TIDMKLR
RNS Number : 6766R
Keller Group PLC
04 March 2019
For immediate release Monday, 4 March 2019
Keller Group plc
Results for the year ended 31 December 2018
Keller Group plc ("Keller" or "the group"), the world's largest
geotechnical specialist contractor, announces its results for the
year ended 31 December 2018.
Constant currency
2018 2017 % change
GBPm GBPm % change
-------- -------- -----------
Revenue 2,224.5 2,070.6 +7% +11%
Underlying EBITDA(1) 167.5 177.2 -5% -2%
Underlying operating profit(1) 96.6 108.7 -11% -8%
Underlying profit before tax(1) 80.5 98.7 -18% -16%
Underlying diluted earnings per share(1) 79.1p 101.8p -22% -20%
Total dividend per share 35.9p 34.2p +5% n/a
Statutory operating profit 25.0 121.3 -79% -79%
Statutory profit before tax 8.4 110.6 -92% -92%
Statutory diluted earnings per share (20.6)p 120.5p n/a n/a
------------------------------------------ -------- -------- ----------- ------------------
1 Before pre-tax non-underlying debits of GBP72.1m (2017: credits of GBP11.9m). Details of the non-underlying items are set out in note 8 of the consolidated financial information. Adjusted performance measures are used throughout this report. A detailed description of these, and reconciliation to statutory numbers is set out in the Adjusted performance measures section of this report.
Summary:
-- Trading and earnings in line with revised expectations; net
debt of GBP286.2m better than consensus
-- Revenue of GBP2,225m, up 7%. On a constant currency basis,
revenue is up 11%, with 5% due to the benefit of the Moretrench
acquisition, and 6% from organic growth with the decrease in EMEA
due to the conclusion of two large projects more than offset by
core growth in all three divisions
-- Underlying operating profit at GBP96.6m is an 11% decrease.
The 9% increase from the acquisition of Moretrench, which is
performing ahead of plan, was more than offset by FX headwinds of
3% and an organic reduction of 17% resulting from the previously
announced completion of the large projects in EMEA, raw material
cost increases in Suncoast and the significant losses in ASEAN and
Waterway in the second half of the year
-- Underlying diluted earnings per share of 79.1p (2017: 101.8p)
-- Net debt at GBP286.2m with leverage reduced to 1.7x EBITDA
evidencing strong cash generation in the year
-- Successful refinancing of the group's syndicated revolving
credit facility on improved terms
-- Group-wide actions to address underperforming business units
have been successfully implemented, resulting in an exceptional
group restructuring charge of GBP61.4m, which remains in line with
previous guidance and is comprised of a GBP30.1m impairment of
goodwill, GBP22.8m of other impairments, and a cash restructuring
charge of GBP8.5m. The disposal of impaired assets in 2019 is
expected to raise GBP5m of cash, leaving the cumulative cash charge
more or less neutral overall
-- As a consequence of the exceptional charge, the statutory
loss for the period was GBP13.8m (2017: profit of GBP87.5m)
-- The outlook across the group is positive, as evidenced by an
order book of GBP1bn of quality run rate business
-- The Board is recommending a final dividend of 23.9p, giving a
total dividend of 35.9p for the year, an increase of 5%,
demonstrating its confidence in the prospects for the group
Alain Michaelis, Chief Executive Officer, said:
"2018 results were deeply unsatisfactory with an 11% profit
decline, as a result of which we have acted firmly in restructuring
four of our business units. In addition we have continued to build
the capability of the group, with the successful acquisition and
integration of Moretrench in the US a notable highlight. The
internal improvement measures, coupled with a stable market
outlook, a healthy order book and Keller's leading position in the
industry, give us confidence in the outlook for 2019."
For further information, please contact:
Keller Group plc www.keller.com
Alain Michaelis, Chief Executive
Officer
Michael Speakman, Chief Financial
Officer
Victoria Huxster, Head of Investor
Relations 020 7616 7575
Finsbury
Gordon Simpson
James Kavanagh 020 7251 3801
A presentation for analysts will be held at 9.30am at
One Moorgate Place - Chartered Accountants Hall,
1 Moorgate Place, London EC2R 6EA
A live webcast will be available from 9.30am and, on demand,
from 2.00pm at
https://www.investis-live.com/keller/5c58551b186fe71000438600/wcds
Notes to editors:
Keller is the world's largest geotechnical specialist contractor
providing a wide portfolio of advanced foundation and ground
improvement techniques used across the entire construction sector.
With around 10,000 staff and operations across six continents,
Keller tackles an unrivalled 7,000 projects every year, generating
annual revenue of more than GBP2bn.
Cautionary statements:
This document contains certain 'forward looking statements' with
respect to Keller's financial condition, results of operations and
business and certain of Keller's plans and objectives with respect
to these items.
Forward looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects',
'believes', 'intends', 'plans', 'potential', 'reasonably possible',
'targets', 'goal' or 'estimates'. By their very nature
forward-looking statements are inherently unpredictable,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the
future.
There are a number of factors that could cause actual results
and developments to differ materially from those expressed or
implied by these forward-looking statements. These factors include,
but are not limited to, changes in the economies and markets in
which the group operates; changes in the regulatory and competition
frameworks in which the group operates; the impact of legal or
other proceedings against or which affect the group; and changes in
interest and exchange rates. For a more detailed description of
these risks, uncertainties and other factors, please see the Risk
Management approach and Principal Risks section of the Strategic
Report in the Annual Report and Accounts.
All written or verbal forward looking statements, made in this
document or made subsequently, which are attributable to Keller or
any other member of the group or persons acting on their behalf are
expressly qualified in their entirety by the factors referred to
above. Keller does not intend to update these forward looking
statements.
Nothing in this document should be regarded as a profits
forecast.
This document is not an offer to sell, exchange or transfer any
securities of Keller Group plc or any of its subsidiaries and is
not soliciting an offer to purchase, exchange or transfer such
securities in any jurisdiction. Securities may not be offered, sold
or transferred in the United States absent registration or an
applicable exemption from the registration requirements of the US
Securities Act of 1933 (as amended).
LEI number: 549300QO4MBL43UHSN10
Classification: 1.1 (Annual financial and audit reports)
Chairman's statement
Overview
The group overall delivered an unsatisfactory result in 2018 and
as a consequence actions have been taken to restore and improve
performance. North America, which accounts for half of the group's
revenue, delivered good growth in revenue and flat operating profit
with the benefit of the successful Moretrench acquisition offset by
material price increases in Suncoast and an adverse mix of
projects. The EMEA division, despite lower total revenue and
underlying operating profit as a result of the completion of two
large projects, delivered an excellent result if these two
contracts are excluded, whilst the APAC division was severely
impacted by the previously announced challenges in its ASEAN and
Waterway businesses. Overall, group underlying profit before tax
fell to GBP80.5m (2017: GBP98.7m). Significant restructuring has
been carried out and tough but necessary actions taken across the
group; the order book is healthy and the group is expected to show
a good recovery in 2019.
Statutory profit before tax for the year fell to GBP8.4m (2017:
GBP110.6m) largely as a result of previously announced
non-underlying operating costs, which totalled GBP64.2m, of which
GBP30.1m was goodwill impairment. The exceptional, mainly non-cash,
restructuring costs of GBP30.1m comprised asset write-downs,
redundancy costs and other reorganisation charges in ASEAN,
Waterway, Brazil and Franki Africa. As a consequence of the
exceptional charge, the statutory loss for the period was GBP13.8m
(2017: profit GBP87.5m).
Keller took decisive actions across the group in 2018, closing
its heavy foundations business in Singapore and Malaysia;
restructuring its Waterway business in Australia and downsizing its
operations in Brazil and Africa in response to adverse market
conditions. The cost base has been reduced, as has exposure to
unprofitable market segments. There is now an even greater focus on
contract management and operational excellence to drive improved
financial performance, and the control regime and risk management
processes are being strengthened. All of these actions are expected
to deliver benefits in 2019 and beyond.
Further to the group-wide restructuring programme in 2018, the
group in 2019 will be focussing more intently on underperforming
areas of its portfolio, including business units, branches,
products and projects, and will remediate their performance or exit
completely if there is not felt to be value potential in the medium
term. Keller will focus particularly on those areas where it has
leading market positions and/or market leading technologies, and
will continue to look at further structural and portfolio
enhancements over the medium term.
Net debt at year end was GBP286.2m, equivalent to leverage of
1.7x, and the group successfully refinanced its existing debt
facilities, on improved terms, in late 2018. A more conservative
approach is being taken regarding the balance sheet; there will be
no material acquisitions in 2019; even greater focus on operational
cash generation through tighter controls on working capital and
capital expenditure. Whilst leverage is expected to rise slightly
as usual during the first half of 2019, we expect to see a further
reduction in debt during the second half. Recognising the current
sentiment of the equity capital markets towards the UK construction
sector, and despite a robust balance sheet and our strong cash flow
generation, the group is updating its debt leverage guidance from a
previous range of 1.5x-2.0x, to 1.0x-1.5x, with the 2019 year-end
target to be within that range.
Safety
The safety of our employees is a priority for the group. We were
particularly saddened by the deaths of three of our Keller
colleagues in separate accidents during 2018. Any loss of life is
taken very seriously and we continue to strive for a zero harm
culture. We continue to make substantive progress regarding safety,
with a strong and industry-leading track record, as demonstrated by
the 69% decrease in the last five years in our overall accident
frequency rate. However we must continue to work hard in this
arena. During the second half of the year we appointed a new group
HSEQ Director, an experienced practitioner from the Oil and Gas
industry.
Board
In August 2018, James Hind took up his new role as President of
the North America division, whilst remaining an Executive Director.
James was succeeded by Michael Speakman as Chief Financial Officer.
Michael is a highly experienced listed company Chief Financial
Officer who brings significant global finance knowledge obtained in
blue-chip engineering groups.
Paula Bell and Baroness Kate Rock joined the Board with effect
from September 2018 as Non-Executive Directors. Paula has extensive
international strategic, financial, commercial and M&A
experience from large listed global companies and is currently the
Chief Financial Officer of Spirent Communications plc, a leading
multi-national testing and solutions group. Kate has a strong
international background in corporate communications and business
relations. From 2014 until November 2017, Kate was a Non-executive
Director and Chairman of the Remuneration Committee of Imagination
Technologies plc, the former FTSE250 high technology company. Kate
was appointed a Life Peer in 2015.
After eight years on the Board, Chris Girling retired as a
Non-Executive Director and as Audit Committee Chairman on 1 January
2019. Chris made an enormous contribution to the Board and will be
missed - we have all benefited from his wide business and
contracting industry experience, judgement and sage advice. Paula
Bell has succeeded Chris as Chairman of the Audit Committee.
Strong, effective and efficient governance is essential in
supporting management to deliver the group's strategy and long-term
business success. We will continue to develop and improve our
governance regime to support the Board and executive team and
ensure that the business remains responsive to opportunities and
resilient to challenges.
Employees
I would like to thank all of our employees for their commitment,
hard work and resilience in a difficult year. During 2018, we
strengthened the organisation's leadership, not only at the Board
and Executive Committee level, but also across our wider global
leadership team. Management, supported by our highly-skilled,
dedicated and determined employees across the globe, are committed
to delivering long term sustainable growth for our
shareholders.
Dividends
In line with our progressive dividend policy, and with continued
confidence in the long term prospects for the group, the Board is
recommending a 5% increase in the 2018 full year dividend to 35.9p
(2017: 34.2p). Full year 2018 dividend earnings cover, before
non-underlying items, was 2.2x (2017: 3.0x).
This recommendation results in a proposed 2018 final dividend of
23.9p per share (2017: 24.5p per share) to be paid on 21 June 2019
to shareholders on the register as at the close of business on 31
May 2019. The group intends to maintain its progressive dividend
policy in the future.
Prospects
The group operates in the large and growing global construction
and infrastructure market, and as a specialist geotechnical
contractor, with a global presence and strong cash generation, will
benefit from the favourable market trends of urbanisation and
infrastructure growth. Alongside the proactive move to derisk the
business further during 2019, the strategy to connect and
professionalise the group remains in place, with specific actions
taken during the year, not least in APAC, to improve performance.
We are confident that the combination of these improvement
initiatives, the group's technical leadership, wide product
portfolio, broad branch network and operational strength will drive
the business forward in 2019 and beyond.
Chief Executive Officer's review
Strategic and operational review
We remain committed to our strategy of building a more
strategic, connected and capable company. Despite Keller's many
decades of success operating as a "confederation" of local
businesses, this is necessary to maximise the opportunities of
scale and skill that the group possesses, and to ensure more
consistent underlying performance. The disappointing results in
2018 show that this strategy remains absolutely necessary, and also
demonstrate the need to accelerate in some key areas, notably in
risk, control and project assurance, and to sharpen our focus on
cash generation and debt levels.
Active portfolio management
Our business units
Through our upgraded strategic process, we now steer our
portfolio of geographic businesses, products and projects more
deliberately. Keeping the portfolio in good health via active
portfolio management is an important and ongoing strategic focus.
We have made a number of changes in 2018 as outlined below, and
will continue to monitor and evolve the portfolio where necessary
during 2019.
In keeping with our strategy of "depth over breadth" we made the
significant acquisition of Moretrench in March 2018 for a
consideration of $90m. This acquisition gives us a greatly enhanced
presence on the US east coast, particularly in complex projects,
and synergies are being delivered ahead of plan.
We are continuing to see greater levels of co-operation and
collaboration across the North American businesses, which are
increasingly teaming up to win and execute work.
2018 was a difficult year for four of our business units: ASEAN,
Waterway, Franki Africa and Brazil.
In ASEAN, we completed a thorough review of our product and
business portfolio, in light of the political and competitive
landscape. As a result of deterioration in the Malaysian market
conditions and disappointing project performance, we downsized the
business to focus on those product lines offering the greatest
opportunity to leverage our market-leading technologies. We
therefore undertook a managed exit from heavy foundations
activities (bored piling, driven piling and diaphragm walls) in
Singapore and Malaysia, which have become highly commoditised and
continue to see heavy competitive and pricing pressure. These
operations had a combined annual revenue of approximately GBP60m.
Going forward, we are focusing on higher margin ground improvement
activities (vibro, grouting and deep soil mixing). The
restructuring of the business is now substantially complete
although some piling projects continue through the first half of
2019.
In Australia, at Waterway we took the decision to exit the
highly congested bridge superstructure market and refocus on higher
margin projects. Although Austral and Waterway retain their
independent brands and operations, they are now sharing key
leadership roles and functional support, reducing overhead and
improving business processes. We continue to expect that the legacy
lower margin contracts in Waterway will be substantially completed
by the end of H1 2019.
The group continues to expect that the above actions and
leadership changes will return the APAC division to profit in H2
2019.
We also announced that due to challenging market conditions in
Brazil and South Africa, reflecting the difficult geo-political
environment in those countries, and as part of our continued focus
on the shape of our global capacity, we were taking proactive
measures to scale back our operations in these difficult markets,
primarily through capacity reduction, and as a result maintaining
bidding discipline. These changes are also now substantially
complete but the outlook for both markets remains uncertain in
2019, despite some improving signs.
The actions described in ASEAN, Waterway, Brazil and South
Africa were part of a group-wide programme of portfolio and
capacity actions. The group has taken an exceptional restructuring
charge of GBP61.4m in the Full Year 2018 results. GBP30.1m relates
to goodwill and GBP22.8m relates to fixed asset and other
impairments. Cash restructuring costs are GBP8.5m which we expect
to be offset by income from asset disposals in 2019, with net cash
costs therefore broadly neutral. These measures have also resulted
in a reduction of around 700 employees.
Our products
We continue to advance our product portfolio to retain our
pre-eminent positions, and address areas of competitive advantage
or disadvantage. Through our Global Product Teams we have developed
clear product strategies that include design know-how, core
technologies, equipment and operational work streams.
The acquisition of Moretrench has given Keller new niche
geotechnical products for groundwater control, such as dewatering
and ground freezing. We will use the Keller network to bring these
products to wider geographies and offer customers an even broader
choice of solutions.
We also look for opportunities to transfer products
appropriately across the group. Good examples this year include the
successful transfer of our jet grouting technology to India, and
our first use of cutter soil mixing in Canada.
We have also continued our equipment innovation this year with
the development of a new vibro rig. This has upgraded controls
automation and a new stone feed system (the "double lock" system)
that allows for uninterrupted operation and significant
productivity gains.
Our projects
We worked on around 7,000 projects throughout the world in 2018.
These continue to set the standard in the industry and to enhance
Keller's reputation for providing innovative solutions, combined
with excellent execution focused on our customers' needs. Average
project size is still comparatively small at around GBP325k per
project. Local and smaller projects remain our foundation,
supported by our extensive branch network (around 190 locations)
and our skilled local teams who know their markets and customers
well.
However we are also taking advantage of the wider global trend
towards a larger and more complex project mix which we see as an
opportunity. A more connected Keller allows us to combine resources
to offer solutions and compete on these projects.
Looking more broadly, while we are proud of our customer and
industry reputation, we still see significant opportunity to
improve project management rigour and the predictability of project
outcomes. This is an area of sharpened focus for us in 2019 and
beyond.
Safety
The safety of our employees is a priority for the group. We were
particularly saddened by the deaths of three of our Keller
colleagues in separate accidents during 2018; two in the US and one
in Brazil. Any loss of life is taken very seriously and we continue
to strive for a zero harm culture. The accidents have all been
thoroughly investigated and analysed with lessons shared across the
group.
We continue to make substantive progress regarding safety, with
a strong and industry-leading track record. This is demonstrated by
the 69% decrease in the last five years in our accident frequency
rate. However we must continue to work hard in this arena. We are
also focussed on decreasing one of our major risks, rig overturns,
launching a group wide "working platform" standard that all
projects will comply with.
Group-wide Business Improvement Programme
We have also appointed a Director of LEAN and are developing a
Keller LEAN programme that we will progressively embed across the
group over the next few years. The early pilot events have shown
significant promise. The associated tools focus on improving
productivity, reducing volatility and removing waste from our
processes and products. Our 5S programme across all our yards is
improving safety and project performance.
In the digital arena, our Keller DAQ (Keller Data Acquisition)
project will give project leaders a standard interface to track key
information from their sites, allowing for improved assurance and
problem solving. The standard data set will also allow global
real-time visibility of all Keller projects, allowing us to further
target improvement in estimating, design, quality and productivity.
Keller DAQ will be progressively rolled out over the next three
years.
We continue to advance our procurement efforts and have gained
good traction with some of our global and continental suppliers in
the last twelve months. For example in North America we now have
around 40% of our external addressable spend covered by rebate
deals, up from 20% in 2016.
Our business improvement initiatives are deeply embedded within
the group and are driving the operational and cultural changes that
were originally intended from the programme. Increasing scrutiny of
externally published numbers is not compatible with the more
approximate and cultural nature of our internal tracking of these
initiatives and we have therefore made the decision that we will
not be reporting the financial impact of these initiatives in the
future. We will, however, continue to report the qualitative
benefits of these initiatives externally.
People and leadership
Throughout the year we have continued to strengthen our
leadership at both group and business unit level, and have
bolstered the executive team with new appointments, both internally
and from outside the business - including Group Chief Financial
Officer, Divisional President - North America, Divisional President
- APAC, and group heads of both HSEQ and Strategy and Business
Development. During 2018 we also strengthened our leadership in
North America via the creation of a Chief Operating Officer role
covering all of Keller's foundation businesses, and acquired
experienced leaders via the Moretrench acquisition. In EMEA we made
internal leadership appointments for our North West Europe Business
Unit; and in APAC we made leadership changes in our underperforming
ASEAN and Waterway Business Units.
The Project Manager Academy, which focuses on people, commercial
and technical leadership skills, also continued to successfully
improve core business skills. Our Field Leadership Academy provides
a similar level of high-quality training for our front-line
supervisors. We continue to strengthen our business units through
good-quality functional engagement and proactive benchmarking of
our underlying capabilities and output KPIs.
Strategic priorities for 2019
We remain committed to our strategy of connecting and
professionalising the group, and this will continue to be an
enduring focus for management. The restructuring of 2018 has given
us a good platform from which to reduce sources of volatility, and
additional sharpening of the geographic and product portfolio will
be under review. We will further strengthen our risk management and
controls environment and are creating the new role of Head of Risk
Management for the group, and will continue to enhance our project
management practices.
We will also take a more conservative approach regarding the
balance sheet. This will be achieved through reduced capital
expenditure, no material M&A and a heightened focus on
operational and cash management.
Recognising the current sentiment of the equity capital markets
towards the UK construction sector, and despite the robust health
of our balance sheet and our strong cash flow generation, the group
is updating its debt leverage guidance from a previous range of
1.5x-2.0x, to 1.0x-1.5x, with the 2019 year-end target to be in
that range.
Outlook
Overall market fundamentals are healthy and we remain well
positioned to benefit from the global trends of urbanisation and
infrastructure growth.
In North America the outlook is good with robust markets and
solid growth expected, and an improvement in margin anticipated as
cost increases at Suncoast start to be fully passed through.
In EMEA, we benefitted from the large, highly profitable
projects in the first half of 2018 which will not repeat in 2019.
These projects aside, the outlook in our main markets of
Continental Europe is positive and we therefore expect continued
progress in the core business.
In APAC, the decision to exit ASEAN heavy foundations will lead
to a revenue decline in 2019. Our main APAC markets remain mixed,
but we expect that the measures already taken will return the
division to profit in the second half of the year.
In 2019 overall we expect revenue to be broadly flat with an
improvement in margin and a good recovery in profit. The profit
improvement, together with a focus on cash generation, means we
expect debt leverage to reduce significantly by the year end.
Operating review
North America
2018 2017 Constant
currency
GBPm GBPm
---------------------- -------- ------
Revenue 1,161.4 968.7 +24%
Underlying operating
profit 78.6 78.7 +3%
Underlying operating
margin 6.8% 8.1%
Order book - next
12 months* 531.7 448.1 +19%
---------------------- -------- ------ ----------
* Comparative order book stated at constant currency
In North America, which accounts for around half the group's
revenue, reported revenue increased by 20%, with constant currency
revenue up 24%. Underlying operating profit was GBP78.6m, up 3% on
a constant currency basis and the underlying operating margin
decreased from 8.1% to 6.8%.
Total construction spend in the US for the year to November was
4% up on the prior year. Public expenditure on construction grew by
7%, residential by 4% and private non-residential by 3%.
All our businesses had good revenue growth, benefitting from the
positive market conditions. The overall margin declined, reflecting
a decrease at Suncoast because of material cost increases, as well
as general adverse North America project mix, claims income and
performance in the second half, as compared to a strong second half
in 2017. Data centre projects were a notable highlight of the
year.
The group's largest North American business, Hayward Baker, saw
strong revenue growth but profit below the record 2017 level. Its
business model of undertaking a wide variety of small to medium
sized contracts across a broad range of products and geographies
continues to produce good results.
The integration of Moretrench, acquired in March 2018, has gone
well, with the business now successfully integrated. Cost
reductions have exceeded plan and the nine months of
post-acquisition profits were ahead of our original expectations.
We are now starting to see revenue synergies, with Moretrench's
specific niche products of ground freezing and dewatering being
offered through the Keller network.
Elsewhere, the group's three US piling businesses (Case,
McKinney and HJ Foundation) all improved both revenue and profits.
In Bencor there has been no change to the position announced in
November 2018 regarding the adjustment due to the scope increase on
a large long-term contract. We continue to negotiate the adjustment
with the client and remain confident in the position we have
taken.
Suncoast, the group's post-tension business which mainly serves
the residential construction market, had healthy revenue growth in
2018. However, its profits reduced by GBP7m year-on-year as a
result of increases in steel prices that it was unable to pass on
to customers in full, and the record rainfall in Texas in September
and October. The run-rate margin has now been restored by passing
these costs on to our customers.
Keller Canada is making good progress on the east coast but
continues to operate in a difficult market in the mid-west. The
business substantially grew its capability and presence in
Vancouver and is now better placed to take advantage of a strong
market on the west coast of Canada.
We are continuing to see increased levels of co-operation and
collaboration across the North American businesses and continue to
look at opportunities to run the division in a more efficient and
integrated way. We are actively harmonising business processes
where appropriate, looking to introduce more digitisation wherever
beneficial, and taking steps to leverage the scale of the business,
for example in procurement, IT and training. From a project
perspective, the businesses are increasingly teaming up to win and
execute work. The division's most successful major project in the
year involved three Keller companies working together and we are
hopeful of further work at this site in 2019.
Looking forward, the year-end North American order book of work
to be undertaken over the next twelve months was 19% above last
year, giving confidence for 2019.
Europe, Middle East & Africa (EMEA)
2018 2017 Constant
currency
GBPm GBPm
---------------------- ------ ------
Revenue 668.2 737.2 -8%
Underlying operating
profit 39.7 53.3 -24%
Underlying operating
margin 5.9% 7.2%
Order book - next
12 months* 242.8 264.1 -8%
---------------------- ------ ------ ----------
* Comparative order book stated at constant currency
In EMEA, constant currency revenue decreased by 8% and
underlying constant currency operating profit decreased by 24%. The
underlying operating margin decreased from 7.2% to 5.9%.
This significantly lower result is, as previously flagged, the
consequence of two large projects coming to an end in the first
half of 2018, including the Caspian project. The completion of
these contracts resulted in a benefit to 2018 of GBP16m compared to
the full year benefit in 2017 of GBP45m. Excluding the effect of
these significant individual projects, the underlying EMEA
performance improved considerably in 2018.
All our core businesses in continental Europe continued to
benefit from a sound market environment and, as such, performed
well. South East Europe recorded another record year. Our
operations in Germany continued to grow on the basis of ongoing
high demand and extended product offerings.
The UK, representing only 3% of overall group revenue,
experienced a generally hesitant commercial investment climate.
However as major infrastructure projects are developing in the UK,
including HS2, we expect the market for geotechnical work to pick
up noticeably towards the end of 2019, extending well into 2020 and
2021.
Our operations in the Middle East experienced a relatively quiet
year following the completion of large projects in Abu Dhabi and
Egypt. New projects continue to develop slowly resulting in lower
utilisation in the second half of 2018. We have secured some new
projects in the region and, on the basis of improving fundamentals,
we see the prospects for the Middle East as positive.
Our French Speaking Countries business unit performed solidly,
helped by good project performance in the Maghreb region. Our
geotechnical portfolio of near-shore marine solutions, stone
columns to mitigate liquefaction and a range of piling solutions,
has secured some interesting projects particularly in Morocco and
Algeria. The French domestic market was characterised by good
demand around Paris leading to niche opportunities across the
country.
Brazil and South Africa both experienced a difficult year
reflecting their geo-political and macroeconomic environments. Both
countries suffered heavy margin pressure requiring us to
substantially adapt our local capacity. We have taken proactive
measures to scale back our operations and, as a result, to maintain
bidding discipline. The challenges in South Africa have been
compensated to an extent via our strong presence in the Sub-Saharan
region. We continue to carefully watch the development of the
geopolitical situation in Brazil and will respond appropriately to
developments.
The year-end EMEA order book of work to be undertaken over the
next twelve months, while at a healthy level, was around 8% down on
this time last year reflecting the run-off of the large projects.
Excluding these, it was 4% down and overall represents a healthy
level.
Asia-Pacific (APAC)
2018 2017 Constant
currency
GBPm GBPm
------------------------------ ------- -------
Revenue 394.9 364.7 +13%
Underlying operating loss (18.0) (16.5) -10%
Underlying operating margin (4.6)% (4.5)%
Order book - next 12 months* 141.3 246.7 -43%
------------------------------- ------- ------- ----------
* Comparative order book stated at constant currency
In APAC, constant currency revenue was up 13% with good
increases in both India and Australia. However the division
recorded an operating loss of GBP18.0m due to deteriorating ASEAN
market conditions and poor project performance in ASEAN and
Waterway, prompting a strategic review of both businesses.
In ASEAN, we completed a thorough review of our product and
business portfolio, in the context of the current political and
competitive landscape. As a result of deterioration in the
Malaysian market conditions and disappointing project performance,
we took the decision to downsize the business to focus on those
product lines offering the greatest opportunity to leverage our
market-leading technologies. We therefore decided to undertake a
managed exit of our Heavy Foundations activities (bored piling,
driven piling and diaphragm walls) in Singapore and Malaysia, which
have become highly commoditised and continue to see heavy
competitive and pricing pressure. These operations had a combined
annual revenue of approximately GBP60m. Going forward, we are
focusing on higher margin Ground Improvement activities (vibro,
grouting and deep soil mixing). The restructuring of the business
is now substantially complete although some piling projects extend
through the first half of 2019.
In Waterway, we took the decision to exit the highly congested
Australian bridge superstructure market and refocus on higher
margin marine infrastructure projects. Whilst Austral and Waterway
retain their independent brands and operations, we are sharing key
leadership roles and functional support between the two business
units, reducing overhead and improving business processes. We
continue to expect that legacy lower margin contracts in Waterway
will be substantially completed by the end of H1 2019.
Austral and Waterway are strategically aligning to pursue a
selection of east coast marine projects predominantly in the
Defence sector.
Austral, our near shore marine business which operates mainly in
western Australia leveraging good relationships with major mining
groups, had a record year due to a strengthening in investment by
the mining industry in the Pilbara. The business has good tender
and prospects lists and is set for another strong year in 2019.
The group's geotechnical business in Australia saw a year of
consolidation as it adjusted to a softening in the property sector
and a government shift towards major transport infrastructure
expenditure. This segment of the market offers good revenue
opportunities but at lower profitability levels. The business
returned to profit in 2018 but the outlook for 2019 remains muted.
Our large Melbourne Metro project is experiencing client-driven
delays that are subject to a claim, and this claim is not yet
recognised in our 2018 results.
Keller India had another good year in 2018 and has a healthy
pipeline of major infrastructure prospects ahead for 2019.
The year-end APAC order book of work to be undertaken over the
next twelve months was down 43% versus last year: particularly
impacted by a rebasing in ASEAN, and with some softening in the
three Australian businesses. All three Australian businesses have a
strong prospect list however, and a higher than normal list of
tenders under review. A number of significant tenders will be
decided late in the first quarter of 2019. We continue to focus on
better leveraging the combined strength of Keller companies in
Australia.
We expect that the APAC division will return to profit in H2
2019.
Chief Financial Officer's review
A summary income statement with explanatory discussion of the
key items is provided below:
2018 2017
GBPm GBPm
Revenue 2,224.5 2,070.6
-------- --------
Underlying operating
profit 96.6 108.7
-------- --------
Underlying operating
profit % 4.3% 5.2%
-------- --------
Non underlying items (71.6) 12.6
-------- --------
Statutory operating
profit 25.0 121.3
-------- --------
Revenue
Revenue at GBP2,224.5m nominally increased by 7% (2017:
GBP2,070.6m) with a 4% headwind from foreign exchange, reflecting
the strengthening of sterling, partially eroding a constant
currency growth of 11%. The acquisition of Moretrench in March
provided a 5% benefit to revenue and the group's organic growth at
constant currency of 6% makes up the balance. North America, absent
acquisitions, grew organically by 14%, whilst in EMEA the
conclusion of two large projects in the Caspian region and Middle
East overshadowed a growth of 10% elsewhere in the division to
generate an 8% reduction overall. APAC revenue was up 13% mainly
due to strong growth in Austral and Keller India.
We continue to have a good balance and diversification across
geographies, product lines, market segments and end customers.
Keller's largest customer represented less than 2% of the group's
revenue (2017: 4%). The group's top 10 customers represent 10% of
revenue (2017: 13%). The group operated on around 7,000 projects in
the year with an average spend of GBP325k per contract, evidencing
the benefit of aggregation that the group enjoys in terms of
customer exposure and project execution.
2018 revenue is on an IFRS15 basis whilst 2017 revenue is under
IAS11 and IAS18 but there is no material difference.
Revenue split by geography
GBPm North America EMEA APAC Total
2018
-------------- ------ ------ --------
H1 534.3 324.7 216.1 1,075.1
-------------- ------ ------ --------
H2 627.1 343.5 178.8 1,149.4
-------------- ------ ------ --------
Total 1,161.4 668.2 394.9 2,224.5
-------------- ------ ------ --------
2017
-------------- ------ ------ --------
H1 474.5 346.4 170.2 991.1
-------------- ------ ------ --------
H2 494.2 390.8 194.5 1,079.5
-------------- ------ ------ --------
Total 968.7 737.2 364.7 2,070.6
-------------- ------ ------ --------
Underlying operating profit
Underlying operating profit decreased to GBP96.6m (2017:
GBP108.7m), with the headwind of unfavourable foreign exchange
rates from stronger sterling causing a further 3% reduction to the
constant currency reduction of 8%. The acquisition of Moretrench
contributed 9% and the group's organic performance accounted for
the remaining 17% reduction.
Organic profitability in North America, absent Moretrench,
reduced 9% with the adverse raw material pricing at Suncoast being
the largest single component of this decline. The conclusion of the
two large Caspian region and Middle East projects accounted for a
GBP29m reduction in EMEA year on year, with an organic growth of
over 300% for the remainder of the division when the impact of
these jobs is removed from both 2017 and 2018. APAC reported an
underlying GBP18.0m loss for the year, entirely attributable to the
poor business performances in ASEAN and Waterway. In 2017, the
GBP16.5m underlying APAC loss was largely as a result of two major
contracts in Australia.
Revenue Underlying operating Underlying operating
GBPm profit profit margin
GBPm %
Year Ended 2018 2017 2018 2017 2018 2017
-------- -------- ----------- ---------- ----------- ----------
Division
-------- -------- ----------- ---------- ----------- ----------
North America 1,161.4 968.7 78.6 78.7 6.8% 8.1%
-------- -------- ----------- ---------- ----------- ----------
EMEA 668.2 737.2 39.7 53.3 5.9% 7.2%
-------- -------- ----------- ---------- ----------- ----------
APAC 394.9 364.7 (18.0) (16.5) (4.6)% (4.5)%
-------- -------- ----------- ---------- ----------- ----------
Central - - (3.7) (6.8)
-------- -------- ----------- ---------- ----------- ----------
Group 2,224.5 2,070.6 96.6 108.7 4.3% 5.2%
-------- -------- ----------- ---------- ----------- ----------
Share of post-tax results from joint ventures
In 2018, the group recognised a post-tax profit of GBP1.6m
(2017: GBPnil), being its share of the post-tax results from joint
ventures. Dividends totalling GBP0.9m were received in the
period.
Non-underlying operating costs
Non-underlying operating costs totalled GBP64.2m in 2018,
including GBP61.4m as a result of group restructuring activities,
as follows:
Exceptional restructuring costs: On 22 November 2018, the group
announced a group-wide restructuring programme of portfolio and
capacity actions. The group has taken a GBP30.1m restructuring
charge, of which GBP21.6m was non-cash, relating to asset
write-downs, redundancy costs and other reorganisation charges.
Affected business units are ASEAN, Waterway, Brazil and Franki
Africa. This includes the write-down of surplus equipment to
current market values.
Goodwill impairment: A GBP30.1m goodwill impairment charge
relates to the ASEAN Heavy Foundations, Waterway, Franki Africa,
Brazil and Wannenwetsch cash-generating units.
Other: A GBP1.2m impairment of intangible assets relating to the
Tecnogeo and Franki Africa trade names capitalised on
acquisition.
The remaining non-underlying operating costs were GBP0.4m of
contingent consideration provided on the Geo Instruments
acquisition, GBP1.1m of acquisition costs and a GBP1.3m charge
relating to the estimated impact of equalising the Guaranteed
Minimum Pension entitlement for men and women in the UK defined
benefit pension scheme.
Amortisation of acquired intangibles
The GBP7.9m of amortisation of acquired intangible assets
relates mainly to the Keller Canada, Austral, Bencor and Moretrench
acquisitions (2017: GBP9.0m).
Other operating income
A GBP0.5m non-underlying credit (2017: GBP2.2m credit) relating
to changes in estimated contingent consideration payable in respect
of the Austral and Bencor acquisitions has been recognised.
Further details of non--underlying items are set out in note 8
to the consolidated financial statements.
Statutory operating profit
Statutory operating profit of GBP25.0m (2017: GBP121.3m)
reflects an underlying operating profit of GBP96.6m (2017:
GBP108.7m) and non-underlying items totalling a cost of GBP71.6m
(2017: credit of GBP12.6m).
Finance costs
Underlying net finance costs were GBP16.1m (2017: GBP10.0m).
Around half of the increase relates to a GBP3.1m credit in 2017
relating to the US non-qualifying deferred compensation plan. The
majority of the remaining increase relates to the additional
borrowings assumed for the acquisition of Moretrench. Excluding
these additional borrowings, average net borrowings during the year
were consistent with 2017 and have not had a material impact on the
year on year interest charge. After a GBP0.5m non-underlying
interest charge (2017: GBP0.7m), statutory net finance costs
increased from GBP10.7m in 2017 to GBP16.6m in 2018.
Taxation
The group's underlying effective tax rate was 28.0%, compared to
the 2017 effective rate of 25.0%. The 2018 tax charge benefitted
from a reduction in the US corporation tax rate, however 2017
included a GBP9.7m non-cash credit as a result of the revaluation
of US deferred tax liabilities following US tax reforms.
A non-underlying tax credit of GBP0.3m (2017: GBP1.6m) has been
recognised, representing the net tax impact of the 2018
non-underlying items.
Earnings per share
Underlying diluted earnings per share decreased by 22% to 79.1p
(2017: 101.8p), in line with the decrease in the group's underlying
profit after tax. Statutory earnings per share decreased to (20.6)p
(2017: 120.5p).
Dividend
The Board has recommended a final dividend of 23.9p per share
(2017: 24.5p per share), which brings the total dividend for the
year to 35.9p (2017: 34.2p), an increase of 5% for the year. The
2018 dividend earnings cover, before non-underlying items, was 2.2x
(2017: 3.0x).
The group's policy on dividends is to increase the dividend
sustainably so that the group is able to grow, or at least
maintain, the level of dividend through the market cycle. Keller
Group plc has distributable reserves of GBP130.8m at 31 December
2018 that are available immediately to support the dividend policy,
which compares to the proposed full year dividend for 2018 of
GBP25.9m. Keller Group plc is a non-trading investment company that
derives its profits from dividends paid by subsidiary companies.
The dividend policy is therefore impacted by the performance of the
group which is subject to the group's principal risks and
uncertainties as well as the level of headroom on the group's
borrowing facilities and future cash commitments and investment
plans.
Acquisitions
The group acquired Moretrench American Corporation on 29 March
2018 for a gross cash consideration of GBP67.7m ($90m). The
acquisition was debt funded from existing facilities. The group
also acquired Sivenmark Maskintjanst AB on 13 June 2018 for GBP2.1m
(SEK 24.6m). In 2018, the acquisitions contributed GBP96.3m to
revenue and a GBP5.5m net profit.
Working capital
Net working capital increased from GBP181.3m in 2017 to
GBP216.8m. The increase largely relates to working capital acquired
with Moretrench and Sivenmark and exchange movements. The GBP26.0m
cash flow from reduction in receivables during the year was broadly
offset by an GBP8.0m increase in inventory and a GBP16.5m reduction
in payables.
Capital expenditure
The group continues to manage its capital expenditure carefully
whilst investing in upgrading and replacing equipment where
appropriate. The Asset Replacement Ratio (calculated by dividing
gross capex spend by the depreciation charge) decreased slightly to
122% (2017: 125%).
Free cash flow
The group's free cash flow of GBP58.0m (2017: GBP23.4m) is more
than sufficient to fund, in cash terms, the full value of the
payment in relation to the proposed final 2018 dividend of GBP17.2m
(2017: GBP17.6m).
Operating and free cash flow
GBPm 2018 2017
Underlying operating profit 96.6 108.7
-------- --------
Depreciation and amortisation 70.9 68.5
-------- --------
Underlying EBITDA 167.5 177.2
-------- --------
Non-cash items 3.6 5.7
-------- --------
Dividends from joint ventures 0.9 -
-------- --------
(Increase)/decrease in working capital 1.5 (40.9)
-------- --------
Outflows from provisions and retirement
benefit liabilities (10.1) (5.9)
-------- --------
Net capital expenditure (77.1) (74.5)
-------- --------
Sale of other non-current assets 3.5 -
-------- --------
Operating cashflow 89.8 61.6
-------- --------
Operating cashflow to operating profit 93% 57%
-------- --------
Net interest paid (15.1) (12.2)
-------- --------
Cash tax paid (16.7) (26.0)
-------- --------
Free cash flow 58.0 23.4
-------- --------
Dividends paid to shareholders (26.3) (21.2)
-------- --------
Acquisitions (77.5) (6.5)
-------- --------
Non-underlying items (5.2) 72.6
-------- --------
Foreign exchange movements (5.7) 7.8
-------- --------
Movement in net debt (56.7) 76.1
-------- --------
Opening net debt (229.5) (305.6)
-------- --------
Closing net debt (286.2) (229.5)
-------- --------
Financing facilities and net debt
The group's term debt and committed facilities principally
comprise $125m of US private placements which mature between 2021
and 2024 and a GBP375m multi-currency syndicated revolving credit
facility expiring in November 2023. At the year end, the group had
undrawn committed and uncommitted borrowing facilities totalling
GBP213.6m.
In November, the group agreed to renew its revolving credit
facility at improved terms and rates, increasing the facility to
GBP375m with a GBP200m accordion feature. The facility has a
contractual maturity of 13 November 2023, with an option to extend
the facility by two further one year extensions by mutual
consent.
The most significant covenants in respect of our main borrowing
facilities relate to the ratio of net debt to underlying EBITDA,
underlying EBITDA interest cover and the group's net worth. The
group is operating well within all of its covenant limits. The most
important is net debt to underlying EBITDA and at the year end the
group's net debt to underlying EBITDA ratio, calculated on a
covenant basis, was 1.7x, well within the limit of 3.0x.
Recognising the current sentiment of the equity capital markets
towards the UK construction sector, and despite the robust health
of our balance sheet and our strong cash flow generation, the group
is updating its debt leverage guidance from a previous range of
1.5x-2.0x, to 1.0x-1.5x, with the 2019 year-end target to be within
that range.
Based on net assets of GBP445.3m, year-end gearing was 64%
(2017: 49%), due to the acquisition of Moretrench.
The average month end net debt during 2018 was GBP339m and the
minimum headroom during the year on the group's main banking
facility was GBP80.5m, in addition to a cash balance at that time
of GBP78.0m. The group had no material discounting or factoring in
place during the year and given the small value and short term
nature of the majority of the group's contracts, the incidence of
prepayments is very low.
Provision for pension
The group has defined benefit pension arrangements in the UK,
Germany and Austria.
The group's UK defined benefit scheme is closed to future
benefit accrual. The last actuarial valuation of the UK scheme was
as at 5 April 2017, when the market value of the scheme's assets
was GBP45.0m and the scheme was 71% funded on an ongoing basis.
Following completion of the valuation, the level of contributions
have increased to GBP2.4m a year with effect from 1 July 2018, a
level which will be reviewed following the next triennial actuarial
valuation. The 2018 year-end IAS 19 valuation of the UK scheme
showed assets of GBP45.2m, liabilities of GBP56.6m and a pre-tax
deficit of GBP11.4m.
In Germany and Austria, the defined benefit arrangements only
apply to certain employees who joined the group prior to 1991. The
IAS 19 valuation of the defined benefit obligation totalled
GBP16.5m at 31 December 2018. There are no segregated funds to
cover these defined benefit obligations and the respective
liabilities are included on the group balance sheet.
All other pension arrangements in the group are of a defined
contribution nature.
Currencies
The group is exposed to both translational and, to a lesser
extent, transactional foreign currency gains or losses through
fluctuations in foreign exchange rates through its global
operations. The group's primary currency exposures are sterling, US
dollar, Canadian dollar, euro, Singapore dollar and Australian
dollar.
Translational gains or losses: With the group reporting in
sterling but conducting business in other currencies, fluctuation
in sterling can result in significant currency translation effects
on the primary statements and associated balance sheet metrics,
such as net debt and working capital.
Transactional gains or losses: With a large proportion of the
group's operating costs matched with corresponding revenues in the
same currency, the impacts of transactional foreign exchange gains
or losses are limited and are recognised in the period in which
they arise.
The following significant exchange rates applied:
2018 2017
Closing Average Closing Average
-------- -------- -------- --------
USD 1.27 1.33 1.35 1.29
-------- -------- -------- --------
CAD 1.74 1.73 1.69 1.67
-------- -------- -------- --------
EUR 1.11 1.13 1.13 1.14
-------- -------- -------- --------
SGD 1.74 1.80 1.80 1.78
-------- -------- -------- --------
AUD 1.80 1.79 1.73 1.68
-------- -------- -------- --------
Treasury policies
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 other net assets. A
significant portion of the group's borrowings are held in US
dollars, Canadian dollars, euros, Australian dollars and Singapore
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 2018, approximately 90% 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 2% of
revenue in 2018.
The counterparty risk on bank and cash balances is managed by
limiting the aggregate amount of exposure to any one
institution.
Return on capital employed
Return on capital employed is defined at group level as
underlying operating profit divided by the accounting value of
equity attributable to equity holders of the parent plus net debt
plus retirement benefit liabilities. Return on capital employed in
2018 was 13.0%, lower than the prior year (2017: 15.1%) driven by
lower profitability and higher capital employed following the
acquisition of Moretrench.
ASEAN controls
On 11 October the group announced that as a consequence of
deteriorating ASEAN market conditions, notably Malaysia, and a
reassessment of project performance in ASEAN and Waterway there was
a material downgrading in the profit performance in the APAC
Division. Whilst it was changes in the management of these two
business units that triggered this event, the root cause originated
mainly from weaknesses in certain key project controls and to a
lesser extent accounting process failings. These control weaknesses
have been thoroughly investigated and a comprehensive remediation
plan enacted. The execution of the plan is now substantially
complete.
Impact of Brexit
The UK referendum vote to leave the European Union has led to a
period of prolonged economic and political uncertainty in the
country. Whilst this has impacted our operations in the UK, the
group's UK business represents less than 3% of group revenue.
Depending upon the nature of the final Brexit agreement, there may
be further adverse operational impacts in the form of cross border
raw material and personnel movements and/or additional burdens to
the dividend and treasury flows within the group. Any material
additional movements in exchange rates may also impact the headroom
of the group's debt facilities which are mainly denominated in
sterling. The Board has taken the above effects into account in its
financial scenario modelling and its consideration in respect of
the Viability and Going Concern Statements. Overall, the Board does
not envisage any sustained material threat to the group's business
performance.
IFRS 16 'Leases'
IFRS 16 'Leases' will become effective from 1 January 2019. For
the avoidance of doubt, the information provided, as well as any
forward looking guidance, does not factor in the impact of this new
standard. The adoption of IFRS 16 will not impact the banking
covenants as the calculations will continue to be based on the
existing accounting treatment.
Principal risks
The group operates globally across many geotechnical market
sectors and in varied geographic markets. The group's performance
and prospects may be affected by risks and uncertainties in
relation to the industry and the environments in which it
undertakes its operations around the world. Those risks include:
financial risks - the inability to finance our business; market
risk - a rapid downturn in our markets; strategic risk - the
failure to procure new contracts, losing market share,
non-compliance with our Code of Business Conduct; operational risk
- product and/or solution failure, the ineffective management of
our contracts, causing a serious injury or fatality to an employee
or member of the public, not having the right skills to
deliver.
The group is alert to the challenges of managing risk and has
systems and procedures in place across the group to identify,
assess and mitigate major business risks. As part of the long-term
strategy the group continues to improve its detailed process of
project risk identification and mitigation from contract tender
through to project completion.
The directors have reviewed the principal risks and
uncertainties and are satisfied that they are relevant and
appropriate. A full review of the group's principal risks and
uncertainties is given in the Strategic Report within the group's
Annual Report and Accounts.
Consolidated income statement
For the year ended 31 December 2018
2018 2017
------------------------------ ------ ------------------------------------- ---------------------------------------
Non-underlying Non-underlying
items items
(note (note
Underlying 8) Statutory Underlying 8) Statutory
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Revenue 4 2,224.5 - 2,224.5 2,070.6 - 2,070.6
Operating costs 6 (2,129.5) (64.2) (2,193.7) (1,961.9) (1.6) (1,963.5)
Amortisation of acquired
intangible assets - (7.9) (7.9) - (9.0) (9.0)
Other operating income - 0.5 0.5 - 23.2 23.2
Share of post-tax results
of joint ventures 16 1.6 - 1.6 - - -
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Operating profit/(loss) 3 96.6 (71.6) 25.0 108.7 12.6 121.3
Finance income 9 0.6 - 0.6 3.8 - 3.8
Finance costs 10 (16.7) (0.5) (17.2) (13.8) (0.7) (14.5)
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Profit/(loss) before taxation 80.5 (72.1) 8.4 98.7 11.9 110.6
Taxation 11 (22.5) 0.3 (22.2) (24.7) 1.6 (23.1)
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Profit/(loss) for the period 58.0 (71.8) (13.8) 74.0 13.5 87.5
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Attributable to:
Equity holders of the parent 57.0 (71.8) (14.8) 73.6 13.5 87.1
Non-controlling interests 1.0 - 1.0 0.4 - 0.4
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
58.0 (71.8) (13.8) 74.0 13.5 87.5
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Earnings/(loss) per share
Basic 13 79.2p (20.6)p 102.2p 121.0p
Diluted 13 79.1p (20.6)p 101.8p 120.5p
------------------------------ ------ ---------- -------------- --------- ---------- -------------- -----------
Consolidated statement of comprehensive income
For the year ended 31 December 2018
2018 2017
Note GBPm GBPm
---------------------------------------------------------- ---- ------- ------
(Loss)/profit for the period (13.8) 87.5
---------------------------------------------------------- ---- ------- ------
Other comprehensive income
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translation of foreign operations 8.8 (27.0)
Net investment hedge losses 24 - (0.7)
Cash flow hedge gains/(losses) taken to equity 24 1.0 (3.3)
Cash flow hedge transfers to income statement 24 (1.0) 3.4
Items that will not be reclassified subsequently
to profit or loss:
Remeasurements of defined benefit pension schemes 30 0.8 1.4
Tax on remeasurements of defined benefit pension
schemes 11 (0.1) (0.3)
---------------------------------------------------------- ---- ------- ------
Other comprehensive income/(loss) for the period,
net of tax 9.5 (26.5)
---------------------------------------------------------- ---- ------- ------
Total comprehensive (loss)/income for the period (4.3) 61.0
---------------------------------------------------------- ---- ------- ------
Attributable to:
Equity holders of the parent (5.4) 61.0
Non-controlling interests 1.1 -
---------------------------------------------------------- ---- ------- ------
(4.3) 61.0
---------------------------------------------------------- ---- ------- ------
Consolidated balance sheet
As at 31 December 2018
2018 2017(1)
Note GBPm GBPm
------------------------------- ---- ------- -------
Assets
Non-current assets
Intangible assets 14 153.4 170.9
Property, plant and equipment 15 422.0 399.2
Investments in joint ventures 16 4.6 3.7
Deferred tax assets 11 26.9 39.3
Other assets 17 21.5 23.7
------------------------------- ---- ------- -------
628.4 636.8
------------------------------- ---- ------- -------
Current assets
------------------------------- ---- ------- -------
Inventories 18 80.3 72.6
Trade and other receivables 19 610.9 589.2
Current tax assets 14.7 18.7
Cash and cash equivalents 20 110.5 67.7
------------------------------- ---- ------- -------
816.4 748.2
------------------------------- ---- ------- -------
Total assets 3 1,444.8 1,385.0
------------------------------- ---- ------- -------
Liabilities
Current liabilities
Loans and borrowings 24 (42.8) (48.3)
Current tax liabilities (18.6) (19.1)
Trade and other payables 21 (474.4) (480.5)
Provisions 22 (10.8) (10.3)
------------------------------- ---- ------- -------
(546.6) (558.2)
------------------------------- ---- ------- -------
Non-current liabilities
Loans and borrowings 24 (353.9) (248.9)
Retirement benefit liabilities 30 (27.9) (29.2)
Deferred tax liabilities 11 (37.9) (45.5)
Provisions 22 (14.6) (13.0)
Other liabilities 23 (18.6) (18.0)
------------------------------- ---- ------- -------
(452.9) (354.6)
------------------------------- ---- ------- -------
Total liabilities 3 (999.5) (912.8)
------------------------------- ---- ------- -------
Net assets 3 445.3 472.2
------------------------------- ---- ------- -------
Consolidated balance sheet (continued)
As at 31 December 2018
2018 2017(1)
Note GBPm GBPm
---------------------------------------------------- ---- ----- -------
Equity
Share capital 25 7.3 7.3
Share premium account 38.1 38.1
Capital redemption reserve 25 7.6 7.6
Translation reserve 41.2 32.5
Other reserve 25 56.9 56.9
Retained earnings 289.3 326.0
---------------------------------------------------- ---- ----- -------
Equity attributable to equity holders of the parent 440.4 468.4
Non-controlling interests 4.9 3.8
---------------------------------------------------- ---- ----- -------
Total equity 445.3 472.2
---------------------------------------------------- ---- ----- -------
1 Non-current assets shown here does not correspond to the
published 2017 consolidated financial statements as a result of
re-presenting the comparative balance to show investments in joint
ventures separate from other non-current assets. There is no impact
on 2017 total non-current assets.
These financial statements were approved by the Board of
Directors and authorised for issue on 4 March 2019.
They were signed on its behalf by:
Alain Michaelis Michael Speakman
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2018
Attributable
to equity
Share Capital holders Non-
Share premium redemption Translation Other Hedging Retained of controlling Total
capital account reserve reserve reserve reserve earnings the parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
At 1 January
2017 7.3 38.1 7.6 59.8 56.9 (0.1) 255.8 425.4 4.2 429.6
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Profit for the
period - - - - - - 87.1 87.1 0.4 87.5
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Other
comprehensive
income
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Exchange
differences
on translation
of foreign
operations - - - (26.6) - - - (26.6) (0.4) (27.0)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Net investment
hedge
losses - - - (0.7) - - - (0.7) - (0.7)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Cash flow hedge
losses
taken to
equity - - - - - (3.3) - (3.3) - (3.3)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Cash flow hedge
transfers
to income
statement - - - - - 3.4 - 3.4 - 3.4
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Remeasurements
of defined
benefit
pension
schemes - - - - - - 1.4 1.4 - 1.4
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Tax on
remeasurements
of defined
benefit
pension
schemes - - - - - - (0.3) (0.3) - (0.3)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Other
comprehensive
(loss)/income
for the
period, net of
tax - - - (27.3) - 0.1 1.1 (26.1) (0.4) (26.5)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Total
comprehensive
(loss)/income
for the period - - - (27.3) - 0.1 88.2 61.0 - 61.0
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Dividends - - - - - - (20.8) (20.8) (0.4) (21.2)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Share-based
payments - - - - - - 2.8 2.8 - 2.8
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
At 31 December
2017 and
1 January 2018 7.3 38.1 7.6 32.5 56.9 - 326.0 468.4 3.8 472.2
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Adjustment on
initial
application of
IFRS 15 - - - - - - 2.3 2.3 - 2.3
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
(Loss)/profit
for the
period - - - - - - (14.8) (14.8) 1.0 (13.8)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Other
comprehensive
income
Exchange
differences
on translation
of foreign
operations - - - 8.7 - - - 8.7 0.1 8.8
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Cash flow hedge
gains
taken to
equity - - - - - 1.0 - 1.0 - 1.0
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Cash flow hedge
transfers
to income
statement - - - - - (1.0) - (1.0) - (1.0)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Remeasurements
of defined
benefit
pension
schemes - - - - - - 0.8 0.8 - 0.8
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Tax on
remeasurements
of defined
benefit
pension
schemes - - - - - - (0.1) (0.1) - (0.1)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Other
comprehensive
income
for the
period, net of
tax - - - 8.7 - - 0.7 9.4 0.1 9.5
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Total
comprehensive
income/(loss)
for the period - - - 8.7 - - (14.1) (5.4) 1.1 (4.3)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Dividends - - - - - - (26.3) (26.3) - (26.3)
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Share-based
payments - - - - - - 1.4 1.4 -- 1.4
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
At 31 December
2018 7.3 38.1 7.6 41.2 56.9 - 289.3 440.4 4.9 445.3
--------------- ---------- ------- ---------- ----------- ------- ------- -------- ------------ ------------------------ ------
Consolidated cash flow statement
For the year ended 31 December 2018
2018 2017
Note GBPm GBPm
------------------------------------------------------- ----- ------- ------
Cash flows from operating activities
------------------------------------------------------- ----- ------- ------
Underlying operating profit (as per consolidated
income statement) 96.6 108.7
-------------------------------------------------------------- ------- ------
Depreciation of property, plant and equipment 69.7 67.3
-------------------------------------------------------------- ------- ------
Amortisation of intangible assets 1.2 1.2
-------------------------------------------------------------- ------- ------
Share of post-tax results of joint ventures (1.6) -
-------------------------------------------------------------- ------- ------
Profit on sale of property, plant and equipment (1.7) (4.0)
-------------------------------------------------------------- ------- ------
Other non-cash movements 7.0 9.5
-------------------------------------------------------------- ------- ------
Foreign exchange (gains)/losses (0.1) 0.2
-------------------------------------------------------------- ------- ------
Operating cash flows before movements in working
capital 171.1 182.9
-------------------------------------------------------------- ------- ------
Increase in inventories (8.0) (15.7)
-------------------------------------------------------------- ------- ------
Decrease/(increase) in trade and other receivables 26.0 (79.1)
-------------------------------------------------------------- ------- ------
(Decrease)/increase in trade and other payables (16.5) 53.9
-------------------------------------------------------------- ------- ------
Change in provisions, retirement benefit and other
non-current liabilities (10.1) (5.9)
-------------------------------------------------------------- ------- ------
Cash generated from operations before non-underlying
items 162.5 136.1
-------------------------------------------------------------- ------- ------
Cash inflows from non-underlying items: contract
dispute - 12.7
-------------------------------------------------------------- ------- ------
Cash outflows from non-underlying items: contract
dispute (0.8) (2.1)
============================================================== ======= ======
Cash outflows from non-underlying items: restructuring
costs (4.4) -
-------------------------------------------------------------- ------- ------
Cash generated from operations 157.3 146.7
-------------------------------------------------------------- ------- ------
Interest paid (15.8) (12.9)
-------------------------------------------------------------- ------- ------
Income tax paid (16.7) (26.0)
-------------------------------------------------------------- ------- ------
Net cash inflow from operating activities 124.8 107.8
-------------------------------------------------------------- ------- ------
Cash flows from investing activities
------------------------------------------------------- ----- ------- ------
Interest received 0.7 0.7
-------------------------------------------------------------- ------- ------
Proceeds from sale of property, plant and equipment 8.5 10.5
-------------------------------------------------------------- ------- ------
Proceeds from sale of other non-current assets 3.5 -
-------------------------------------------------------------- ------- ------
Acquisition of subsidiaries, net of cash acquired (68.4) (6.5)
-------------------------------------------------------------- ------- ------
Acquisition of property, plant and equipment (85.1) (84.2)
-------------------------------------------------------------- ------- ------
Disposal of non-current assets held for sale - 62.0
-------------------------------------------------------------- ------- ------
Acquisition of other intangible assets (0.5) (0.8)
============================================================== ======= ======
Dividends received from joint ventures 0.9 -
-------------------------------------------------------------- ------- ------
Net cash outflow from investing activities (140.4) (18.3)
-------------------------------------------------------------- ------- ------
Consolidated cash flow statement (continued)
For the year ended 31 December 2018
2018 2017
Note GBPm GBPm
----------------------------------------------------- ---- ------- -------
Cash flows from financing activities
----------------------------------------------------- ---- ------- -------
New borrowings 281.7 41.6
----------------------------------------------------- ---- ------- -------
Repayment of borrowings (186.1) (135.7)
----------------------------------------------------- ---- ------- -------
Cash flows from derivative instruments 1.5 0.2
----------------------------------------------------- ---- ------- -------
Payment of finance lease liabilities (1.6) (1.5)
----------------------------------------------------- ---- ------- -------
Dividends paid (26.3) (21.2)
----------------------------------------------------- ---- ------- -------
Net cash inflow/(outflow) from financing activities 69.2 (116.6)
----------------------------------------------------- ---- ------- -------
Net increase/(decrease) in cash and cash equivalents 53.6 (27.1)
----------------------------------------------------- ---- ------- -------
Cash and cash equivalents at beginning of period 51.3 84.0
----------------------------------------------------- ---- ------- -------
Effect of exchange rate fluctuations (1.2) (5.6)
----------------------------------------------------- ---- ------- -------
Cash and cash equivalents at end of period 20 103.7 51.3
----------------------------------------------------- ---- ------- -------
Notes to the consolidated financial statements
1 General information
Keller Group plc ('the parent' or 'the Company') is a company
incorporated in the United Kingdom. The consolidated financial
statements are presented in pounds sterling (rounded to the nearest
hundred thousand), the functional currency of the parent. Foreign
operations are included in accordance with the policies set out in
note 2.
2 Principal accounting policies
Statement of compliance
The consolidated financial statements have been prepared and
approved by the Directors in accordance with International
Financial Reporting Standards (IFRS), as adopted by the EU.
Basis of preparation
These financial statements do not constitute the Company's
statutory accounts for the years ended 31 December 2018 or 2017 but
are derived from the 2018 accounts. Statutory accounts for 2017
have been delivered to the Registrar of Companies. Those for 2018
will be delivered to the Registrar of Companies and made available
on the Company's website at www.keller.com in March 2019. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include references to any matters to
which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The financial statements are prepared on the historical cost
basis except that derivative financial instruments are stated at
their fair value. The carrying value of hedged items are, where
relevant, re-measured to fair value in respect of the hedged risk.
Except as noted below, these accounting policies have been applied
consistently to all periods presented in these consolidated
financial statements and have been applied consistently by
subsidiaries.
The consolidated financial statements are prepared on a going
concern basis.
Changes in accounting policies and disclosures
The group has adopted IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' from 1 January 2018.
The impact of adopting these standards is set out below. There is
no significant financial impact on the group financial statements
of the other new standards, amendments and interpretations that are
in issue for the financial year ending 31 December 2018. These
are:
-- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'
-- Amendments to IAS 40 'Transfers of Investment Property'
-- Amendments to IFRS 2 'Classification and Measurement of Share-based Payment Transactions'
-- Annual improvements to IFRS Standards 2014-2016 Cycle
IFRS 15 - 'Revenue from Contracts with Customers' - The group
adopted IFRS 15 'Revenue from Contracts with Customers' from 1
January 2018. IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is recognised. It
replaced IAS 18 'Revenue', IAS 11 'Construction Contracts' and
related interpretations. The standard has been adopted
retrospectively with the cumulative effect of initially applying
the standard recognised as an adjustment to retained earnings at 1
January 2018. Accordingly, the information presented for 2017 has
not been restated. The effect of initially applying this standard
is a GBP2.3m credit to equity. This is due to the earlier
recognition of revenue at our Suncoast business on contracts that
involve installation or post-delivery services. Previously all
revenue was deferred on these contracts until the contract had been
completed, however under IFRS 15, these contracts qualify for over
time recognition.
The following table summarises the impact of adopting IFRS 15 on
the balance sheet at 1 January 2018:
As at 1 January 2018
--------------------------------------- -------------------------------------
As reported Impact As reported
under of under
IAS 18 IFRS 15 IFRS 15
& IAS GBPm GBPm
11
GBPm
--------------------------------------- ------------ --------- ------------
Inventories 72.6 (2.3) 70.3
---------------------------------------- ------------ --------- ------------
Current assets 748.2 (2.3) 745.9
---------------------------------------- ------------ --------- ------------
Total assets 1,385.0 (2.3) 1,382.7
---------------------------------------- ------------ --------- ------------
Trade and other payables (480.5) 4.6 (475.9)
---------------------------------------- ------------ --------- ------------
Current Liabilities (558.2) 4.6 (553.6)
---------------------------------------- ------------ --------- ------------
Total liabilities (912.8) 4.6 (908.2)
---------------------------------------- ------------ --------- ------------
Net assets 472.2 2.3 474.5
---------------------------------------- ------------ --------- ------------
Retained earnings 326.0 2.3 328.3
---------------------------------------- ------------ --------- ------------
Equity attributable to equity holders
of the parent 468.4 2.3 470.7
---------------------------------------- ------------ --------- ------------
Total equity 472.2 2.3 474.5
---------------------------------------- ------------ --------- ------------
There is no material difference between the IAS 11/IAS 18 and
IFRS 15 impact on the balance sheet and income statement as at 31
December 2018.
The accounting policy for revenue recognition at 31 December
2017 is replaced with the following with effect from 1 January
2018:
Revenue recognition (policy effective from 1 January 2018)
Revenue consists of contracts with customers. For each contract,
revenue is the amount that is expected to be received from the
customer. Where consideration is variable, this is recognised only
to the extent that it is highly probable that there will not be a
significant reversal. The effect of contract modifications (for
example change orders, variations or claims) is accounted for only
when the group considers there is an enforceable right to
consideration.
Revenue from construction contracts: The majority of the group's
revenue is derived from construction contracts. Typically, the
group's construction contracts consist of one performance
obligation, however for certain contracts (for example where
contracts involve separate phases or products that are not highly
interrelated) multiple performance obligations exist. Where
multiple performance obligations exist, total revenue is allocated
to performance obligations based on the relative standalone selling
prices of each performance obligation.
Revenue attributed to each performance obligation is recognised
over time based on either the input or, where considered more
appropriate in relation to certain performance obligations in
certain geographies, the output method:
-- Input method: Revenue is recognised on the percentage of
completion with reference to cost. The percentage of completion is
calculated as the costs incurred to date as a percentage of the
total costs expected to satisfy the performance obligation.
Estimates of revenues, costs or extent of progress toward
completion are revised if circumstances change. Any resulting
increases or decreases in estimated revenues or costs are reflected
in the percentage of completion calculation in the period in which
the circumstances that give rise to the revision become known.
-- Output method: Revenue is recognised on the direct
measurement of progress based on output, such as units of
production relative to the total number of contracted production
units.
Revenue is recognised in order to provide a faithful depiction
of the value of the work performed by the group over time.
Where it is probable that a loss will arise on the total
contract, full provision for this loss is made when the group
becomes aware that a loss may arise.
Incremental bid/tender costs and fulfilment costs are not
material to the overall contract and are expensed as incurred.
Any revenues recognised in excess of billings are recognised as
contract assets within trade and other receivables. Any payments
received in excess of revenue recognised are recognised as contract
liabilities within trade and other payables. There are no
significant financing components of contract assets or
liabilities.
Revenue from the sale of goods and services: The group's revenue
recognised from the sale of goods and services primarily relates to
the Suncoast business. These contracts all have a single
performance obligation, or a series of distinct performance
obligations that are substantially the same. There are typically
two types of contract:
a. Delivery of goods: revenue for these contracts is recognised
at a point in time, on delivery of the goods to the customer.
b. Delivery of goods with installation and/or post-delivery
services: revenue for these contracts is recognised over time by
reference to the percentage of completion. The percentage of
completion is calculated as the costs incurred to date as a
percentage of the total costs expected to satisfy the contract,
however this results in most of the revenue being recognised on
delivery of the goods to the customer as this forms the majority of
the cost to Keller.
Revenue recognition (policy effective prior to 1 January
2018)
Revenue represents the fair value of work done on construction
contracts performed during the year on behalf of customers or the
value of goods or services delivered to customers. In accordance
with IAS 11, contract revenue and expenses are recognised in
proportion to the stage of completion of the contract as soon as
the outcome of a construction contract can be estimated
reliably.
The fair value of work done is calculated using the expected
final contract value, based on contracted values adjusted for the
impact of any known variations, and the stage of completion,
calculated as costs to date as a proportion of total expected
contract costs. Bid costs are expensed as incurred.
In the nature of the group's business, the results for the year
include adjustments to the outcome of construction contracts,
including joint operations, completed in prior years arising from
claims from customers or third parties and claims on customers or
third parties for variations to the original contract.
Provision against claims from customers or third parties is made
in the year in which the group becomes aware that a claim may arise
and is considered probable.
Income from variations and claims on customers or third parties
is only recognised once agreed, or where there is a high level of
certainty in receiving the claim.
Where it is probable that a loss will arise on a contract, full
provision for this loss is made when the group becomes aware that a
loss may arise.
Revenue in respect of goods and services is recognised as the
goods and services are delivered.
IFRS 9 'Financial Instruments'- The group has adopted IFRS 9
'Financial instruments' from 1 January 2018. IFRS 9 sets out
requirements for recognising and measuring financial assets,
financial liabilities and some contracts to buy or sell
non-financial items. This standard replaces IAS 39 'Financial
Instruments: Recognition and Measurement'.
The classification and measurement of financial liabilities and
derivative instruments remains unchanged from IAS 39. Under IFRS 9,
a financial asset is now classified on initial recognition as
measured at: amortised cost; fair value through other comprehensive
income (FVOCI) - debt investment; FVOCI - equity investment; or
fair value through profit or loss (FVTPL). Applying this
classification to the group's financial assets does not result in
changes to the accounting: trade receivables continue to be
recognised at amortised cost and cash and cash equivalents and
certain other non-current financial assets continue to be
recognised at FVTPL.
With regard to impairment of financial assets, IFRS 9 replaces
the 'incurred loss' model in IAS 39 with an 'expected credit loss'
(ECL) model. The group's bad debts typically arise due to invoices
being unpaid for commercial reasons rather than credit default and
therefore the group's expected initial credit loss on initial
recognition was not material and there has been no change in the
overall bad debt provision at 1 January 2018.
As a result of adopting IFRS 9, the accounting policy for trade
receivables at 31 December 2017 is replaced with the following with
effect from 1 January 2018:
Trade receivables (policy effective from 1 January 2018)
Trade receivables are initially recognised at their transaction
price, unless there is a significant financing component, and are
carried subsequently at amortised cost. Loss allowances for
expected credit losses are deducted on initial recognition from the
gross carrying amount of trade receivables. Specific provisions are
made where there is a known credit risk.
Trade receivables (policy effective prior to 1 January 2018)
Trade receivables do not carry any interest, are initially
recognised at fair value and are carried at amortised cost as
reduced by appropriate allowances for estimated irrecoverable
amounts.
Standards issued but not yet effective
A number of new standards are effective for annual periods
beginning after 1 January 2018 and earlier application is
permitted; however, the group has not early adopted the new or
amended standards in preparing these consolidated financial
statements. Of those standards that are not yet effective, IFRS 16
is expected to have a material impact on the group's financial
statements in the period of initial application.
IFRS 16 'Leases' - IFRS 16 will be adopted from 1 January 2019.
The standard introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. These
will principally relate to operating leases for properties,
machinery and vehicles. The profile of the expense incurred in the
income statement for these operating leases will change because
IFRS 16 replaces the straight-line operating lease expense with a
depreciation charge for the right-of-use assets and interest
expense on lease liabilities. No significant impact is expected for
the group's finance leases. The group is not a lessor of
assets.
The group will adopt IFRS 16 using the modified retrospective
approach. The cumulative effect of initially adopting IFRS 16 will
be recognised as an adjustment to the opening balance of retained
earnings at 1 January 2019 with no restatement of comparative
information. The lease liabilities on transition will be the
present value of lease payments discounted using the incremental
borrowing rate. The right-of-use asset will be set at either the
carrying amount as if IFRS 16 had been applied since the start of
the lease or at an amount equal to the lease liability. This will
be determined on a lease-by-lease basis.
The group plans to apply the practical expedients to apply IFRS
16 to all contracts entered into before 1 January 2019 and
identified as leases in accordance with IAS 17 and IFRIC 4, to not
separate non-lease components from lease components of a contract,
to apply a single discount rate to a portfolio of leases with
reasonably similar characteristics and is likely to not apply the
new lease accounting to operating leases that have a lease term
that ends during 2019. The exemptions for short-term leases and
leases of low value will also be applied.
In order to establish the impact of adopting IFRS 16 at 1
January 2019, the group collated details of all of its leases that
had a total duration of greater than 1 year and input this data
into a lease accounting software along with relevant inputs such as
the lease specific incremental borrowing rate. Based on the
information currently available and the draft policy applied, the
group estimates that it will recognise an additional lease
liability of between GBP80m and GBP120m. An additional right-of-use
asset will be recognised and the group is in the process of
establishing which transition option will be applied to each lease.
The total right-of-use asset is expected to be less than the lease
liability. The tax effected difference between the right-of-use
asset and lease liability will be the adjustment to opening
retained earnings.
Although the adoption of IFRS 16 will replace the straight line
operating lease expense with a depreciation charge for the
right-of-use asset and an interest expense on the lease liability,
the group does not expect the adoption of IFRS 16 to have a
material net effect on profit before tax.
The group has not finalised the testing and assessment of
controls over its new lease accounting process, thus the actual
impact of adopting IFRS 16 on 1 January 2019 is subject to change
until the group presents its first financial statements that
include the initial application of the standard.
Basis of consolidation
The consolidated financial statements consolidate the accounts
of the parent and its subsidiary undertakings (collectively 'the
group') made up to 31 December each year. Subsidiaries are entities
controlled by the Company. Control exists when the Company has
power over an entity, exposure to variable returns from its
involvement with an entity and the ability to use its power over
the entity to affect its returns. Where subsidiary undertakings
were acquired or sold during the year, the accounts include the
results for the part of the year for which they were subsidiary
undertakings using the acquisition method of accounting.
Intra-group balances, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements.
Joint operations
From time to time the group undertakes contracts jointly with
other parties. These fall under the category of joint operations as
defined by IFRS 11. In accordance with IFRS 11, the group accounts
for its own share of assets, liabilities, revenues and expenses
measured according to the terms of the agreements covering the
joint operations.
Joint ventures
A joint venture is a type of joint arrangement whereby the
parties that have joint control of the arrangement have rights to
the net assets of the joint arrangement. The consolidated financial
statements incorporate a share of the results, assets and
liabilities of joint ventures using the equity method of
accounting, whereby the investment is carried at cost plus
post-acquisition changes in the share of net assets of the joint
venture, less any provision for impairment. Losses in excess of the
consolidated interest in joint ventures are not recognised except
where the group has a constructive commitment to make good those
losses. The results of joint ventures acquired or disposed of
during the year are included in the consolidated income statement
from the effective date of acquisition or up to the effective date
of disposal, as appropriate.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Property, plant and equipment acquired under finance leases are
capitalised in the balance sheet at the lower of fair value or
present value of minimum lease payments and depreciated in
accordance with the group's accounting policy. The capital element
of the leasing commitment is included as obligations under finance
leases. The rentals payable are apportioned between interest, which
is charged to the income statement, and capital, which reduces the
outstanding obligation.
Amounts payable under operating leases are charged to operating
costs on a straight-line basis over the lease term.
Foreign currencies
Balance sheet items in foreign currencies are translated into
sterling at closing rates of exchange at the balance sheet date.
Income statements and cash flows of overseas subsidiary
undertakings are translated into sterling at average rates of
exchange for the year.
Exchange differences arising from the retranslation of opening
net assets and income statements at closing and average rates of
exchange respectively are dealt with in other comprehensive income,
along with changes in fair values of associated net investment
hedges. All other exchange differences are charged to the income
statement.
The exchange rates used in respect of principal currencies
are:
2018 2017
-------------------------- ---- ----
US dollar: average
for period 1.33 1.29
-------------------------- ---- ----
US dollar: period end 1.27 1.35
-------------------------- ---- ----
Canadian dollar: average
for period 1.73 1.67
-------------------------- ---- ----
Canadian dollar: period
end 1.74 1.69
-------------------------- ---- ----
Euro: average for period 1.13 1.14
-------------------------- ---- ----
Euro: period end 1.11 1.13
-------------------------- ---- ----
Singapore dollar: average
for period 1.80 1.78
-------------------------- ---- ----
Singapore dollar: period
end 1.74 1.80
-------------------------- ---- ----
Australian dollar:
average for period 1.79 1.68
-------------------------- ---- ----
Australian dollar:
period end 1.80 1.73
-------------------------- ---- ----
Interest income and expense
All interest income and expense is recognised in the income
statement in the period in which it is incurred using the effective
interest method.
Employee benefit costs
The group operates a number of defined benefit pension
arrangements, and also makes payments into defined contribution
schemes for employees.
The liability in respect of defined benefit schemes is the
present value of the defined benefit obligations at the balance
sheet date, calculated using the projected unit credit method, less
the fair value of the schemes' assets. As allowed by IAS 19, the
group recognises the administration costs, current service cost and
interest on scheme net liabilities in the income statement, and
remeasurements of defined benefit plans in other comprehensive
income in full in the period in which they occur.
Payments to defined contribution schemes are accounted for on an
accruals basis.
Taxation
The tax expense represents the sum of the tax currently payable
and the deferred tax charge.
Provision is made for current tax on taxable profits for the
year. Taxable profit differs from profit before taxation as
reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method.
Deferred tax is recognised on temporary differences in line with
IAS 12, 'Income Taxes'. Deferred tax assets are recognised when it
is considered likely that they will be utilised against future
taxable profits.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited to the income
statement, except when it relates to items charged or credited
directly to equity or to other comprehensive income, in which case
the related deferred tax is also dealt with in equity or in other
comprehensive income.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment.
Depreciation
Depreciation is not provided on freehold land.
Depreciation is provided to write off the cost less the
estimated residual value of property, plant and equipment by
reference to their estimated useful lives using the straight-line
method.
The rates of depreciation used are:
Buildings 2%
---
Long-life plant and equipment 8%
---
Short-life plant and equipment 12%
---
Motor vehicles 25%
---
Computers 33%
------------------------------- ---
The cost of leased properties is depreciated by equal
instalments over the period of the lease or 50 years, whichever is
the shorter.
Business combinations
The group accounts for business combinations in accordance with
IFRS 3, 'Business Combinations (2008)' using the acquisition method
as at the acquisition date, which is the date on which control is
transferred to the group.
Costs related to the acquisition are expensed as incurred. Any
contingent consideration payable is recognised at fair value at the
acquisition date with subsequent changes to the fair value being
recognised in profit or loss, unless the change was as a result of
new information about facts or circumstances existing at the
acquisition date being obtained during the measurement period, in
which case the change is recognised in the balance sheet as an
adjustment to goodwill.
Goodwill and other intangible assets
Goodwill
Goodwill arising on consolidation, representing the difference
between the fair value of the purchase consideration and the fair
value of the identifiable net assets of the subsidiary undertaking
at the date of acquisition, is capitalised as an intangible
asset.
The fair value of identifiable net assets in excess of the fair
value of purchase consideration is credited to the income statement
in the year of acquisition.
Subsequent to initial recognition, goodwill is measured at cost
less accumulated impairment losses. Goodwill is reviewed for
impairment annually and whenever there is an indication that the
goodwill may be impaired in accordance with IAS 36, with any
impairment losses being recognised immediately in the income
statement. Goodwill arising prior to 1 January 1998 was taken
directly to equity in the year in which it arose. Such goodwill has
not been reinstated on the balance sheet.
Other intangible assets
Intangible assets, other than goodwill, include purchased
licences, software, patents, customer contracts, non-compete
undertakings, customer relationships, trademarks and trade names.
Intangible assets are capitalised at cost and amortised on a
straight-line basis over their useful economic lives from the date
that they are available for use and are stated at cost less
accumulated amortisation and impairment losses. Useful economic
lives do not exceed seven years.
Intangible assets acquired in a business combination are
accounted for initially at fair value.
Impairment of assets excluding goodwill
At each balance sheet date the group reviews the carrying
amounts of its assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss, if
any.
Capital work in progress
Capital work in progress represents expenditure on property,
plant and equipment in the course of construction. Transfers are
made to other property, plant and equipment categories when the
assets are available for use.
Inventories
Inventories are measured at the lower of cost and estimated net
realisable value with due allowance being made for obsolete or
slow-moving items.
Cost comprises direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in
bringing the inventories to their present location and
condition.
Financial instruments
Financial assets and financial liabilities are recognised on the
group's balance sheet when the group becomes party to the
contractual provisions of the instrument.
Derivative financial instruments are accounted for in accordance
with IFRS 9 and recognised initially at fair value.
The group uses currency and interest rate swaps to manage
financial risk. Interest charges and financial liabilities are
stated after taking account of these swaps.
The group uses these swaps and other hedges to mitigate
exposures to both foreign currency and interest rates.
Hedges are accounted for as follows:
Cash flow hedges: The effective part of any gain or loss on the
hedging instrument is recognised directly in the hedging reserve.
Any ineffective portion of the hedge is recognised immediately in
the income statement. The associated cumulative gain or loss is
removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction
affects profit or loss.
Fair value hedges: Changes in the fair value of the derivative
are recognised immediately in the income statement. The carrying
value of the hedged item is adjusted by the change in fair value
that is attributable to the risk being hedged and any gains or
losses on remeasurement are recognised immediately in the income
statement.
Net investment hedges: The effective portion of the change in
fair value of the hedging instrument is recognised directly in the
translation reserve. Any ineffectiveness is recognised immediately
in the income statement.
Trade payables
Trade payables are not interest bearing, are initially
recognised at fair value and are carried at amortised cost.
Borrowings
Borrowings are recognised initially at fair value less
attributable issue costs. Subject to initial recognition,
borrowings are stated at amortised cost.
Provisions
A provision is recognised in the balance sheet when the group
has a present legal or constructive obligation as a result of a
past event and where it is probable that an outflow will be
required to settle the obligation.
Financial guarantees
Where group companies enter into financial guarantee contracts
to guarantee the indebtedness or obligations of other companies
within the group, these are considered to be insurance
arrangements, and accounted for as such. In this respect, the
guarantee contract is treated as a contingent liability until such
time as it becomes probable that the guarantor will be required to
make a payment under the guarantee.
Share-based payment
Charges for employee services received in exchange for
share-based payment have been made in accordance with IFRS 2.
Options granted under the group's employee share schemes are
equity settled. The fair value of such options has been calculated
using a stochastic model, based upon publicly available market
data, and is charged to the income statement over the performance
period with a corresponding increase in equity.
At the end of each reporting period, the group revises its
estimate of the number of options that are expected to vest based
on the service and non-market vesting conditions. It recognises the
impact of the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity.
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the group that are
regularly reviewed by the Chief Operating Decision Maker to
allocate resources to the segments and to assess their performance.
The group determines the Chief Operating Decision Maker to be the
Board of Directors.
An operating segment is a component of the group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the group's other components. Segmental
results are presented as operating profit before non-underlying
items. Segment assets are defined as property, plant and equipment,
intangible assets, inventories and trade and other receivables.
Segment liabilities are defined as trade and other payables,
retirement benefit liabilities, provisions and other liabilities.
The accounting policies of the operating segments are the same as
the group's accounting policies.
Dividends
Interim dividends are recorded in the group's consolidated
financial statements when paid. Final dividends are recorded in the
group's consolidated financial statements in the period in which
they receive shareholder approval.
Non-underlying items
Non-underlying items are disclosed separately in the financial
statements where it is necessary to do so to provide further
understanding of the financial performance of the group. They are
items which are exceptional by their size or are non-trading in
nature, including amortisation of acquired intangibles and other
non-trading amounts, including those relating to acquisitions.
Accounting estimates and judgements
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make estimates and
judgements that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
The estimates are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that and prior
periods, or in the period of the revision and future periods if the
revision affects both current and future periods.
The key estimates and judgements in drawing up the group's
consolidated financial statements are in connection with accounting
for construction contracts and the carrying value of goodwill.
Construction contracts: The group's approach to key estimates
and judgements relating to construction contracts is set out in the
revenue recognition policy above. When revenue is recognised based
on the output method, such as units of production, there is little
judgement involved in accounting for construction contracts as the
amount of revenue that has not been certified/accepted by the
client is typically small and is usually based on volumes achieved
at agreed rates. When revenue is recognised based on the input
(cost) method, the main factors considered when making estimates
and judgements include the costs of the work required to complete
the contract in order to estimate the percentage completion, and
the outcome of claims raised against the group by customers or
third parties. The group performed around 7,000 contracts during
2018, with the average contract size being approximately
GBP325,0000 and a typical range of between GBP25,000 and GBP10
million in value. The majority of contracts were completed in year
and therefore there are no estimates involved in accounting for
these. For contracts that are not complete at year end, the group
estimates the costs to complete in order to measure progress and
therefore how much revenue to recognise. The actual outcome of
these contracts will differ to the estimate at 31 December and it
is reasonably possible that outcomes on these contracts within the
next year could be materially different in aggregate to those
estimated. It is not possible to quantify the expected impact of
this, however the estimated costs to complete are management's best
estimate at this point in time and no individual estimate or
judgement is expected to have a materially different outcome.
The most significant judgement in accounting for construction
contracts relates to revenue recognised on a large long-term public
contract where the group is currently negotiating an adjustment due
to scope increase. The amount has not yet been agreed with the
customer and the timing of settlement is uncertain. However, the
group has taken legal advice and concluded that there is a legal
entitlement to compensation for the additional work performed and
costs incurred, which constitutes an approved contract
modification. On this basis, the criteria under IFRS 15 for
recognising revenue on this adjustment has been met, however the
amount recoverable is a key estimate. It is reasonably possible, on
the basis of existing knowledge, that outcomes within the next
financial year could be materially different from the estimate. The
amount of revenue recognised is less than the amount expected to be
recovered and represents an amount where management is confident it
is highly probable that a significant reversal of revenue will not
occur. Should the actual outcome be significantly less than the
amount recognised as revenue, there could be a material reversal of
revenue. The amount is expected to be agreed with the customer in
the next financial year.
Carrying value of goodwill: The group tests annually whether
goodwill has suffered any impairment in accordance with the
accounting policy set out above. The group estimates the
recoverable amount based on value-in-use calculations. These
calculations require the use of assumptions, the most important
being the forecast revenues and operating margins and the discount
rates applied. Further details on the assumptions used are set out
in note 14. We expect that it is a low risk that Brexit will have a
material financial impact on the group financial statements, or on
the carrying value of goodwill for the Keller Limited (UK)
cash-generating unit.
The group also uses estimates in assessing the recoverability of
deferred tax assets, for which the significant assumption is
forecast taxable profits. A change in these forecasts in the next
year is not expected to have a material impact on the valuation of
these balances.
3 Segmental analysis
The group is managed as three geographical divisions and has
only one major product or service: specialist ground engineering
services. This is reflected in the group's management structure and
in the segment information reviewed by the Chief Operating Decision
Maker.
2018 2017
------------------------------- ------------------ ------------------
Operating Operating
Revenue profit Revenue profit
GBPm GBPm GBPm GBPm
------------------------------- ------- --------- ------- ---------
North America 1,161.4 78.6 968.7 78.7
------------------------------- ------- --------- ------- ---------
EMEA(1) 668.2 39.7 737.2 53.3
------------------------------- ------- --------- ------- ---------
APAC(2) 394.9 (18.0) 364.7 (16.5)
------------------------------- ------- --------- ------- ---------
2,224.5 100.3 2,070.6 115.5
------------------------------- ------- --------- ------- ---------
Central items and eliminations - (3.7) - (6.8)
------------------------------- ------- --------- ------- ---------
Underlying 2,224.5 96.6 2,070.6 108.7
------------------------------- ------- --------- ------- ---------
Non-underlying items (note 8) - (71.6) - 12.6
------------------------------- ------- --------- ------- ---------
2,224.5 25.0 2,070.6 121.3
------------------------------- ------- --------- ------- ---------
2018
--------------------------------------------------------------------------
Tangible
Depreciation(4) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
North America 692.8 (215.4) 477.4 25.8 29.1 312.6
EMEA(1) 388.0 (229.6) 158.4 37.6 25.3 176.7
APAC(2) 211.2 (88.6) 122.6 22.2 16.5 85.7
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,292.0 (533.6) 758.4 85.6 70.9 575.0
Central items and eliminations(3) 152.8 (465.9) (313.1) - - 0.4
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,444.8 (999.5) 445.3 85.6 70.9 575.4
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
2017
---------------------------------- --------------------------------------------------------------------------
Tangible
Depreciation(4) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
North America 582.0 (185.3) 396.7 24.0 27.8 263.6
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
EMEA(1) 408.6 (249.7) 158.9 45.7 23.9 185.3
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
APAC(2) 261.7 (97.5) 164.2 15.3 16.7 120.7
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,252.3 (532.5) 719.8 85.0 68.4 569.6
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
Central items and eliminations(3) 132.7 (380.3) (247.6) - 0.1 0.5
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1,385.0 (912.8) 472.2 85.0 68.5 570.1
---------------------------------- ------- ------------ --------- ---------- --------------- -----------
1 Europe, Middle East and Africa
2 Asia-Pacific
3 Central items include net debt and tax balances
4 Depreciation and amortisation excludes amortisation of
acquired intangible assets
Revenue and non-current non-financial assets are analysed by
country below:
Non-current
Revenue non-financial assets(5)
------------------------------------- ---------------- --------------------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- ------------ ------------
United States 1,068.0 886.6 260.6 225.7
------------------------------------- ------- ------- ------------ ------------
Australia 255.5 238.7 64.2 73.7
------------------------------------- ------- ------- ------------ ------------
Germany 113.3 95.9 32.4 32.1
------------------------------------- ------- ------- ------------ ------------
Canada 93.4 80.2 54.7 59.4
------------------------------------- ------- ------- ------------ ------------
United Kingdom (country of domicile) 65.4 61.2 22.8 22.4
------------------------------------- ------- ------- ------------ ------------
Other 628.9 708.0 148.3 181.8
------------------------------------- ------- ------- ------------ ------------
2,224.5 2,070.6 583.0 595.1
------------------------------------- ------- ------- ------------ ------------
5 Non-current non-financial assets comprise intangible assets,
property, plant and equipment and other non-current non-financial
assets.
4 Revenue
The group's revenue is derived from contracts with customers.
The nature and effect of initially applying IFRS 15 on the group's
financial statements is disclosed in note 2. In the following
table, revenue is disaggregated by primary geographical market,
being the group's operating segments (see note 3) and timing of
revenue recognition:
Revenue recognised on performance Revenue recognised on performance Total revenue
obligations satisfied over time obligations satisfied at a point in time
GBPm GBPm GBPm
------------------------------------------- ------------------------------------------ -------------
North America 1,061.1 100.3 1,161.4
-------------- ------------------------------------------- ------------------------------------------ -------------
EMEA 668.2 - 668.2
-------------- ------------------------------------------- ------------------------------------------ -------------
APAC 394.9 - 394.9
-------------- ------------------------------------------- ------------------------------------------ -------------
2,124.2 100.3 2,224.5
-------------- ------------------------------------------- ------------------------------------------ -------------
In 2017, revenue recognised on construction contracts in
accordance with IAS 11 totalled GBP1,835.4m.
Due to the final contract value not always being agreed at the
year end, the contract value, and therefore revenue allocated to a
performance obligation, may change subsequent to the year end as
variations and claims are agreed with the customer. The amount of
revenue recognised in 2018 from performance obligations satisfied
in previous periods is GBP10.7m.
The group's order book comprises the unexecuted elements of
orders on contracts that have been awarded. Where a contract is
subject to variations, only secured variations are included in the
reported order book. As at 31st December 2018 the total order book
is GBP958.1m. Of this amount the order book for contracts with a
total duration over 1 year is GBP185.4m. Revenue on these contracts
is expected to be recognised as follows:
2018
GBPm
------------------ ---------------
Less than 1 year 143.2
1 to 2 years 42.2
------------------ ---------------
The following table provides information about receivables,
contract assets and contract liabilities arising from contracts
with customers:
2018 2017
GBPm GBPm
--------------------- ------ ------
Trade receivables 451.7 439.8
--------------------- ------ ------
Contract assets 106.3 101.2
Contract liabilities (41.4) (42.9)
--------------------- ------ ------
Retentions are recognised on invoicing of the associated trade
receivable. Included in the trade receivables balance is GBP106.7m
in respect of retentions receivable. Of this amount, GBP75.5m are
to be invoiced in one year with the remaining balance of GBP31.2m
to be invoiced in more than one year. All contract assets and
liabilities are current.
Substantially all of the opening balance of contract assets has
been billed during 2018 and revenue has been recognised against
substantially all of the opening contract liability.
5 Acquisitions
2018 acquisitions
On 29 March 2018, the group acquired 100% of the issued share
capital of Moretrench America Corporation, a geotechnical
contracting company operating predominantly along the east coast of
the US, for cash consideration of GBP64.7m ($86m). The fair value
of the intangible assets acquired represents the fair value of
customer contracts at the date of acquisition, customer
relationships and the trade name. Goodwill arising on acquisition
is attributable to the knowledge and expertise of the assembled
workforce, the expectation of future contracts and customer
relationships and the operating synergies that arise from the
group's strengthened market position. All of the goodwill and
intangible assets are expected to be deductible for tax
purposes.
On 13 June 2018, the group acquired 100% of the issued share
capital of Sivenmark Maskintjanst AB, a sheet piling specialist
based in Sweden for cash consideration of GBP2.1m (SEK 24.6m). The
purchase price is a premium of GBP0.8m (SEK 9.4m) to the fair value
of the net assets acquired. This goodwill is attributable to the
knowledge and expertise of the assembled workforce, the expectation
of future contracts and customer relationships and the operating
synergies that arise from the group's strengthened market
position.
For both acquisitions the fair value of the total trade
receivables is not materially different from the gross contractual
amounts receivable and is expected to be recovered in full. In the
period to 31 December 2018, the acquisitions contributed GBP96.3m
to revenue and a net profit of GBP5.5m. Had the acquisitions taken
place on 1 January 2018, total group revenue would have been
GBP2,257.3m and underlying profit for the period would have been
GBP58.9m.
Any adjustments made in respect of acquisitions in the period to
31 December 2018 are provisional and will be finalised within 12
months of the acquisition date.
Moretrench
------------------------------ -----------------------------
Carrying Fair value Fair
amount adjustment value
GBPm GBPm GBPm
------------------------------ -------- ----------- ------
Net assets acquired
------------------------------ -------- ----------- ------
Intangible assets - 9.7 9.7
------------------------------ -------- ----------- ------
Property, plant and equipment 22.2 5.0 27.2
------------------------------ -------- ----------- ------
Cash and cash equivalents 8.8 - 8.8
------------------------------ -------- ----------- ------
Receivables 30.9 - 30.9
------------------------------ -------- ----------- ------
Other assets 11.0 - 11.0
------------------------------ -------- ----------- ------
Loans and borrowings (9.1) - (9.1)
------------------------------ -------- ----------- ------
Deferred tax 0.3 - 0.3
------------------------------ -------- ----------- ------
Other liabilities (23.1) - (23.1)
------------------------------ -------- ----------- ------
41.0 14.7 55.7
------------------------------ -------- ----------- ------
Goodwill 9.0
------------------------------ -------- ----------- ------
Total consideration 64.7
------------------------------ -------- ----------- ------
Satisfied by
------------------------------ -------- ----------- ------
Initial cash consideration 67.7
============================== ======== =========== ======
Amount receivable from Escrow (3.0)
------------------------------ -------- ----------- ------
64.7
------------------------------ -------- ----------- ------
2017 acquisitions
On 6 March 2017, the group acquired the assets and liabilities
of Geo Instruments, an instrumentation and monitoring company based
in North America, for cash consideration of GBP2.8m ($3.6m). The
purchase price is a premium of GBP0.5m ($0.7m) to the fair value of
the net assets acquired. This goodwill is attributable to the
knowledge and expertise of the assembled workforce, the expectation
of future contracts and customer relationships and the operating
synergies that arise from the group's strengthened market
position.
In the period to 31 December 2017, Geo Instruments contributed
GBP3.4m to revenue and a profit for the period of GBP0.4m. Had the
acquisition taken place on 1 January 2017, total group turnover
would have been GBP2,071.3m and underlying profit for the period
would have been GBP74.1m.
6 Operating costs
2018 2017(1)
Note GBPm GBPm
---------------------------------------------------------- ---- ------- -------
Raw materials and consumables 665.3 625.8
---------------------------------------------------------- ---- ------- -------
Staff costs 7 570.8 525.9
---------------------------------------------------------- ---- ------- -------
Other operating charges 642.6 572.1
---------------------------------------------------------- ---- ------- -------
Amortisation of intangible assets 14 1.2 1.2
---------------------------------------------------------- ---- ------- -------
Operating lease and short-term rental expense:
---------------------------------------------------------- ---- ------- -------
Land and buildings 14.1 15.8
---------------------------------------------------------- ---- ------- -------
Plant, machinery and vehicles 165.8 153.8
---------------------------------------------------------- ---- ------- -------
Depreciation:
---------------------------------------------------------- ---- ------- -------
Owned property, plant and equipment 69.1 66.4
---------------------------------------------------------- ---- ------- -------
Property, plant and equipment held under finance
leases 0.6 0.9
---------------------------------------------------------- ---- ------- -------
Underlying operating costs 2,129.5 1,961.9
---------------------------------------------------------- ---- ------- -------
Non-underlying items 8 64.2 1.6
---------------------------------------------------------- ---- ------- -------
2,193.7 1,963.5
---------------------------------------------------------- ---- ------- -------
Other operating charges include:
---------------------------------------------------------- ---- ------- -------
Redundancy and other reorganisation costs 1.8 1.0
---------------------------------------------------------- ---- ------- -------
Fees payable to the Company's auditor for the audit
of the Company's Annual Accounts 0.3 0.3
---------------------------------------------------------- ---- ------- -------
Fees payable to the Company's auditor for other services:
---------------------------------------------------------- ---- ------- -------
The audit of the Company's subsidiaries, pursuant
to legislation 1.4 1.2
---------------------------------------------------------- ---- ------- -------
Tax compliance services - -
---------------------------------------------------------- ---- ------- -------
Tax advisory services - -
---------------------------------------------------------- ---- ------- -------
Other assurance services - -
---------------------------------------------------------- ---- ------- -------
(1) 2017 operating lease and short-term rental expense for
plant, machinery and vehicles has been reclassified. There is no
net impact on underlying operating costs.
7 Employees
The aggregate staff costs of the group were:
2018 2017
GBPm GBPm
---------------------- ----- -----
Wages and salaries 493.2 453.8
---------------------- ----- -----
Social security costs 61.7 57.4
---------------------- ----- -----
Other pension costs 14.5 11.9
---------------------- ----- -----
Share-based payments 1.4 2.8
---------------------- ----- -----
570.8 525.9
---------------------- ----- -----
The average number of persons employed by the group during the
year was:
2018 2017
Number Number
-------------- ------- -------
North America 4,134 3,813
-------------- ------- -------
EMEA 4,451 4,880
-------------- ------- -------
APAC 1,969 1,841
-------------- ------- -------
10,554 10,534
-------------- ------- -------
8 Non-underlying items
Non-underlying items include items which are exceptional by
their size or are non-trading in nature and comprise the
following:
2018 2017
GBPm GBPm
------------------------------------------------------ ------ -----
Amortisation of acquired intangible assets (7.9) (9.0)
------------------------------------------------------ ------ -----
Goodwill impairment (30.1) -
------------------------------------------------------ ------ -----
Impairment of intangible assets (1.2) -
------------------------------------------------------ ------ -----
Exceptional restructuring costs (30.1) -
------------------------------------------------------ ------ -----
Total restructuring costs (61.4) -
------------------------------------------------------ ------ -----
Contingent consideration: additional amounts provided (0.4) (1.6)
------------------------------------------------------ ------ -----
Acquisition costs (1.1) -
------------------------------------------------------ ------ -----
Guaranteed Minimum Pension equalisation (1.3) -
------------------------------------------------------ ------ -----
Non--underlying items in operating costs (64.2) (1.6)
------------------------------------------------------ ------ -----
Exceptional contract dispute - 21.0
------------------------------------------------------ ------ -----
Contingent consideration: provision released 0.5 2.2
------------------------------------------------------ ------ -----
Non-underlying items in other operating income 0.5 23.2
------------------------------------------------------ ------ -----
Total non-underlying items in operating profit (71.6) 12.6
------------------------------------------------------ ------ -----
Non-underlying finance costs (0.5) (0.7)
------------------------------------------------------ ------ -----
Total non-underlying items before taxation (72.1) 11.9
------------------------------------------------------ ------ -----
Amortisation of acquired intangibles relates mainly to the
Keller Canada, Austral, Bencor and Moretrench acquisitions.
The goodwill impairment relates to the ASEAN Heavy Foundations,
Waterway, Franki Africa, Brazil and Wannenwetsch cash-generating
units, all of which are experiencing significantly depressed
trading conditions.
The impairment of intangible assets relate to the impairment of
the Tecnogeo and Franki Africa trade names capitalised on
acquisition.
On 22 November 2018, the group announced a group-wide
restructuring programme of portfolio and capacity actions. The
group has taken a GBP30.1m restructuring charge, of which GBP21.6m
was non-cash, relating to asset write-downs, redundancy costs and
other reorganisation charges. Affected business units are ASEAN,
Waterway, Brazil and Franki Africa. This includes the write-down of
surplus equipment to current market values.
Additional contingent consideration provided relates to the Geo
Instruments acquisition. In 2017, the additional amounts provided
were in respect of the Geo-Foundations and Ellington Cross
acquisitions.
A cost has been recognised in relation to the Guaranteed Minimum
Pension equalisation requirement, in respect of the UK defined
benefit pension scheme. Further details are set out in note 30.
The GBP21.0m exceptional profit in 2017 relating to the contract
dispute represents the gain on disposal of a freehold property
acquired in 2016, rental income less operating costs to the date of
disposal and insurance recoveries in the period.
Contingent consideration released relates to adjustments to
estimated amounts payable for the Austral and Bencor acquisitions.
The 2017 release related to the Austral and Ansah acquisitions.
9 Finance income
2018 2017
GBPm GBPm
----------------------------------- ----- -----
Bank and other interest receivable 0.6 0.7
----------------------------------- ----- -----
Other finance income - 3.1
----------------------------------- ----- -----
0.6 3.8
----------------------------------- ----- -----
10 Finance costs
2018 2017
GBPm GBPm
---------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts 8.9 5.3
---------------------------------------------- ----- -----
Interest payable on other loans 4.2 4.0
---------------------------------------------- ----- -----
Interest payable on finance leases 0.1 0.4
---------------------------------------------- ----- -----
Net pension interest cost 0.5 0.7
---------------------------------------------- ----- -----
Other finance costs 3.0 3.4
---------------------------------------------- ----- -----
Underlying finance costs 16.7 13.8
---------------------------------------------- ----- -----
Non-underlying finance costs (note 8) 0.5 0.7
---------------------------------------------- ----- -----
17.2 14.5
---------------------------------------------- ----- -----
11 Taxation
2018 2017
GBPm GBPm
------------------------------------------------ ----- -----
Current tax expense
------------------------------------------------ ----- -----
Current year 24.1 30.6
------------------------------------------------ ----- -----
Prior years (4.5) (3.0)
------------------------------------------------ ----- -----
Total current tax 19.6 27.6
------------------------------------------------ ----- -----
Deferred tax expense
------------------------------------------------ ----- -----
Current year 3.5 5.6
------------------------------------------------ ----- -----
US tax rate adjustment relating to current year - (1.8)
------------------------------------------------ ----- -----
Prior years (0.9) (0.4)
------------------------------------------------ ----- -----
US tax rate adjustment relating to prior years - (7.9)
------------------------------------------------ ----- -----
Total deferred tax 2.6 (4.5)
------------------------------------------------ ----- -----
22.2 23.1
------------------------------------------------ ----- -----
UK corporation tax is calculated at 19% (2017: 19.25%) of the
estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The effective tax rate can be reconciled to the UK corporation
tax rate of 19% (2017: 19.25%) as follows:
2018 2017
-------------------------------------- ------------------------------------- -------------------------------------
Non-underlying Non-underlying
items items
Underlying (note 8) Statutory Underlying (note 8) Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Profit before tax 80.5 (72.1) 8.4 98.7 11.9 110.6
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
UK corporation tax charge/(credit)
at 19% (2017: 19.25%) 15.3 (13.7) 1.6 19.0 2.3 21.3
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Tax charged at rates other
than 19% (2017: 19.25%) 4.2 (0.6) 3.6 12.1 (0.6) 11.5
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Adjustments to deferred tax
arising from US tax rate changes - - - (9.7) - (9.7)
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Tax losses and other deductible
temporary differences not recognised 5.0 12.4 17.4 6.0 - 6.0
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Utilisation of tax losses and
other deductible temporary
differences previously unrecognised (1.2) - (1.2) (1.3) (2.1) (3.4)
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Non-deductible expenses and
non-taxable income 4.6 1.6 6.2 2.0 (1.2) 0.8
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Adjustments to tax charge in
respect of previous periods (5.4) - (5.4) (3.4) - (3.4)
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Tax charge/(credit) 22.5 (0.3) 22.2 24.7 (1.6) 23.1
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
Effective tax rate 28.0% 0.4% 264.3% 25.0% (13.4)% 20.9%
-------------------------------------- ---------- -------------- --------- ---------- -------------- ---------
The tax credit on non-underlying items is net of a tax charge of
GBP2.8m arising from a write-off of deferred tax assets as a
consequence of the decision to restructure the related
businesses.
The tax charge for 2017 includes a credit of GBP9.7m from the
re-measurement of deferred tax liabilities following the approval
of the US tax reform package in December 2017 which included a
reduction in the federal rate of corporation tax from 35% to 21%,
effective from 1 January 2018. The benefit of the tax rate
reduction on 2018 profits is reflected in the tax charge for the
year.
The group is subject to taxation in over 40 countries worldwide
and the risk of changes in tax legislation and interpretation from
tax authorities in the jurisdictions in which it operates. The
assessment of uncertain positions is subjective and subject to
management's best judgement. Where tax positions are uncertain,
provision is made where necessary based on interpretation of
legislation, management experience and appropriate professional
advice. We do not expect the outcome of these estimates to be
materially different from the position taken.
The financing of group companies includes some activities which
are subject to exemptions under the UK's Controlled Foreign Company
Regime. The group is monitoring the EU Commission's investigation
of whether such exemptions are in breach of EU State Aid rules.
There have been no significant developments in the progress of the
investigation over the last year and the investigation is not
expected to be concluded within the next 12 months. No provision
has been made for any additional tax that might become payable at
this time due to the uncertain nature of the outcome of these
investigations.
The following are the major deferred tax liabilities and assets
recognised by the group and movements thereon during the current
and prior reporting periods:
Other
Unused Accelerated Retirement employee Other
tax capital benefit related Bad temporary
losses allowances obligations liabilities debts differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
At 1 January 2017 (22.2) 45.2 (4.4) (12.6) (5.0) 10.9 11.9
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
(Credit)/charge to
the income statement (5.8) (5.3) 1.1 1.3 2.1 2.1 (4.5)
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Charge to other comprehensive
income - - 0.3 - - - 0.3
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Exchange differences 0.2 (2.7) (0.1) 0.9 0.3 (0.1) (1.5)
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
At 31 December 2017
and 1 January 2018 (27.8) 37.2 (3.1) (10.4) (2.6) 12.9 6.2
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Charge/(credit) to
the income statement 2.0 1.4 (0.2) 2.6 (1.3) (1.9) 2.6
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Charge to other comprehensive
income - - 0.1 - - - 0.1
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Acquired with subsidiary - - - (0.1) (0.2) - (0.3)
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Exchange differences 0.5 1.8 - (0.3) (0.2) 0.6 2.4
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Other reallocations/transfers 6.8 - - - - (6.8) -
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
At 31 December 2018 (18.5) 40.4 (3.2) (8.2) (4.3) 4.8 11.0
------------------------------ ------- ----------- ------------ ------------ ------ ------------ -----
Deferred tax assets include amounts of GBP24.3m (2017: GBP23.0m)
where recovery is based on forecasts of future taxable profits that
are expected to be available to offset the reversal of the
associated temporary differences. The deferred tax assets
predominantly arise in Canada (GBP7.0m) and Australia (GBP10.6m).
Canadian tax rules currently allow tax losses to be carried forward
up to 20 years and Australian tax rules currently allow tax losses
to be carried forward indefinitely. We have assessed the recovery
of deferred tax assets by reviewing the likely timing and level of
future taxable profits.
The following is the analysis of the deferred tax balances:
2018 2017
GBPm GBPm
------------------------- ------ ------
Deferred tax liabilities 37.9 45.5
------------------------- ------ ------
Deferred tax assets (26.9) (39.3)
------------------------- ------ ------
11.0 6.2
------------------------- ------ ------
At the balance sheet date, the group had unused tax losses of
GBP115.2m (2017: GBP72.9m), mainly arising in the UK, Canada and
Malaysia, available for offset against future profits, on which no
deferred tax asset has been recognised. Of these losses, GBP53.5m
(2017: GBP50.4m) may be carried forward indefinitely.
At the balance sheet date the aggregate of other deductible
temporary differences for which no deferred tax asset has been
recognised was GBP2.3m (2017: GBP3.3m).
At the balance sheet date the aggregate of temporary differences
associated with investments in subsidiaries, branches and joint
ventures for which no deferred tax liability has been recognised is
GBP54.5m (2017: GBP59.2m). The unprovided deferred tax liability in
respect of these timing differences is GBP2.0m (2017: GBP3.1m).
12 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
2018 2017
GBPm GBPm
------------------------------------------------------ ----- -----
Amounts recognised as distributions to equity holders
in the period:
------------------------------------------------------ ----- -----
Final dividend for the year ended 31 December 2017 of
24.5p (2016: 19.25p) per share 17.6 13.8
------------------------------------------------------ ----- -----
Interim dividend for the year ended 31 December 2018
of 12.0p (2017: 9.7p) per share 8.7 7.0
------------------------------------------------------ ----- -----
26.3 20.8
------------------------------------------------------ ----- -----
The Board has recommended a final dividend for the year ended 31
December 2018 of GBP17.2m, representing 23.9p (2017: 24.5p) per
share. The proposed dividend is subject to approval by shareholders
at the AGM on 16 May 2019 and has not been included as a liability
in these financial statements.
13 Earnings per share
Basic and diluted earnings per share are calculated as
follows:
Underlying earnings Earnings attributable
attributable to equity to equity holders
holders of the parent of the parent
---------------------------------------------- ------------------------- -----------------------
2018 2017 2018 2017
---------------------------------------------- ----------- ------------ ------------ ---------
Basic and diluted earnings (GBPm) 57.0 73.6 (14.8) 87.1
---------------------------------------------- ----------- ------------ ------------ ---------
Weighted average number of shares (million)
---------------------------------------------- ----------- ------------ ------------ ---------
Basic number of ordinary shares outstanding 72.0 72.0 72.0 72.0
---------------------------------------------- ----------- ------------ ------------ ---------
Effect of dilutive potential ordinary
shares:
---------------------------------------------- ----------- ------------ ------------ ---------
Share options and awards 0.1 0.3 0.1 0.3
---------------------------------------------- ----------- ------------ ------------ ---------
Diluted number of ordinary shares outstanding 72.1 72.3 72.1 72.3
---------------------------------------------- ----------- ------------ ------------ ---------
Earnings per share
---------------------------------------------- ----------- ------------ ------------ ---------
Basic earnings/(loss) per share (pence) 79.2 102.2 (20.6) 121.0
---------------------------------------------- ----------- ------------ ------------ ---------
Diluted earnings/(loss) per share (pence) 79.1 101.8 (20.6) 120.5
---------------------------------------------- ----------- ------------ ------------ ---------
When the group makes a profit, diluted earnings per share equals
the profit attributable to equity holders of the parent divided by
the weighted average diluted number of shares. When the group makes
a loss, diluted earnings per share equals the loss attributable to
the equity holders of the parent divided by the basic average
number of shares. This ensures that earnings per share on losses is
shown in full and not diluted by unexercised share awards.
14 Intangible assets
Arising on
Goodwill acquisition Other Total
GBPm GBPm GBPm GBPm
---------------------------------------- -------- ------------ ----- ------
Cost
---------------------------------------- -------- ------------ ----- ------
At 1 January 2017 231.8 52.0 22.3 306.1
---------------------------------------- -------- ------------ ----- ------
Additions - - 0.8 0.8
---------------------------------------- -------- ------------ ----- ------
Acquired with subsidiaries 0.5 - - 0.5
---------------------------------------- -------- ------------ ----- ------
Exchange differences (9.8) (1.1) (0.7) (11.6)
---------------------------------------- -------- ------------ ----- ------
At 31 December 2017 and 1 January 2018 222.5 50.9 22.4 295.8
---------------------------------------- -------- ------------ ----- ------
Additions - - 0.5 0.5
---------------------------------------- -------- ------------ ----- ------
Acquired with subsidiaries 9.8 10.4 - 20.2
---------------------------------------- -------- ------------ ----- ------
Exchange differences 2.7 (1.2) 0.9 2.4
---------------------------------------- -------- ------------ ----- ------
At 31 December 2018 235.0 60.1 23.8 318.9
---------------------------------------- -------- ------------ ----- ------
Accumulated amortisation and impairment
---------------------------------------- -------- ------------ ----- ------
At 1 January 2017 65.3 32.6 20.2 118.1
---------------------------------------- -------- ------------ ----- ------
Amortisation charge for the year - 9.0 1.2 10.2
---------------------------------------- -------- ------------ ----- ------
Exchange differences (1.8) (0.8) (0.8) (3.4)
---------------------------------------- -------- ------------ ----- ------
At 31 December 2017 and 1 January 2018 63.5 40.8 20.6 124.9
---------------------------------------- -------- ------------ ----- ------
Impairment charge for the year 30.1 1.2 - 31.3
---------------------------------------- -------- ------------ ----- ------
Amortisation charge for the year - 7.9 1.2 9.1
---------------------------------------- -------- ------------ ----- ------
Exchange differences 0.5 (1.1) 0.8 0.2
---------------------------------------- -------- ------------ ----- ------
At 31 December 2018 94.1 48.8 22.6 165.5
---------------------------------------- -------- ------------ ----- ------
Carrying amount
---------------------------------------- -------- ------------ ----- ------
At 31 December 2018 140.9 11.3 1.2 153.4
---------------------------------------- -------- ------------ ----- ------
At 31 December 2017 and 1 January 2018 159.0 10.1 1.8 170.9
---------------------------------------- -------- ------------ ----- ------
At 1 January 2017 166.5 19.4 2.1 188.0
---------------------------------------- -------- ------------ ----- ------
Intangible assets arising on acquisition represent customer
relationships, customer contracts at the date of acquisition,
patents and trade names. The amounts acquired with subsidiaries in
the year relate to the Moretrench (GBP9.7m) and Sivenmark (GBP0.7m)
acquisitions (note 5).
During the year, additional goodwill of GBP9.8m has been
recognised on the acquisition of Moretrench (GBP9.0m, included in
the Hayward Baker cash-generating unit ('CGU')) and Sivenmark
(GBP0.8m, included in the Keller Grundlaggning CGU).
In 2018, for impairment testing purposes goodwill has been
allocated to 17 separate CGUs. The carrying amount of goodwill
allocated to the six CGUs with the largest goodwill balances is
significant in comparison to the total carrying amount of goodwill
and comprises 92% of the total. The relevant CGUs and the carrying
amount of the goodwill allocated to each are as set out below,
together with the pre-tax discount rate and medium-term growth rate
used in their value-in-use calculations:
2018 2017
----------------------------- -----------------------------
Pre-tax Forecast Pre-tax Forecast
Carrying discount growth Carrying discount growth
Geographical value rate rate value rate rate
Cash-generating unit segment GBPm % % GBPm % %
--------------------- -------------- -------- --------- -------- -------- --------- --------
Suncoast North America 33.9 10.8 2.0 31.9 12.4 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
Keller Canada North America 32.6 11.4 2.0 33.5 11.0 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
HJ Foundation North America 21.8 12.9 2.0 20.5 14.4 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
Hayward Baker North America 21.2 11.0 2.0 11.1 12.1 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
Keller Limited EMEA 12.1 9.9 2.0 12.1 9.8 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
Austral APAC 7.5 12.8 2.0 7.8 13.0 2.0
--------------------- -------------- -------- --------- -------- -------- --------- --------
Other Various 11.8 various various 42.1 various various
--------------------- -------------- -------- --------- -------- -------- --------- --------
140.9 159.0
------------------------------------ -------- --------- -------- -------- --------- --------
The recoverable amount of the goodwill allocated to each CGU has
been determined based on a value-in-use calculation. The
calculations all use cash flow projections based on financial
budgets and forecasts approved by management covering a three-year
period.
The group's businesses operate in cyclical markets, some of
which are expected to continue to face uncertain conditions over
the next couple of years. The most important factors in the
value-in-use calculations, however, are the forecast revenues and
operating margins during the forecast period and the discount rates
applied to future cash flows. The key assumptions underlying the
cash flow forecasts are therefore the revenue and operating margins
assumed throughout the forecast period. The discount rates used in
the value-in-use calculations are based on the weighted average
cost of capital of companies comparable to the relevant CGUs,
adjusted as necessary to reflect the risk associated with the asset
being tested.
Management considers all the forecast revenues, margins and
profits to be reasonably achievable given recent performance and
the historic trading results of the relevant CGUs. Cash flows
beyond 2021 have been extrapolated using a steady revenue growth
rate, usually 2%, which does not exceed the long-term average
growth rates for the markets in which the relevant CGUs
operate.
In 2018, the goodwill in five CGUs, included within the 'other'
category above, was fully impaired as the recoverable amount based
on the value-in-use calculations does not support the carrying
value of goodwill.
Impairment
------------------------- ---------------------- -----------
Cash-generating unit Geographical segment GBPm
------------------------- ---------------------- -----------
ASEAN Heavy Foundations APAC 12.0
Waterway APAC 7.7
Brazil EMEA 6.5
Franki Africa EMEA 2.7
Wannenwetsch EMEA 1.2
------------------------- ---------------------- -----------
30.1
------------------------------------------------ -----------
All of the impairments relate to CGUs that are experiencing
significantly depressed trading conditions.
For the remaining CGUs management believes that, with the
exception of Keller Canada, any reasonably possible change in the
key assumptions on which the recoverable amounts of the CGUs are
based would not cause any of their carrying amounts to exceed their
recoverable amounts.
In 2015, the carrying value of the Keller Canada goodwill was
impaired by GBP31.2m (C$60.9m) due to the results of Keller Canada
being below those expected at the time of the acquisition,
primarily due to a severe slowdown in investment in the Canadian
oil sands following the very significant reduction in the oil price
since the time of acquisition. Keller Canada continues to operate
in a challenging market but is expecting to see some improvement in
margins. The assumptions underlying the forecasts used in the
value-in-use calculation at 31 December 2018 are for a gradual
recovery in the Canadian market in the medium term such that the
operating margins gradually recover to 9%. In order for the
recoverable amount to equal the carrying amount, assumed operating
margins in each year would have to decrease by 3.2%. Alternatively,
a 4.4% increase in the discount rate or a 13% reduction in forecast
revenue growth, at the assumed operating margins, in each year
would lead to the recoverable amount being equal to the carrying
value.
15 Property, plant and equipment
Land and Plant, machinery Capital work
buildings and vehicles in progress Total
GBPm GBPm GBPm GBPm
--------------------------------------- ---------- ---------------- ------------ -------
Cost
--------------------------------------- ---------- ---------------- ------------ -------
At 1 January 2017 59.7 834.1 7.0 900.8
--------------------------------------- ---------- ---------------- ------------ -------
Additions 0.9 75.2 8.1 84.2
--------------------------------------- ---------- ---------------- ------------ -------
Disposals (1.2) (26.2) - (27.4)
--------------------------------------- ---------- ---------------- ------------ -------
Acquired with subsidiaries - 0.9 - 0.9
--------------------------------------- ---------- ---------------- ------------ -------
Reclassification - 5.4 (5.4) -
--------------------------------------- ---------- ---------------- ------------ -------
Exchange differences (1.2) (31.5) (0.2) (32.9)
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2017 and 1 January 2018 58.2 857.9 9.5 925.6
--------------------------------------- ---------- ---------------- ------------ -------
Additions 3.5 78.0 3.6 85.1
--------------------------------------- ---------- ---------------- ------------ -------
Disposals (2.6) (24.3) (0.1) (27.0)
--------------------------------------- ---------- ---------------- ------------ -------
Transfers to held for sale - (30.7) - (30.7)
--------------------------------------- ---------- ---------------- ------------ -------
Acquired with subsidiaries 10.6 17.6 - 28.2
--------------------------------------- ---------- ---------------- ------------ -------
Reclassification - 3.2 (3.2) -
--------------------------------------- ---------- ---------------- ------------ -------
Exchange differences 2.0 18.0 - 20.0
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2018 71.7 919.7 9.8 1,001.2
--------------------------------------- ---------- ---------------- ------------ -------
Accumulated depreciation
--------------------------------------- ---------- ---------------- ------------ -------
At 1 January 2017 15.0 480.2 - 495.2
--------------------------------------- ---------- ---------------- ------------ -------
Charge for the year 2.7 64.6 - 67.3
--------------------------------------- ---------- ---------------- ------------ -------
Disposals - (20.9) - (20.9)
--------------------------------------- ---------- ---------------- ------------ -------
Exchange differences (0.2) (15.0) - (15.2)
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2017 and 1 January 2018 17.5 508.9 - 526.4
--------------------------------------- ---------- ---------------- ------------ -------
Charge for the year 2.7 67.0 - 69.7
--------------------------------------- ---------- ---------------- ------------ -------
Disposals (0.4) (19.8) - (20.2)
--------------------------------------- ---------- ---------------- ------------ -------
Transfers to held for sale - (25.5) - (25.5)
--------------------------------------- ---------- ---------------- ------------ -------
Impairments - 16.2 - 16.2
--------------------------------------- ---------- ---------------- ------------ -------
Exchange differences 0.6 12.0 - 12.6
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2018 20.4 558.8 - 579.2
--------------------------------------- ---------- ---------------- ------------ -------
Carrying amount
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2018 51.3 360.9 9.8 422.0
--------------------------------------- ---------- ---------------- ------------ -------
At 31 December 2017 and 1 January 2018 40.7 349.0 9.5 399.2
--------------------------------------- ---------- ---------------- ------------ -------
At 1 January 2017 44.7 353.9 7.0 405.6
--------------------------------------- ---------- ---------------- ------------ -------
The net book value of plant, machinery and vehicles includes
GBP1.7m (2017: GBP1.0m) in respect of assets held under finance
leases.
The group had contractual commitments for the acquisition of
property, plant and equipment of GBP1.9m (2017: GBP7.0m) at the
balance sheet date. These amounts were not included in the balance
sheet at the year end.
Impairments in the year include the write-down of surplus
equipment to current market values where it is not being relocated
to other more active parts of the group. Further details of the
restructuring programme are detailed in note 8.
16 Investments in joint ventures
GBPm
----------------------------------- ------
At 31 December 2017 and 1 January
2018 3.7
Share of post-tax results 1.6
Dividends received (0.9)
Exchange differences 0.2
----------------------------------- ------
At 31 December 2018 4.6
----------------------------------- ------
The group's investment in joint ventures relates to a 50%
interest in KFS Finland Oy, an entity incorporated in Finland.
Aggregate amounts relating to joint ventures:
2018
GBPm
--------------------------- -------
Revenue 18.1
Operating costs (15.9)
--------------------------- -------
Operating profit 2.2
Finance costs (0.1)
--------------------------- -------
Profit before taxation 2.1
Taxation (0.5)
--------------------------- -------
Share of post-tax results 1.6
--------------------------- -------
2018
GBPm
------------------------- ------
Non-current assets 4.3
Current assets 2.6
Current liabilities (2.0)
Non-current liabilities (0.3)
------------------------- ------
Share of net assets 4.6
------------------------- ------
17 Other non-current assets
2018 2017(1)
GBPm GBPm
----------------------------------------------- ----- -------
Fair value of derivative financial instruments 0.4 1.8
----------------------------------------------- ----- -------
Other assets 21.1 21.9
----------------------------------------------- ----- -------
21.5 23.7
----------------------------------------------- ----- -------
(1) Non-current assets shown here does not correspond to the
published 2017 consolidated financial statements as a result of
re-presenting the comparative balance to show investments in joint
ventures separate from other non-current assets. Refer to note
16.
Other assets includes GBP17.6m (2017: GBP21.2m) of assets held
at fair value in connection with an ongoing non-qualifying deferred
compensation plan available to certain US employees.
18 Inventories
2018 2017
GBPm GBPm
------------------------------ ----- -----
Raw materials and consumables 57.3 52.3
------------------------------ ----- -----
Work in progress 0.8 1.2
------------------------------ ----- -----
Finished goods 22.2 19.1
------------------------------ ----- -----
80.3 72.6
------------------------------ ----- -----
19 Trade and other receivables
2018 2017
GBPm GBPm
----------------------------------------------- ----- -----
Trade receivables 451.7 439.8
----------------------------------------------- ----- -----
Contract assets 106.3 101.2
----------------------------------------------- ----- -----
Other receivables 29.3 24.3
----------------------------------------------- ----- -----
Prepayments 18.4 19.9
----------------------------------------------- ----- -----
Assets held for sale 5.2 -
----------------------------------------------- ----- -----
Fair value of derivative financial instruments - 4.0
----------------------------------------------- ----- -----
610.9 589.2
----------------------------------------------- ----- -----
Trade receivables are shown net of an allowance for doubtful
debts. Assets held for sale relates to the net book value of
equipment to be sold as part of the group-wide restructuring
programme (note 8).
The movement in the provision for bad and doubtful debt is as
follows:
2018 2017
GBPm GBPm
------------------------- ----- -----
At 1 January 35.6 34.7
------------------------- ----- -----
Used during the period (8.2) (3.7)
------------------------- ----- -----
Additional provisions 23.2 12.2
------------------------- ----- -----
Unused amounts reversed (7.8) (6.6)
------------------------- ----- -----
Acquired with subsidiary 0.6 -
------------------------- ----- -----
Exchange differences 1.1 (1.0)
------------------------- ----- -----
At 31 December 44.5 35.6
------------------------- ----- -----
The ageing of trade receivables that were past due but not
impaired was as follows:
2018 2017
GBPm GBPm
---------------------------------- ----- -----
Overdue by less than 30 days 84.5 83.1
---------------------------------- ----- -----
Overdue by between 31 and 90 days 39.9 42.7
---------------------------------- ----- -----
Overdue by more than 90 days 46.1 34.4
---------------------------------- ----- -----
170.5 160.2
---------------------------------- ----- -----
20 Cash and cash equivalents
2018 2017
GBPm GBPm
----------------------------------------------------- ----- ------
Bank balances 106.4 66.5
----------------------------------------------------- ----- ------
Short-term deposits 4.1 1.2
----------------------------------------------------- ----- ------
Cash and cash equivalents in the balance sheet 110.5 67.7
----------------------------------------------------- ----- ------
Bank overdrafts (6.8) (16.4)
----------------------------------------------------- ----- ------
Cash and cash equivalents in the cash flow statement 103.7 51.3
----------------------------------------------------- ----- ------
21 Trade and other payables
2018 2017(1)
GBPm GBPm
----------------------------------------------- ----- -------
Trade payables 262.8 256.8
----------------------------------------------- ----- -------
Other taxes and social security payable 12.6 16.4
----------------------------------------------- ----- -------
Other payables 115.0 102.9
----------------------------------------------- ----- -------
Contract liabilities 41.4 42.9
----------------------------------------------- ----- -------
Accruals 42.5 57.8
----------------------------------------------- ----- -------
Fair value of derivative financial instruments 0.1 3.7
----------------------------------------------- ----- -------
474.4 480.5
----------------------------------------------- ----- -------
(1) Other payables shown here does not correspond to the
published 2017 consolidated financial statements as a result of
re-presenting the comparative to show contract liabilities separate
from other payables.
Other payables include contingent consideration of GBP0.4m
(2017: GBP8.0m).
22 Provisions
Employee Restructuring Other
provisions provisions provisions Total
GBPm GBPm GBPm GBPm
------------------------------ ----------- ------------- ----------- -----
At 1 January 2018 11.4 0.5 11.4 23.3
------------------------------ ----------- ------------- ----------- -----
Charge for the year 4.9 4.1 0.8 9.8
------------------------------ ----------- ------------- ----------- -----
Used during the period (4.4) (0.5) (3.0) (7.9)
------------------------------ ----------- ------------- ----------- -----
Unused amounts reversed - - (0.6) (0.6)
------------------------------ ----------- ------------- ----------- -----
Exchange differences 0.5 0.1 0.2 0.8
------------------------------ ----------- ------------- ----------- -----
At 31 December 2018 12.4 4.2 8.8 25.4
------------------------------ ----------- ------------- ----------- -----
To be settled within one year 2.4 4.2 4.2 10.8
------------------------------ ----------- ------------- ----------- -----
To be settled after one year 10.0 - 4.6 14.6
------------------------------ ----------- ------------- ----------- -----
At 31 December 2018 12.4 4.2 8.8 25.4
------------------------------ ----------- ------------- ----------- -----
Employee provisions comprise obligations to employees other than
retirement benefit obligations. Other provisions are in respect of
legal and other disputes in various group companies.
Restructuring provisions include redundancy costs and other
reorganisation charges in markets experiencing significantly
depressed trading conditions as detailed further in note 8.
23 Other non-current liabilities
2018 2017
GBPm GBPm
----------------------------------------------- ----- -----
Fair value of derivative financial instruments 0.3 -
----------------------------------------------- ----- -----
Other liabilities 18.3 18.0
----------------------------------------------- ----- -----
18.6 18.0
----------------------------------------------- ----- -----
Other liabilities include contingent consideration of GBP2.4m
(2017: GBP1.3m) and GBP15.9m (2017: GBP16.7m) payable to US
employees under a non-qualifying deferred compensation plan.
24 Financial instruments
The group's board of directors has overall responsibility for
the establishment and oversight of the group's risk management
framework, the setting of risk appetite and the implementation of
the risk management policy. The Audit Committee ensures adequate
assurance is obtained over the risks that are identified as the
group's principal risks.
Exposure to credit, interest rate and currency risks arise in
the normal course of the group's business and have been identified
as key risks for the group. Derivative financial instruments are
used to hedge exposure to fluctuations in foreign exchange and
interest rates.
The group does not trade in financial instruments nor does it
engage in speculative derivative transactions.
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 net assets might
have on the consolidated 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 sterling, US
dollars, Canadian dollars, euros, Australian dollars, Singapore
dollars, Emirati dirham and South African rand, 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.
At 31 December 2018, the fair value of foreign exchange forward
contracts outstanding was GBP0.1m (2017: GBP0.5m) included in
current liabilities.
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 2018, approximately 90% of the group's third party
borrowings bore interest at floating rates.
Hedging currency risk and interest rate risk
The group hedges currency risk and interest rate risk together.
Where hedging instruments are used to hedge these significant
individual transactions, it is ensured that the critical terms,
such as dates, currencies, nominal amounts, interest rates and
lengths of interest periods are matched exactly between the hedged
item and the hedging instrument and therefore an economic
relationship exists between the two. The group uses both
qualitative and quantitative methods to confirm this and to assess
the effectiveness of the hedge.
The hedge ratio for such items is the cumulative changes in fair
value of the hedging instrument since designation date divided by
the change in fair value of the hedged item due to movements in the
hedged risk.
The main source of hedge ineffectiveness for hedging currency
risk is the relative movement of the forward points of the
different currencies.
The main sources of hedge ineffectiveness for hedging interest
rate risk include the libor rate resetting at the start of each
coupon period compared to the market rate at the next reporting
period, discounting of the libor rate and the movement in discount
factors.
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 2% of
revenue in 2018. 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
review of these ratings. The ageing of trade receivables that were
past due but not impaired is shown in note 19.
The group analyses each new customer and assesses their
creditworthiness before any contract is undertaken. The group
reviews contracts at each reporting period and determines whether
the credit risk has increased significantly since initial
recognition. Due to the nature of our contracts, where we are often
on site at the initial stages and are often paid in the earlier
stages of the construction project, the credit risk is generally
lower. Amounts actually written off due to credit risk have
historically been low.
When taking into account whether to provide against a contract
and if necessary, how much the lifetime expected credit losses
should equate to, the group looks at several factors, both
historical and forward looking such as the financial situation of
the customer, past experiences with the customer, the economic and
political environment in the region and the relationship with the
customer.
The group tends to be conservative in its estimation of such
provisions and the group's bad and doubtful debt provision balance
is significantly larger than the amount of provision actually used
during the period.
The group's estimated exposure to credit risk for trade
receivables and contract assets is cumulative lifetime expected
credit losses of GBP19.9m and this is included in the bad debt
provision in note 19. This amount is the accumulation of several
years of provisions for known or expected credit losses.
The loss allowance is usually equal to the lifetime expected
credit loss.
Expected credit loss assessment as at 31 December 2018
Consideration of future events is generally taken into account
when deciding on when and how much to provide for of the group's
trade receivables and contract assets. The group's bad debts
typically arise due to invoices being unpaid for commercial reasons
rather than credit default. The percentage of receivables on which
credit losses are incurred, or expected to be incurred, is very
small and therefore the initial expected credit loss is
immaterial.
Liquidity risk and capital management
The group's capital structure is kept under constant review,
taking account of the need for, availability and cost of various
sources of finance. The capital structure of the group consists of
net debt and equity attributable to equity holders of the parent as
shown in the consolidated balance sheet. The group maintains a
balance between certainty of funding and a flexible, cost-effective
financing structure with all main borrowings being from committed
facilities. The group's policy continues to be to ensure that its
capital structure is appropriate to support this balance and the
group's operations.
In order to maintain or adjust the capital structure, the group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt. The group's debt and committed facilities mainly comprise a
$50m private placement repayable in 2021, a $75m private placement
repayable in 2024, a EUR35m term facility repaid in 2019 and a
GBP375m syndicated revolving credit facility expiring in 2023, with
an option to extend the facility by two further one year extensions
by mutual consent. These facilities are subject to certain
covenants linked to the group's financing structure, specifically
regarding the ratios of debt and interest to profit. The group has
complied with these covenants throughout the period.
At the year end, the group also had other committed and
uncommitted borrowing facilities totalling GBP105.3m (2017:
GBP73.0m) to support local requirements.
Private placements
In October and December 2014, $50m and $75m respectively were
raised through a private placement with US institutions. The
proceeds of the issue of $50m 3.81% Series A notes due 2021 and
$75m 4.17% Series B notes due 2024 were used to refinance maturing
private placements.
The US private placement loans are accounted for on an amortised
cost basis, adjusted for the impact of hedge accounting (as
described below), and retranslated at the spot exchange rate at
each period end. The carrying value of the private placement
liabilities at 31 December 2018 was GBP98.2m (2017: GBP123.7m), the
decrease from 2017 due to the repayment of a $40m private placement
during the year.
Hedging
The 2014 $50m and $75m fixed rate private placement liabilities
were swapped into floating rate by means of US dollar interest rate
swaps ('the 2014 swaps'). The 2014 swaps have the same maturity as
the private placement liabilities and have been designated as fair
value hedges of the group's exposure to changes in the fair value
of the US private placement loans and related interest cash flows
due to changes in US dollar interest rates.
The fair value of the 2014 swaps at 31 December 2018 represented
an asset of GBP0.4m (2017: GBP1.8m) which is included in other
non-current assets and a liability of GBP0.3m (2017: GBPnil) which
is included in other non-current liabilities. The effective portion
of the changes in the fair value of the 2014 swaps, a loss of
GBP1.7m (2017: loss of GBP0.7m), has been taken to the income
statement along with the equal and opposite movement in fair value
of the corresponding hedged items.
All hedges are tested for effectiveness every six months using
the cumulative dollar offset method. All hedging relationships
remained effective during the year. The ineffective portion of the
movement in the fair value of the hedging instruments was nil
(2017: GBPnil).
Accounting classifications
2018 2017
GBPm GBPm
-------------------------------------------------------- --------- --------
Financial assets measured at fair value through profit
or loss
* Non-qualifying deferred compensation plan 17.6 21.2
- Interest rate swaps 0.4 1.8
* Cross currency swaps - 4.0
Financial assets measured at amortised cost
- Trade receivables 451.7 439.8
- Contract assets 106.3 101.2
- Cash and cash equivalents 110.5 67.7
Financial liabilities at fair value through profit
or loss
- Interest rate swaps (0.3) -
- Forward exchange contracts (0.1) (0.5)
* Cross currency swaps - (3.2)
- Loans and borrowings (100.3) (95.3)
Financial liabilities measured at amortised cost
- Trade payables (262.8) (256.8)
- Contract liabilities (41.4) (42.9)
- Loans and borrowings (296.4) (201.9)
-------------------------------------------------------- --------- --------
Effective interest rates and maturity analysis
In respect of interest-earning financial assets and
interest-bearing financial liabilities, the following table
indicates their effective interest rates at the balance sheet date
and the periods in which they mature.
2018
--------------------------- --------------------------------------------------------------------------------
Effective Due after
interest Due within Due within more than Total Due within
rate 1-2 years 2-5 years 5 years non-current 1 year Total
% GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank overdrafts 5.2 - - - - (6.8) (6.8)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank loans(*) 3.0 - (248.4) (3.1) (251.5) (34.3) (285.8)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Other loans(*) 3.4 (0.8) (41.3) (59.4) (101.5) (0.5) (102.0)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Obligations under
finance leases(*) 7.4 (0.7) (0.2) - (0.9) (1.2) (2.1)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Total loans and borrowings (1.5) (289.9) (62.5) (353.9) (42.8) (396.7)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank balances(*) 0.9 - - - - 106.4 106.4
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Short-term deposits(*) 6.0 - - - - 4.1 4.1
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Net debt (1.5) (289.9) (62.5) (353.9) 67.7 (286.2)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Derivative financial
instruments - (0.3) 0.4 0.1 (0.1) -
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
2017
--------------------------- --------------------------------------------------------------------------------
Effective Due after
interest Due within Due within more than Total Due within
rate 1-2 years 2-5 years 5 years non-current 1 year Total
% GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank overdrafts 2.4 - - - - (16.4) (16.4)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank loans(*) 2.4 (150.8) (0.4) (3.2) (154.4) (1.4) (155.8)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Other loans(*) 2.7 - (37.0) (57.0) (94.0) (29.7) (123.7)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Obligations under
finance leases(*) 9.5 (0.3) (0.2) - (0.5) (0.8) (1.3)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Total loans and borrowings (151.1) (37.6) (60.2) (248.9) (48.3) (297.2)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Bank balances(*) 0.4 - - - - 66.5 66.5
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Short-term deposits(*) 3.8 - - - - 1.2 1.2
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Net debt (151.1) (37.6) (60.2) (248.9) 19.4 (229.5)
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
Derivative financial
instruments - 0.3 1.5 1.8 0.3 2.1
--------------------------- --------- ---------- ---------- ---------- ------------ ---------- -------
* These include assets/liabilities bearing interest at a fixed
rate.
Loans and borrowings consist of the following:
2018 2017
GBPm GBPm
-------------------------------------------------------- ----- -----
$75m private placement (due December 2024) 59.4 57.0
-------------------------------------------------------- ----- -----
$50m private placement (due October 2021) 38.8 37.0
-------------------------------------------------------- ----- -----
GBP375m syndicated revolving credit facility (expiring
November 2023*) 248.0 -
-------------------------------------------------------- ----- -----
GBP250m syndicated revolving credit facility (repaid
November 2018) - 107.8
-------------------------------------------------------- ----- -----
$62.5m revolving credit facility (repaid November 2018) - 43.0
-------------------------------------------------------- ----- -----
$40m private placement (repaid August 2018) - 29.7
-------------------------------------------------------- ----- -----
EUR35m term facility (repaid February 2019) 31.5 -
-------------------------------------------------------- ----- -----
Bank overdrafts 6.8 16.4
-------------------------------------------------------- ----- -----
Obligations under finance leases 2.1 1.3
-------------------------------------------------------- ----- -----
Other loans and borrowings 10.1 5.0
-------------------------------------------------------- ----- -----
Total loans and borrowings 396.7 297.2
-------------------------------------------------------- ----- -----
*with an option to extend the facility by two further one year
extensions by mutual consent
Changes in loans and borrowings were as follows:
Foreign
Acquired exchange Fair value
2017 with subsidiaries Cash flows movements changes 2018
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- ------------------- ---------- ---------- ---------- -------
Bank overdrafts (16.4) - 9.7 (0.1) - (6.8)
Bank loans (155.8) (6.7) (120.5) (2.8) - (285.8)
Other loans (123.7) - 24.9 (1.7) (1.5) (102.0)
Obligations under finance
leases (1.3) (2.4) 1.6 - - (2.1)
--------------------------- ------- ------------------- ---------- ---------- ---------- -------
Total loans and borrowings (297.2) (9.1) (84.3) (4.6) (1.5) (396.7)
--------------------------- ------- ------------------- ---------- ---------- ---------- -------
Derivative financial
instruments 2.1 - (1.5) - (0.6) -
--------------------------- ------- ------------------- ---------- ---------- ---------- -------
Cash flow hedges
At 31 December 2018, the group held the following instruments to hedge exposures to changes
in foreign currency rates:
Change in fair
value used for
Carrying Carrying for calculating hedge ineffectiveness
Maturity amount amount Nominal
< 1 year 1-2 years 2-5 years asset liability(1) amount
GBPm GBPm GBPm GBPm GBPm GBPm $m
-------------------------------------- --------------------- ---------------------------- ------------------ ------ ---------------- ----------------------------------- -------------------------------------------------- ------------
Forward exchange contracts (0.1)* - - - (0.1) - 15.0
-------------------------------------- --------------------- ---------------------------- ------------------ ------ ---------------- ----------------------------------- -------------------------------------------------- ------------
*The average USD:GBP forward contract rate is
1.28
The group had the following hedged items and hedge ineffectiveness relating to cash flow hedges:
Cash flow hedge transfers to income (Gains)/losses in other Cash flow hedge reserve Foreign currency Change in value used for calculating hedge Hedge ineffective-ness
statement(5) comprehensive income balance translation reserve ineffective-ness in profit or loss(5)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------- -------------------------------------- ----------------------------------- ------ ------------------------- --------------------- ------------------------------------------------ -----------------------
Foreign currency
loans 0.6 (0.6) - - - -
$40m private
placement 0.4 (0.4) - - - -
------------------ ---------- -------------------------------------- ----------------------------------- ------ ------------------------- --------------------- ------------------------------------------------ -----------------------
Fair value hedges
At 31 December 2018, the group held the following instruments to hedge exposures to changes
in interest rates:
Change in fair value used for
Maturity Carrying amount Carrying amount calculating hedge ineffective-ness
< 1 year 1-2 years 2-5 years >5 years Asset(2) Liability(3) Nominal amount
GBPm GBPm GBPm GBPm GBPm GBPm GBPm $m
----------------- -------------------------------------------------------------- ------------------ ------------ --------- --------------------- ----------------------- --------------------------------------- -----------------------
Interest rate
swaps - - (0.3) 0.4 0.4 (0.3) 0.1 24.5
----------------- -------------------------------------------------------------- ------------------ ------------ --------- --------------------- ----------------------- --------------------------------------- -----------------------
*The average fixed
interest rate is
4.0%
The group had the following hedged items and hedge ineffectiveness relating to the above instruments:
Carrying
amount Change in fair value used for Hedge ineffective-ness
Liability(4) calculating hedge ineffective-ness in profit or loss(5)
GBPm GBPm GBPm
------------------ ------ ---------- ------------------------------------------------------------------- ------ -------------------- ----------------------------------- --------------------------------------- -----------------------
$125m private
placements (98.5) (0.1) -
Fair value hedge
adjustments 1.7 n/a n/a
---------------------- ------------- ------------------------------------------------------------------- ------ -------------------- ----------------------------------- --------------------------------------- -----------------------
1 Included in trade and other payables 2 Included in other non-current assets 3 Included in
other non-current liabilities 4 Included in loans and borrowings
5 Included in profit for the period
Non-interest-bearing financial liabilities comprise trade
payables and contract liabilities of GBP304.2m (2017: GBP299.7m)
which were payable within one year.
The group had unutilised committed banking facilities of
GBP148.8m at 31 December 2018 (2017: GBP161.3m). This mainly
comprised the unutilised portion of the group's GBP375m facility
which expires on 13 November 2023, with an option to extend the
facility by two further one year extensions by mutual consent. In
addition, the group had unutilised uncommitted borrowing facilities
totalling GBP64.8m at 31 December 2018 (2017: GBP33.6m). GBP5.6m
(2017: GBP4.6m) of drawn facilities, including finance leases, are
secured against certain assets. Future obligations under finance
leases totalled GBP2.3m (2017: GBP1.5m), including interest of
GBP0.2m (2017: GBP0.2m).
Fair values
The fair values of the group's financial assets and liabilities
are not materially different from their carrying values. The
following summarises the major methods and assumptions used in
estimating the fair values of financial instruments:
Derivatives
The fair value of interest rate and cross-currency swaps is
calculated based on expected future principal and interest cash
flows discounted using market rates prevailing at the balance sheet
date. In 2018 and in 2017, the valuation methods of all of the
group's derivative financial instruments carried at fair value are
categorised as Level 2. Level 2 is defined as inputs, other than
quoted prices (unadjusted) in active markets for identical assets
or liabilities, that are observable for the asset or liability,
either directly (ie as prices) or indirectly (ie derived from
prices).
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and
interest cash flows discounted using market rates prevailing at the
balance sheet date.
Contingent consideration
Fair value is calculated based on the amounts expected to be
paid, determined by reference to forecasts of future performance of
the acquired businesses discounted using market rates prevailing at
the balance sheet date and the probability of contingent events and
targets being achieved.
In 2018 and in 2017, the valuation methods of all of the group's
contingent consideration carried at fair value are categorised as
Level 3. Level 3 inputs are unobservable inputs for the asset or
liability.
There are no individually significant unobservable inputs used
in the fair value measurement of the group's contingent
consideration as at 31 December 2018. Of the total payable as at 31
December 2018, GBP0.4m was based on performance up to that date and
will be settled during 2019. The remaining balance depends on the
forecast outcome of one project.
The following table shows a reconciliation from the opening to
closing balances for contingent consideration:
2018 2017
GBPm GBPm
---------------------------------------------- ------------------ -----
At 1 January 9.3 11.2
---------------------------------------------- ------------------ -----
Provision released (note 8) (0.5) (2.2)
---------------------------------------------- ------------------ -----
Additional amounts provided (note 8) 0.4 1.6
---------------------------------------------- ------------------ -----
Paid during the year (6.3) (1.1)
---------------------------------------------- ------------------ -----
Unwind of discounted contingent consideration - 0.3
---------------------------------------------- ------------------ -----
Exchange differences(1) (0.1) (0.5)
---------------------------------------------- ------------------ -----
At 31 December 2.8 9.3
---------------------------------------------- ------------------ -----
1 Included in other comprehensive income.
GBP0.4m (2017: GBP8.0m) of contingent consideration in respect
of acquisitions is payable within one year and GBP2.4m (2017:
GBP1.3m) is payable between one and two years.
The fair value measurement of the contingent consideration could
be affected if the forecast financial performance is different to
that estimated. A better than estimated performance may increase
the value of the contingent consideration payable.
Payables, receivables and construction assets
For payables and receivables with a remaining life of one year
or less, the carrying amount is deemed to reflect the fair value.
All other payables and receivables are discounted using market
rates prevailing at the balance sheet date.
Interest rate and currency profile
The profile of the group's financial assets and financial
liabilities after taking account of swaps was as follows:
2018
------------------------------------ ----------------------------------------------------
Sterling USD Euro CAD Other(1) Total
------------------------------------ -------- ------- ------ ------ -------- -------
Weighted average fixed debt
interest rate - - 0.5% - 11.3% n/a
------------------------------------ -------- ------- ------ ------ -------- -------
Weighted average fixed debt
period (years) - - 0.8 - 2.1 n/a
------------------------------------ -------- ------- ------ ------ -------- -------
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- ------- ------ ------ -------- -------
Fixed rate financial liabilities - - (36.0) - (4.5) (40.5)
------------------------------------ -------- ------- ------ ------ -------- -------
Floating rate financial liabilities (51.4) (170.5) (3.5) (30.5) (100.3) (356.2)
------------------------------------ -------- ------- ------ ------ -------- -------
Financial assets 9.9 34.4 24.7 6.1 35.4 110.5
------------------------------------ -------- ------- ------ ------ -------- -------
Net debt (41.5) (136.1) (14.8) (24.4) (69.4) (286.2)
------------------------------------ -------- ------- ------ ------ -------- -------
2017
------------------------------------ ---------------------------------------------------
Sterling USD Euro CAD Other(1) Total
------------------------------------ -------- ------ ------ ------ -------- -------
Weighted average fixed debt
interest rate - - 4.3% - 8.6% n/a
------------------------------------ -------- ------ ------ ------ -------- -------
Weighted average fixed debt
period (years) - - 1.3 - 1.0 n/a
------------------------------------ -------- ------ ------ ------ -------- -------
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- ------ ------ ------ -------- -------
Fixed rate financial liabilities - - (33.3) - (2.1) (35.4)
------------------------------------ -------- ------ ------ ------ -------- -------
Floating rate financial liabilities (58.7) (85.4) (19.5) (37.3) (60.9) (261.8)
------------------------------------ -------- ------ ------ ------ -------- -------
Financial assets 0.2 19.3 16.0 3.9 28.3 67.7
------------------------------------ -------- ------ ------ ------ -------- -------
Net debt (58.5) (66.1) (36.8) (33.4) (34.7) (229.5)
------------------------------------ -------- ------ ------ ------ -------- -------
1 Included within other floating rate financial liabilities are
AUD revolver loans of GBP39.2m (2017: GBP23.1m), ZAR revolver loans
of GBP6.6m (2017: GBP9.2m), SGD revolver loans of GBP29.5m (2017:
GBP17.2m) and AED revolver loans of GBP14.3m (2017: GBP10.3m).
Included within other financial assets are AUD cash balances of
GBP5.9m (2017: GBP4.6m), ZAR cash balances of GBP5.0m (2017:
GBP2.3m) and SGD cash balances of GBP2.9m (2017: GBP2.4m).
Sensitivity analysis
At 31 December 2018, it is estimated that a general increase of
one percentage point in interest rates would decrease the group's
profit before taxation by approximately GBP2.6m. The estimated
impact of a one percentage point decrease in interest rates is to
increase the group's profit before taxation by approximately
GBP2.6m. The impact of interest rate swaps has been included in
this calculation.
It is estimated that a general increase of 10 percentage points
in the value of sterling against other principal foreign currencies
would have decreased the group's profit before taxation and
non--underlying items by approximately GBP8.5m for the year ended
31 December 2018, with the estimated impact of a 10 percentage
points decrease in the value of sterling being an increase of
GBP8.8m in the group's profit before taxation and non-underlying
items. This sensitivity relates to the impact of retranslation of
foreign earnings only. The impact on the group's earnings of
currency transaction exchange risk is not significant.
These sensitivities assume all other factors remain
constant.
25 Share capital and reserves
2018 2017
GBPm GBPm
---------------------------------------------------------- ----- -----
Allotted, called up and fully paid
---------------------------------------------------------- ----- -----
Equity share capital:
---------------------------------------------------------- ----- -----
73,099,735 ordinary shares of 10p each (2017: 73,099,735) 7.3 7.3
---------------------------------------------------------- ----- -----
The Company has one class of ordinary shares, which carries no
rights to fixed income. There are no restrictions on the transfer
of these shares.
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.
The other reserve is a non-distributable reserve created when
merger relief was applied to an issue of shares under section 612
of the Companies Act 2006 to part fund the acquisition of Keller
Canada. The reserve becomes distributable should Keller Canada be
disposed of.
The total number of shares held in Treasury was 1,039,855 (2017:
1,137,718).
26 Related party transactions
Transactions between the parent, its subsidiaries and joint
operations, which are related parties, have been eliminated on
consolidation. Other related party transactions are disclosed
below:
Compensation of key management personnel
The remuneration of the Board and Executive Committee, who are
the key management personnel, comprised:
2018 2017
GBPm GBPm
----------------------------- ----- -----
Short-term employee benefits 5.1 6.3
----------------------------- ----- -----
Post-employment benefits 0.4 0.5
----------------------------- ----- -----
Termination payments 1.4 -
----------------------------- ----- -----
Share-based payments - 0.8
----------------------------- ----- -----
6.9 7.6
----------------------------- ----- -----
Other related party transactions
As at the year-end there was a net balance of GBP1.1m (2017:
GBP2.0m) owed by the joint venture. These amounts are unsecured,
have no fixed date of repayment and are repayable on demand. There
were no sales by the group to joint ventures during the period.
27 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred was GBP1.9m (2017: GBP7.0m) and relates
to property, plant and equipment purchases.
Operating lease commitments
At the balance sheet date, the group's total commitments for
future minimum lease payments under non-cancellable operating
leases were as follows:
2018 2017
-------------------------------- --------------------------------
Plant, Plant,
Land and machinery Land and machinery
buildings and vehicles Total buildings and vehicles Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ------------- ----- ---------- ------------- -----
Payable within one year 14.6 6.5 21.1 13.1 5.8 18.9
Payable between one and five
years inclusive 33.1 6.5 39.6 36.6 5.6 42.2
----------------------------- ---------- ------------- ----- ---------- ------------- -----
Payable in over five years 6.1 - 6.1 7.1 - 7.1
----------------------------- ---------- ------------- ----- ---------- ------------- -----
53.8 13.0 66.8 56.8 11.4 68.2
----------------------------- ---------- ------------- ----- ---------- ------------- -----
28 Contingent liabilities
Claims against the group arise in the normal course of trading.
Some of these claims involve or may involve litigation and, in a
few instances, the total amounts claimed against the group may be
significant in relation to the size of the related contract.
However, the amounts agreed, if any, are generally less than the
total amount claimed, in many cases significantly so, and are
normally covered by the group's insurance arrangements.
The group has entered into bonds in the normal course of
business relating to contract tenders, advance payments, contract
performance, the release of retentions and the group's insurance
arrangements. The estimated financial effect of these bonds, apart
from the fees paid, is GBPnil (2017: GBPnil).
The Company and certain of its subsidiary undertakings have
entered into a number of guarantees in the ordinary course of
business, the effects of which are to guarantee or cross-guarantee
certain bank borrowings and other liabilities of other group
companies.
At 31 December 2018, the group had outstanding standby letters
of credit and surety bonds for the group's captive insurance
arrangements totalling GBP31.2m (2017: GBP32.8m).
The Company has provided a guarantee of certain subsidiaries'
liabilities to take the exemption from having to prepare individual
accounts under section 394A and section 394C of the Companies Act
2006 and exemption from having their financial statements audited
under sections 479A to 479C of the Companies Act 2006.
29 Share-based payments
The group operates a Long Term Incentive Plan ("Plan").
Outstanding awards are as follows:
Number
--------------------------------------------------- ---------
Outstanding at 1 January 2017 979,279
--------------------------------------------------- ---------
Granted during 2017 650,155
--------------------------------------------------- ---------
Lapsed during 2017 (281,400)
--------------------------------------------------- ---------
Outstanding at 31 December 2017 and 1 January 2018 1,348,034
--------------------------------------------------- ---------
Granted during 2018 668,297
--------------------------------------------------- ---------
Lapsed during 2018 (278,751)
--------------------------------------------------- ---------
Exercised during 2018 (97,863)
--------------------------------------------------- ---------
Outstanding at 31 December 2018 1,639,717
--------------------------------------------------- ---------
Exercisable at 1 January 2017 -
--------------------------------------------------- ---------
Exercisable at 31 December 2017 and 1 January 2018 -
--------------------------------------------------- ---------
Exercisable at 31 December 2018 -
--------------------------------------------------- ---------
The average share price during the year was 920.0p.
Under IFRS 2, the fair value of services received in return for
share awards granted is measured by reference to the fair value of
share options granted. The estimate of the fair value of share
awards granted is measured based on a stochastic model. The
contractual life of the award is used as an input into this model,
with expectations of early exercise being incorporated into the
model.
The inputs into the stochastic model are as follows:
2018 2017
-------------------------------- ------- -------
Share price at grant 1,036p 879p
-------------------------------- ------- -------
Weighted average exercise price 0.0p 0.0p
-------------------------------- ------- -------
Expected volatility 30.0% 31.0%
-------------------------------- ------- -------
Expected life 3 years 3 years
-------------------------------- ------- -------
Risk-free rate 0.68% 0.13%
-------------------------------- ------- -------
Expected dividend yield 0.00% 3.06%
-------------------------------- ------- -------
Expected volatility was determined by calculating the historical
volatility of the group's share price over the previous three
years, adjusted for any expected changes to future volatility due
to publicly available information.
The group recognised total expenses (included in operating
costs) of GBP1.4m (2017: GBP2.8m) related to equity-settled,
share-based payment transactions.
The weighted average fair value of options granted in the year
was 939.7p (2017: 681.2p).
30 Retirement benefit liabilities
The group operates pension schemes in the UK and overseas.
In the UK, the group operates the Keller Group Pension Scheme
('the Scheme'), a defined benefit scheme, which has been closed to
new members since 1999 and was closed to all future benefit accrual
with effect from 31 March 2006. Under the Scheme, employees are
normally entitled to retirement benefits on attainment of a
retirement age of 65. The Scheme is subject to UK pensions
legislation which, inter alia, provides for the regulation of
work--based pension schemes by the Pensions Regulator. The Trustees
are aware of and adhere to the Codes of Practice issued by the
Pensions Regulator. The Scheme Trustees currently comprise one
member-nominated Trustee and one employer-nominated Trustee. The
employer-nominated Trustee is also the Chair of the Trustees. The
Scheme exposes the group to actuarial risks, such as longevity
risk, interest rate risk and market (investment) risk, which are
managed through the investment strategy to acceptable levels. The
Scheme can invest in a wide range of asset classes including
equities, bonds, cash, property, alternatives (including private
equity, commodities, hedge funds, infrastructure, currency, high
yield debt and derivatives) and annuity policies. Any investment in
derivative instruments is only made to contribute to a reduction in
the overall level of risk in the portfolio or for the purposes of
efficient portfolio management. With effect from the most recent
actuarial valuation date (5 April 2017), the group has agreed to
pay annual contributions of GBP2.4m, to increase by 3.6% per annum,
until 5 January 2024, however the level of employer contributions
will be reviewed at the next actuarial review in 2020.
Between 1990 and 1997 the Scheme members accrued a Guaranteed
Minimum Pension ("GMP"). This amount differed between men and
women. On 26 October 2018 there was a court judgement (in the case
of Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank
PLC) that confirmed that GMP is to be made equal for men and women.
The estimated increase in the Scheme's liabilities is GBP1.3m,
which has been recognised as a past service cost in 2018 as a
charge to non-underlying items (note 8). The actual cost may differ
when the GMP equalisation exercise is complete.
The group has two UK defined contribution retirement benefit
schemes. There were no contributions outstanding in respect of
these schemes at 31 December 2018 (2017: GBPnil). The total UK
defined contribution pension charge for the year was GBP1.0m (2017:
GBP1.0m).
The group also has defined benefit retirement obligations in
Germany and Austria. Under these schemes, employees are entitled to
retirement benefits on attainment of a retirement age of 65,
provided they have 15 years of employment with the group. The
amount of benefit payable depends on the grade of employee and the
number of years of service, up to a maximum of 40 years. Benefits
under these schemes only apply to employees who joined the group
prior to 1991. These defined benefit retirement obligations are
funded on the group's balance sheet and obligations are met as and
when required by the group.
The group operates a defined contribution scheme for employees
in North America, where the group is required to match employee
contributions up to a certain level in accordance with the scheme
rules. The total North America pension charge for the year was
GBP5.5m (2017: GBP5.4m).
In Australia, there is a defined contribution scheme where the
group is required to ensure that a prescribed level of
superannuation support of an employee's notional base earnings is
made. This prescribed level of support is currently 9.5% (2017:
9.5%). The total Australian pension charge for the year was GBP5.1m
(2017: GBP4.1m).
Details of the group's defined benefit schemes are as
follows:
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) Schemes Schemes
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
---------------------------------------- -------------- -------------- ---------- ----------
Present value of the scheme liabilities (55.2) (58.9) (16.5) (16.4)
---------------------------------------- -------------- -------------- ---------- ----------
Present value of assets 45.2 46.1 - -
---------------------------------------- -------------- -------------- ---------- ----------
Deficit in the scheme (10.0) (12.8) (16.5) (16.4)
---------------------------------------- -------------- -------------- ---------- ----------
Irrecoverable surplus (1.4) - - -
---------------------------------------- -------------- -------------- ---------- ----------
Net defined benefit liability (11.4) (12.8) (16.5) (16.4)
---------------------------------------- -------------- -------------- ---------- ----------
Based on the net deficit of the Keller Group Pension Scheme as
at 31 December 2018 and the committed payments under the Schedule
of Contributions signed on 15 June 2018, there is a notional
surplus of GBP1.4m. Management is of the view that, based on the
scheme rules, it does not have an unconditional right to a refund
of surplus under IFRIC 14, and therefore an additional balance
sheet liability in respect of a 'minimum funding requirement' of
GBP1.4m has been recognised.
The value of the scheme liabilities has been determined by the
actuary using the following assumptions:
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) Schemes Schemes
2018 2017 2018 2017
% % % %
------------------------------------------ -------------- -------------- ---------- ----------
Discount rate 2.9 2.5 1.55 1.4
------------------------------------------ -------------- -------------- ---------- ----------
Interest on assets 2.9 2.5 n/a n/a
------------------------------------------ -------------- -------------- ---------- ----------
Rate of increase in pensions in payment 3.55 3.45 2.0 2.0
------------------------------------------ -------------- -------------- ---------- ----------
Rate of increase in pensions in deferment 3.5 3.4 2.0 2.0
------------------------------------------ -------------- -------------- ---------- ----------
Rate of inflation 3.5 3.4 2.0 2.0
------------------------------------------ -------------- -------------- ---------- ----------
The mortality rate assumptions are based on published
statistics. The average remaining life expectancy, in years, of a
pensioner retiring at the age of 65 at the balance sheet date
is:
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) Schemes Schemes
2018 2017 2018 2017
------------------------- -------------- -------------- ---------- ----------
Male currently aged 65 22.2 22.4 20.6 19.3
------------------------- -------------- -------------- ---------- ----------
Female currently aged 65 23.6 23.8 24.0 23.3
------------------------- -------------- -------------- ---------- ----------
The assets of the schemes were as follows:
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) Schemes Schemes
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
-------------------- -------------- -------------- ---------- ----------
Equities 14.2 14.8 - -
-------------------- -------------- -------------- ---------- ----------
Target return funds 12.7 12.4 - -
-------------------- -------------- -------------- ---------- ----------
Gilts 9.5 9.5 - -
-------------------- -------------- -------------- ---------- ----------
Bonds 8.7 9.2 - -
-------------------- -------------- -------------- ---------- ----------
Cash 0.1 0.2 - -
-------------------- -------------- -------------- ---------- ----------
45.2 46.1 - -
-------------------- -------------- -------------- ---------- ----------
The Keller The Keller German and German and
Group Pension Group Pension Austrian Austrian
Scheme (UK) Scheme (UK) Schemes Schemes
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
---------------------------------------------- -------------- -------------- ---------- ----------
Changes in scheme liabilities
---------------------------------------------- -------------- -------------- ---------- ----------
Opening balance (58.9) (58.4) (16.4) (16.4)
---------------------------------------------- -------------- -------------- ---------- ----------
Current service cost - - (0.4) (0.3)
---------------------------------------------- -------------- -------------- ---------- ----------
Past service cost in respect of GMP (note
8) (1.3) - - -
---------------------------------------------- -------------- -------------- ---------- ----------
Interest cost (1.4) (1.6) (0.2) (0.2)
---------------------------------------------- -------------- -------------- ---------- ----------
Benefits paid 2.7 3.0 0.8 0.8
---------------------------------------------- -------------- -------------- ---------- ----------
Exchange differences - - (0.3) (0.4)
---------------------------------------------- -------------- -------------- ---------- ----------
Experience gain on defined benefit obligation - 0.8 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Changes to demographic assumptions 0.3 (1.1) - -
---------------------------------------------- -------------- -------------- ---------- ----------
Changes to financial assumptions 3.4 (1.6) - 0.1
---------------------------------------------- -------------- -------------- ---------- ----------
Closing balance (55.2) (58.9) (16.5) (16.4)
---------------------------------------------- -------------- -------------- ---------- ----------
Changes in scheme assets
---------------------------------------------- -------------- -------------- ---------- ----------
Opening balance 46.1 43.4 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Interest on assets 1.1 1.1 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Administration costs (0.2) (0.2) - -
---------------------------------------------- -------------- -------------- ---------- ----------
Employer contributions 2.4 1.6 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Benefits paid (2.7) (3.0) - -
---------------------------------------------- -------------- -------------- ---------- ----------
Return on plan assets less interest (1.5) 3.2 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Closing balance 45.2 46.1 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Actual return on scheme assets (0.4) 4.3 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Statement of comprehensive income
---------------------------------------------- -------------- -------------- ---------- ----------
Return on plan assets less interest (1.5) 3.2 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Experience gain on defined benefit obligation - 0.8 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Changes to demographic assumptions 0.3 (1.1) - -
---------------------------------------------- -------------- -------------- ---------- ----------
Changes to financial assumptions 3.4 (1.6) - 0.1
---------------------------------------------- -------------- -------------- ---------- ----------
Change in irrecoverable surplus (1.4) - - -
---------------------------------------------- -------------- -------------- ---------- ----------
Remeasurements of defined benefit plans 0.8 1.3 - 0.1
---------------------------------------------- -------------- -------------- ---------- ----------
Cumulative remeasurements of defined
benefit plans (23.6) (24.4) (7.0) (7.0)
Expense recognised in the income statement
---------------------------------------------- -------------- -------------- ---------- ----------
Current service cost - - 0.4 0.3
---------------------------------------------- -------------- -------------- ---------- ----------
Past service cost in respect of GMP (note
8) 1.3 - - -
---------------------------------------------- -------------- -------------- ---------- ----------
Administration costs 0.2 0.2 - -
---------------------------------------------- -------------- -------------- ---------- ----------
Operating costs 1.5 0.2 0.4 0.3
---------------------------------------------- -------------- -------------- ---------- ----------
Net pension interest cost 0.3 0.5 0.2 0.2
---------------------------------------------- -------------- -------------- ---------- ----------
Expense recognised in the income statement 1.8 0.7 0.6 0.5
Movements in the balance sheet liability
---------------------------------------------- -------------- -------------- ---------- ----------
Net liability at start of year 12.8 15.0 16.4 16.4
---------------------------------------------- -------------- -------------- ---------- ----------
Expense recognised in the income statement 1.8 0.7 0.6 0.5
---------------------------------------------- -------------- -------------- ---------- ----------
Employer contributions (2.4) (1.6) - -
---------------------------------------------- -------------- -------------- ---------- ----------
Benefits paid - - (0.8) (0.8)
---------------------------------------------- -------------- -------------- ---------- ----------
Exchange differences - - 0.3 0.4
---------------------------------------------- -------------- -------------- ---------- ----------
Remeasurements of defined benefit plans (0.8) (1.3) - (0.1)
---------------------------------------------- -------------- -------------- ---------- ----------
Net liability at end of year 11.4 12.8 16.5 16.4
---------------------------------------------- -------------- -------------- ---------- ----------
A reduction in the discount rate of 0.1% would increase the
deficit in the schemes by GBP1.1m, whilst a reduction in the
inflation assumption of 0.1%, including its impact on the
revaluation in deferment and pension increases in payment, would
decrease the deficit by GBP0.7m. An increase in the mortality rate
by one year would increase the deficit in the schemes by
GBP3.3m.
The weighted average duration of the defined benefit obligation
is approximately 17 years for the UK scheme and 12 years for the
German and Austrian schemes.
The history of experience adjustments on scheme assets and
liabilities for all the group's defined benefit pension schemes are
as follows:
2018 2017 2016 2015 2014
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------ ------ ------
Present value of defined benefit
obligations (71.7) (75.3) (74.8) (61.3) (63.6)
--------------------------------- ------ ------ ------ ------ ------
Fair value of scheme assets 45.2 46.1 43.4 38.2 38.2
--------------------------------- ------ ------ ------ ------ ------
Deficit in the schemes (26.5) (29.2) (31.4) (23.1) (25.4)
--------------------------------- ------ ------ ------ ------ ------
Irrecoverable surplus (1.4) - - - -
--------------------------------- ------ ------ ------ ------ ------
Net defined benefit liability (27.9) (29.2) (31.4) (23.1) (25.4)
--------------------------------- ------ ------ ------ ------ ------
Experience adjustments on scheme
liabilities 3.7 (1.8) (11.3) 1.6 (5.7)
--------------------------------- ------ ------ ------ ------ ------
Experience adjustments on scheme
assets (1.5) 3.2 3.9 (1.3) 1.6
--------------------------------- ------ ------ ------ ------ ------
31. Post balance sheet events
In February 2019, GBP3.4m of proceeds were received on
settlement of a contributory claim relating to the 2014 exceptional
contract dispute. This will be recognised as exceptional other
operating income in 2019 as the receipt of these proceeds was not
considered virtually certain as at 31 December 2018.
Adjusted performance measures
The group's results as reported under International Financial
Reporting Standards (IFRS) and presented in the financial
statements (the 'statutory results') are significantly impacted by
movements in exchange rates relative to sterling, as well as by
exceptional items and non-trading amounts relating to
acquisitions.
As a result, adjusted performance measures have been used
throughout the Annual Report and Accounts to describe the group's
underlying performance. The Board and Executive Committee use these
adjusted measures to assess the performance of the business because
they consider them more representative of the underlying ongoing
trading result and allow more meaningful comparison to prior
year.
Underlying measures
The term 'underlying' excludes the impact of items which are
exceptional by their size or are non-trading in nature, including
amortisation of acquired intangible assets and other non-trading
amounts relating to acquisitions (collectively 'non-underlying
items'), net of any associated tax. Underlying measures allow
management and investors to compare performance without the
potentially distorting effects of one-off items or non-trading
items. Non-underlying items are disclosed separately in the
financial statements where it is necessary to do so to provide
further understanding of the financial performance of the
group.
Constant currency measures
The constant currency basis ('constant currency') adjusts the
comparative to exclude the impact of movements in exchange rates
relative to sterling. This is achieved by retranslating the 2017
results of overseas operations into sterling at the 2018 average
exchange rates.
A reconciliation between the underlying results and the reported
statutory results is shown on the face of the consolidated income
statement, with non-underlying items detailed in note 8. A
reconciliation between the 2017 underlying result and the 2017
constant currency result is shown below and compared to the
underlying 2018 performance:
Revenue by segment
2018 2017
--------- -------------------------------- --------- ---------
Impact of Constant
exchange Constant Statutory currency
Statutory Statutory movements currency change change
GBPm GBPm GBPm GBPm % %
-------------- --------- --------- ---------- --------- --------- ---------
North America 1,161.4 968.7 (29.5) 939.2 +20% +24%
-------------- --------- --------- ---------- --------- --------- ---------
EMEA 668.2 737.2 (12.0) 725.2 -9% -8%
-------------- --------- --------- ---------- --------- --------- ---------
APAC 394.9 364.7 (16.6) 348.1 +8% +13%
-------------- --------- --------- ---------- --------- --------- ---------
Group 2,224.5 2,070.6 (58.1) 2,012.5 +7% +11%
-------------- --------- --------- ---------- --------- --------- ---------
Underlying operating profit by segment
2018 2017
---------- --------------------------------- ---------- ---------
Impact of Constant
exchange Constant Underlying currency
Underlying Underlying movements currency change change
GBPm GBPm GBPm GBPm % %
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
North America 78.6 78.7 (2.4) 76.3 - +3%
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
EMEA 39.7 53.3 (1.3) 52.0 -26% -24%
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
APAC (18.0) (16.5) 0.2 (16.3) -9% -10%
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
Central items and eliminations (3.7) (6.8) - (6.8) 46% 46%
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
Group 96.6 108.7 (3.5) 105.2 -11% -8%
------------------------------- ---------- ---------- ---------- --------- ---------- ---------
Underlying operating margin
Underlying operating margin is underlying operating profit as a
percentage of revenue.
Other adjusted measures
Where not presented and reconciled on the face of the
consolidated income statement, consolidated balance sheet or
consolidated cash flow statement, the adjusted measures are
reconciled to the IFRS statutory numbers below:
EBITDA
2018 2017
GBPm GBPm
----------------------------------------------- ------ -----
Underlying operating profit 96.6 108.7
----------------------------------------------- ------ -----
Depreciation of property, plant and equipment 69.7 67.3
----------------------------------------------- ------ -----
Amortisation of intangible assets 1.2 1.2
----------------------------------------------- ------ -----
Underlying EBITDA 167.5 177.2
----------------------------------------------- ------ -----
Non-underlying items in operating costs (64.2) (1.6)
----------------------------------------------- ------ -----
Non-underlying items in other operating income 0.5 23.2
----------------------------------------------- ------ -----
EBITDA 103.8 198.8
----------------------------------------------- ------ -----
EBITDA on a covenant basis
2018
GBPm
------------------------------------------------------- -----
Underlying EBITDA 167.5
------------------------------------------------------- -----
Estimated adjustment to include 12 months' EBITDA from
acquisitions 2.8
------------------------------------------------------- -----
EBITDA on a covenant basis 170.3
------------------------------------------------------- -----
Net finance costs
2018 2017
GBPm GBPm
----------------------------- ----- -----
Finance income (0.6) (3.8)
----------------------------- ----- -----
Underlying finance costs 16.7 13.8
----------------------------- ----- -----
Underlying net finance costs 16.1 10.0
----------------------------- ----- -----
Non-underlying finance costs 0.5 0.7
----------------------------- ----- -----
Net finance costs 16.6 10.7
----------------------------- ----- -----
Net capital expenditure
2018 2017
GBPm GBPm
---------------------------------------------------- ----- ------
Acquisition of property, plant and equipment 85.1 84.2
---------------------------------------------------- ----- ------
Acquisition of other intangible assets 0.5 0.8
---------------------------------------------------- ----- ------
Proceeds from sale of property, plant and equipment (8.5) (10.5)
---------------------------------------------------- ----- ------
Net capital expenditure 77.1 74.5
---------------------------------------------------- ----- ------
Net debt
2018 2017
GBPm GBPm
--------------------------------- ------- ------
Current loans and borrowings 42.8 48.3
--------------------------------- ------- ------
Non-current loans and borrowings 353.9 248.9
--------------------------------- ------- ------
Cash and cash equivalents (110.5) (67.7)
--------------------------------- ------- ------
Net debt 286.2 229.5
--------------------------------- ------- ------
Order book
The group's disclosure of its order book is aimed to provide
insight into its backlog of work and future performance. The
group's order book is not a measure of past performance and
therefore cannot be derived from its financial statements. The
group's order book comprises the unexecuted elements of orders on
contracts that have been awarded. Where a contract is subject to
variations, only secured variations are included in the reported
order book.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FXLLBKXFXBBZ
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