In general, conditions in our more mature European markets were
stable but still very challenging and our response was to continue
with our self-help measures. This ongoing programme of cost
controls and business improvements has been an important driver
behind the division's profit recovery.
Once again, our German subsidiary produced a strong result, with
good contributions too from the UK and several of our smaller
European companies. Careful selection and execution of work in
French-speaking territories overseas offset ongoing weakness in our
French business's home market.
The improved result was also helped by good contributions from
our large projects, several of which have recently completed or
neared completion. These include the Gdansk Tunnel contract in
Poland; and our largest contract to date in Russia, in connection
with a new residential complex in central Moscow.
In London, we recently reached a major milestone at the Victoria
Station upgrade project, with the completion of 2,000 jet grout
columns. Our work on the project is expected to complete by the end
of the year. At Crossrail, our second major London project,
pre-treatment grouting, prior to tunnelling operations, was
successfully completed during 2013, whilst ongoing grout injections
concurrent with the tunnelling operations are expected to continue
until mid-2014.
Middle East and Africa
Although trading in the Middle East remained relatively subdued,
there were signs of revival in some of our Middle Eastern markets,
with an increasing number of large projects on the horizon, albeit
that the competition remains intense.
In November, we acquired Franki Africa, the largest ground
engineering business in South Africa, offering design and build
services to the mining, civil engineering and construction
industries and with a strong track record of executing projects in
other parts of the continent. We believe that this acquisition will
accelerate our entry into selected Sub-Saharan construction
markets, where around half of Franki Africa's revenue has been
earned in recent years and where significant growth is expected
over the medium to long term, fuelled by major infrastructure and
resources-related projects.
The integration process, whilst still at an early stage, is
progressing as planned.
Latin America
Brazil reported an improved result and the development of this
business continues, with further investment in new equipment and a
broadening of its product range. However, we are approaching
expansion prudently and carefully managing the country-specific
risks.
During the year we established small sales offices in Mexico,
Chile and Panama where, in recent years, we have been deploying
resources from our Spanish business to undertake selected
contracts.
EMEA Organisation
With an increasing share of revenue coming from outside Europe,
two recent organisational changes have been introduced: firstly,
Jim De Waele, who previously ran our North West Europe business,
has been made responsible for our entire European business. Jim
reports to Eddie Falk, who heads up the EMEA division and who is
now able to devote himself more fully to our newer, high-growth
markets. In addition, dedicated resource has been focused on
getting maximum collaboration on large and complex projects which
require design expertise and multi-product solutions. We believe
these changes will sharpen our focus on the opportunities in
Africa, the Middle East and Latin America.
Asia
Results summary:
------------------ --------- ----------
2013 2012
------------------ --------- ----------
Revenue GBP96.2m GBP118.6m
------------------ --------- ----------
Operating profit GBP9.0m GBP9.5m
------------------ --------- ----------
Operating margin 9.4% 8.0%
------------------ --------- ----------
As we expected, revenue from Asia lagged behind the previous
year, mainly reflecting the absence of a major project in Malaysia
to replace the contract for Vale. However, operating profit for the
full year was not far behind the 2012 result, helped by a strong
finish on a number of projects.
ASEAN Region
The results reflect another strong contribution from Malaysia.
Following a broadening of the product range to include piling
services in 2012, we undertook several significant piling contracts
during the year, including piled foundations for a major new
shopping complex; and piling, load testing and specialty grouting
works for a 70-acre mixed-use development, both in Kuala
Lumpur.
Singapore reported a strong result, helped by a good performance
at the Jurong Shipyard development, where we are undertaking ground
improvement works for the construction of a large hull workshop.
Good progress was made on our major contract at Sengkang, where we
are building the foundations for a new hospital project and, with
10 piling rigs currently in operation, our work there looks likely
to finish ahead of the scheduled Q3 2014 completion date.
Work continued at the site of our largest job to date in
Indonesia, where we are reinforcing the soils for a new oil tanks
storage terminal on Karimun Island. By the year end, the job was
almost complete, with 27 of the required 30 tank foundations
constructed.
India
At the half year, we reported on the challenges associated with
this market. Since then, there has been no discernible improvement
in the trading environment and the risk of non-payment remains an
issue. Our local management team has dealt with the risk prudently,
by very careful contract selection and close monitoring of stage
payments; however, the growth of our business in India may be
impeded in the short-term, until the wider economic issues are
resolved.
Australia
Results summary*:
------------------- ---------- ----------
2013 2012
------------------- ---------- ----------
Revenue GBP243.4m GBP258.4m
------------------- ---------- ----------
Operating profit GBP15.6m GBP8.7m
------------------- ---------- ----------
Operating margin 6.4% 3.4%
------------------- ---------- ----------
* 2013 results stated before exceptional items
As we reported at the half-year stage, the resources sector of
Australia's construction market has been less buoyant than in
recent years and the commercial and infrastructure segments remain
subdued.
Overall, however, Keller Australia fared better than the market
conditions might suggest, with a significant increase in operating
profit on broadly flat revenue in local currency terms. This
improved performance reflects a continued strengthening of its risk
management processes, better contract selection and a particularly
strong performance on some of its larger contracts.
Most significant of these is the A$220m (GBP118m) piling
contract for an on-shore LNG processing plant at Wheatstone in
Western Australia, which is progressing well with around 9,500
piles installed at the year end, making the contract around 40%
complete. Wheatstone is undoubtedly a key contract for Keller and
represents an important reference project for other companies in
the Group who are targeting major LNG projects elsewhere in the
world.
The A$159m (GBP85m) Australia Pacific LNG project, which was
undertaken in a 50:50 joint venture with a local civil construction
company and which completed in May, provided a significant underpin
to the first-half result. In the second half, good contributions
came from a number of large, ongoing contracts, such as our work at
the Ichthys LNG Project in Darwin, which started in May and is
expected to continue through to summer 2014; and the Perth Stadium
project, where we are installing wick drains and carrying out
dynamic compaction.
Financial Review
Results
Trading results
The Group's total revenue in 2013 was GBP1,438.2m, an increase
of 9% on 2012. Stripping out the effects of foreign exchange
movements and acquisitions made during the year, 2013 revenue was
2% up on 2012, with increases in North America and EMEA partly
offset by a decrease in Asia.
EBITDA was GBP124.2m, compared to GBP91.9m in 2012 and operating
profit was GBP77.8m, a significant increase on the GBP48.3m in
2012. The Group operating margin increased from 3.7% to 5.4%, with
all divisions increasing their operating margins. This is due to a
combination of strong margins earned on a number of large projects,
the continuing benefits of our business improvement initiatives and
improving market conditions in some countries.
In North America, which represented 49% of Group revenue,
operating profit increased from GBP32.0m in 2012 to GBP51.6m in
2013. This was largely attributable to the much improved
profitability of the Group's North American foundation contracting
businesses, which are benefitting from the gradual improvement in
the US private non-residential construction sector. In addition,
Suncoast continues to show the benefits of many years of
operational improvements as the US residential market continues to
recover from all-time low levels of activity. The results were also
helped by two acquisitions in Canada during the year;
Geo-Foundations in January and the much larger Keller Canada in
July. Taken together, these contributed revenue of GBP78.6m and an
operating profit of GBP9.5m, in line with the Group's expectations
at the time of acquisition.
In EMEA, conditions in our key markets remain mixed and in those
regions where there have been signs of improvement, recovery
continues to be somewhat fragile. Despite this, both revenue and
operating profit for EMEA were higher than in 2012, with the margin
improvement largely attributable to the continuing benefit of cost
reductions and business improvement initiatives.
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