about our long-term
prospects and we are confident that the Group is well positioned to
take full advantage of future opportunities.
Operating Review
Conditions in our major markets
In the US, which remains by far our biggest market, total
construction expenditure last year was 5% ahead of 2012. The main
driver of growth was once again the improving residential market,
with housing starts up 17% year on year to reach their highest
level since 2007. Private non-residential construction was broadly
flat, with reduced construction expenditure in the power segment
offset by increases in most other segments. As expected, the
contraction in publicly-funded construction continued for the third
consecutive year, down 3% on 2012.
In Canada, the second half of the year saw a pause in the award
of major projects in the resources-related segment of the
construction market, although there are early signs of activity
levels now picking up. Demand in the commercial, residential and
infrastructure segments remained steady.
Continued economic uncertainty in Europe meant that recovery in
construction demand was patchy and somewhat fragile, with
challenging conditions persisting in most of our markets,
particularly in Southern Europe. Within the Middle East, we saw
more projects getting underway, although competition remained
intense.
Elsewhere, conditions in our Asian markets were mixed: the
strength of the oil and gas sector helped to underpin demand in
some parts of the region, such as Malaysia, Singapore and
Indonesia; whereas in India, the start of key infrastructure
projects continued to be hampered by wider economic issues. In
Australia, where resources-related construction has lost much of
its momentum, the commercial and infrastructure segments remained
subdued.
Operations
North America
Results summary*:
------------------- ---------- ----------
2013 2012
------------------- ---------- ----------
Revenue GBP699.4m GBP581.9m
------------------- ---------- ----------
Operating profit GBP51.6m GBP32.0m
------------------- ---------- ----------
Operating margin 7.4% 5.5%
------------------- ---------- ----------
* 2013 results stated before exceptional items
Our total revenue from North America was up by 20%, with
like-for-like revenue growth of 5%. The trading environment remains
competitive in many regions and sectors; however, the overall
improvement in market conditions, together with measures taken to
improve business efficiency, resulted in an operating margin of
7.4% (2012: 5.5%), building on the previous year's margin
recovery.
The full-year operating profit of GBP51.6m (2012: GBP32.0m)
reflects improvements across the board, with all five existing
businesses ahead of the previous year.
US
Hayward Baker
The largest of our North American businesses, Hayward Baker,
ended the year strongly. Historically, this business has been
successful in undertaking a broad portfolio of small to medium
sized contracts. Whilst Hayward Baker remains committed to this
base business, in recent years it has also targeted more major
projects, to good effect. One of its best performing contracts in
2013 was the I-635 managed lanes project in Dallas, where it is
installing earth retention systems for new managed high-occupancy
vehicle lanes. A good operational performance was reflected in
scope changes over a period of time, which increased the value of
this contract to $56m (GBP34m).
As part of its major projects drive, Hayward Baker teamed up
with HJ during the year on an ongoing contract to install CFA
piles, a piled wall and a bottom-seal slab for a luxury condominium
development at Miami's South Beach. This type of project is
evidence of the growing strength of the Miami commercial market. A
second, larger contract to construct another bottom-seal slab for a
commercial development in Florida was awarded towards the end of
the year. More recently, as announced on 13 February, Hayward Baker
was awarded a specialty jet grouting contract worth $41m (GBP25m)
in connection with the City of Seattle's Elliott Bay seawall
project.
Piling Companies
The successful completion of two major transmission-line
projects, both of which were started in 2012, made an important
contribution to the 2013 results. As we anticipated, the slowdown
in the transmission lines market segment, coupled with increased
competition in recent years, meant there were fewer opportunities
in the second half of the year, although we remain optimistic about
our future participation in this market segment.
Our US piling companies worked across a broad range of other
market segments, often working together on larger projects or with
Hayward Baker to deliver multi-product solutions. One such project
was the Hudson Yards redevelopment, where Case and Hayward Baker
worked together on the foundations for Tower C, the first of the
structures to be built at this project.
Suncoast
Suncoast's revenue increased by 19%, which compares favourably
with a year-on-year increase in housing starts of 17%. Profit in
the year was well ahead of last year, as the business continued to
take full advantage of the recovery in the US residential market
and a strengthening of the high-rise market throughout the country.
Suncoast has been steadily increasing production to meet this
growing demand and re-started fabrication at its Miami facility in
the second half of the year.
Canada
In January, we acquired Geo-Foundations in Canada, a key target
market for the Group. Geo-Foundations principally serves eastern
Canada, where it specialises in geotechnical services which are
still relatively new to the market.
Our presence in Canada was significantly scaled up through the
complementary acquisition in July of Keller Canada - one of the
country's largest foundations businesses, based in western Canada
and employing approximately 400 people. The business offers a broad
range of piling-related solutions to construction markets across
Canada, including the Alberta oil sands region.
The integration of these two strategic acquisitions is
progressing well; they are performing in line with our expectations
at the time of acquisition; and we remain confident about the
synergies that will come from further co-operation between them and
our other North American businesses.
Europe, Middle East & Africa (EMEA)
Results summary*:
------------------- ---------- ----------
2013 2012
------------------- ---------- ----------
Revenue GBP399.2m GBP358.6m
------------------- ---------- ----------
Operating profit GBP6.8m GBP2.2m
------------------- ---------- ----------
Operating margin 1.7% 0.6%
------------------- ---------- ----------
* 2013 results stated before exceptional items
Despite the challenging market conditions, like-for-like revenue
from EMEA increased by 7%. Operating profit trebled, reflecting
improvements in performance across most of the businesses in this
division.
Europe
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