15 April 2020
Keller Group plc
Annual Report and Financial Statements
for the year ended 31 December 2019
and Notice of 2020 Annual General Meeting
Keller Group plc, the world’s largest geotechnical specialist
contractor, announces that its Annual General Meeting will be held
at 11.00am on Thursday 21 May 2020 at the offices of DLA Piper UK LLP,
160 Aldersgate Street, London EC1A
4HT.
In connection with this, the following documents have been
posted or made available to shareholders:
· Annual Report and Accounts for
the year ended 31 December 2019
("Annual Report")
· Notice of Annual General
Meeting
· Proxy Form (in the case of
shareholders on the register of members)
Copies of these documents have been submitted to the Financial
Conduct Authority’s Electronic Submission System.
Copies of the Annual Report and Notice of Annual General Meeting
are now available to view on the Company's corporate website at
www.keller.com.
In accordance with DTR 6.3.5, this announcement contains
information in the attached Appendix of the principal risk factors,
the directors’ responsibility statement and a note to the accounts
on related party transactions. This information has
been extracted in full unedited text from the Annual Report
2019. References to page numbers and notes in the Appendix
refer to those in the Annual Report 2019. A condensed set of
financial statements was appended to Keller Group plc's preliminary
results announcement issued on 3 March
2020.
For further information, please contact:
Keller Group plc
www.keller.com
Kerry Porritt, Group Company
Secretary and Legal
Advisor
020 7616 7575
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 £2bn.
LEI number:
549300QO4MBL43UHSN10
Classification: 1.1
Appendix
Unedited extract from Annual Report 2019
Principal risks and uncertainties
The table below lists the principal risks and uncertainties as
determined by the Board that may affect the group and highlights
the mitigating actions that are being taken. The content of the
table, however, is not intended to be an exhaustive list of all the
risks and uncertainties that may arise.
Key: Strategy lever
1 Balanced portfolio
2 Engineered solutions
3 Operational excellence
4 Expertise and scale
Key: Movement in risk
Increased risk
Reduced risk
Constant risk
Link to viability
Financial
risk |
|
|
|
|
|
|
Risk |
|
Potential impact |
|
Demonstrable mitigation |
|
Explanation of risk movement
(since 2018) |
Inability to finance
our business
Insufficient levels of funding, whether from operating cash flow or
external financing facilities, that are necessary to support the
business.
Link to strategic lever: 3, 4 |
|
A lack of available
funds restricts investment in growth opportunities, whether through
acquisition or innovation.
In an extreme circumstance, the lack of available funds could lead
to a failure of the group to continue as a going concern. |
|
Mixture of long-term
committed debt with varying maturity dates which comprise a £375m
revolving credit facility with a maturity of November 2024 and a US
private placement debt of $125m ($50m note maturing in 2021 and
$75m note maturing in 2024).
Active and open communication with the revolving credit facility
banking group ensures that it understands the group’s financial
performance and is supportive of funding requirements.
Strong free cash flow profile with the ability to turn off capital
expenditure and reduce dividends.
Embedded procedures to monitor the effective management of cash and
debt, including weekly cash reports and regular cash flow
forecasting to ensure compliance with borrowing limits and lender
covenants.
Culture focused on actively managing our working capital; the
annual bonus plan is linked to executive remuneration through an
operating cash flow metric.
Monitoring of and response to external factors that may affect
funding availability; in anticipation of a less stable global
economic environment, the Board announced in March 2018 reduced
leverage guidance from 1.5x-2.0x to 1.0x-1.5x. |
|
Constant
risk
Link to viability |
Market risk |
|
|
|
|
|
|
Risk |
|
Potential impact |
|
Demonstrable mitigation |
|
Explanation of risk movement
(since 2018) |
A rapid
downturn in our markets
Inability to maintain a sustainable level of financial performance
throughout the construction industry market cycle which grows more
than many other industries during periods of economic expansion and
falls more harder than many other industries when the economy
contracts.
Link to strategic lever: 1, 2 |
|
Reduction in the demand
for our products and services may lead to a significant
deterioration in financial performance, including cash flow
generation.
In an extreme circumstance, reduced cash flow generation could lead
to a failure of the group to continue as a going concern. |
|
The diverse markets in
which the group operates, both in terms of geography and market
segment, provide protection to individual geographic or segment
slowdowns.
Having strong local businesses with in-depth knowledge of the local
markets enables early detection and response to market trends.
Leveraging the global scale of the group, talent and resources can
be redeployed to other parts of the company during individual
market slowdowns.
The diverse customer base, with no single customer more than 5% of
group revenue, reduces the potential impact of individual customer
failure caused by an economic downturn. |
|
Constant
risk
Link to viability |
Strategic risk |
|
|
|
|
|
|
Risk |
|
Potential impact |
|
Demonstrable mitigation |
|
Explanation of risk movement
(since 2018) |
Failure to procure
new contracts on satisfactory terms
Increasing competition, changing customer requirements or a loss of
technological advantage results in a failure to continue to win and
retain contracts on satisfactory terms and conditions in our
existing and new target markets.
Link to strategic lever: 1, 2, 3, 4 |
|
Failure to negotiate
satisfactory and appropriate contractual terms may result in delays
and disputes during project delivery, negatively impacting our
relationships with our customers and the group’s reputation for
delivering quality products and solutions.
Inability to enter into commercially viable contracts may have a
negative effect on the profitability of our projects and prevent
the group from achieving its targets. |
|
A focus on
understanding customers’ requirements and competitors’
capabilities.
Structured bid review processes in operation throughout the group
with well-defined selection criteria that are designed to ensure we
take on contracts only where we understand and can manage the risks
involved.
The Project Lifecycle Management (PLM) Standard has introduced more
rigour into how risks are considered during the opportunity,
contract approval and project execution phases.
Sales training, which includes a focus on contractual and
commercial terms. |
|
Constant
risk |
Losing our market
share
Inability to achieve sustainable growth, whether through
acquisition, new products, new geographies or industry-specific
solutions may jeopardise our position as the preferred
international geotechnical specialist contractor.
Link to strategic lever: 1, 2 |
|
Delivering sustainable growth is a
key component of our strategy. Failure to deliver on our key
strategic objective may result in the loss of confidence and trust
of our key stakeholders including investors, financial institutions
and customers. |
|
A clear business
strategy with defined short-, medium- and long-term objectives,
which is monitored at local, divisional and group level.
Continued analysis of existing and target markets to ensure
opportunities that they offer are understood.
An opportunities pipeline covering all sectors of the construction
market.
A wide-ranging local branch network which facilitates customer
relationships and helps secure repeat work.
Continually seeking to differentiate our offering through service
quality, value for money and innovation.
Minimising the risk of acquisitions, including getting to know a
target company in advance, often working in joint venture, to
understand the operational and cultural differences and potential
synergies. As well as undertaking these through due diligence and
structured and carefully managed integration plans. |
|
Constant
risk
Link to viability |
Ethical misconduct
and non-compliance with regulations
Keller operates in many different jurisdictions and is subject to
various rules, regulations and other legal requirements including
those related to anti-bribery and anti-corruption. There is a risk
that the group fails to maintain the required level of
compliance.
Link to strategic lever: 3, 4 |
|
Non-compliance with
relevant laws and regulations could lead to substantial damage to
Keller’s reputation and/or large financial penalties.
Losing the trust of our customers, suppliers and other stakeholders
would have an adverse effect on our ability to deliver against our
strategy and business objectives. |
|
A Code of Business
Conduct that sets out minimum expectations for all colleagues in
respect of ethics, integrity and regulatory requirements and is
backed by a training programme to ensure that it is fully embedded
across the group.
A clear and confidential externally run ‘whistleblowing’ facility
encouraging employees to report any suspected misconduct.
An Ethics and Compliance Officer at every business unit who
supports the ethics and compliance culture and ensures best
practice developed by the group is communicated and embedded into
local business practices.
Regular workshops across the group to ensure compliance risks are
identified and addressed.
See page 37 for detailed mitigations of health and safety
risks. |
|
Reduced risk
Link to viability
Strengthened communication of Keller’s tone at the top and a
renewed focus on risk management and internal control have
decreased the exposure of this risk. |
Inability to
maintain our technological advantage
Keller has a history of innovation that has given us a
technological advantage which is recognised by our clients and
competitors. Inability to maintain this advantage through the
continued technological advancements in our equipment, products and
solutions may impact our position in the market.
Link to strategic lever: 1, 2 |
|
Without a structured innovation
approach, including sufficient investment, Keller may lose its
completive advantage. |
|
The Keller Innovation
Board works closely with business units, divisions and global
product teams to ensure a structured approach to innovation is in
place across the group.
The Keller Innovation Conference was an important milestone to help
make existing innovation activities not only more transparent, but
also more focused, coordinated and quicker to implement in the
future.
KDAQ, a group-wide innovation project, will bring information
together and make it accessible in one simple and concise platform.
It will include all technical information from Keller and
third-party sources at each stage of delivery, including data
analysis and visualisations where possible, and it will also be
BIM-compatible. |
|
New risk
Keller’s ability to innovate is essential to its operating
model. |
Changing
environmental factors
Changes in environmental legislation and relevant standards that
impact our product and service offerings and an increasingly active
public response to environmental concerns in the sectors in which
we operate.
Link to strategic lever: 3 |
|
Inability to achieve
Keller’s commitment to deliver solutions in an environmentally
conscious manner may have a negative impact on our reputation,
affect employee morale and lead to loss of confidence from our
customers, suppliers and investors.
Product offerings become obsolete because they are no longer
compliant with environmental standards. We may be required to
remediate at our own cost to attain compliance. |
|
The group collaborates
with the University of Surrey’s Centre for Environment and
Sustainability to apply sustainability best practice to all
business functions.
A Sustainability Steering Group is responsible for integrating
sustainability targets and measures into the group business plan to
successfully drive changes important to the company.
Further details can be found in the sustainability report on pages
39 to 46. |
|
New risk
An increasingly active public response to environmental concerns in
the sectors in which we operate. |
Operational risk |
|
|
|
|
|
|
Risk |
|
Potential impact |
|
Demonstrable mitigation |
|
Explanation of risk movement
(since 2018) |
Service or solutions
failure
In designing a product or a solution for customers many factors
need to be considered including client requirements, site and
loading conditions and local constraints (eg neighbouring
buildings, other underground structures). Inadequate design of a
customer product and/or solution may lead to an inability to
achieve the required standard.
Misinterpretation of client requirements or miscommunication of
requirements by the client may lead to a poorly designed solution
and consequently failure.
Link to strategic lever: 2, 4 |
|
Failure to meet quality
standards could damage our reputation, result in regulatory action
and legal liability, and impact financial performance.
The liability limitation period of our products is generally 12
years; consequently, a poorly designed product/solution could have
an impact on our long-term profitability. |
|
Continuing to enhance
our technological and operational capabilities through investment
in our product teams, project managers and our engineering
capabilities.
Employing geotechnical engineers that are focused purely on
design.
The global product teams set standards, provide guidance and
disseminates best practice across the organisation for our 10 key
products.
We seek to agree liability limits in our contracts with
customers.
Insurance solutions are in place to limit financial exposure of a
potential customer claim. |
|
Constant risk
Link to viability |
Ineffective
execution of our projects
Failure to manage our projects to ensure that they are delivered on
time and to budget due to unforeseen ground and site conditions,
weather-related delays, unavailability of key materials, workforce
shortages or equipment breakdowns.
Link to strategic lever: 3, 4 |
|
Inability to
successfully deliver projects in line with the agreed customer
requirements may result in cost overruns, contractual disputes and
reputational damage.
Ineffective project delivery may also expose the company to
long-term obligations including legal action and additional costs
to remedy solution failure. |
|
Ensuring we understand
all of our risks through the bid appraisal process and applying
rigorous policies and processes to manage and monitor contract
performance.
Ensuring we have high-quality people delivering projects. Keller’s
Project Management Academy is designed to create project managers
with a consistent skill set across the entire organisation. The
Academy covers a broad range of topics including contract
management, planning, risk assessment, change management,
decision-making and finance.
The new KDAQ system will collect, process and visualise data from
any equipment; enabling comparison of performance across sites
using similar products, identification of areas of best practice
and quickly raising awareness of where improvement is needed.
The PLM Standard introduces a consistent approach to project
delivery with robust controls at every project phase.
A formal, structured approach to LEAN across the organisation is
being embedded, which is improving processes and strengthening
Keller’s working culture. |
|
Constant risk
Link to viability |
Causing a serious
injury or fatality to an employee or a member of the public
Failure to maintain high standards of health and safety, and an
increase in serious injuries or fatalities leading to an erosion of
trust of employees and potential clients.
Link to strategic lever: 3 |
|
Inability to maintain a
positive health and safety culture may lead to damage to morale, an
increase in employee turnover rates and a decrease in
productivity.
Deterioration in health and safety performance may lead to loss of
customer, supplier and partner confidence and damage to our
reputation in an area that we regard as a top priority. |
|
A Board-led commitment
to drive health and safety programmes and performance with a vision
of zero harm.
An emphasis on safety leadership to ensure both HSEQ professionals
and operational leaders drive implementation and sustainment of our
safety standards through ongoing site presence, using safety tours,
safety audits, safety action groups and mandatory employee
training.
Ongoing improvement of existing HSEQ systems to identify and
control known and emerging HSEQ risks, which conform to internal
standards.
The new Incident Management Standard and incident management
software will drive a robust and consistent management process
across the organisation that ensures the cause of the incident is
identified and actions are put in place to prevent recurrence. |
|
Constant risk
Link to viability |
Not having the right
skills to deliver
Inability to attract and develop excellent people to create a
high-quality, vibrant, diverse and flexible workforce.
Link to strategic lever: 2, 3, 4 |
|
Failure to maintain satisfactory
performance in respect of our current projects and failure to
deliver our strategy and business targets for growth. |
|
Continuing to invest in
our people and organisation in line with the four pillars of the
Keller People agenda as noted below.
Ensuring that the ‘Right Organisation’ is in place with people
having clear accountabilities; each organisational unit is properly
configured with a matrix of line management, functional support,
and product expertise.
As industry leader, that Keller is made up of ‘Great People’ that
are well trained, motivated and have opportunities to develop to
their full potential. Project Managers and field employees receive
comprehensive training programmes which cover a broad range of
topics including contract management, planning, risk assessment,
change management, decision?making and finance.
A strong focus on the ‘Exceptional Performance’ of employees in
delivering commercial outcomes safely for Keller based upon project
successes for our customers. Business leaders are incentivised to
deliver their annual financial and safety commitments to the
group.
The ‘Keller Way’ provides guidance to the company’s employees and
leaders to comply with local laws and work within Keller’s values
and Code of Business Conduct. |
|
Increased
risk
We are seeing increased competition for skilled construction and
engineering resources, in particular in our North American
market. |
Loss of security of
our data and systems
Information security and cyber threats are a concern across
industries worldwide. The introduction of digital solutions such as
InSite and KDAQ increases the group’s reliance on IT and its
inherent cyber risk exposure.
Link to strategic lever: 3, 4 |
|
A cyber security breach could result
in leakage of proprietary information, operational disruptions, and
loss of employee and customer data. |
|
A dedicated cyber
security team has been established to monitor and respond to
potential incidents.
Multi-factor authentication for all users prevents unauthorised
access to Keller’s networks and applications.
Advanced threat protection on all IT equipment delivers
comprehensive, ongoing and real-time protection against viruses,
malware and spyware.
A data protection framework ensures compliance with the General
Data Protection Regulation. |
|
New risk
The introduction of digital solutions such as InSite and KDAQ
increases the group’s reliance on IT and its inherent cyber risk
exposure. |
Responsibility statement of the
Directors in respect of the Annual Report and the financial
statements
We confirm that to the best of our knowledge:
- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
as a whole; and
- The Strategic report and Directors’ report, including content
contained by reference, includes a fair review of the development
and performance of the business and the position and performance of
the company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
The Board confirms that the Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s
position and performance, business model and strategy.
27 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:
|
2019
£m |
2018
£m |
Short-term employee benefits |
5.4 |
5.1 |
Post-employment benefits |
0.4 |
0.4 |
Termination payments |
0.2 |
1.4 |
|
6.0 |
6.9 |
Other related party transactions
As at the year end there was a net balance of £0.2m owed to
(2018: £1.1m 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 year (2018: none).
During the year two members of management acquired the right to
purchase the Cyntech Anchors business at a fixed price over the
next five years at their option.