TIDMKLR
RNS Number : 9898D
Keller Group PLC
08 March 2022
8 March 2022
Keller Group plc Audited Preliminary Results for the year ended
31 December 2021
Keller Group plc ('Keller' or 'the Group'), the world's largest
geotechnical specialist contractor, announces its results for the
year ended 31 December 2021.
A strong and resilient performance ahead of market
expectations
2021 2020 Constant currency
GBPm GBPm % change % change
-------- -------- -----------
Revenue 2,224.4 2,062.5 +8% +13%
Underlying operating profit(1) 92.8 110.1 -16% -10%
Underlying operating profit margin(1) 4.2% 5.3% -110bps n/a
Underlying profit before tax(1) 83.9 96.9 -13% -6%
Underlying diluted earnings per share(1) 88.4p 96.3p -8%
Free cash flow 60.1 134.2 -55%
Net debt (bank covenant IAS 17 basis) (2) 119.4 120.9 -1%
Dividend per share 35.9p 35.9p -
Statutory operating profit 80.5 77.0
Statutory profit before tax 71.6 63.8
Statutory diluted earnings per share 86.1p 58.5p
Net cash inflow from operating activities 155.7 210.5
Statutory net debt (IFRS 16 basis) 193.3 192.5
------------------------------------------- -------- -------- ----------- ------------------
(1) Underlying operating profit, profit before tax and
underlying diluted earnings per share are non-statutory measures
which provide readers of this announcement with a balanced and
comparable view of the Group's performance by excluding the impact
of non-underlying items, as disclosed in note 8 of the consolidated
financial statements
(2) Net debt is presented on a lender covenant basis excluding
the impact of IFRS 16 as disclosed within the adjusted performance
measures in the consolidated financial statements
Highlights
-- Revenue increased to GBP2,224.4m, up 13% (at constant
currency) as a result of increased trading activity, particularly
during the second half, and several bolt-on acquisitions (up 9.7%
on an organic basis)
-- Record order book at GBP1.3bn; well positioned for future growth
-- Underlying operating profit of GBP92.8m, ahead of market
expectations, but down 10% (at constant currency) reflecting
adverse pressure on market pricing, operational disruption due to
COVID-19 and unrecovered steel price increases at Suncoast
-- Underlying EPS of 88.4p, down 8%, decline mitigated by lower
finance costs and a prior year benefit from R&D tax credit
-- After funding acquisitions, net debt (on a bank covenant IAS
17 basis) marginally improved to GBP119.4m, equating to net
debt/EBITDA leverage ratio of 0.8x (2020: 0.7x)
-- Further progress in operational safety evidenced by a 42%
improvement in our overall accident frequency rate
-- Net zero targets set across all three emission scopes by
2050; net zero on Scope 2 by 2030, net zero on Scope 1 by 2040 and
net zero by 2050 on Operational Scope 3
-- Further execution of strategy with portfolio refinement and
several acquisitions that build our share in our chosen markets,
particularly RECON Services, Inc in North America
-- Recommended final dividend of 23.3p, continuing the Group's
uninterrupted track record of increasing or maintaining dividends
every year since flotation in 1994 and reflecting the financial
strength of the Group
Michael Speakman, Chief Executive Officer, said:
"Keller proved its resilience in 2021, overcoming the many
challenges posed by COVID-19 whilst further rationalising the
business portfolio, completing a number of bolt-on acquisitions,
delivering another strong set of results which are ahead of market
expectations, and maintaining the dividend. Whilst we are mindful
of the recently increased geopolitical and macroeconomic
uncertainty and inflationary pressures, our expectations for 2022
are unchanged. Our GBP1.3bn record order book gives us good
visibility in the near term. In addition, our strong balance sheet,
a gradually improving market environment together with the positive
momentum in the business, gives us confidence that 2022 will be a
year of growth, with our usual second half bias."
For further information, please contact:
Keller Group plc www.keller.com
Michael Speakman, Chief Executive Officer 020 7616 7575
David Burke, Chief Financial Officer
Caroline Crampton, Group Head of Investor Relations
FTI Consulting
Nick Hasell 020 3727 1340
Matthew O'Keeffe
A webcast for investors and analysts will be held at 09.00 GMT
on 8 March 2022
and will also be available later the same day on demand
https://www.investis-live.com/keller/61fcf5efd99fcd0c0000e9b9/defu
Conference call: Accessing the telephone replay:
Participants joining by telephone: A recording will be available until
UK: 0800 640 6441 15 March 2022
UK: (Local) 020 3936 2999 UK: 020 3936 3001
All other locations: +44 20 3936 USA: 1 845 709 8569
2999 All other locations: +44 20 3936
Participant access code: 665534 3001
Access Code: 785278
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 five continents,
Keller tackles an unrivalled 6,000 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
Principal risks and uncertainties 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)
Adjusted performance measures
In addition to statutory measures, a number of adjusted
performance measures (APMs) are included in this Preliminary
Announcement to assist investors in gaining a clearer understanding
and balanced view of the Group's underlying results and in
comparing performance. These measures are consistent with how
business performance is measured internally.
The APMs used include underlying operating profit, underlying
earnings before interest, tax, depreciation and amortisation,
underlying net finance costs, underlying profit before tax and
underlying earnings per share, free cash flow, each of which
represent the relevant statutory measure adjusted to eliminate the
amortisation of acquired intangibles and other significant one-off
items not linked to the underlying performance of the business.
Further underlying constant exchange rate measures are given which
eliminate the impact of currency movements by comparing the current
measure against the comparative restated at this year's actual
average exchange rates. Where APMs are given, these are compared to
the equivalent measures in the prior year.
APMs are reconciled to the statutory equivalent in the adjusted
performance measures section in this Announcement.
Chief Executive Officer's review
Overview
In a year that has seen COVID-19 continue to challenge our
business in so many ways, I am proud of how the Keller team have
worked together, demonstrating resilience and agility in
safeguarding our people, while supporting the continuing
performance and development of our business. We have had a
successful year, delivering financial results ahead of market
expectations and successfully executing our strategy in very
challenging market conditions. We also made further progress in
operational safety, with a 42% improvement in our overall accident
frequency rate.
As we predicted in the summer of 2020, the effect of the
COVID-19 pandemic impacted Keller most markedly in 2021, later than
other sectors, evidenced by reduced market demand and an associated
operating margin compression. We anticipated correctly the timing
of the inflection point marking the upturn in demand at around the
half way point in the year. We delivered a stronger volume growth
than anticipated, particularly in the second half, with significant
contract wins and helped by acquisitions, both of which will
benefit performance in 2022. However, our 2021 operating profit was
negatively impacted, primarily by the COVID-19 adverse pressure on
market pricing and operational disruption. Although the Group has
suffered higher material and wage inflation, our businesses have
been largely successful in passing the majority of these increased
costs to our customers, with the exception of steel strand in the
Suncoast High-Rise business.
Notwithstanding the tougher market conditions, the Group
delivered a resilient performance and further significant strategic
progress in the year, continuing to bring more focus to the
portfolio by exiting non-core businesses and executing several
acquisitions that build our market share in our chosen markets. We
have continued the progressive transformation of the Group into a
more efficient, more focused, higher-quality business, with
industry-leading margins, achieving sustainable operational
delivery and cash generation. We expect to see further benefits
from these in 2022. Our record order book, now standing at
GBP1.3bn, also gives us confidence for the future.
Financial performance
Group revenue was GBP2,224.4m, 13% up on the prior year on a
constant currency basis, driven by increased activity as markets
began to recover, particularly during the second half, with
significant contract wins together with the benefit of several
bolt-on acquisitions that are expected to benefit the bottom line
in 2022.
Underlying operating profit decreased to GBP92.8m, a reduction
of 10% at constant currency, impacted primarily by the COVID-19
adverse pressure on market pricing and operational disruption
across our businesses. Although the Group has seen higher than
expected material and wage inflation, our businesses have been
largely successful in passing the majority of these increased costs
to our customers, with the exception of steel strand in the
Suncoast High-Rise business.
In North America, disruption, supply chain issues and labour
availability caused adverse pressure on profitability, and these
are expected to ease going forward. Our Europe Division recovered
in performance compared with 2020 and benefited particularly from
large contract wins. In AMEA, our Australia business was impacted
significantly by COVID-19 imposed travel restrictions. Our Middle
East and Africa business also had an extremely tough year, largely
due to COVID-19, despite our successful claim on our Mozambique LNG
contract. We are taking action to improve profitability in that
business in 2022.
As a result of these factors, the underlying operating margin
was 4.2% compared with 5.3% in 2020. We expect a recovery towards
our historical margin profile in 2022.
Underlying diluted earnings per share decreased by 8% to 88.4p
per share (2020: 96.3p per share), reflecting a decrease in
operating profit. This was partially offset by lower financing
costs and a lower tax rate reflecting the recognition of a prior
year research and development tax credit in North America.
Despite the increased working capital requirement the growth in
revenue demanded, the Group continued to generate a strong cash
flow performance in the year. The free cash flow funded all the
acquisitions in the year and marginally reduced the Group's net
debt (on a bank covenant IAS 17 basis) to GBP119.4m (2020:
GBP120.9m). This resulted in a net debt/EBITDA leverage ratio of
0.8x (2020: 0.7x) (on a bank covenant IAS 17 basis), comfortably
within our target range of 0.5x-1.5x and compared to our covenant
limit of 3.0x.
Operational performance
The market effects of COVID-19 had a significant impact on the
business, particularly early on in the year, with the macro
uncertainty driving customer behaviour to halt or delay a large
number of projects. We anticipated correctly the timing of the
inflection point marking the upturn in demand at around the halfway
point in the year. This was reflected in our record order book at
the year end of GBP1.3bn. Whilst we delivered a stronger volume
growth than anticipated, particularly in the second half, our
operating profit was negatively impacted by adverse pressure on
market pricing and operational disruption. Although the business
has suffered higher than expected material and wage inflation, our
businesses have been largely successful in passing the majority of
these increased costs to our customers, with the exception of steel
strand in the Suncoast High-Rise business.
In North America, led by Eric Drooff, President North America,
revenue increased by 15% (at constant currency) to GBP1,323.1m and
underlying operating profit decreased by 5.6% (at constant
currency) to GBP73.0m. The first half performance benefited
strongly from the resolution of a historical claim, whilst trading
activity generally was impacted by the COVID-19 slowdown in the
construction market. Business activity increased as the year
progressed following the success of vaccination and lockdown
containment programmes. This led to increased business confidence
and improved market demand. Suncoast was impacted by the continued
higher cost of steel strand, partially mitigated by strong demand
from the residential single family home market. The higher cost of
steel strand has been unprecedented and directly impacted the
profitability of the high-rise segment during the year given the
market practice of fixed price contracts. We expect the adverse
impact on profitability to unwind during 2022. Our North American
performance, benefited from the inclusion of several acquisitions
in the second half of the year, the largest being RECON Services,
Inc (RECON), a geotechnical and industrial services company
headquartered in Houston, Texas. Similar to Keller's existing
Florida-based Moretrench Industrial business, RECON is focused on
environmental remediation activities.
In Europe, led by Jim De Waele, President Europe, revenue
increased by 5% (at constant currency) to GBP549.2m and operating
profit increased 38% (at constant currency) to GBP24.3m. Its
markets recovered during the course of the year with the easing of
COVID-19 related shutdowns and travel restrictions resulting in
higher levels of activity and contract performance. Performance
also benefited from improved efficiencies on site, cost savings
following the restructuring activity in the previous year, as well
as the advancement of the large High Speed 2 (HS2) rail project in
the UK and Sandbukta-Moss-Sastad (SMS2) rail project in Norway. We
completed further restructuring with the formation of the new South
West Europe Business Unit, further streamlining the Europe
Division. In line with our strategy, our joint venture in Finland,
KFS Finland Oy, acquired NordPile, a driven and drilling piling
contractor.
In AMEA (Asia-Pacific, Middle East and Africa), led by Peter
Wyton, President AMEA, revenue increased by 20% (at constant
currency), to GBP352.1m while operating profit decreased 77% (at
constant currency) to GBP3.4m. The division was the most impacted
by COVID-19 of all our businesses during the year with countries
and regions, particularly Australia and the Middle East and Africa,
suffering lockdown restrictions in advance of vaccination
programmes. Operational challenges caused by border restrictions in
Keller Australia, and a difficult trading environment in the Middle
East and Africa, resulted in both business units reporting a loss
for the year. Notwithstanding the wider issues in Australia,
Austral had a strong performance, driven by mining and port-related
projects in the Pilbara region. In the second half of the year, a
substantial settlement agreement was signed with our client in
Mozambique in relation to the suspended liquefied natural gas (LNG)
project. This largely reversed the contract loss incurred to date
and protects the Group in the event that the contract does not
resume in the short to medium term, justifying the approach we took
to this contract and the risk assessment undertaken.
Strategy
The Group's corporate purpose reflects both the evolution of our
strategy and the changing environment in which we operate and
'building the foundations for a sustainable future' will be at the
heart of everything we do in the future.
Our vision to be the leading provider of specialist geotechnical
solutions is unchanged and, despite the disruptive impact of the
pandemic on change management activities, we have made good
progress with our objective for Keller to become a more focused,
higher-quality business achieving both sustainable operational
delivery and cash generation whilst building on our
industry-leading margins.
We have continued to successfully execute on our strategy, to be
the preferred international geotechnical specialist contractor
focused on sustainable markets and attractive projects, generating
long-term value for our stakeholders. Our local businesses leverage
the Group's scale and expertise to deliver engineered solutions and
operational excellence, driving market share leadership in our
selected segments.
Our diversified model of operating in a number of sectors,
applications and geographies helps to generate revenues that are
resilient whilst lessening the impacts that can arise from business
cycles and geopolitics. In line with our strategy we have continued
to focus on increased market penetration and cost reduction.
Progress on strategic priorities for 2021
In North America, we furthered our drive to gain market share in
our chosen markets with the acquisition in July of RECON Services,
Inc (RECON), a geotechnical and industrial services company
headquartered in Houston, Texas. Similar to Keller's existing
Florida-based Moretrench Industrial business, RECON is focused on
environmental remediation activities. The geographic proximity of
the two businesses provides revenue synergies from cross-selling
opportunities, both between the two businesses and also the Keller
foundations businesses, and some, primarily volume-based, cost
synergies. The additional revenue synergies provide the opportunity
to increase the Group's overall market share in the important Gulf
Coast area where Keller has historically been relatively
under-represented. The cash consideration on an enterprise value
basis was US$23m (GBP17m), and an original maximum earn-out of
US$15m (GBP11m) related to specific future contract wins. As we
anticipated, RECON was awarded one of the specific contracts in
December, worth approximately US$160m (GBP120m) in revenue over two
years, in connection with the development of an energy facility in
the Gulf Coast region of the USA.
In October, the North America Division acquired Subterranean
(Manitoba) Ltd, a small market-leading geotechnical foundation
business in Manitoba, Canada. In November 2021, the division
acquired Voges Drilling, a geotechnical foundation company based in
Texas. At the end of June, the division disposed of its non-core
Cyntech Anchors operation in Canada.
In Europe, as well as rightsizing the divisional head office, we
simplified the structure of the division by reducing the number of
business units following the merger of French Speaking Countries
with Iberia and Latin America, by forming one new South West Europe
Business Unit; this became effective on 1 July 2021. Early wins
from this strategic action include securing work as a combined
business unit that Keller would not have won previously, and a
reduction in costs.
Our joint venture in Finland, KFS Finland Oy, acquired NordPile,
a driven and drilling piling contractor, in September. This
acquisition reinforces KFS's position as the largest geotechnical
specialist contractor in the region offering the widest range of
solutions.
Strategic priorities for 2022
Market-leading operational execution is imperative in order to
remain competitive and therefore enhancing operational excellence
is a key focus for the Group. During 2021 we established a
multi-functional team of experts, drawn from across the Group to
identify and develop best practice in project management and site
support business processes that are currently deployed within
Keller. This bank of knowledge will be leveraged by implementing
best practice standard templates across the Group using a proven,
cloud-based enterprise resource planning (ERP) system. In doing so
the initiative will embed operational excellence in project
execution across the whole Group, together with the associated
financial benefits. It will allow the full integration of project
management, supply chain, human resources, equipment and operations
which will all seamlessly feed through to financials, and provide a
single, standardised platform for robust, systemic, pre-emptive
management controls, and a convenient solution to the emerging
requirement for UK SOX. The initiative will be implemented
progressively over 5 years by a project team that consists of
seasoned business leaders, subject matter experts and experienced
ERP global system implementors. We will leverage our risk
management processes to help control the challenges associated with
implementing the programme of work.
As we execute our strategy and further penetrate our chosen
local markets, we will continue to pursue suitable bolt-on
acquisition opportunities and integrate them into the Group. RECON
is integrating well, and during 2022, will together with Moretrench
Industrial, be developed as we establish and build our new
environmental, geotechnical and industrial services business that
will leverage our position in this large and growing sector. We
will continue to be focused and disciplined in our acquisition
process.
Environmental, Social and Governance (ESG)
We define ESG and sustainability according to our four Ps:
Planet, People, Principles and Profitable projects. Beneath each P,
we have a number of global and local initiatives aligned to the UN
Sustainable Development Goals (SDGs). These provide a common
language for us to communicate sustainability initiatives to our
stakeholders worldwide. In terms of global initiatives, under
Planet we focus on carbon reduction (SDG 13), under People, we
focus on safety (SDG 3) and gender equality (SDG 5); and under
Principles we focus on good governance (SDG 16). In addition, there
are a number of other SDG initiatives that are being supported at
local business level that are relevant and appropriate to their
community context.
The safety of every individual is our priority. While our safety
performance has improved, we are not yet where we need to be.
Making sure every employee returns home safely at the end of each
day drives our thinking and behaviours across the Group. It is with
this approach that we have reduced the Group's accident frequency
rate (AFR) by 42% compared with 2020, and our AMEA Division had an
outstanding year achieving an AFR of zero. Our total recordable
incident rate (TRIR) also improved by 32%.
Led by John Raine, Group HSEQ Director, we have a number of
safety initiatives underway to leverage our experience and safety
knowledge across the Group. As our number of recordable incidents
decreases, it is more important than ever to focus on proactive
reporting measures to identify and address hazardous situations
pre-emptively, before accidents occur with their inherent potential
for adverse consequences. Year-on-year near miss reports are
increasing as a consequence of this increased emphasis and
leadership site interaction is strong, even with the site access
challenges created by COVID-19. Overall the safety culture and
awareness continues to improve, and is clearly evidenced in recent
employee engagement surveys. We are very proud of our
industry-leading performance and improving track record, and were
devastated to lose a long-serving and valued employee early in 2021
following an accident on a site in Austria. Whilst it has been
determined Keller was not at fault for the accident, the incident
has caused us to re-double our efforts and we have continued to
further advance our safety programmes. We continue to share our
safety best practices with trade associations, so that the whole
sector can continue to improve health and safety.
The global COVID-19 pandemic continued to create operational
challenges in 2021. The Group has actively encouraged and supported
employees to become vaccinated against COVID-19 wherever possible.
However, I'm greatly saddened that across the Group we have lost
eight colleagues due to COVID-19 related illness. Whilst we believe
none of these cases were related to the workplace, we have taken
great care in supporting the families through their bereavements.
The vaccination status of those that have died is consistent with
the external benchmark globally and supports our active approach to
encourage our workforce in becoming vaccinated.
At Keller, we recognise safety and wellbeing is more than just
avoiding accidents and this year we launched our first ever
wellbeing framework. This helps our business units support and
develop the aspects of wellbeing important to our employees
worldwide - body, mind, community, growth and financial security
wellbeing.
Having launched our Inclusion Commitments, our focus in 2021 was
on giving our teams the understanding and the means to contribute
to our aspiration to become a diverse, equitable and inclusive
workplace. Today is International Women's Day and an ideal
opportunity to reflect on how we can collectively continue to
#BreakTheBias and further accelerate gender equality.
In respect of carbon reduction, the Group has set ambitious but
achievable net zero targets by 2050. We will be net zero across all
three emission scopes by 2050; net zero on Scope 2 by 2030, net
zero on Scope 1 by 2040 and net zero by 2050 on Operational Scope 3
(covering business travel, material transport and waste disposal).
We have already begun implementing the substantive short term
actions to address Scope 2 and are developing the medium and
long-term actions for Scope 1 and 3 that are required to achieve
these goals.
Good governance plays an essential role in how we operate the
business. During 2021, despite the challenging backdrop, we
continued to take a number of steps to strengthen our leadership,
our management controls, and our understanding of the needs of our
stakeholders. This included listening to the views of our past,
current and potential investors. At the end of the year we
completed an investor audit of a number of key institutions
enabling us to deepen our understanding of the views of investors.
Participation by those that took part was greatly appreciated and
we will actively use the feedback as we move forward. We will
repeat the exercise in the future so that we can maintain a
momentum of continuous improvement and monitor our progress.
People
Our people are the major differentiator of our business and
pivotal to everything we do. I continue to be immensely impressed
by the dedication and tenacity of our team. Despite the prolonged
attrition of COVID-19, in terms of social isolation and logistical
challenges, employees have continued to go to extraordinary lengths
to continue to safely deliver projects for our customers. I would
like to acknowledge this endeavour and thank all Keller employees
for their commitment, hard work and expertise during another very
challenging year.
On the Executive team, James Hind, Divisional President of
Keller North America, retired at the end of 2021, after 18 years'
service. James was a highly effective member of the Executive team,
from his appointment in 2003 as Finance Director of Keller Group
plc and an Executive Director on the Board until 2020, through to
his most recent appointment as Divisional President of Keller North
America, a post he held since 2018. Under his leadership and with
the support of a strong Executive team, Keller North America has
undergone significant transformation, with greatly enhanced
organisational capability and accelerated collaboration. Eric
Drooff, previously Chief Operating Officer, Keller North America,
has succeeded James. Over the 29 years Eric has been with Keller
North America he has demonstrated his strong leadership
capabilities across the organisation and his dedication, passion
and depth of geotechnical experience made him the best person to
lead Keller North America.
We are deeply concerned about the military invasion of Ukraine
and the unfolding humanitarian crisis. Whilst we have no projects
in the country, and therefore there is no material impact on our
business, we have two employees based in Ukraine and over 20
Ukrainian nationals working for us in our North East Europe
Business Unit. Furthermore, many colleagues across Keller have
connections with people in Ukraine. Our first thoughts are with
them and their families. Our team in Poland has been providing
practical support including help at the border with transport,
accommodation and medical supplies. Events are unfolding rapidly on
the ground, and accordingly we continue to evaluate where to best
deploy our Group support to most effectively assist the
humanitarian relief effort.
Dividend
The Board is recommending the payment of a 2021 final dividend
of 23.3p per share (2020: 23.3p per share) to be paid on 1 July
2022 to shareholders on the register as at the close of business on
6 June 2022. We are very proud of our dividend history and
recognise its importance to shareholders. Even through very
challenging times we have consistently increased or maintained the
dividend over the last 27 years since first listing on the London
Stock Exchange, one of only a few listed companies to have achieved
this. The continuation of dividend payments during the challenging
macro environment of 2020 and 2021 reflected the financial strength
of the Group, its significant liquidity position and the longer
term confidence in the performance of the business. As we advance
through 2022 the Board will review the progression of our
dividend.
Outlook
We have had a successful year given the extremely challenging
business environment. The year developed largely as we anticipated
at our 2020 interim results, and whilst inflationary impacts were
larger than expected, the resilience of the Group has meant that
the financial performance for the year was still ahead of market
expectations. We have continued to implement strategic actions to
shape Keller's future, while delivering robust operational and
financial results built on a strong balance sheet. We have a clear
strategy and increasing operational momentum with a record order
book of GBP1.3bn. This, together with the maintenance of the
dividend, evidences our confidence in the medium term.
Whilst we are mindful of the recently increased geopolitical and
macroeconomic uncertainty and inflationary pressures, our
expectations for 2022 are unchanged. We remain strategically well
placed to benefit from the anticipated macroeconomic recovery and
increasing levels of public infrastructure spending in our chosen
markets, although this recovery will naturally vary by geography as
countries progressively manage COVID-19 as an endemic rather than
pandemic challenge.
Our leading market positions and the strategic actions we have
taken to improve the Group's performance, together with our
financial resilience, will allow us to benefit from the longer-term
structural growth drivers for global infrastructure and
urbanisation in the years ahead. We therefore remain confident in
our ability to deliver increasing shareholder returns through
underlying profit growth and our progressive dividend policy.
Operating review
North America
2021 2020
Constant
GBPm GBPm currency
---------------------- -------- --------
Revenue 1,323.1 1,227.5 +15.4%
Underlying operating
profit 73.0 83.2 -5.6%
Underlying operating
margin 5.5% 6.8%
Order book (1) 787.0 593.9 +32.5%
---------------------- -------- -------- ----------
(1) Comparative order book stated at constant currency
In North America, revenue increased by 15.4%, on a constant
currency basis, with improved momentum across all markets and the
addition of the recently acquired RECON Services, Inc (RECON)
business in Texas, which will contribute to profits in 2022.
Underlying operating profit decreased by 5.6% on a constant
currency basis to GBP73.0m, driven by market pricing pressures and
the impact of higher costs of materials and labour. These were
partly offset by the benefit from the resolution of a historical
claim (cGBP7m) in H1 and strong growth at Moretrench Industrial.
The underlying operating margin decreased to 5.5% from 6.8% in the
prior year primarily due to the impact of the increased cost of
steel strand in the Suncoast High-Rise business and pressure on
profitability due to labour and material shortages and the
associated operational disruptions. Our continued focus on safety
saw our key metric, accident frequency rate, fall from 0.08 in 2020
to 0.03 for 2021, a 63% improvement.
On a like-for-like basis, excluding acquisitions and disposals
on a constant currency basis, revenue for the year increased by
11%, and operating profit decreased by 14%.
In 2021 the construction industry in the US grew 8%, driven by a
12% increase in residential construction. Non-residential
construction grew 2%.
As anticipated, we had a slow start to the year following the
continued impact of the COVID-19 pandemic which curtailed sentiment
and activity in the second half of 2020 through to early 2021. In
March, trading accelerated and we began to operate more normally
given the combination of increased vaccination rates across the
North American population and reduced restrictions and
lockdowns.
The foundations business demonstrated its resilience with a flat
year-on-year profit performance with margins impacted by market
pricing pressure and higher input costs.
Our Canadian business delivered a strong performance in terms of
revenue and profit, benefiting from a restructuring and a
strengthening of the management team in 2020 as well as the
acquisition of Subterranean (Manitoba) Ltd, a small, market-leading
geotechnical foundations business, for a cash consideration of
GBP7.8m.
Suncoast, the Group's post-tension business serving mostly the
residential construction market, experienced high volumes with
revenue ahead of the prior year. The high-rise sector continued to
be challenged by the increased cost of imported, as well as
domestic, steel strand, Suncoast's main raw material, which
negatively impacted operating profit. The recent unprecedented
increase in the cost of steel is expected to continue to impact
margins in the near term. We expect the adverse impact on
profitability to unwind during 2022.
Moretrench Industrial, which operates in the highly regulated
industrial and power segments, performed well with increased
revenue and profit driven by the Florida industrial market.
The Hampton Roads Bridge Tunnel Expansion Project in Virginia,
cUS$120m two-year contract, is c65% complete. Work on the South
Island has concluded and the team has commenced work on the North
Island.
In July 2021, we announced the acquisition of RECON, an
environmental, geotechnical and industrial services company
headquartered in Houston, Texas. RECON is a specialist geotechnical
environmental remediation and industrial services contractor
working principally for industrial clients, many in the
petrochemical sector, predominantly along the Gulf and East coasts
of the United States. Similar to Keller's existing Florida-based
Moretrench Industrial business, RECON is focused on environmental
remediation activities and the geographic proximity of the two
businesses provides revenue synergies from cross-selling
opportunities, both between the two businesses and also the Keller
foundations businesses. The additional revenue synergies provide
the opportunity to increase the Group's overall market share in the
important Gulf Coast area where Keller has historically been
relatively under-represented and where a significant pipeline of
new projects is projected by the petrochemical sector. Cost
synergies will also be achieved through this acquisition. The cash
consideration on an enterprise value basis was US$23m (GBP17m), and
an original maximum earn-out of US$15m (GBP11m) related to specific
future contract wins. As we anticipated, in December 2021 RECON was
awarded a contract worth approximately US$160m (GBP120m) in revenue
over two years, in connection with the development of an energy
facility in the Gulf Coast region of the USA. RECON is integrating
well and, during 2022, will together with Moretrench Industrial, be
developed as we establish and build our new environmental,
geotechnical and
industrial services business that will leverage our position in
this large and growing sector.
On 1 November 2021, the division acquired Voges Drilling, a
geotechnical foundation company based in Texas for cash
consideration of GBP1.4m and a further deferred consideration of
GBP0.8m is payable over three years. At the end of June 2021, the
division disposed of its non-core Cyntech Anchors operation in
Canada.
The order book for North America at the period end was at
GBP787.0m, up 32.5% (on a constant currency basis) from the closing
position at the end of 2020. The increase year on year is
predominantly driven by the newly-signed RECON contract worth
GBP120m ($160m) over two years.
Europe(1)
2021 2020
Constant
GBPm GBPm currency
---------------------- ------ ------
Revenue 549.2 538.5 +5.2%
Underlying operating
profit 24.3 18.4 +38.2%
Underlying operating
margin 4.4% 3.4%
Order book(2) 332.7 220.3 +51.0%
---------------------- ------ ------ ----------
(2) Comparative order book stated at constant currency
In Europe, revenue increased by 5.2% on a constant currency
basis as markets recovered with the COVID-19 related shutdowns and
travel restrictions easing as the year progressed. Underlying
operating profit was GBP24.3m, up 38.2% on a constant currency
basis, reflecting the higher level of activity, improved
efficiencies on site, enhanced contract profitability and cost
savings following the prior year restructuring activity. As a
result, the underlying operating margin increased to 4.4% (2020:
3.4%).
In early 2021, a tragic fatality occurred following an accident
on a site in Austria in which we lost a long-serving employee.
Whilst a thorough investigation has determined Keller was not at
fault for the accident, we have continued to advance our safety
programmes. The accident frequency rate was up slightly at 0.24
from 0.18 in 2020.
Following a relatively slow start to the year due to some harsh
winter weather in some parts of Europe and the continued impacts of
the pandemic, momentum built as markets opened up with people and
equipment permitted to cross borders more easily and the year
finished more strongly. Whilst the division was impacted by both
material and labour shortages, which were operationally
challenging, and the widely-publicised inflationary pressures
continued to be felt across the continent, the division generated
an exceptional performance from several major projects.
South-East Europe and Nordics delivered record revenue with
significant increases in activity levels in Austria and Italy. The
Scandinavian region also continued to grow, and benefitted from the
Sandbukta-Moss-Sastad rail project (SMS2) in Norway. In September
2021, our joint venture in Finland, KFS Finland Oy, acquired
NordPile, a driven and drilling piling contractor. This acquisition
reinforces KFS's position as the largest geotechnical specialist
contractor in the region offering the broadest range of solutions
and is consistent with our wider strategy of building
market-leading shares in the regions that play to our
strengths.
The UK business, which was adversely impacted in 2020 by the
hesitant investment climate following the 2019 general election and
uncertainty around Brexit, reported good revenue growth, including
the benefit from several contract awards on the High Speed 2 rail
project (HS2). Particularly noteworthy are the C1 package at a
value of cGBP84m, awarded in February 2021, and the main packages
of work on C2/3 at a value of cGBP48m which were secured in
April.
Our businesses in Central Europe and North East Europe were
impacted by lower volumes at the start of the year due to the
weather and project delays related to COVID-19. However, both
businesses finished the year with improved activity levels and
strong order books. At the end of 2021 North East Europe secured a
EUR26m piling contract for work at an oil refinery in Poland which
is expected to be delivered during 2022. We are also exploring the
Baltic region for potential expansion with some attractive future
projects in the pipeline.
In July 2021, the new South West Europe Business Unit was formed
following the successful merger of our French Speaking Countries
and Iberia and Latin America businesses. South West Europe was our
business most affected by the impact of COVID-19 in the period,
with extended country lockdowns and delays to contract starts. In
addition, the completion in early 2021 of an oil refinery project
in Mexico contributed to reduced revenue and profits compared to
the prior year. The combined business unit is now being integrated
and is better positioned to benefit from growth opportunities in
its domestic and overseas markets.
The European portfolio is more focused following the exit from
South America and the disposal of non-core businesses during 2020.
As a result of these actions, we were also able to reduce the
divisional overhead. Moving forward, we will continue to review our
various European markets to ensure that we focus only on
sustainable markets and attractive projects that generate long-term
returns.
The European core business continues to recover steadily, and we
have benefited from a number of larger projects across the region,
particularly in infrastructure. Looking forward, our success in the
region will require those larger projects to be replaced. However,
our strong regional approach coupled with our divisional support
will ensure we are well placed to pursue new contract
opportunities.
The Europe order book at the end of the period was GBP332.7m, up
51% (on a constant currency basis) on the prior year, largely due
to the HS2 contracts.
(1) In November 2020 it was announced that from 1 January 2021
the MEA business would be transferred to the APAC division,
creating the Asia-Pacific, Middle East and Africa, (AMEA) division,
and the remaining EMEA division becoming Europe. The comparative
financials for 2020 are on a proforma basis, aligned with our new
structure.
A sia-Pacific, Middle East and Africa (AMEA)(1)
2021 2020
Constant
GBPm GBPm currency
----------------------------- ------ ------
Revenue 352.1 296.5 +20.4%
Underlying operating profit 3.4 15.5 -77.1%
Underlying operating margin 1.0% 5.2%
Order book(2) 177.3 182.2 -2.7%
----------------------------- ------ ------ ----------
(2) Comparative order book stated at constant currency
In AMEA, revenues increased by 20.4% on a constant currency
basis, driven predominantly by Austral in Australia and India,
partly offset by a decline in the Middle East and Africa business
which was transferred into the Division at the beginning of 2021.
Operating profit in the division as a whole decreased by 77.1% on a
constant currency basis to GBP3.4m, driven by operational
disruption as a result of COVID-19, particularly in Keller
Australia and an extremely challenging trading environment in the
Middle East and Africa. The division had a notable achievement in
its safety record with no significant accidents reported in the
period, resulting in a zero accident frequency rate.
The effects of the COVID-19 pandemic were felt across all our
markets in the division to varying degrees. The ASEAN business
continued to feel the impact of COVID-19 through the postponement
of contracts and border closures. However, trading levels improved
in the second half and the business delivered revenue growth for
the year. The business continued to benefit from the restructuring
activity in 2019 and is well placed for the future with a strong
focus on ground improvement projects across the region.
Austral in Australia had another strong performance in terms of
revenue and profit growth as it nears completion of Rio Tinto's
Cape Lambert Port in the Pilbara, Australia. The business has
secured a strong pipeline of projects, including a number of other
mining and port-related projects in the Pilbara region, and
continues its diversification strategy with key selected projects
on Australia's east coast.
Our Keller Australia business had a particularly difficult year,
making a loss in the period. The challenges posed by the COVID-19
travel restrictions and state border restrictions in Australia had
a very significant impact on operations and profits, amid a
continued softness in some markets. The workforce model relies on
the fluid movement of employees and equipment around the country
and the travel restrictions made movement impossible for long
periods of time. Many employees made huge personal sacrifices
including long periods away from home due to the strict lockdown
rules. Tendering activity has substantially improved, the
management team has been strengthened and the outlook is more
positive as border restrictions ease.
Our India business performed strongly in terms of revenue and
profit growth with management successfully managing the business in
a country that has been severely impacted by the effects of
COVID-19. Tendering levels improved and there are a number of good
prospects in the pipeline.
The Middle East and Africa business has been the most challenged
region in terms of market clarity and recovery from the impacts of
COVID-19, with many countries relying on lockdowns and restrictions
in advance of vaccination programmes. At the end of the year, we
signed a substantial agreement with our client in Mozambique in
relation to the suspended LNG project. This largely reversed the
contract loss incurred to date and protects the Group in the event
that the contract does not resume. Despite the successful
Mozambique resolution, the Middle East and Africa business as a
whole recorded a loss in the year. The focus is now on turning this
business around post COVID-19 and actions are being taken to
deliver this. Tendering activity in the region continues to
strengthen, though with more variability than other areas of
AMEA.
The AMEA order book strengthened strongly through the second
half and at the end of the period was GBP177.3m down 2.7% (on a
constant currency basis) on the prior year.
(1) In November 2020 it was announced that our newly formed
Middle East and Africa Business Unit would combine with APAC, with
effect from 1 January 2021, to create an Asia-Pacific, Middle East
and Africa (AMEA) division. This brings together under one
management team all of our businesses in developing geographies
that have similar market characteristics and customers, with a
greater focus on large contracts, particularly in the resources
sector. The comparative financials for 2020 are on a proforma
basis, aligned with our new structure.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's
2021 results.
2021 2020
GBPm GBPm
--------------------------------- ------- -------
Revenue 2,224.4 2,062.5
Underlying operating profit(1) 92.8 110.1
Underlying operating profit %(1) 4.2% 5.3%
Non-underlying items (12.3) (33.1)
Statutory operating profit 80.5 77.0
Statutory operating profit % 3.6% 3.7%
---------------------------------- ------- -------
(1) Details of non-underlying items are set out in note 8 to the
consolidated financial statements. Reconciliations to statutory
numbers are set out in the adjusted performance measures section on
page 67.
Revenue split by geography
GBPm North America Europe(2) AMEA(2) Total
------------- --------- -------
2021
H1 581.7 242.0 160.4 984.1
H2 741.4 307.2 191.7 1,240.3
------ ------------- --------- ------- -------
Total 1,323.1 549.2 352.1 2,224.4
------ ------------- --------- ------- -------
2020
H1 636.5 254.7 147.9 1,039.1
H2 591.0 283.8 148.6 1,023.4
------ ------------- --------- ------- -------
Total 1,227.5 538.5 296.5 2,062.5
------ ------------- --------- ------- -------
Revenue Underlying operating profit(3) Underlying operating profit margin(3)
GBPm GBPm %
Year ended 2021 2020 2021 2020 2021 2020
-------------- ------- ------- --------------- --------------- ------------------- ------------------
Division
North America 1,323.1 1,227.5 73.0 83.2 5.5% 6.8%
Europe(2) 549.2 538.5 24.3 18.4 4.4% 3.4%
AMEA(2) 352.1 296.5 3.4 15.5 1.0% 5.2%
Central - - (7.9) (7.0) - -
------------------ ------- ------- --------------- --------------- ------------------- ------------------
Group 2,224.4 2,062.5 92.8 110.1 4.2% 5.3%
------------------ ------- ------- --------------- --------------- ------------------- ------------------
(2) From 1 January 2021 Middle East and Africa business unit
transferred to APAC division, to create the Asia-Pacific, Middle
East and Africa (AMEA) division. The remaining EMEA division became
our Europe division. The comparative financials for 2020 are on a
proforma basis, aligned with our new structure.
(3) Details of non-underlying items are set out in note 8 of the
consolidated financial statements.
Revenue
Revenue of GBP2,224.4m (2020: GBP2,062.5m) was 7.8% up on 2020,
driven by increased activity, as markets began to recover,
particularly in the second half, with significant contract wins
together with the benefit of several bolt-on acquisitions. At
constant currency, revenue increased by 13.4% and increased across
all three divisions. North America reported an increase in revenue
of 15.4% (at constant currency), with improved momentum across all
markets and the addition of several bolt-on acquisitions, the
largest being RECON Services, Inc (RECON). Of the 15.4% increase in
revenue, 4.1% was derived from businesses acquired in 2021 and
11.3% from the existing business. Europe revenue increased by 5.2%
(at constant currency) as markets recovered with the COVID-19
related shutdowns and travel restrictions easing as the year
progressed. AMEA revenue increased by 20.4% (at constant currency)
driven predominantly by Austral in Australia and India, partly
offset by a decline in the Middle East and Africa business.
We have a consistently diversified spread of revenues across
geographies, product lines, market segments and end customers.
Customers are generally market specific and, consistent with the
prior year, the largest customer represented less than 3% of the
Group's revenue. The top 10 customers represent 15% of the Group's
revenue (2020: 11%). The Group worked on more than 6,000 projects
in the year with 60% of contracts having a value between GBP25,000
and GBP250,000, demonstrating a low customer concentration and a
wide project portfolio .
Underlying operating profit
The underlying operating profit of GBP92.8m was 15.7% down on
prior year (2020: GBP110.1m), which on a constant currency basis
was 9.7% down, impacted primarily by the COVID-19 adverse pressure
on market pricing and operational disruption across our
businesses.
North America underlying constant currency operating profit
decreased by 5.6% to GBP73.0m driven by market pricing pressures
and the impact of higher costs of materials and labour. In
particular, operating profit at Suncoast reduced by GBP15.3m,
largely due to the increased cost of steel strand in High-Rise.
Europe constant currency operating profit increased 38.2%
reflecting the higher level of activity, improved efficiencies on
site, enhanced contract profitability and cost savings following
the prior year restructuring activity. AMEA constant currency
operating profit decreased by 77.1% to GBP3.4m driven by
operational disruption as a result of COVID-19, particularly in
Keller Australia and an extremely challenging trading environment
in the Middle East and Africa.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of GBP0.4m in
the year (2020: GBP0.8m) from its share of the post-tax results
from joint ventures. The share of the post-tax amortisation charge
of GBP0.6m arising from the acquisition of NordPile by our joint
venture KFS Oy is included as a non-underlying item. No dividends
(2020: GBP0.4m) were received from joint ventures in the year.
Statutory operating profit
Statutory operating profit comprising underlying operating
profit of GBP92.8m (2020: GBP110.1m) and non-underlying items
comprising net costs of GBP12.3m (2020: GBP33.1m), increased by
4.5% to GBP80.5m (2020: GBP77.0m).
Net finance costs
Net finance costs decreased by 32.6% to GBP8.9m (2020:
GBP13.2m). The reduction has been driven by the decrease in US
LIBOR, which reduces the cost of the Group's private placement
debt, and a decrease in the average net debt levels through the
year. The average net borrowings, excluding IFRS 16 lease
liabilities, during the year were GBP147.6m (2020: GBP183.5m).
Taxation
The Group's underlying effective tax rate decreased to 24%
(2020: 29%), largely due to a prior year benefit in North America
from research and development tax credits. Cash tax paid in the
year of GBP15.9m (2020: GBP24.9m) was a decrease of GBP9.0m over
the prior year and was mainly attributable to the impact of the
additional research and development tax credits. Other differences
are mainly due to the timing and phasing of tax payments which do
not necessarily relate to the period in which the profits are
earned. Further details on tax are set out in note 11 of the
consolidated financial statements.
Non-underlying items
The items below have been excluded from the underlying results
and further details of non-underlying items are included in note 8
to the financial statements. The total pre-tax non-underlying items
in the year decreased to GBP12.3m (2020: GBP33.1m), due to the
reduction in restructuring activity during the year.
2021 2020
GBPm GBPm
------------------------------------------------------ ------ -----
Exceptional restructuring costs 7.3 16.6
Loss on disposal of operations 0.5 11.6
Acquisition costs 0.5 0.3
Contingent consideration: additional amounts provided 1.3 0.8
Goodwill impairment - 0.3
Amortisation of acquired intangible assets 2.8 4.2
Amortisation of joint venture acquired intangibles 0.6 -
Contingent consideration received (0.7) -
Exceptional contract dispute - (0.7)
------------------------------------------------------- ------ -----
Total non-underlying items in operating profit 12.3 33.1
------------------------------------------------------- ------ -----
Non-underlying taxation (10.6) (5.6)
------------------------------------------------------- ------ -----
Total non-underlying items 1.7 27.5
------------------------------------------------------- ------ -----
Non-underlying items in operating profit
Total exceptional restructuring costs of GBP7.3m have been
incurred in AMEA and Europe as the final costs on the project to
rationalise the Middle East and Africa businesses and the
restructuring costs incurred in KGS, the in-house equipment
manufacturer following a review of overheads.
The loss on disposal of operations comprises GBP0.5m loss on
disposal arising from the disposal of the non-core Cyntech Anchors
business in Canada and the finalisation of the sale price for the
disposal of the Brazil business in 2020. Acquisition costs of
GBP0.5m relate to professional fees and other related costs
incurred through the acquisitions of RECON and Subterranean.
Additional contingent consideration payable of GBP1.3m relates
to the acquisition of the Geo Construction Group (Bencor) in 2015,
following finalisation of items referenced in the sale and purchase
agreement.
The GBP2.8m charge for amortisation of acquired intangible
assets relates to the RECON, Moretrench Industrial and Austral
acquisitions. Amortisation of joint venture intangibles of GBP0.6m
relates to the NordPile acquisition undertaken by our joint venture
investment KFS Finland Oy during the year.
Contingent consideration of GBP0.7m was received in respect of
the 2020 Wannenwetsch disposal.
Non-underlying taxation
A non-underlying tax credit of GBP10.6m (2020: GBP5.6m) included
the GBP1.5m (2020: GBP3.7m) tax impact of the non-underlying loss.
The remaining GBP9.1m (2020: GBP1.9m) tax credit arose from the
partial reversal of the valuation allowance against deferred tax
assets in Canada and Australia that was recognised through the
non-underlying tax charge in prior years.
Free cash flow
2021 2020
GBPm GBPm
---------------------------------------------------------------------- ------- -------
Underlying operating profit 92.8 110.1
Depreciation, amortisation and impairment 97.4 94.9
----------------------------------------------------------------------- ------- -------
Underlying EBITDA 190.2 205.0
----------------------------------------------------------------------- ------- -------
Non-cash items - 1.9
Dividends from joint ventures - 0.4
(Increase)/decrease in working capital (3.1) 38.2
(Decrease)/increase in provisions and retirement benefit liabilities (7.8) 13.9
Net capital expenditure (74.6) (65.6)
Additions to right-of-use assets (23.4) (22.7)
Free cash flow before interest and tax 81.3 171.1
Free cash flow before interest and tax to underlying operating profit 88% 155%
----------------------------------------------------------------------- ------- -------
Net interest paid (5.3) (12.0)
Cash tax paid (15.9) (24.9)
----------------------------------------------------------------------- ------- -------
Free cash flow 60.1 134.2
----------------------------------------------------------------------- ------- -------
Dividends paid to shareholders (25.9) (25.9)
Purchase of own shares (3.7) -
Acquisitions (31.3) -
Business disposals 7.1 2.2
Non-underlying items (2.0) (11.0)
Right-of-use assets/lease liability modifications (4.0) (1.1)
Foreign exchange movements (1.1) (1.1)
----------------------------------------------------------------------- ------- -------
Movement in net debt (0.8) 97.3
----------------------------------------------------------------------- ------- -------
Opening net debt (192.5) (289.8)
----------------------------------------------------------------------- ------- -------
Closing net debt (193.3) (192.5)
----------------------------------------------------------------------- ------- -------
Earnings per share
Underlying diluted earnings per share decreased by 8.2% to 88.4p
(2020: 96.3p) driven by lower operating profit partially offset by
the reduction in finance costs and the effective tax rate
reduction. Statutory diluted earnings per share was 86.1p (2020:
58.5p) which reflects the reduction in non-underlying items in
comparison to the prior year.
Dividend
The Board has recommended a final dividend of 23.3p per share
(2020: 23.3p per share) which, following the interim dividend for
2021 of 12.6p (2020: 12.6p), brings the total dividend for the year
to 35.9p (2020: 35.9p). The 2021 dividend earnings cover, before
non-underlying items, was 2.5x (2020: 2.7x).
The Group's dividend policy is to increase the dividend
sustainably whilst allowing the Group to be able to grow, or as a
minimum, maintain, the level of dividend through market cycles. The
continuation of dividend payments during the challenging macro
environment of 2020 and 2021 reflects the financial strength of the
Group, its significant liquidity position and the longer-term
confidence in the performance of the business. As we advance
through 2022 the Board will review the progression of our
dividend.
Keller Group plc had distributable reserves of GBP122.9m at 31
December 2021 that are available to support the dividend policy,
which comfortably covers the proposed full-year dividend for 2021
of GBP16.8m. 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
On 13 July 2021, the Group acquired RECON Services, Inc for an
initial cash consideration of GBP20.2m and GBP9.5m of contingent
consideration, of which GBP1.5m had been paid at year end. The
business is a geotechnical environmental remediation and industrial
services company based in Texas, US and is included in the North
America Division.
On 29 September 2021, the Group acquired the business of
Subterranean (Manitoba) Ltd, for cash consideration of GBP7.8m.
Subterranean is a geotechnical contractor in Manitoba, Canada.
On 1 November 2021, the Group acquired the business of Voges
Drilling, a geotechnical foundation company based in Texas, for
cash consideration of GBP1.4m. Further deferred consideration of
GBP0.8m is payable over a three-year period.
Prior year balance sheet reclassification
As noted in the Audit and Risk Committee report, during 2021,
the Financial Reporting Council (FRC) included the Group's annual
report and accounts for the year ended 31 December 2020 in their
thematic review of IAS 37, 'Provisions, Contingent Liabilities and
Contingent Assets', which resulted in the FRC requesting further
information in respect of provisions for insurance and legal
claims. The Group responded fully to the matters raised in the
correspondence and have concluded that the insurance reimbursement
receivables of the Group should be separately presented gross on
the consolidated balance sheet, rather than netted off against the
insurance and legal provision.
The Group has restated the relevant sections of this year's
accounts to reflect this. The restatement impacted the balance
sheet reported in the 2020 annual report and accounts as detailed
in the accounting policies note on page 28. The restatement did not
result in any changes to reported profit, earnings per share, net
assets or the cash flows reported in the 2020 financial year.
Working capital
Net working capital increased by GBP3.1m (2020: decrease of
GBP38.2m) reflecting the reversal of the working capital timing
benefit achieved in 2020 due to the impact of COVID-19 on business
activity and cash collections. The net movement comprised of an
GBP18.3m increase in inventories and a GBP104.4m increase in trade
and other receivables, offset by an increase in trade and other
payables of GBP119.6m.
A reduction in provisions and retirement benefit liabilities
increased the cash outflow in respect of working capital by GBP7.8m
(2020: increase of GBP13.9m). This mainly comprises payments in
respect of retirement benefits. The increase in insurance
provisions that offsets with an increase in insurance receivables
does not impact the cash flow statement. The GBP7.8m outflow
excludes the cash outflow on restructuring provisions which is
presented within non-underlying items in the free cash flow
calculation.
Capital expenditure
The Group manages capital expenditure tightly whilst investing
in the upgrade and replacement of equipment where appropriate. Net
capital expenditure, excluding leased assets, of GBP74.6m (2020:
GBP65.6m) was net of proceeds from the sale of equipment of GBP9.8m
(2020: GBP7.4m). The asset replacement ratio, which is calculated
by dividing gross capital expenditure, excluding sales proceeds on
disposal of items of property, plant and equipment and those assets
capitalised under IFRS 16, by the depreciation charge on owned
property, plant and equipment, was 127% (2020: 109%).
Free cash flow
The Group's free cash flow of GBP60.1m (2020: GBP134.2m) is more
than sufficient to fund, in cash terms, the full value of the
payment in relation to the total 2021 dividend of GBP25.9m (2020:
GBP25.9m). The basis of deriving free cash flow is set out on page
18.
Financing facilities and net debt
The Group's total net debt of GBP193.3m (2020: GBP192.5m)
comprises loans and borrowings and related derivatives of GBP200.6m
(2020: GBP185.0m), lease liabilities of GBP75.4m (2020: GBP73.8m)
net of cash and cash equivalents of GBP82.7m (2020: GBP66.3m). The
Group's term debt and committed facilities principally comprise US
private placements of $75m (GBP58.1m) which mature in 2024 and a
GBP375m multi-currency syndicated revolving credit facility, which
matures in November 2025. During the year, $50m (GBP36.2m) of US
private placements matured and were repaid and in March 2021 the
Group's unused GBP300m Covid Corporate Financing Facility (CCFF)
was withdrawn. At the year end, the Group had undrawn committed and
uncommitted borrowing facilities totalling GBP291.9m (2020:
GBP672.6m).
The most significant covenants in respect of the main borrowing
facilities relate to the ratio of net debt to underlying EBITDA,
underlying EBITDA interest cover and the Group's net worth. The
covenants are required to be tested at the half year and the year
end. The Group operates comfortably within all of its covenant
limits. Net debt to underlying EBITDA leverage, calculated
excluding the impact of IFRS 16, was 0.8x (2020: 0.7x), well within
the limit of 3.0x and at the lower end of the leverage target of
between 0.5x-1.5x. Calculated on a statutory basis, including the
impact of IFRS 16, net debt to EBITDA leverage was 1.0x at 31
December 2021 (2020: 0.9x). Underlying EBITDA, excluding the impact
of IFRS 16, to net finance charges was 30.5x (2020: 21.7x), well
above the limit of 4.0x.
On an IFRS 16 basis, year-end gearing was 44% (2020: 47%).
The average month-end net debt during 2021, excluding IFRS 16
lease liabilities, was GBP147.6m (2020: GBP183.5m) and the minimum
headroom during the year on the Group's main banking facility was
GBP164.2m (2020: GBP129.4m), in addition to a cash balance at that
time of GBP92.0m (2020: GBP80.8m). The Group had no material
discounting or factoring in place during the year. Given the
relatively low value and short-term nature of the majority of the
Group's projects, the level of advance payments is typically not
significant.
At 31 December 2021 the Group had drawn upon uncommitted
overdraft facilities of GBP0.9m (2020: GBP4.7m) and had drawn
GBP150.4m of bank guarantee facilities (2020: GBP167.5m).
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 most recent actuarial valuation of the UK
scheme was as at 5 April 2020, which recorded the market value of
the scheme's assets at GBP49.7m and the scheme being 77% funded on
an ongoing basis. The level of contributions are GBP2.7m a year
with effect from 1 January 2021 and will increase by 3.6% per annum
on 1 January going forward to 5 August 2024. Contributions will be
reviewed following the next triennial actuarial valuation to be
prepared as at 5 April 2023. The 2021 year-end IAS 19 valuation of
the UK scheme showed assets of GBP63.7m, liabilities of GBP58.3m
and a pre-tax surplus of GBP5.4m before an IFRIC 14 adjustment to
reflect the minimum funding requirement for the scheme, which
adjusts the closing position to a deficit of GBP6.8m.
In Germany and Austria, the defined benefit arrangements only
apply to certain employees who joined the Group before 1997. The
IAS 19 valuation of the defined benefit obligation totalled
GBP15.9m at 31 December 2021 (2020: GBP19.0m). 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.
The Group has a number of end of service schemes in the Middle
East as required by local laws and regulations. The amount of
benefit payable depends on the current salary of the employee and
the number of years of service. These retirement obligations are
funded on the Group's balance sheet and obligations are met as and
when required by the Group. The IAS 19 valuation of the defined
benefit obligation totalled GBP3.0m at 31 December 2021 (2020:
GBP2.9m).
Currencies
The Group is exposed to both translational and, to a lesser
extent, transactional foreign currency gains and losses through
movements in foreign exchange rates as a result of its global
operations. The Group's primary currency exposures are US dollar,
Canadian dollar, euro, Singapore dollar and Australian dollar.
As the Group reports in sterling and conducts the majority of
its business in other currencies, movements in exchange rates can
result in significant currency translation gains or losses. This
has an effect on the primary statements and associated balance
sheet metrics, such as net debt and working capital.
A large proportion of the Group's revenues are matched with
corresponding operating costs in the same currency. The impact of
transactional foreign exchange gains or losses are consequently
mitigated and are recognised in the period in which they arise.
The following exchange rates applied during the current and
prior year:
2021 2020
Closing Average Closing Average
------- ------- ------- -------
USD 1.35 1.38 1.37 1.28
CAD 1.71 1.72 1.74 1.72
EUR 1.19 1.16 1.12 1.12
SGD 1.82 1.85 1.81 1.77
AUD 1.86 1.83 1.78 1.86
------- ------- ------- -------
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 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
dollar, Canadian dollar, euro, Australian dollar and Singapore
dollar.
The Group manages its currency flows to minimise 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 treasury risk management is performed at the Group's head
office.
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.
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 Group
liabilities. These represent the Group's maximum exposure to credit
risk in relation to financial assets.
The Group has procedures to manage counterparty risk and the
assessment of customer credit risk is embedded in the contract
tendering processes. The counterparty risk on bank and cash
balances is managed by limiting the aggregate amount of exposure to
any one institution by reference to its credit rating and by
regular review of these ratings.
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
2021 was 14.4% (2020: 16.4%).
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, and 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. The important
developments in managing our principal risks during 2021 and the
key areas of focus for 2022 are set out in the Strategic report
within the Group's Annual Report and Accounts.
Consolidated income statement
For the year ended 31 December 2021
2021 2020
---------------------------------- ---- ------------------------------------- -------------------------------------
Non-underlying Non-underlying
items items
Underlying (note 8) Statutory Underlying (note 8) Statutory
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Revenue 3,4 2,224.4 - 2,224.4 2,062.5 - 2,062.5
Operating costs 6 (2,132.0) (9.6) (2,141.6) (1,953.2) (29.6) (1,982.8)
Amortisation of acquired
intangible assets - (2.8) (2.8) - (4.2) (4.2)
Other operating income - 0.7 0.7 - 0.7 0.7
Share of post-tax results of joint
ventures 16 0.4 (0.6) (0.2) 0.8 - 0.8
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Operating profit/(loss) 3 92.8 (12.3) 80.5 110.1 (33.1) 77.0
Finance income 9 0.4 - 0.4 1.1 - 1.1
Finance costs 10 (9.3) - (9.3) (14.3) - (14.3)
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Profit/(loss) before taxation 83.9 (12.3) 71.6 96.9 (33.1) 63.8
Taxation 11 (20.1) 10.6 (9.5) (28.3) 5.6 (22.7)
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Profit/(loss) for the year 63.8 (1.7) 62.1 68.6 (27.5) 41.1
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Attributable to:
Equity holders of the parent 64.7 (1.7) 63.0 70.0 (27.5) 42.5
Non-controlling interests 33 (0.9) - (0.9) (1.4) - (1.4)
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
63.8 (1.7) 62.1 68.6 (27.5) 41.1
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Earnings per share
Basic 13 89.5p 87.1p 97.1p 58.9p
Diluted 13 88.4p 86.1p 96.3p 58.5p
---------------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Note GBPm GBPm
-------------------------------------------------------------------- ---- ----- -----
Profit for the year 62.1 41.1
-------------------------------------------------------------------- ---- ----- -----
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations (4.3) (5.9)
Transfer of translation reserve on disposal of subsidiaries (0.4) 2.9
Cash flow hedge gains taken to equity 25 - 0.5
Cash flow hedge transferred to income statement 25 - (0.5)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 32 1.2 (2.2)
Tax on remeasurements of defined benefit pension schemes 11 (0.2) 0.4
-------------------------------------------------------------------- ---- ----- -----
Other comprehensive loss for the year, net of tax (3.7) (4.8)
-------------------------------------------------------------------- ---- ----- -----
Total comprehensive income for the year 58.4 36.3
-------------------------------------------------------------------- ---- ----- -----
Attributable to:
Equity holders of the parent 59.3 37.9
Non-controlling interests (0.9) (1.6)
-------------------------------------------------------------------- ---- ----- -----
58.4 36.3
-------------------------------------------------------------------- ---- ----- -----
Consolidated balance sheet
As at 31 December 2021
2021 2020(1)
Note GBPm GBPm
---------------------------------------------------- ------ --------- -------
Assets
Non-current assets
Goodwill and intangible assets 14 141.5 118.8
Property, plant and equipment 15 443.4 434.9
Investments in joint ventures 16 4.0 4.4
Deferred tax assets 11 13.0 10.3
Other assets 17 88.5 60.3
---------------------------------------------------- ------ --------- -------
690.4 628.7
---------------------------------------------------- ------ --------- -------
Current assets
Inventories 18 72.1 60.1
Trade and other receivables 19 592.0 501.9
Current tax assets 8.9 2.1
Cash and cash equivalents 20 82.7 66.3
---------------------------------------------------- ------ --------- -------
Assets held for sale 21 3.4 8.7
---------------------------------------------------- ------ --------- -------
759.1 639.1
---------------------------------------------------- ------ --------- -------
Total assets 3 1,449.5 1,267.8
---------------------------------------------------- ------ --------- -------
Liabilities
Current liabilities
Loans and borrowings 25 (29.8) (67.0)
Current tax liabilities (17.9) (17.1)
Trade and other payables 22 (505.7) (381.7)
Provisions 23 (53.8) (54.4)
---------------------------------------------------- ------ --------- -------
(607.2) (520.2)
---------------------------------------------------- ------ --------- -------
Non-current liabilities
Loans and borrowings 25 (246.2) (191.8)
Retirement benefit liabilities 32 (25.7) (31.1)
Deferred tax liabilities 11 (28.6) (21.3)
Provisions 23 (77.9) (71.4)
Other liabilities 24 (21.2) (22.0)
---------------------------------------------------- ------ --------- -------
(399.6) (337.6)
---------------------------------------------------- ------ --------- -------
Total liabilities 3 (1,006.8) (857.8)
---------------------------------------------------- ------ --------- -------
Net assets 3 442.7 410.0
---------------------------------------------------- ------ --------- -------
Equity
Share capital 27 7.3 7.3
Share premium account 38.1 38.1
Capital redemption reserve 27 7.6 7.6
Translation reserve 11.6 16.3
Other reserve 27 56.9 56.9
Retained earnings 318.4 280.1
---------------------------------------------------- ------ --------- -------
Equity attributable to equity holders of the parent 439.9 406.3
Non-controlling interests 33 2.8 3.7
---------------------------------------------------- ------ --------- -------
Total equity 442.7 410.0
---------------------------------------------------- ------ --------- -------
1 Other assets, trade and other receivables and provisions
presented here do not correspond to the published 2020 consolidated
financial statements. The comparative balance sheet has been
restated to present gross insurance provisions with a separate
reimbursement asset recognised for amounts recoverable from
insurance providers and customer retentions receivable in more than
one year to other non-current assets, as outlined in note 2 to the
financial statements.
These consolidated financial statements were approved by the
Board of Directors and authorised for issue on 7 March 2022.
They were signed on its behalf by:
Michael Speakman David Burke
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2021
Capital Attributable Non-
Share Share redemption Other Hedging to equity controlling
capital premium reserve Translation reserve reserve Retained holders of interests Total
(note 27) account (note 27) reserve (note 27) (note 25) earnings the parent (note 33) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
At 1 January
2020 7.3 38.1 7.6 19.1 56.9 - 263.2 392.2 5.3 397.5
Profit/(loss)
for the year - - - - - - 42.5 42.5 (1.4) 41.1
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other
comprehensive
income
Exchange
movements on
translation of
foreign
operations - - - (5.7) - - - (5.7) (0.2) (5.9)
Transfer of
reserves on
disposal of
subsidiaries - - - 2.9 - - - 2.9 - 2.9
Cash flow hedge
gains taken to
equity - - - - - 0.5 - 0.5 - 0.5
Cash flow hedge
transferred to
income
statement - - - - - (0.5) - (0.5) - (0.5)
Remeasurements
of defined
benefit
pension
schemes - - - - - - (2.2) (2.2) - (2.2)
Tax on
remeasurements
of defined
benefit
pension
schemes - - - - - - 0.4 0.4 - 0.4
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other
comprehensive
loss for the
year, net of
tax - - - (2.8) - - (1.8) (4.6) (0.2) (4.8)
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Total
comprehensive
(loss)/ income
for the year - - - (2.8) - - 40.7 37.9 (1.6) 36.3
Dividends - - - - - - (25.9) (25.9) - (25.9)
Share-based
payments - - - - - - 2.1 2.1 - 2.1
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
At 31 December
2020 and 1
January 2021 7.3 38.1 7.6 16.3 56.9 - 280.1 406.3 3.7 410.0
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Profit/(loss)
for the year - - - - - - 63.0 63.0 (0.9) 62.1
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other
comprehensive
income
Exchange
movements on
translation of
foreign
operations - - - (4.3) - - - (4.3) - (4.3)
Transfer of
reserves on
disposal of
subsidiaries - - - (0.4) - - - (0.4) - (0.4)
Remeasurements
of defined
benefit
pension
schemes - - - - - - 1.2 1.2 - 1.2
Tax on
remeasurements
of defined
benefit
pension
schemes - - - - - - (0.2) (0.2) - (0.2)
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other
comprehensive
(loss)/income
for the year,
net of tax - - - (4.7) - - 1.0 (3.7) - (3.7)
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Total
comprehensive
(loss)/ income
for the year - - - (4.7) - - 64.0 59.3 (0.9) 58.4
Dividends - - - - - - (25.9) (25.9) - (25.9)
Purchase of own
shares for
ESOP trust - - - - - - (3.7) (3.7) - (3.7)
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Share-based
payments - - - - - - 3.9 3.9 - 3.9
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
At 31 December
2021 7.3 38.1 7.6 11.6 56.9 - 318.4 439.9 2.8 442.7
--------------- --------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Consolidated cash flow statement
For the year ended 31 December 2021
2021 2020
Note GBPm GBPm
---------------------------------------------------------------------------------------- ---- ------- -------
Cash flows from operating activities
Profit before taxation 71.6 63.8
Non-underlying items 8 12.3 33.1
Finance income 9 (0.4) (1.1)
Finance costs 10 9.3 14.3
---------------------------------------------------------------------------------------- ---- ------- -------
Underlying operating profit 3 92.8 110.1
Depreciation of property, plant and equipment 15 90.6 94.3
Amortisation of intangible assets 14 0.6 0.6
Share of underlying post-tax results of joint ventures 16 (0.4) (0.8)
Profit on sale of property, plant and equipment (1.8) (0.6)
Other non-cash movements 8.3 1.8
Foreign exchange losses 0.1 1.5
---------------------------------------------------------------------------------------- ---- ------- -------
Operating cash flows before movements in working capital and other underlying items 190.2 206.9
(Increase)/decrease in inventories (18.3) 7.1
(Increase)/decrease in trade and other receivables (104.4) 111.1
Increase/(decrease) in trade and other payables 119.0 (80.0)
(Decrease)/increase in provisions, retirement benefit and other non-current liabilities (7.8) 13.9
---------------------------------------------------------------------------------------- ---- ------- -------
Cash generated from operations before non-underlying items 178.7 259.0
Cash inflows from non-underlying items: contract disputes - 0.7
Cash inflows from non-underlying items: assets held for sale 2.4 -
Cash outflows from non-underlying items: restructuring costs (3.9) (11.7)
Cash outflows from non-underlying items: acquisition costs (0.5) -
Cash generated from operations 176.7 248.0
Interest paid (2.0) (8.8)
Interest element of lease rental payments (3.1) (3.8)
Income tax paid (15.9) (24.9)
---------------------------------------------------------------------------------------- ---- ------- -------
Net cash inflow from operating activities 155.7 210.5
---------------------------------------------------------------------------------------- ---- ------- -------
Cash flows from investing activities
Interest received 0.4 0.6
Proceeds from sale of property, plant and equipment 9.8 7.4
Proceeds on disposal of businesses 5 7.1 2.2
Acquisition of businesses, net of cash acquired 5 (29.9) -
Acquisition of property, plant and equipment 15 (84.0) (72.5)
Acquisition of other intangible assets 14 (0.4) (0.5)
Dividends received from joint ventures 16 - 0.4
---------------------------------------------------------------------------------------- ---- ------- -------
Net cash outflow from investing activities (97.0) (62.4)
---------------------------------------------------------------------------------------- ---- ------- -------
Cash flows from financing activities
Increase in borrowings 91.2 10.4
Repayment of borrowings (69.4) (131.4)
Payment of lease liabilities (29.8) (27.2)
Purchase of own shares for ESOP trust (3.7) -
---------------------------------------------------------------------------------------- ---- ------- -------
Dividends paid 12 (25.9) (25.9)
---------------------------------------------------------------------------------------- ---- ------- -------
Net cash outflow from financing activities (37.6) (174.1)
---------------------------------------------------------------------------------------- ---- ------- -------
Net increase/(decrease) in cash and cash equivalents 21.1 (26.0)
---------------------------------------------------------------------------------------- ---- ------- -------
Cash and cash equivalents at beginning of year 61.6 87.5
Effect of exchange rate movements (0.9) 0.1
---------------------------------------------------------------------------------------- ---- ------- -------
Cash and cash equivalents at end of year 20 81.8 61.6
---------------------------------------------------------------------------------------- ---- ------- -------
Notes to the consolidated financial statements
1 Corporate information
The consolidated financial statements of Keller Group plc and
its subsidiaries (collectively, the 'Group') for the year ended 31
December 2021 were authorised for issue in accordance with the
resolution of the Directors on 7 March 2022.
Keller Group plc (the 'company') is a public limited company,
incorporated and domiciled in the United Kingdom, whose shares are
publicly traded on the London Stock Exchange. The registered office
is located at 2 Kingdom Street, London W2 6BD. The Group is
principally engaged in the provision of specialist geotechnical
services. Information on the Group's structure is provided in note
9 of the company financial statements.
2 Significant accounting policies
Basis of preparation
In accordance with the Companies Act 2006, these consolidated
financial statements have been prepared and approved by the
Directors in accordance with UK adopted international accounting
standards. The company prepares its parent company financial
statements in accordance with FRS 101.
These financial statements do not constitute the company's
statutory accounts for the years ended 31 December 2021 or 2020 but
are derived from the 2022 accounts. Statutory accounts for 2020
have been delivered to the Registrar of Companies. Those for 2021
will be delivered to the Registrar of Companies and made available
on the company's website at www.keller.com. 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 consolidated financial statements have been prepared on an
historical cost basis, except for derivative financial instruments
that have been measured at fair value. The carrying values of
recognised assets and liabilities that are designated as hedged
items in fair value hedges that would otherwise be carried at
amortised cost are adjusted to recognise changes in the fair values
attributable to the risks that are being hedged in effective hedge
relationships. The consolidated financial statements are presented
in pounds sterling and all values are rounded to the nearest
hundred thousand, expressed in millions to one decimal point,
except when otherwise indicated.
Going concern
As part of the going concern and viability review, management
ran a series of downside scenarios on the latest forecast profit
and cash flow projections to assess covenant headroom against
available funding facilities for a three-year period to 31 December
2024. The going concern review used the same downside scenarios and
forecasts for the period through to the end of March 2023, a period
of at least 12 months from when the financial statements are
authorised for issue and aligning with the period in which the
Group's banking covenants are tested. This process involved
constructing scenarios to reflect the Group's current assessment of
its principal risks, including those that would threaten its
business model, future performance, solvency or liquidity. The
principal risks and uncertainties modelled by management align with
those disclosed within this Annual Report and Accounts.
The following severe but plausible downside assumptions were
modelled:
-- Rapid downturn in the Group's markets resulting in up to a 10% decline in revenues.
-- Ineffective execution of projects reducing profits by 1% of revenue.
-- Not having the right skills to deliver reducing profits by 0.5% of revenue.
-- A combination of other principal risks and trading risks
materialising together reducing profits by up to GBP84.6m over the
period to 31 December 2024. These risks include changing
environmental factors, costs of ethical misconduct and regulatory
non-compliance, occurrence of an accident causing serious injury to
an employee or member of the public, the cost of a product or
solution failure and the impact of a previously unrecorded tax
liability.
-- Deterioration of working capital performance by 5% of six months' sales.
The financial and cash effects of these scenarios were modelled
individually and in combination. The focus was on the ability to
secure or retain future work and potential downward pressure on
margins. Management applied sensitivities against projected
revenue, margin and working capital metrics reflecting a series of
plausible downside scenarios. Against the most negative scenario,
mitigating actions were overlaid. These include a range of
cost-cutting measures and overhead savings designed to preserve
cash flows. Even in the most extreme downside scenario modelled,
including an aggregation of all risks considered, which showed a
decrease in operating profit of 42.9% and an increase in net debt
of 47.9% against the Group's latest forecast profit and cash flow
projections for the review period up to 31 March 2023. The adjusted
projections do not show a breach of covenants in respect of
available funding facilities or any liquidity shortfall.
Consideration was given to scenarios where covenants would be
breached and the circumstances giving rise to these scenarios were
considered extreme and remote. This process allowed the Board to
conclude that the Group will continue to operate on a going concern
basis for the period through to the end of March 2023, a period of
at least
12 months from when the financial statements are authorised for
issue. Accordingly, the consolidated financial statements are
prepared on a going concern basis.
At 31 December 2021, the Group had undrawn committed and
uncommitted borrowing facilities totalling GBP291.9m, comprising
GBP219.8m of the unutilised portion of the revolving credit
facility, GBP15.7m of other undrawn committed borrowing facilities
and undrawn uncommitted borrowing facilities of GBP56.4m, as well
as cash and cash equivalents of GBP82.7m. At 31 December 2021, the
Group's net debt to underlying EBITDA ratio (calculated on an IAS
17 covenant basis) was 0.8x, well within the limit of 3.0x.
Climate change
In preparing the consolidated financial statements, management
has considered the impact of climate change on a number of key
estimates within the financial statements, including estimates of
future cash flows used in impairment assessments of the carrying
value of goodwill, recoverability of deferred assets and the useful
economic life of plant, equipment and other intangible assets.
These considerations did not have a material impact on the
financial reporting judgements and estimates, consistent with the
assessment that climate change is not expected to have a
significant impact on the Group's going concern assessment to March
2023 nor the viability of the Group over the next three years.
Prior year restatement
Insurance restatement
In October 2021, the Group received a letter from the Financial
Reporting Council (FRC) as part of its regular review and
assessment of the quality of corporate reporting in the UK,
following the Group's inclusion in the 'Thematic review on
Provisions, Contingent Liabilities and Contingent Assets'. The
letter included a request for further information on the Group's
Annual Report and Accounts for the year ended 31 December 2020. The
review conducted by the FRC was based solely on the Group's
published Annual Report and Accounts and does not provide any
assurance that the Annual Report and Accounts are correct in all
material respects.
Following finalisation of the correspondence with the FRC, the
Directors have concluded that the insurance reimbursement
receivables of the Group should be separately presented gross on
the consolidated balance sheet, rather than netted off against the
insurance and legal provision.
Retentions restatement
Separately from the above, the element of trade receivables
relating to customer retentions expected to be received in more
than one year was disclosed separately in the revenue note (note 4
to the consolidated financial statements) but classified
incorrectly within the trade and other receivables balance sheet
line. The Group has amended this disclosure and separately
categorised this receivable within other non-current assets as
detailed below.
As a result of these items, the consolidated balance sheet as at
31 December 2020 has been restated as follows:
Consolidated balance sheet
2020 Insurance Retentions 2020
(as reported) restatement restatement (restated)
GBPm GBPm GBPm GBPm
-------------------------------- --------------- ------------- ------------- ------------
Non-current assets
Other assets 25.9 24.2 10.2 60.3
Current assets
Trade and other receivables 503.9 8.2 (10.2) 501.9
Current liabilities
Provisions (46.2) (8.2) - (54.4)
Of which: Insurance and legal
provisions (12.6) (8.2) - (20.8)
Other provisions (33.6) - - (33.6)
Non-current liabilities
Provisions (47.2) (24.2) - (71.4)
Of which: Insurance and legal
provisions (26.9) (24.2) - (51.1)
Other provisions (20.3) - - (20.3)
-------------------------------- --------------- ------------- ------------- ------------
The restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported in the 2020
financial year.
The impact on the opening consolidated balance sheet as at 31
December 2019 is as follows:
Consolidated balance sheet
2019 Retentions 2019
Insurance
(as reported) restatement restatement (restated)
GBPm GBPm GBPm GBPm
----------------------------- --------------- ------------- ------------- ------------
Non-current assets
Other assets 22.3 9.1 32.4 63.8
Current assets
Trade and other receivables 626.7 2.5 (32.4) 596.8
Current liabilities
Provisions (28.6) (2.5) - (31.1)
Of which: Insurance and
legal provisions (6.9) (2.5) - (9.4)
Other provisions (21.7) - - (21.7)
Non-current liabilities
Provisions (46.4) (9.1) - (55.5)
Of which: Insurance and
legal provisions (25.8) (9.1) - (34.9)
Other provisions (20.6) - - (20.6)
----------------------------- --------------- ------------- ------------- ------------
The restatement did not result in any change to reported profit,
earnings per share, net assets or cash flows reported in the 2019
financial year.
Further details of the impact of the restatement can be found in
notes 17,19 and 23 to the consolidated financial statements.
Basis of consolidation
The consolidated financial statements consolidate the accounts
of the parent and its subsidiary undertakings 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 the 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 expense arising from intra -- group transactions, are
eliminated in preparing the consolidated financial statements.
Joint operations
Where the Group undertakes contracts jointly with other parties,
these are accounted for as 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 joint operations agreement.
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.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The following amendments became effective during the year to 31
December 2021:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
'Interest Rate Benchmark Reform Phase 2' (effective 1 January
2021).
-- Amendments to IFRS 16 'COVID-19 Related Rent Concessions
beyond 30 June 2021' (effective 1 April 2021).
These amendments have a limited impact on the consolidated
financial statements of the Group.
The Group has not early adopted any standards, interpretations
or amendments that have been issued but are not yet effective.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
'Interest Rate Benchmark Reform Phase 2' (IBOR)
In September 2019, the IASB issued the first accounting
amendment to IFRS 9, IAS 39 and IFRS 7 related to the IBOR reform,
which addresses the impact that the current uncertainty could have
when applying specific hedge accounting requirements on applicable
hedge relationships. The first phase of amendments to IFRS 9
provides temporary relief from applying specific hedge accounting
requirements to hedging relationships directly affected by the IBOR
reforms. In accordance with the transition provisions, the
amendments have been adopted retrospectively to hedging
relationships that existed at the start of the current reporting
period. The reliefs have meant that the uncertainty over the IBOR
reforms has not resulted in the discontinuation of hedge accounting
for any of the Group's fair value hedges.
Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
were issued by the IASB in August 2020 to provide practical
expedients and reliefs in relation to modifications of financial
instruments and leases that arise from the transition from IBORs to
risk-free rates. Phase 2 also provides further reliefs to hedge
accounting requirements. These amendments were effective for the
Group from 1 January 2021.
The Group is monitoring and managing the transition to
alternative benchmark rates that are linked to existing interest
rate benchmarks related to borrowings, leases and derivative
contracts. The impact of IBOR reform on the Group is assessed as
being limited. The changes only apply to one hedge relationship
associated with managing the fixed rate on the US private placement
expiring in December 2024 (refer to note 25), for which the Group
is exposed to a six-month USD LIBOR that will be available until
June 2023. In 2021, the Group amended and restated the GBP375m
syndicated revolving credit facility to replace any reference to
IBOR with reference to applicable risk-free rates. There is no
impact on the incremental borrowing rate for calculating leases
liabilities.
Amendments to IFRS 16 'COVID-19 Related Rent Concessions beyond
30 June 2021'
On 28 May 2020, the IASB issued COVID-19 Related Rent
Concessions amendments to IFRS 16 'Leases'. The amendments provide
relief to lessees from applying IFRS 16 guidance on lease
modification accounting for rent concessions arising as a direct
consequence of the COVID-19 pandemic. As a practical expedient, a
lessee may elect not to assess whether a COVID-19 related rent
concession from a lessor is a lease modification. A lessee that
makes this election accounts for any change in lease payments
resulting from the COVID-19 related rent concession the same way it
would account for the change under IFRS 16, if the change were not
a lease modification. The amendment was intended to apply until 30
June 2021, but as the impact of the COVID-19 pandemic is
continuing, on 31 March 2021, the IASB extended the period of
application of the practical expedient to 30 June 2022. The
amendment applies to annual reporting periods beginning on or after
1 April 2021.
The Group has not received COVID-19 related rent concessions
during the year, but plans to apply the practical expedient if it
becomes applicable within the allowed period of application.
Summary of significant accounting policies
Foreign currencies
The Group's consolidated financial statements are presented in
pounds sterling, which is also the parent company's functional
currency. For each entity, the Group determines the functional
currency and items included in the financial statements of each
entity are measured using that functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in the consolidated
income statement. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates at the dates of the initial transactions.
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into pounds sterling at the rate of
exchange prevailing at the reporting date and their income
statements are translated at exchange rates prevailing at the dates
of the transactions. The exchange movements arising on translation
for consolidation are recognised in other comprehensive income
(OCI). On disposal of a foreign operation, the component of the
translation reserve relating to that particular foreign operation
is reclassified to profit or loss.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition are treated as assets
and liabilities of the foreign operation and translated at the
average rate.
The exchange rates used in respect of principal currencies
are:
Average rates 2021 2020
------------------ ---- ----
US dollar 1.38 1.28
Canadian dollar 1.72 1.72
Euro 1.16 1.12
Singapore dollar 1.85 1.77
Australian dollar 1.83 1.86
------------------ ---- ----
Year end rates 2021 2020
------------------ ---- ----
US dollar 1.35 1.37
Canadian dollar 1.71 1.74
Euro 1.19 1.12
Singapore dollar 1.82 1.81
Australian dollar 1.86 1.78
------------------ ---- ----
Revenue from contracts with customers
The Group's operations involve the provision of specialist
geotechnical services. 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.
For each contract, revenue is the amount that is expected to be
received from the customer. Revenue is typically invoiced in stages
during the contracts, however smaller contracts are usually
invoiced on completion. Variable consideration and contract
modifications are assessed on a contract-by-contract basis,
according to the terms, facts and circumstances of the project.
Variable consideration is recognised only to the extent that it is
highly probable that there will not be a significant reversal. The
effects of contract modifications are recognised only when the
Group considers there is an enforceable right to consideration. In
certain circumstances, uncertainty over whether a project will be
completed or not will mean that it is not appropriate to recognise
contracted revenues.
Revenue attributed to each performance obligation is recognised
based on either the input or the output method. The output method
is the Group's default revenue recognition approach. The input
method is generally used for longer-term, more complex contracts.
These methods best reflect the transfer of benefits to the
customer.
-- 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.
-- Input method: revenue is recognised on the percentage of
completion with reference to cost. The percentage of completion is
calculated based on 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 towards
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.
Where the Group becomes aware that a loss may arise on a
contract, and that loss is probable, full provision is made in the
consolidated balance sheet; based on the estimated unavoidable
costs of meeting the obligations of the contract, where these
exceed the economic benefits expected to be received. The
unavoidable costs under a contract reflect the least net cost of
exiting from the contract, which is the lower of the cost of
fulfilling it and any compensation or penalties arising from
failure to fulfil it.
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.
Revenue from the sale of goods and services
The Group's revenue recognised from the sale of goods and
services primarily relates to certain parts of the North America
business. These contracts typically have a single performance
obligation, or a series of distinct performance obligations that
are substantially the same. There are typically two types of
contract:
-- Delivery of goods: revenue for such contracts is recognised
at a point in time, on delivery of the goods to the customer.
-- Delivery of goods with installation and/or post-delivery
services: revenue for these contracts is recognised at a point in
time by reference to the date on which the goods are installed
and/or accepted by the customer.
Taxes
Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted at the
reporting date in the countries where the Group operates and
generates taxable income. Current income tax relating to items
recognised directly in equity is recognised in equity and not in
the consolidated income statement.
The Group provides for future liabilities in respect of
uncertain tax positions where additional tax may become payable in
future periods. Such provisions are based on management's best
judgement of the probability of the outcome in reaching agreement
with the relevant tax authorities. For further information refer to
note 11.
Deferred tax
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities, and
their carrying amounts for financial reporting purposes at the
reporting date.
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 or deferred tax liabilities.
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 OCI, in which case the related deferred
tax is also dealt with in equity or in OCI.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Interest income and expense
All interest income and expense is recognised in the income
statement on an accruals basis, using the effective interest
method.
Employee benefit costs
The Group operates a number of defined benefit pension schemes,
and also makes payments into defined contribution schemes.
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 where applicable. 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 OCI in
full in the period in which they occur. Any surplus resulting from
this calculation is limited to the present value of any economic
benefits available in the form of refunds from the plans or
reductions in future contributions to the plans. Where there is no
legal right to a refund from the plan, the liability is calculated
as the minimum funding requirement to the plan that exists at the
balance sheet date.
The Group also has long service arrangements in certain overseas
countries. These are accounted for in accordance with IAS 19
'Employee Benefits' and accounting follows the same principles as
for a defined benefit scheme.
Payments to defined contribution schemes are accounted for on an
accruals basis.
Government subsidies
In an attempt to mitigate the impact of the COVID-19 pandemic,
during the year some government bodies continued to provide direct
subsidies to aid companies. Where the subsidy relates to an expense
item, it has been recognised in the consolidated income statement
as an offset against the expense for which it is was intended to
compensate. In the prior year the Group was eligible for deferral
of the employer's share of social security taxes in the United
States. No additional deferrals took place in 2021. Further details
are set out in notes 6 and 7.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of
accumulated depreciation and accumulated impairment losses, if any
. Further details are set out in note 15 for impairments recognised
in the year. Subsequent expenditure on property, plant and
equipment is capitalised when it enhances or improves the condition
of the item of property, plant and equipment beyond its original
assessed standard of performance. Maintenance expenditure is
expensed as incurred.
Depreciation
Depreciation is provided to write off the cost less the
estimated residual value of property, plant and equipment using the
straight-line method by reference to their estimated useful lives
as follows:
Buildings 50 years
Plant and equipment 3 to 12 years
Motor vehicles 4 years
Computers 3 years
------------------- -------------
Depreciation is not provided for on freehold land.
An item of property, plant and equipment is derecognised upon
disposal (ie at the date the recipient obtains control) or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the income statement when the
asset is derecognised.
The residual values, useful lives and methods of depreciation of
property, plant and equipment are reviewed at each financial year
end and adjusted where appropriate.
Leases
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Group as lessee
The Group applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of
low-value assets (less than GBP3,000). The Group recognises lease
liabilities to make payments and right-of-use assets representing
the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (ie the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis over the shorter of
the lease term and estimated useful lives as follows:
Land and buildings 3 to 15 years
Plant and equipment 2 to 8 years
Motor vehicles 3 to 5 years
------------------- -------------
Right-of-use assets are tested for impairment in accordance with
IAS 36 'Impairment of Assets'.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to
be paid under residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably certain
to be exercised by the Group and payments of penalties for
terminating a lease, if the lease term reflects the Group
exercising the option to terminate. Variable lease payments that do
not depend on an index or a rate are recognised as an expense in
the period in which the event or condition that triggers the
payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date,
if the interest rate implicit in the lease is not readily
determinable. The incremental borrowing rate applied to each lease
is determined by taking into account the risk-free rate of the
country where the asset under lease is located, matched to the term
of the lease and adjusted for factors such as the credit risk
profile of the lessee. Incremental borrowing rates applied to
individual leases range from 0.9% to 33.0%.
After the commencement date, the amount of lease liabilities is
increased to reflect the addition of interest and reduced for the
lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in lease payments (eg changes to future
payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an
option to purchase the underlying asset. The Group's lease
liabilities are included in interest-bearing loans and borrowings.
Refer to note 26 for details.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of plant, machinery and vehicles (ie those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered of low asset value
(below GBP3,000). Lease payments on short-term leases and leases of
low-value assets are recognised as an expense on a straight-line
basis over the lease term.
Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. Control is the power to govern
the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, the Group takes
into consideration potential voting rights that currently are
exercisable. The cost of an acquisition is measured as the
aggregate of the consideration transferred, which is measured at
the fair value at the acquisition date. Acquisition-related costs
are expensed as incurred and included in administrative expenses.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The excess
of cost of an acquisition over the fair value of the Group's share
of the identifiable net assets acquired, including assets
identified as intangibles on acquisition, is recorded as
goodwill.
The results of subsidiaries which have been disposed are
included up to the effective date of disposal.
Goodwill
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred. After initial
recognition, goodwill is measured at cost less any 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, any impairment losses are 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.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to
each of the Group's cash-generating units (CGUs) that are expected
to benefit from the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those
units.
Where goodwill has been allocated to a CGU and part of the
operation within that unit is disposed of, the goodwill associated
with the disposed operation is included in the carrying amount of
the operation when determining the gain or loss on disposal.
Goodwill disposed in these circumstances is measured based on the
relative values of the disposed operation and the portion of the
CGU retained.
Other intangible assets
Intangible assets, other than goodwill, include purchased
licences, software (including internally generated software),
customer relationships, customer contracts 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. The estimated
useful economic lives are as follows:
Licences 1 to 4 years
Software 3 to 7 years
Patents 2 to 7 years
Customer relationships 5 to 7 years
Customer contracts 1 to 2 years
Trade names 5 to 7 years
---------------------- ------------
Impairment of assets excluding goodwill
The carrying values of property, plant and equipment,
right-of-use assets and other intangibles are reviewed for
impairment when events or changes in circumstances indicate the
carrying value may be impaired. If any such indications exists, the
recoverable amount, being the lower of their carrying amount and
fair value less costs to sell, of the asset is estimated in order
to determine the extent of impairment loss.
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 allowance 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.
Write-downs to net realisable value are made for slow-moving,
damaged or obsolete items based on evaluations made at the local
level by reference to frequency of stock turnover or specific
factors affecting the items concerned.
Assets held for sale
Assets are classified as held for sale if their carrying amount
will be recovered by sale rather than by continuing use in the
business. Assets held for sale are measured at the lower of their
carrying amount and fair value less costs to sell, with reference
to comparable market transactions. Assets that are classified as
held for sale are not depreciated.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument. The principal financial
assets and liabilities of the Group are as follows:
(a) Trade receivables and trade payables
Trade receivables are initially recorded at fair value and
subsequently measured at cost and reduced by allowances for
estimated irrecoverable amounts.
Trade receivables and contract assets are stated net of expected
credit losses (ECLs). The initial ECLs are recognised on
recognition of a receivable. This provision is made for each
category of receivables with similar risks, based on historical
experience and adjusted for the effects of expected or actual
changes in customer risk, economic risk and performance expected in
the next 12 months. For the lifetime ECL the Group uses a provision
matrix.
Trade payables that are not interest bearing, are initially
recognised at fair value and carried at amortised cost.
(b) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and on hand and short-term deposits with a maturity of three
months or less. For the purpose of the consolidated statement of
cash flows, cash and cash equivalents consist of cash and
short-term deposits, as defined above, net of outstanding bank
overdrafts as they are considered an integral part of the Group's
cash management. Bank overdrafts are included within financial
liabilities in current liabilities in the balance sheet.
(c) Bank and other borrowings
Interest-bearing bank and other borrowings are recorded at the
fair value of the proceeds received, net of direct issue costs.
Subsequent to initial recognition, borrowings are stated at
amortised cost, where applicable.
Bank or other borrowings are derecognised when the obligation
under the liability is discharged, cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the consolidated
income statement.
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated balance sheet if there
is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis, ie to
realise the assets and settle the liabilities simultaneously.
(d) Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to manage
interest rate risk and to hedge fluctuations in foreign currencies
in accordance with its risk management policy. In cases where these
derivative instruments are significant, hedge accounting is applied
as described below. The Group does not use derivative financial
instruments for speculative purposes.
Derivatives are initially recognised in the balance sheet at
fair value on the date the derivative contract is entered into and
are subsequently remeasured at reporting periods to their fair
values. Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair value
is negative.
Changes in the fair value of the effective portion of
derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income (OCI). Changes in the fair
value of the ineffective portion of cash flow hedges are recognised
in the income statement. Amounts originally recognised in OCI are
transferred to the income statement when the underlying transaction
occurs or if the transaction results in a non-financial asset or
liability.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised in the
income statement as they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
or loss on the hedging instrument recognised in OCI is retained in
equity until the hedged transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss
recognised in OCI is transferred to the income statement in the
period.
For the purpose of hedge accounting, hedges are classified
as:
-- Cash flow hedges when hedging the exposure or variability in
cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly
probable transaction.
-- Fair value hedges when hedging the exposure to changes in the
fair value of a recognised asset or liability.
-- Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it wishes
to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item, the
nature of the risk being hedged and how the Group will assess
whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge
ineffectiveness and how the hedge ratio is determined). A hedging
relationship qualifies for hedge accounting if it meets all of the
following effectiveness requirements:
-- There is 'an economic relationship' between the hedged item and the hedging instrument.
-- The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
-- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
Provisions
Provisions have been made for employee-related liabilities,
restructuring commitments, onerous contracts, insured liabilities
and legal claims, and other property-related commitments. These are
recognised as management's best estimate of the expenditure
required to settle the Group's liability at the reporting date.
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 and the amount of the obligation
can be estimated reliably. If the effect is material, expected
future cash flows are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to
unwinding the discount is recognised as a finance cost. Details of
provisions are set out in note 23.
Provisions for insured liabilities and legal claims include the
full estimated value of the liability. Any related insurance
reimbursement asset that is virtually certain to be received is
separately presented gross within trade and other receivables or
other non-current assets on the consolidated balance sheet.
Contingent liabilities
Contingent liabilities are possible obligations of the Group of
which the timing and amount are subject to significant uncertainty.
Contingent liabilities are not recognised in the consolidated
balance sheet, unless they are assumed by the Group as part of a
business combination. They are however disclosed, unless they are
considered to be remote. If a contingent liability becomes probable
and the amount can be reliably measured it is no longer treated as
contingent and recognised as a liability on the balance sheet.
Contingent assets
Contingent assets are possible assets of the Group of which the
timing and amount are subject to significant uncertainty.
Contingent assets are not recognised in the consolidated balance
sheet. They are however disclosed, when they are considered to be
probable. A contingent asset is recognised in the financial
statements when the inflow of economic benefits is virtually
certain.
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 are 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 payments
The Group operates a number of equity-settled executive and
employee share plans. For all grants of share options and awards,
the fair value of the employee services received in exchange for
the grant of share options is recognised as an expense, calculated
using appropriate option pricing models. The total amount to be
expensed over the vesting period is determined by reference to the
fair value of the options granted, excluding the impact of any
non-market vesting conditions, with a corresponding increase in
retained earnings. The charge is adjusted to reflect expected
actual levels of options vesting due to non-market conditions.
Shares purchased and held in trust in connection with the
Group's share schemes are deducted from retained earnings. No gain
or loss is recognised within the income statement on the market
value of these shares compared with the original cost.
Segmental reporting
During the year the Group comprised three geographical divisions
which have only one major product or service: specialist
geotechnical services. North America; Europe; and Asia-Pacific,
Middle East and Africa continue to be managed as separate
geographical divisions. This is reflected in the Group's management
structure and in the segment information reviewed by the Chief
Operating Decision Maker. The geographical divisions were revised
with effect from 1 January 2021; the Middle East and Africa (MEA)
business was combined with the Asia-Pacific Division, creating the
Asia-Pacific, Middle East and Africa Division, and the remaining
Europe, Middle East and Africa Division became the Europe Division.
The comparative information has been amended to reflect consistent
basis of preparation.
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 and/or are non-trading in
nature, including amortisation of acquired intangibles,
restructuring costs and other non-trading amounts, including those
relating to acquisitions and disposals. Tax arising on these items,
including movement in deferred tax assets arising from
non-underlying provisions, is also classified as a non-underlying
item.
Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements
in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies,
reported amounts of assets and liabilities, revenue and expenses
and the accompanying disclosures, and the disclosure of contingent
liabilities. 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. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities
affected in future periods. Actual results may also 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 assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Group based its assumptions and estimates
on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or
circumstances arising that are beyond the control of the Group.
Such changes are reflected in the assumptions when they occur.
Construction contracts
The Group's approach to key estimates and judgements relating to
construction contracts is set out in the revenue recognition
policy. In the Group consolidated balance sheet this impacts
contract assets, contract liabilities and contract provisions
(refer to notes 4 and 23). As described in the policy the default
revenue recognition approach is the output method. When revenue is
recognised based on the output method, 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. These contracts can still be subject to claims and
variations resulting in an adjustment to the revenue
recognised.
When revenue is recognised based on the input (cost) method, the
main factors considered when making estimates and judgements
include the cost 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 6,000 contracts during 2021, at an average
revenue of approximately GBP375,000 and a typical range of between
GBP25,000 and GBP10m in value. The majority of contracts were
completed in the 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 total costs to complete in order
to measure progress and therefore how much revenue to recognise,
which may impact the contract asset or liability recorded in the
balance sheet. The actual total costs incurred on these contracts
will differ from 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.
However, due to the level of uncertainty and timing across a large
portfolio of contracts, which will be at different stages of their
contract life, it is not practical to provide a quantitative
analysis of the aggregated judgements that are applied at a
portfolio level. 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.
In the case of loss-making contracts, a full provision is made
based on the estimated unavoidable costs of meeting the obligations
of the contract, where these exceed the economic benefits expected
to be received. The process for estimating the total cost to
complete is the same as for in progress profitable contracts, and
will include management's best estimate of all labour, equipment
and materials costs required to complete the contracted work. All
cost to complete estimates involve judgement over the likely future
cost of labour, equipment and materials and the impact of inflation
is included if material.
As stated in the revenue recognition accounting policy, variable
consideration is assessed on a contract-by-contract basis,
according to the terms, facts and circumstances of the project.
Variable consideration is recognised only to the extent that it is
highly probable that there will not be a significant reversal;
management judgement is required in order to determine when
variable consideration is highly probable. Uncertainty over whether
a project will be completed or not can mean that it is appropriate
to treat the contracted revenue as variable consideration.
Carrying value of goodwill
The Group tests annually whether goodwill has suffered any
impairment in accordance with the accounting policy set out above.
Impairment exists when the carrying value of an asset or
cash-generating unit exceeds its recoverable amount, which is the
higher of its fair value less costs of disposal and its
value-in-use. The fair value less costs of disposal calculation is
based on available market data for transactions conducted at arm's
length, for similar assets or observable market prices less
incremental costs of disposing of the asset. The Group estimates
the recoverable amount based on value-in-use calculations. The
value-in-use calculation is based on a discounted cash flow (DCF)
model. The cash flows are derived from the relevant budget and
forecasts for the next three years, including a terminal value
assumption. The recoverable amount is sensitive to the discount
rate used for the DCF model as well as the expected future cash
inflows, growth rates and maintainable earnings assumed within the
calculation. Refer to note 14 for further information.
Deferred tax assets
Deferred tax assets are recognised for unused tax losses and
other timing differences to the extent that it is probable that
future taxable profits will be available against which the losses
can be utilised. Significant management judgement is required to
determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and the level of future taxable
profits (based on the same Board-approved information to support
the going concern and goodwill impairment assessments). The Group
uses judgement in assessing the recoverability of deferred tax
assets, for which the significant assumption is forecast taxable
profits. Refer to note 11 for further information.
Insurance and legal provisions
The recognition of provisions for insurance and legal disputes
is subject to a significant degree of estimation. In making its
estimates, management seek specialist input from legal advisers and
the Group's insurance claims handler to estimate the most likely
legal outcome. Provisions are reviewed regularly and amounts
updated where necessary to reflect developments in the disputes.
The ultimate liability may differ from the amount provided
depending on the outcome of court proceedings and settlement
negotiations or if investigations bring to light new facts. Refer
to note 23 for further information.
3 Segmental analysis
During the year the Group was managed as three geographical
divisions and has only one major product or service: specialist
geotechnical services.
This is reflected in the Group's management structure and in the
segment information reviewed by the Chief Operating Decision
Maker.
2021 2020(1)
------------------------------------- ------------------ ------------------
Operating Operating
Revenue profit Revenue profit
------------------------------------- ------- --------- ------- ---------
GBPm GBPm GBPm GBPm
------------------------------------- ------- --------- ------- ---------
North America 1,323.1 73.0 1,227.5 83.2
Europe 549.2 24.3 538.5 18.4
Asia-Pacific, Middle East and Africa 352.1 3.4 296.5 15.5
------------------------------------- ------- --------- ------- ---------
2,224.4 100.7 2,062.5 117.1
Central items - (7.9) - (7.0)
------------------------------------- ------- --------- ------- ---------
Underlying 2,224.4 92.8 2,062.5 110.1
Non-underlying items (note 8) - (12.3) - (33.1)
------------------------------------- ------- --------- ------- ---------
2,224.4 80.5 2,062.5 77.0
------------------------------------- ------- --------- ------- ---------
2021
-----------------------------------------------------------------------
Tangible(4)
Depreciation(3) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ----------- -------- --------- --------------- -----------
North America 827.0 (349.9) 477.1 36.4 46.1 334.7
Europe 273.9 (184.7) 89.2 23.8 25.0 143.7
Asia-Pacific, Middle East and Africa 218.0 (99.9) 118.1 24.2 19.5 103.5
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,318.9 (634.5) 684.4 84.4 90.6 581.9
Central items(2) 130.6 (372.3) (241.7) - 0.6 3.0
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,449.5 (1,006.8) 442.7 84.4 91.2 584.9
------------------------------------- ------- ----------- -------- --------- --------------- -----------
2020(1,5)
-----------------------------------------------------------------------
Tangible(4)
Depreciation(3) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ----------- -------- --------- --------------- -----------
North America 690.2 (228.2) 462.0 26.9 47.7 304.0
Europe 275.5 (197.8) 77.7 24.6 25.9 147.3
Asia-Pacific, Middle East and Africa 224.6 (98.7) 125.9 21.5 20.7 101.8
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,190.3 (524.7) 665.6 73.0 94.3 553.1
Central items(2) 77.5 (333.1) (255.6) - 0.6 0.6
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,267.8 (857.8) 410.0 73.0 94.9 553.7
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1 From 1 January 2021 the Middle East and Africa (MEA) business
was transferred to the Asia-Pacific Division, creating the
Asia-Pacific, Middle East and Africa Division, and the remaining
Europe, Middle East and Africa Division became the Europe Division.
The 2020 comparative segmental information has been updated to
reflect this change as it is consistent with the information
reviewed by the Chief Operating Decision Maker.
2 Central items include net debt and tax balances, which are managed by the Group.
3 Depreciation and amortisation excludes amortisation of acquired intangible assets.
4 Tangible and intangible assets comprise goodwill, intangible
assets and property, plant and equipment.
5 Segment assets and liabilities presented here do not
correspond to the published 2020 consolidated financial statements.
The comparative balance sheet has been restated to present gross
insurance provisions with a separate reimbursement asset recognised
for amounts recoverable from insurance providers, as outlined in
note 2 to the financial statements.
Revenue analysed by country:
2021 2020
GBPm GBPm
--------------- ------- -------
United States 1,197.6 1,112.0
Australia 202.4 158.9
Germany 110.0 116.9
Canada 125.1 113.3
United Kingdom 100.4 59.1
Other 488.9 502.3
--------------- ------- -------
2,224.4 2,062.5
--------------- ------- -------
4 Revenue
The Group's revenue is derived from contracts with customers. 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:
Year ended 31 December 2021 Year ended 31 December 2020
--------------------------------------- ---------------------------------------
Revenue Revenue Revenue Revenue
recognised recognised recognised recognised
on on on on
performance performance performance performance
obligations obligations obligations obligations
satisfied over satisfied at a Total satisfied over satisfied at a Total
time point in time revenue time point in time revenue
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------------- -------------- ------- -------------- -------------- -------
North America 1,005.0 318.1 1,323.1 944.0 283.5 1,227.5
Europe 549.2 - 549.2 538.5 - 538.5
Asia-Pacific, Middle East and
Africa 352.1 - 352.1 296.5 - 296.5
---------------------------------- -------------- -------------- ------- -------------- -------------- -------
1,906.3 318.1 2,224.4 1,779.0 283.5 2,062.5
---------------------------------- -------------- -------------- ------- -------------- -------------- -------
The final contract value will not always have been 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 2021 from performance obligations satisfied
in previous periods is GBP28.0m (2020: GBP21.5m).
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 31
December 2021, the total order book is GBP1,296.7m (2020: GBP1,000.2m).
The order book for contracts with a total duration over one year
is GBP402.0m (2020: GBP295.8m). Revenue on these contracts is
expected to be recognised as follows:
2021 2020
GBPm GBPm
-------------------- ----- -----
Less than one year 279.7 185.0
One to two years 103.7 99.8
More than two years 18.6 11.0
-------------------- ----- -----
402.0 295.8
-------------------- ----- -----
The following table provides information about trade
receivables, contract assets and contract liabilities arising from
contracts with customers:
2021 2020
GBPm GBPm
--------------------- ------ ------
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Contract liabilities (46.5) (43.9)
--------------------- ------ ------
Trade receivables include invoiced amounts for retentions, which
are balances typically payable at the end of a construction
project, when all contractual performance obligations have been
met, and are therefore received over a longer period of time.
Included in the trade receivables balance is GBP85.9m (2020:
GBP87.5m) in respect of retentions anticipated to be receivable
within one year. Included in non-current other assets is GBP24.4m
(2020: GBP10.2m) anticipated to be receivable in more than one
year. All contract assets and liabilities are current.
Significant changes in the contract assets and liabilities
during the year are as follows:
2021 2020
---------------------------------------- ------------------------------------- -------------------------------------
Contract assets Contract liabilities Contract assets Contract liabilities
---------------------------------------- --------------- -------------------- --------------- --------------------
GBPm GBPm GBPm GBPm
---------------------------------------- --------------- -------------------- --------------- --------------------
As at 1 January 71.3 (43.9) 102.1 (42.0)
Revenue recognised in the current year 654.2 516.0 597.1 619.2
Acquired with businesses 2.0 (0.3) - -
Disposal of businesses - - (2.4) 0.5
Amounts transferred to trade receivables (619.5) - (624.3) -
Cash received/invoices raised for
performance obligations not yet
satisfied - (518.3) - (623.1)
Exchange movements (0.4) - (1.2) 1.5
---------------------------------------- --------------- -------------------- --------------- --------------------
As at 31 December 107.6 (46.5) 71.3 (43.9)
---------------------------------------- --------------- -------------------- --------------- --------------------
5 Acquisitions and disposals
Acquisitions
On 13 July 2021, the Group acquired 100% of the issued share
capital of RECON Services Inc., a geotechnical environmental
remediation and industrial services company based in Texas, US, for
an initial cash consideration of GBP20.2m (US$27.8m). Following the
finalisation of the acquired working capital, an adjustment of
GBP0.1m (US$0.2m) was agreed with the vendor, reducing the
consideration paid. In addition, contingent consideration is
payable in respect of certain contract awards; the total fair value
of the contingent consideration is GBP9.5m (US$13.1m) of which
GBP1.5m has been paid and GBP8.0m is recognised as contingent
consideration payable at year end. This amount has been agreed in
principle with the vendor (refer to note 34).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, customer relationships and the
operating synergies that arise from the Group's strengthened market
position. None of the goodwill is expected to be deductible for tax
purposes. Acquisition costs of GBP0.2m were expensed to the income
statement as a non-underlying item.
On 29 September 2021, the Group acquired the trade and assets of
Subterranean (Manitoba) Ltd., a geotechnical contractor in Canada,
for an initial cash consideration of GBP7.8m (CAD$13.4m). Following
the finalisation of the acquisition, a working capital true-up of
GBP0.2m (CAD$0.3m) is receivable, resulting in a net consideration
of GBP7.6m (CAD$13.1m). Goodwill arising on acquisition is
attributable to the expectation of future contracts and customer
relationships and the operating synergies that arise from the
Group's strengthened market position. The goodwill is expected to
be deductible for tax purposes. Acquisition costs of GBP0.3m were
expensed to the income statement as a non-underlying item.
On 1 November 2021, the Group acquired the trade and assets of
Voges Drilling, a geotechnical foundation company based in Texas,
US, for an initial cash consideration of GBP1.4m (US$2.0m) and a
further GBP0.8m (US$1.0m) of deferred consideration to be paid over
a three-year period.
For the Subterranean acquisition, GBP2.2m was provided for
against contractual trade receivables acquired of GBP4.1m,
resulting in a fair value of GBP1.9m. For RECON and Voges, 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 2021, in total, acquisitions
contributed GBP46.2m to revenue and a underlying profit before tax
of GBP1.4m, as broken down below:
Underlying
profit/(loss)
Revenue before tax
GBPm GBPm
------------- ------- --------------
RECON 42.8 1.5
Subterranean 3.3 (0.2)
------------- ------- --------------
Voges 0.1 0.1
------------- ------- --------------
46.2 1.4
------------- ------- --------------
Had the acquisitions taken place on 1 January 2021, total Group
revenue would have been GBP2,270.2m and underlying profit before
tax for the period would have been GBP82.5m, as broken down
below:
Underlying
profit/(loss)
Revenue before tax
GBPm GBPm
----------------------------------------------- ------- --------------
Group balance for the year to 31 December 2021 2,224.4 83.9
----------------------------------------------- ------- --------------
RECON 28.9 (2.4)
----------------------------------------------- ------- --------------
Subterranean 16.3 1.0
----------------------------------------------- ------- --------------
Voges 0.6 -
----------------------------------------------- ------- --------------
2,270.2 82.5
----------------------------------------------- ------- --------------
Adjustments made in respect of the acquisitions in the period to
31 December 2021 for intangible asset valuations, trade and other
receivables and contingent consideration are provisional pending
completion of the valuation exercise and agreement of any
contingent consideration and will be finalised within 12 months of
the acquisition date.
The identifiable assets and liabilities as at the date of
acquisition were:
RECON Subterranean and Voges Total
---------------------- ----------------------------------- ----- ---------------------------------- ------ ------
Carrying Fair value Fair Carrying Fair value Fair Fair
amount adjustment value amount adjustment value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Assets
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Intangible assets - 18.9 18.9 0.3 0.1 0.4 19.3
Property, plant and
equipment 4.3 0.4 4.7 7.9 (1.8) 6.1 10.8
Other non-current
assets 0.1 - 0.1 - - - 0.1
Inventories - - - 1.4 (1.4) - -
Trade and other
receivables 20.5 (0.1) 20.4 4.9 (2.2) 2.7 23.1
Current tax assets 1.4 - 1.4 - - - 1.4
Cash and cash
equivalents 0.9 - 0.9 - - - 0.9
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
27.2 19.2 46.4 14.5 (5.3) 9.2 55.6
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Liabilities
Lease liabilities (1.4) - (1.4) - - - (1.4)
Trade and other
payables (11.0) (0.2) (11.2) (1.3) - (1.3) (12.5)
Current tax
liabilities (1.1) - (1.1) - - - (1.1)
Deferred tax
liabilities - (5.1) (5.1) - - - (5.1)
Provisions (0.1) (1.3) (1.4) - - - (1.4)
Other non-current
liabilities (0.3) - (0.3) - - - (0.3)
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
(13.9) (6.6) (20.5) (1.3) - (1.3) (21.8)
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Total identifiable net
assets 13.3 12.6 25.9 13.2 (5.3) 7.9 33.8
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Goodwill 3.7 1.9 5.6
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Total consideration 29.6 9.8 39.4
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Satisfied by:
Initial cash
consideration 20.2 9.2 29.4
Contingent
consideration 9.5 - 9.5
Deferred consideration - 0.8 0.8
Purchase price
adjustment (0.1) (0.2) (0.3)
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
29.6 9.8 39.4
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Acquisition of businesses
per the cash flow
statement:
Initial cash consideration 20.2 9.2 29.4
Contingent consideration
paid 1.5 - 1.5
Purchase price adjustment
received (0.1) - (0.1)
Less cash acquired (0.9) - (0.9)
-------------------------- ------ --------------- ------ ----- -------- ---------------- ------ ------ ------
20.7 9.2 29.9
---------------------- ---------- --------------- ------ ----- -------- ---------------- ------ ------ ------
Disposals
On 28 June 2021, the Group disposed of its Cyntech Anchors
operation in Canada, being 100% of the issued share capital of
Keller Cyntech U.S. and Cyntech Anchors Ltd., for a total
consideration of GBP6.0m (CAD$10.2m), consisting of the sale price
of GBP3.1m (CAD$5.3m) and further sale price adjustments in
relation to working capital of GBP2.9m (CAD$4.9m).
Cyntech Anchors
---------------------------------------------------------------- ---------------
GBPm
---------------------------------------------------------------- ---------------
Proceeds 3.1
Sale price adjustments 2.9
---------------------------------------------------------------- ---------------
Net disposal proceeds 6.0
Net assets disposed (see below) (6.6)
---------------------------------------------------------------- ---------------
Currency translation gains transferred from translation reserve 0.4
---------------------------------------------------------------- ---------------
Non-underlying loss on disposal (0.2)
---------------------------------------------------------------- ---------------
Cyntech Anchors
---------------------------------------------------------------- ---------------
GBPm
---------------------------------------------------------------- ---------------
Property, plant and equipment 1.4
Inventories 3.9
---------------------------------------------------------------- ---------------
Trade and other receivables 13.1
Trade and other payables (10.7)
---------------------------------------------------------------- ---------------
Other net liabilities (1.3)
---------------------------------------------------------------- ---------------
Net assets disposed 6.6
---------------------------------------------------------------- ---------------
The results for the period are presented below. The 2021 results represent activity prior
to the sale.
------------------------------------------------------------------------------------------ ----- -------------
Cyntech Anchors
2021 2020
GBPm GBPm
------------------------------------------------------------------------------------------ --------- ---------
Revenue 11.1 19.1
Operating costs (10.0) (18.6)
------------------------------------------------------------------------------------------ --------- ---------
1.1 0.5
------------------------------------------------------------------------------------------ --------- ---------
On 8 January 2021, the Group disposed of its Colcrete business,
being 100% of the issued share capital of Keller Colcrete Limited,
for a cash consideration of GBP0.4m. Property, plant and equipment
of GBP0.2m and inventories of GBP0.2m were disposed of. These
assets were classified as held for sale at 31 December 2020. During
the prior year a loss of GBP0.4m was recognised, relating to the
write-down of Colcrete assets and restructuring costs associated
with the exit.
Prior year disposals
On 6 April 2020, the Group disposed of its Brazil operation,
being 100% of the issued share capital of Keller Tecnogeo Fundacoes
Ltda., for a cash consideration of GBP0.5m (BRL3.0m). Additional
consideration of GBP0.9m (BRL6.5m) was received in September 2020,
resulting in a loss of disposal of GBP9.2m at 31 December 2020.
During 2021 there was a true-up to the sale price of GBP0.3m,
increasing the non-underlying loss on disposal to GBP9.5m.
On 11 September 2020, the Group disposed of Wannenwetsch GmbH, a
non-core business in Germany, for a cash consideration of GBP2.4m
(EUR2.6m). The loss on disposal at 31 December 2020 was GBP0.9m.
During the current year contingent consideration of GBP0.7m was
received in accordance with the terms of the sale and purchase
agreement, reducing the non-underlying loss on disposal to
GBP0.2m.
Disposal of businesses per the cash flow statement:
GBPm
-------------------------------------- ----
Cyntech Anchors net proceeds 6.0
Colcrete proceeds 0.4
Wannenwetsch contingent consideration 0.7
-------------------------------------- ----
7.1
-------------------------------------- ----
6 Operating costs 2021 2020
Note GBPm GBPm
-------------------------------------------------------------------------------------------- ---- ------- -------
Raw materials and consumables 711.8 597.7
Staff costs 7 580.7 572.4
Other operating charges 593.5 549.8
Amortisation of intangible assets 14 0.6 0.6
Expenses relating to short-term leases and leases of low-value assets 154.8 138.4
Depreciation:
Owned property, plant and equipment 15a 64.1 66.3
Right-of-use assets 15b 26.5 28.0
Underlying operating costs 2,132.0 1,953.2
-------------------------------------------------------------------------------------------- ---- ------- -------
Non-underlying items 8 9.6 29.6
-------------------------------------------------------------------------------------------- ---- ------- -------
Statutory operating costs 2,141.6 1,982.8
-------------------------------------------------------------------------------------------- ---- ------- -------
Other operating charges include:
Redundancy and other reorganisation costs - 0.2
Fees payable to the company's auditor for the audit of the company's Annual Report and
Accounts 1.1 0.9
Fees payable to the company's auditor for other services:
The audit of the company's subsidiaries, pursuant to legislation 1.9 1.7
Other assurance services 0.1 0.1
-------------------------------------------------------------------------------------------- ---- ------- -------
During the year, the Group received GBP2.4m (2020: GBP5.6m) of
direct subsidies with respect to COVID-19 related aid measures
introduced by government bodies in various countries. These
subsidies are recognised as an offset against the expense item
which they are intended to compensate. During the year, the amount
received in 2020 in relation to the UK furlough scheme was repaid;
this cost was provided for within operating costs at 31 December
2020.
7 Employees
The aggregate staff costs of the Group were:
2021 2020
GBPm GBPm
---------------------- ----- -----
Wages and salaries 505.6 498.1
Social security costs 57.5 59.7
Other pension costs 13.7 12.2
Share-based payments 3.9 2.4
---------------------- ----- -----
580.7 572.4
---------------------- ----- -----
These costs include Directors' remuneration. Fees payable to
Non-executive Directors totalled GBP0.5m (2020: GBP0.5m).
In the United States, the Coronavirus Aid, Relief, and Economic
Security Act allowed employers to defer the payment of the
employer's share of social security taxes otherwise required to be
paid between 27 March and 31 December 2020. The payment of the
deferred taxes is required in two instalments; the first half was
paid on 3 January 2022 and the remainder is due by January 2023. At
31 December 2021, the amount deferred is GBP4.7m.
The average number of staff, including Directors, employed by
the Group during the year was:
2021 2020 (1)
Number Number
------------------------------------- ------ --------
North America 4,722 4,305
Europe 2,922 3,034
Asia-Pacific, Middle East and Africa 2,080 1,970
------------------------------------- ------ --------
9,724 9,309
------------------------------------- ------ --------
1 From 1 January 2021 the Middle East and Africa (MEA) business
was transferred to the Asia-Pacific Division, creating the
Asia-Pacific, Middle East and Africa Division, and the remaining
Europe, Middle East and Africa Division became the Europe Division.
The 2020 comparative information has been updated to reflect this
change.
8 Non-underlying items
Non-underlying items include items which are exceptional by
their size and/or are non-trading in nature, including amortisation
of acquired intangibles, restructuring costs and other non-trading
amounts, including those relating to acquisitions and disposals.
Tax arising on these items, including movement in deferred tax
assets arising from non-underlying provisions, is also classified
as a non-underlying item. These are detailed below:
2021 2020
GBPm GBPm
Exceptional restructuring costs 7.3 16.6
------------------------------------------------------ ------ -----
Loss on disposal of operations 0.5 11.6
Acquisition costs 0.5 0.3
Contingent consideration: additional amounts provided 1.3 0.8
Goodwill impairment - 0.3
Non -- underlying items in operating costs 9.6 29.6
Amortisation of acquired intangible assets 2.8 4.2
Contingent consideration received (0.7) -
Exceptional contract dispute - (0.7)
Non-underlying items in other operating income (0.7) (0.7)
------------------------------------------------------ ------ -----
Amortisation of joint venture acquired intangibles 0.6 -
Total non-underlying items in operating profit 12.3 33.1
Non-underlying finance costs - -
------------------------------------------------------ ------ -----
Total non-underlying items before taxation 12.3 33.1
------------------------------------------------------ ------ -----
Taxation (10.6) (5.6)
------------------------------------------------------ ------ -----
Total non-underlying items after taxation 1.7 27.5
------------------------------------------------------ ------ -----
Non-underlying items in operating costs
Year ended 31 December 2021
Exceptional restructuring costs for the year of GBP7.3m
comprised GBP4.4m in Europe, GBP2.5m in Asia-Pacific, Middle East
and Africa, GBP1.6m of central items and a credit of GBP1.2m in
North America.
In Europe, these costs arose as a continuation of the strategic
project to rationalise the Europe Division. The restructuring costs
during the period comprised redundancy costs, property costs, asset
impairments and costs of market exit which include project
termination costs. In Asia-Pacific, Middle East and Africa these
costs arose as part of the project to rationalise the Middle East
and Africa business. The restructuring costs during the period
comprised mainly assets impairments and redundancy costs.
Centrally, restructuring costs were incurred in KGS, the in-house
equipment manufacturer, as a result of a restructuring plan for
this business. These costs comprised redundancy costs and asset
impairments. In North America the credit arose from the reduction
in restructuring costs provided for in 2020 as costs incurred were
lower than originally anticipated.
The Cyntech Anchors operation in Canada was disposed of on 28
June 2021, resulting in a net loss on disposal of GBP0.2m. During
2021 there was a true-up of the sale price of the Brazil disposal
reflected in 2020, resulting in an additional loss of GBP0.3m in
the year. This increased the total non-underlying loss on disposal
for this transaction to GBP9.5m.
Acquisition costs of GBP0.5m in the year comprised professional
fees relating to the RECON and Subterranean acquisitions.
Additional contingent consideration payable of GBP1.3m relates
to the acquisition of the Geo Construction Group (Bencor) in 2015,
following finalisation of items referenced in the sale and purchase
agreement.
Additional contingent consideration of GBP0.7m was received on
the achievement of performance targets in relation to the
Wannenwetsch disposal in 2020, reducing the total loss on disposal
to GBP0.2m.
Year ended 31 December 2020
In 2020, restructuring costs of GBP16.6m comprised GBP5.5m in
North America, as a result of exiting the Prairies region in Canada
and a specific market rationalisation exercise in the US, GBP11.0m
in E u rop e, M i d d le Ea st a nd Afri ca (now Europe) was
incurred as a result of the strategic project to rationalise the
division and a net charge of GBP0.1m in Asia-Pacific (now
Asia-Pacific, Middle East and Africa) related to the cessation of
the Waterway operation, offset by a restructuring provision release
in ASEAN in relation to the activities started in the second half
of 2018.
In 2020, a net loss on disposal of GBP11.6m was recognised
during the year; comprising a loss of GBP9.2m on the disposal of
the Group's Brazil operation, a GBP1.5m loss in relation to the
Colcrete Eurodrill business, a UK machinery manufacturer (which
comprised GBP1.1m loss on sale of the Eurodrill assets and GBP0.4m
provisions in relation to the sale of the Colcrete business which
completed in 2021), and a GBP0.9m loss on the disposal of
Wannenwetsch GmbH, a non-core business in Germany.
In 2020, acquisition costs of GBP0.3m related to professional
fees associated with the wind-up of an employee share ownership
plan at Moretrench, following acquisition in March 2018.
In 2020, the contingent consideration payable of GBP0.8m related
to the acquisition of the Geo Instruments US business in 2017. The
goodwill impairment of GBP0.3m related to the Genco business in
Egypt.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the Moretrench and RECON acquisitions. The prior year charge also
includes amounts related to the Austral acquisition.
Non-underlying items in other operating income
The proceeds of GBP0.7m in the previous year were received on
final settlement of a contributory claim relating to an exceptional
contract dispute.
Amortisation of joint venture acquired intangibles
Amortisation of joint venture intangibles relates to the
acquisition of NordPile by the Group's joint venture interest KFS
Finland Oy during the year. Refer to note 16 for further
details.
Non-underlying taxation
Refer to note 11 for details of the non-underlying tax
items.
9 Finance income
2021 2020
GBPm GBPm
----------------------------------- ---- ----
Bank and other interest receivable 0.2 0.3
Other finance income 0.2 0.8
----------------------------------- ---- ----
0.4 1.1
----------------------------------- ---- ----
10 Finance costs
2021 2020
GBPm GBPm
---------------------------------------------------------------------------- ---- ----
Interest payable on bank loans and overdrafts 3.1 4.9
Interest payable on other loans 1.3 2.4
Interest on lease liabilities 3.1 3.8
Net pension interest cost 0.2 0.3
Other interest costs 1.0 1.6
---------------------------------------------------------------------------- ---- ----
Total interest costs 8.7 13.0
Unwinding of discount and effect of changes in discount rates on provisions 0.6 1.3
Total finance costs 9.3 14.3
---------------------------------------------------------------------------- ---- ----
11 Taxation
2021 2020
GBPm GBPm
---------------------- ----- -----
Current tax expense:
Current year 14.0 24.3
Prior years (3.0) (0.8)
---------------------- ----- -----
Total current tax 11.0 23.5
---------------------- ----- -----
Deferred tax expense:
Current year (1.7) (1.2)
Prior years 0.2 0.4
---------------------- ----- -----
Total deferred tax (1.5) (0.8)
---------------------- ----- -----
9.5 22.7
---------------------- ----- -----
UK corporation tax is calculated at 19% (2020: 19%) 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% (2020: 19%) as follows:
2021 2020
--------------------------------- ---------------------------------
Non- Non-
underlying underlying
items items
Underlying (note 8) Statutory Underlying (note 8) Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Profit/(loss) before tax 83.9 (12.3) 71.6 96.9 (33.1) 63.8
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
UK corporation tax charge/(credit) at 19%
(2020: 19%) 15.9 (2.3) 13.6 18.4 (6.3) 12.1
Tax charged at rates other than 19% (2020:
19%) 5.5 (0.5) 5.0 5.6 (0.8) 4.8
Tax losses and other deductible temporary
differences not recognised 3.3 1.2 4.5 6.5 1.6 8.1
Utilisation of tax losses and other deductible
temporary differences previously unrecognised (1.4) (9.1) (10.5) (1.9) (1.3) (3.2)
Permanent differences (0.5) 0.1 (0.4) (0.2) 2.3 2.1
Adjustments to tax charge in respect of
previous periods (2.8) - (2.8) 0.2 (0.6) (0.4)
Other 0.1 - 0.1 (0.3) (0.5) (0.8)
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Tax charge/(credit) 20.1 (10.6) 9.5 28.3 (5.6) 22.7
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Effective tax rate 24.0% 86.2% 13.3% 29.2% 16.9% 35.6%
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
The tax credit of GBP10.6m on non-underlying losses includes GBP1.5m as the tax benefit of amounts
which are expected to be deductible for tax purposes and GBP9.1m from the partial reduction
in the valuation allowance made against deferred tax assets in Canada and Australia at 31 December
2020. As the original valuation allowance was booked through the non-underlying tax charge the
credit from the re-recognition of the deferred tax assets has also been treated as a non-underlying
item. The 2020 tax credit of GBP5.6m on non-underlying items includes a partial re-recognition
of Australian deferred tax assets of GBP1.9m as a result of the improved performance of the
Australian business, and the benefit of a net tax credit on other non-underlying charges which
are expected to be deductible for tax purposes.
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 of the probability of the outcome in
reaching agreement with the relevant tax authorities. Where tax
positions are uncertain, provision is made where necessary based on
interpretation of legislation, management experience and
appropriate professional advice. Management do not expect the
outcome of these estimates to be materially different from the
position taken.
The Group is monitoring developments in the OECD's Pillar 2
proposals to agree minimum effective tax rates across jurisdictions
participating in the OECD programme. Although the Group's
activities are mainly in territories which will be unaffected by
the Pillar 2 proposals it is possible that additional tax will be
charged in the future in countries where corporate tax rates are
increased. Any changes are not expected to be introduced before
2024.
Under draft proposals introduced to the US Congress in 2021, the
Group would potentially be subject to adverse changes in respect of
measures intended to limit the tax deductibility of intra-group
financing costs. The proposed measures were unable to secure
passage through Congress in 2021 and the Group is awaiting
developments to see if the measures, and whether they are in
original or revised form, are reintroduced in 2022. At present
there is insufficient evidence to assess the probable financial
impact on the Group's future tax position.
The Group has previously disclosed that it has been subject to
enquiries from the UK tax authorities in relation to the recovery
of tax benefits under EU State Aid provisions. The Group has now
received notification from HMRC that their enquiries have been
resolved and the original filing position has been accepted.
Accordingly, the contingent liability of GBP4m previously disclosed
has been extinguished.
The following are the major deferred tax liabilities and assets
recognised by the Group and the movements during the current and
prior reporting periods:
Other
Unused Accelerated Retirement employee- Other(1)
tax capital benefit related Bad temporary
losses allowances obligations liabilities debts differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
At 1 January 2020 (14.6) 35.8 (2.6) (5.9) (4.7) 4.8 12.8
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
Charge/(credit) to the income statement 4.1 (0.8) 0.1 (0.8) (1.9) (1.5) (0.8)
Credit to other comprehensive income - - (0.4) - - - (0.4)
Exchange movements (0.2) (0.6) (0.1) 0.2 0.3 - (0.4)
Other reallocations/transfers (0.2) - (1.0) - 0.1 0.9 (0.2)
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
At 31 December 2020 and 1 January 2021 (10.9) 34.4 (4.0) (6.5) (6.2) 4.2 11.0
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
(Credit)/charge to the income statement (6.4) 3.2 (0.7) 0.3 (2.4) 4.5 (1.5)
Charge to other comprehensive income - - 0.2 - - - 0.2
Acquisition and disposal of businesses - 0.3 - - - 4.7 5.0
Exchange movements 0.1 0.3 0.2 (0.1) (0.1) 0.2 0.6
Other reallocations/transfers - - 0.1 - - 0.2 0.3
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
At 31 December 2021 (17.2) 38.2 (4.2) (6.3) (8.7) 13.8 15.6
---------------------------------------- ------ ----------- ----------- ----------- ----- ----------- -----
1 Other temporary differences are mainly in respect of intangible assets.
Deferred tax assets include amounts of GBP13.0m (2020: GBP10.4m)
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 arise
predominantly in Canada (GBP6.7m), Australia (GBP4.2m) and UK
(GBP1.6m). The amount of profits in each territory which are
necessary to be realised over the forecast period to support these
assets are GBP25m, GBP14m and GBP8m respectively. Canadian tax
rules currently allow tax losses to be carried forward up to 20
years. UK and Australia allow losses to be carried forward
indefinitely. The recovery of deferred tax assets has been assessed
by reviewing the likely timing and level of future taxable profits.
The period assessed for recovery of assets is appropriate for each
territory having regard to the specific facts and circumstances and
the probability of achieving forecast profitability. A 10%
shortfall in expected profits would have a proportional impact on
the value of the deferred tax assets recoverable.
The following is the analysis of the deferred tax balances:
2021 2020
GBPm GBPm
------------------------- ------ ------
Deferred tax liabilities 28.6 21.3
Deferred tax assets (13.0) (10.3)
------------------------- ------ ------
15.6 11.0
------------------------- ------ ------
At the balance sheet date, the Group had unused tax losses of
GBP125.0m (2020: GBP146.4m), mainly arising in Canada, Australia,
Malaysia and the UK, available for offset against future profits,
on which no deferred tax asset has been recognised. Of these
losses, GBP74.3m (2020: GBP85.2m) 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 GBP13.9m (2020: GBP24.7m). These differences have no
expiry term.
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
GBP124.9m (2020: GBP118.4m), on the basis that the Group can
control the reversal of temporary differences and it is probable
that the temporary differences will not reverse in the foreseeable
future. The unprovided deferred tax liability in respect of these
timing differences is GBP7.6m (2020: GBP7.4m).
12 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares :
2021 2020
GBPm GBPm
-------------------------------------------------------------------------------------- ---- ----
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2020 of 23.3p (2019: 23.3p) per share 16.8 16.8
Interim dividend for the year ended 31 December 2021 of 12.6p (2020: 12.6p) per share 9.1 9.1
-------------------------------------------------------------------------------------- ---- ----
25.9 25.9
-------------------------------------------------------------------------------------- ---- ----
The Board has recommended a final dividend for the year ended 31
December 2021 of GBP16.8m, representing 23.3p (2020: 23.3p) per
share. The proposed dividend is subject to approval by shareholders
at the Annual General Meeting on 18 May 2022 and has not been
included as a liability in these financial statements.
13 Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding
during the year.
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.
Basic and diluted earnings per share are calculated as
follows:
Underlying earnings attributable to Earnings attributable to the equity
the equity holders of the parent holders of the parent
2021 2020 2021 2020
Basic and diluted earnings (GBPm) 64.7 70.0 63.0 42.5
--------------------------------------- ---------------- ----------------- ----------------- -----------------
Weighted average number of ordinary
shares (m)(1)
Basic number of ordinary shares
outstanding 72.3 72.1 72.3 72.1
Effect of dilution from:
Share options and awards 0.9 0.6 0.9 0.6
--------------------------------------- ---------------- ----------------- ----------------- -----------------
Diluted number of ordinary shares
outstanding 73.2 72.7 73.2 72.7
--------------------------------------- ---------------- ----------------- ----------------- -----------------
Earnings per share
Basic earnings per share (p) 89.5 97.1 87.1 58.9
Diluted earnings per share (p) 88.4 96.3 86.1 58.5
--------------------------------------- ---------------- ----------------- ----------------- -----------------
1 The weighted average number of shares takes into account the
weighted average effect of changes in treasury shares during the
year. The weighted average number of shares excludes those held in
the Employee Share Ownership Plan Trust and those held in treasury,
which for the purpose of this calculation are treated as
cancelled.
14 Goodwill and intangible assets
Arising on
Goodwill acquisition Other Total
GBPm GBPm GBPm GBPm
---------------------------------------- -------- ----------- ----- -----
Cost
-------- ----------- ----- -----
At 1 January 2020 228.6 59.0 23.4 311.0
Additions - - 0.5 0.5
Disposal of businesses (7.2) - - (7.2)
---------------------------------------- -------- ----------- ----- -----
Exchange movements (1.8) (0.1) (0.6) (2.5)
---------------------------------------- -------- ----------- ----- -----
At 31 December 2020 and 1 January 2021 219.6 58.9 23.3 301.8
-------- ----------- ----- -----
Additions - - 0.4 0.4
Acquired with businesses (note 5)(1) 5.6 19.3 - 24.9
Disposals - - (0.7) (0.7)
Exchange movements 1.1 0.5 (0.6) 1.0
---------------------------------------- -------- ----------- ----- -----
At 31 December 2021 226.3 78.7 22.4 327.4
---------------------------------------- -------- ----------- ----- -----
Accumulated amortisation and impairment
-------- ----------- ----- -----
At 1 January 2020 111.8 52.4 22.1 186.3
Impairment charge for the year 0.3 - - 0.3
Amortisation charge for the year - 4.2 0.6 4.8
Disposal of businesses (7.2) - - (7.2)
Exchange movements (0.5) (0.1) (0.6) (1.2)
---------------------------------------- -------- ----------- ----- -----
At 31 December 2020 and 1 January 2021 104.4 56.5 22.1 183.0
Amortisation charge for the year - 2.8 0.6 3.4
Disposals - - (0.7) (0.7)
---------------------------------------- -------- ----------- ----- -----
Exchange movements 0.6 (0.1) (0.3) 0.2
---------------------------------------- -------- ----------- ----- -----
At 31 December 2021 105.0 59.2 21.7 185.9
---------------------------------------- -------- ----------- ----- -----
Carrying amount
---------------------------------------- -------- ----------- ----- -----
At 1 January 2020 116.8 6.6 1.3 124.7
---------------------------------------- -------- ----------- ----- -----
At 31 December 2020 and 1 January 2021 115.2 2.4 1.2 118.8
---------------------------------------- -------- ----------- ----- -----
At 31 December 2021 121.3 19.5 0.7 141.5
---------------------------------------- -------- ----------- ----- -----
1 Goodwill arising on acquisition relates to the acquisition of
RECON and Subterranean. Refer to note 5 for further details.
Intangible assets arising on acquisition represent customer
contracts and relationships with a carrying amount of GBP13.9m
(2020: GBP0.3m) and trade names with a carrying amount of GBP5.6m
(2020: GBP2.1m). Other intangibles represent internally developed
software and licences. There are no indicators of impairment for
these assets at 31 December 2021.
For the purposes of impairment testing, goodwill has been
allocated to nine separate cash-generating units (CGUs). The
carrying amount of goodwill allocated to the five CGUs with the
largest goodwill balances is significant in comparison to the total
carrying amount of goodwill and comprises 92% of the total (2020:
94%). 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:
2021 2020
------------------------------------ ------------------------------------
Carrying Pre-tax Forecast Carrying Pre-tax Forecast
value discount rate growth rate value discount rate growth rate
CGU Geographical segment GBPm % % GBPm % %
--------------- ----------------------- -------- ------------- ----------- -------- ------------- -----------
Keller US North America 45.0 11.6 2.0 44.4 13.0 2.0
Suncoast North America 31.9 11.6 2.0 31.4 13.3 2.0
Keller Canada North America 15.0 11.8 2.0 12.8 12.6 2.0
Keller Limited Europe 12.1 10.1 3.0 12.1 12.7 3.0
Asia-Pacific, Middle
Austral East and Africa 7.3 12.9 2.0 7.6 14.2 2.0
North America and
Other (1) Europe 10.0 6.9
--------------- ----------------------- -------- ------------- ----------- -------- ------------- -----------
121.3 115.2
--------------------------------------- -------- ------------- ----------- -------- ------------- -----------
1 Pre-tax discount rates and forecast growth rates are defined
by market.
The recoverable amount of the goodwill allocated to each CGU has
been calculated on a value-in-use basis. The calculations use cash
flow projections based on financial budgets and forecasts approved
by management and cover a three-year period.
The Group's businesses operate in a diverse geographical set of
markets, some of which are expected to continue to face uncertain
conditions in future years. The most important factors in the
value-in-use calculations are the forecast revenues and operating
margins during the forecast period, the growth rates and discount
rates applied to future cash flows. The key assumptions underlying
the cash flow forecasts are revenue and operating margins assumed
throughout the forecast period. Revenue and operating margins are
prepared as part of the Group's three-year forecast in line with
the Group's annual business planning process. The Group's budget
for 2022 and financial projections for 2023 and 2024 were approved
by the Board, and have been used as the basis for input into the
value-in-use calculation.
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. A margin for
historical forecasting error has also been factored into the
value-in-use model. Cash flows beyond 2024 which are deemed to be
on a continuing basis have been extrapolated using the forecast
growth rates above and do not exceed the long-term average growth
rates for the markets in which the relevant CGUs operate. The
growth rates used in the Group's value-in-use calculation into
perpetuity are based on forecasted growth in the construction
sector in each region where a CGU is located and adjusted for
longer-term compound annual growth rates for each CGU as estimated
by management. 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 believes that any reasonable 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.
A number of sensitivities were run on the projections to
identify the changes required in each of the key assumptions that,
in isolation, would give rise to an impairment of the following
goodwill balances.
Increase in(1) Reduction in(1) Reduction in
discount future growth final year cash
rate rate flow
CGU Geographical segment %
--------------- ------------------------------------- -------------- --------------- ---------------
Keller US North America 24.5 39.3 85.9
Suncoast North America 63.7 740.0 108.0
Keller Canada North America 9.5 11.9 60.0
Keller Limited Europe 5.0 6.0 48.9
Austral Asia-Pacific, Middle East and Africa 21.4 35.8 84.8
--------------- ------------------------------------- -------------- --------------- ---------------
1 The increase in discount rate and reduction in future growth
rate are presented as gross movements.
15 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets
.
2021 2020
Note GBPm GBPm
--------------------------------------------- ---- ----- -----
Property, plant and equipment - owned assets 15a 375.5 365.4
Right-of-use assets - leased assets 15b 67.9 69.5
--------------------------------------------- ---- ----- -----
At 31 December 443.4 434.9
--------------------------------------------- ---- ----- -----
15 a) Property, plant and equipment - owned assets
Plant,
Land and machinery Capital work
buildings and vehicles in progress Total
GBPm GBPm GBPm GBPm
------------------------------------------- ---------------------- ------------ -------------- -------
Cost
---------------------- ------------ -------------- -------
At 1 January 2020 70.7 880.4 9.6 960.7
---------------------- ------------ -------------- -------
Additions 2.2 67.9 2.4 72.5
Disposals (1.5) (37.5) (0.7) (39.7)
Transfers to held for sale(1) (0.5) (23.3) - (23.8)
Disposal of businesses (2.3) (12.2) - (14.5)
Reclassification - 4.3 (4.3) -
Exchange movements 0.3 (0.9) 0.3 (0.3)
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2020 and 1 January 2021 68.9 878.7 7.3 954.9
---------------------- ------------ -------------- -------
Additions 3.4 79.3 1.3 84.0
Acquired with businesses (note 5) 0.7 8.7 - 9.4
Disposals (2.5) (41.4) - (43.9)
Net transfers to held for sale(1) - 1.3 - 1.3
Disposal of businesses (note 5) - (1.2) (0.5) (1.7)
Reclassification - 2.4 (2.4) -
Exchange movements (1.5) (16.9) (0.2) (18.6)
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2021 69.0 910.9 5.5 985.4
------------------------------------------- ---------------------- ------------ -------------- -------
Accumulated depreciation and impairment
---------------------- ------------ -------------- -------
At 1 January 2020 20.9 555.1 - 576.0
Charge for the year 2.2 64.1 - 66.3
Disposals (0.2) (32.7) - (32.9)
Transfers to held for sale(1) (0.5) (15.4) - (15.9)
Disposal of businesses (1.2) (9.2) - (10.4)
Impairments 0.1 6.5 - 6.6
Exchange movements 0.1 (0.3) - (0.2)
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2020 and 1 January 2021 21.4 568.1 - 589.5
---------------------- ------------ -------------- -------
Charge for the year 1.7 62.4 - 64.1
Disposals (0.7) (35.2) - (35.9)
Net transfers to held for sale(1) - 0.9 - 0.9
Disposal of businesses (note 5) - (0.3) - (0.3)
Impairments - 3.4 - 3.4
Exchange movements (0.5) (11.3) - (11.8)
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2021 21.9 588.0 - 609.9
------------------------------------------- ---------------------- ------------ -------------- -------
Carrying amount
------------------------------------------- ---------------------- ------------ -------------- -------
At 1 January 2020 49.8 325.3 9.6 384.7
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2020 and 1 January 2021 47.5 310.6 7.3 365.4
------------------------------------------- ---------------------- ------------ -------------- -------
At 31 December 2021 47.1 322.9 5.5 375.5
------------------------------------------- ---------------------- ------------ -------------- -------
1 The carrying amount of assets held for sale at the balance
sheet date are detailed in note 21.
The Group had contractual commitments for the acquisition of
property, plant and equipment of GBP7.2m (2020: GBP7.5m) 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 their value-in-use in the Middle East and Africa and
KGS, the in-house equipment manufacturer, where it is not being
relocated to other more active parts of the Group. The carrying
amount of these assets was GBP1.9m, compared to a value-in-use of
GBP0.3m, which resulted in a non-underlying impairment charge of
GBP1.6m. Details of restructuring are set out in note 8. Also
included are impairments in the year relating to assets that are
inaccessible due to a contract suspension. The carrying amount of
these assets was GBP1.8m, compared to a value-in-use sell of
GBPnil, which resulted in an underlying impairment charge of
GBP1.8m.
15 b) Right-of-use assets - leased assets
The Group has lease contracts for various items of land and
buildings, plant, machinery and vehicles used in its operations.
Leases of land and buildings generally have lease terms between
three and 15 years, while plant, machinery and vehicles generally
have lease terms between two and eight years. The Group's
obligations under its leases are secured by the lessor's title to
the lease assets. Generally, the Group is restricted from assigning
and subleasing its leased assets. There are several lease contracts
that include extension and termination options.
The Group has certain leases of machinery with lease terms of 12
months or less and leases of office equipment with low value. The
Group applies the 'short-term lease' and 'lease of low-value
assets' recognition exemptions for these leases.
Set out below are the carrying amounts of the right-of-use
assets recognised and the movements during the year :
Plant,
Land and machinery
buildings and vehicles Total
GBPm GBPm GBPm
--------------------------------------- --------- ------------ ------
At 1 January 2020 47.4 28.5 75.9
Additions 8.4 14.3 22.7
Depreciation expense (13.4) (14.6) (28.0)
Impairment expense (0.7) - (0.7)
Contract modifications 1.3 (0.8) 0.5
Exchange movements (0.8) (0.1) (0.9)
At 31 December 2020 and 1 January 2021 42.2 27.3 69.5
--------------------------------------- --------- ------------ ------
Additions 11.3 12.1 23.4
Acquired with businesses (note 5) 0.4 1.0 1.4
Depreciation expense (12.6) (13.9) (26.5)
Impairment expense - (4.4) (4.4)
Contract modifications 1.7 3.1 4.8
Exchange movements (0.1) (0.2) (0.3)
--------------------------------------- --------- ------------ ------
At 31 December 2021 42.9 25.0 67.9
--------------------------------------- --------- ------------ ------
The carrying amounts of lease liabilities (included within note
25 within loans and borrowings) and the movements during the year
are set out in note 26.
Impairments in the year relate to assets that are inaccessible
due to a contract suspension. The carrying amount of these assets
was GBP4.4m, compared to a value-in-use of GBPnil, which resulted
in an underlying impairment charge of GBP4.4m.
16 Investments in joint ventures
GBPm
-------------------------------------------------- -----
At 1 January 2021 4.4
Share of underlying post-tax results 0.4
Share of non-underlying post-tax results (note 8) (0.6)
Exchange movements (0.2)
-------------------------------------------------- -----
At 31 December 2021 4.0
-------------------------------------------------- -----
GBPm
------------------------------------- -----
At 1 January 2020 3.8
Share of underlying post-tax results 0.8
Dividends received (0.4)
Exchange movements 0.2
------------------------------------- -----
At 31 December 2020 4.4
------------------------------------- -----
The Group's investment in joint ventures relates to a 50%
interest in the ordinary shares of KFS Finland Oy, an entity
incorporated in Finland.
In 2021, KFS Finland Oy earned total revenue of GBP36.8m (2020:
GBP34.6m) and a statutory loss after tax for the year of GBP0.4m
(2020: statutory profit after tax of GBP1.6m)
Aggregate amounts relating to joint ventures:
2021 2020
Non-underlying
items
Underlying (note 8) Statutory Statutory
GBPm GBPm GBPm GBPm
------------------------------ ---------- -------------- --------- ---------
Revenue 18.4 - 18.4 17.3
Operating costs(1) (17.9) (0.6) (18.5) (16.4)
------------------------------ ---------- -------------- --------- ---------
Operating profit/(loss) 0.5 (0.6) (0.1) 0.9
Finance costs (0.1) - (0.1) -
------------------------------ ---------- -------------- --------- ---------
Profit/(loss) before taxation 0.4 (0.6) (0.2) 0.9
Taxation - - - (0.1)
------------------------------ ---------- -------------- --------- ---------
Share of post-tax results 0.4 (0.6) (0.2) 0.8
------------------------------ ---------- -------------- --------- ---------
1 Included within operating costs is depreciation on owned
assets of GBP0.8m (2020: GBP0.6m).
KFS Finland Oy Group portion of
(100% of results) the joint venture
-------------------- --------------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
--------------------------------- ---------- -------- ---------- --------
Non-current assets 20.4 10.0 10.2 5.0
Cash and cash equivalents 1.2 0.8 0.6 0.4
Other current assets 7.8 4.4 3.9 2.2
--------------------------------- ---------- -------- ---------- --------
Total assets 29.4 15.2 14.7 7.6
--------------------------------- ---------- -------- ---------- --------
Other current liabilities (8.4) (3.6) (4.2) (1.8)
Non-current loans and borrowings (11.2) (2.8) (5.6) (1.4)
Other non-current liabilities (1.8) - (0.9) -
--------------------------------- ---------- -------- ---------- --------
Total liabilities (21.4) (6.4) (10.7) (3.2)
--------------------------------- ---------- -------- ---------- --------
Share of net assets 8.0 8.8 4.0 4.4
--------------------------------- ---------- -------- ---------- --------
On 8 September 2021, KFS Finland Oy acquired NordPile, a driven
and piling contractor, for GBP7.3m (EUR8.5m). The fair value of the
Group's share of intangibles acquired was GBP2.1m (EUR2.4m),
representing the fair value of customer contracts at the date of
acquisition and customer relationships. Amortisation of these
assets is recognised as a non-underlying item.
17 Other non-current assets
2021 2020(1)
GBPm GBPm
------------------------------------------------- ---- -------
Fair value of derivative financial instruments 2.6 5.4
------------------------------------------------- ---- -------
Non-qualifying deferred compensation plan assets 20.6 18.3
Other assets 26.5 12.4
Insurance receivables 38.8 24.2
------------------------------------------------- ---- -------
88.5 60.3
------------------------------------------------- ---- -------
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset
recognised for amounts recoverable from insurance providers and
customer retentions receivable in more than one year to other
non-current assets, as outlined in note 2 to the financial
statements.
A non-qualifying deferred compensation plan (NQ) is available to
US employees, whereby an element of eligible employee bonuses and
salary is deferred over a period of four to six years. The plan
allows participants to receive tax relief for contributions beyond
the limits of the tax-free amounts allowed per the 401k defined
contribution pension plan . The plan is administered by a
professional investment provider with participants able to select
their investments from an approved listing. An amount equal to each
participant's compensation deferral is transferred into a trust and
invested in various marketable securities. The related trust assets
are not identical to investments held on behalf of the employee but
are invested in similar funds with the objective that performance
of the assets closely tracks the liabilities. The investments held
in the trust are designated solely for the purpose of paying
benefits under the non-qualified deferred compensation plan. The
investments in the trust would however be available to all
unsecured general creditors in the event of insolvency.
The value of both the employee investments and those held in
trust by the company are measured using Level 1 inputs per IFRS 13
('quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date')
based on published market prices at the end of the period.
Adjustments to the fair value are recorded within net finance costs
in the consolidated income statement.
At 31 December 2021, non-current assets in relation to the
investments held in the trust were GBP20.6m (2020: GBP18.3m). The
fair value movement on these assets was GBP1.1m (2020: GBP2.2m).
During the period proceeds from the sale of NQ-related investments
were GBPnil (2020: GBPnil). At 31 December 2021, non-current
liabilities in relation to the participant investments were
GBP15.8m (2020: GBP14.7m). These are accounted for as financial
liabilities at fair value through profit or loss. The fair value
movement on these liabilities was GBP2.1m (2020: GBP2.7m). During
the year GBP1.4m (2020: GBP1.2m) of compensation was deferred.
Other assets include customer retentions receivable of GBP24.4m
(2020: GBP10.2m). For further information refer to note 4. Note 2
highlights the restatement required in the presentation of customer
retentions receivable.
18 Inventories
2021 2020
GBPm GBPm
------------------------------ ---- ----
Raw materials and consumables 40.6 41.3
Work in progress 1.8 0.3
Finished goods 29.7 18.5
------------------------------ ---- ----
72.1 60.1
------------------------------ ---- ----
During 2021, GBP2.4m (2020: GBP3.8m) of inventory write-downs
were recognised as an expense in the consolidated income
statement.
19 Trade and other receivables
2021 2020(1)
GBPm GBPm
----------------------------------------------- ----- -------
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Other receivables 15.9 21.2
Fair value of derivative financial instruments - 0.8
----------------------------------------------- ----- -------
Prepayments 19.6 17.2
Insurance receivables 0.1 8.2
----------------------------------------------- ----- -------
592.0 501.9
----------------------------------------------- ----- -------
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset
recognised for amounts recoverable from insurance providers and
customer retentions receivable in more than one year to other
non-current assets, as outlined in note 2 to the financial
statements.
Trade receivables and contract assets included in the balance
sheet are shown net of expected credit loss provisions as detailed
in note 2.
The movement in the provision held against trade receivables and
contract assets (including expected credit losses) is as
follows:
2021 2020
GBPm GBPm
---------------------------- ------ ------
At 1 January 42.9 38.1
Used during the year (3.1) (6.3)
Additional provisions 24.6 23.6
Unused amounts reversed (11.9) (12.1)
Acquisition with businesses 2.4 -
Disposal of businesses - (0.7)
Exchange movements (1.2) 0.3
---------------------------- ------ ------
At 31 December 53.7 42.9
---------------------------- ------ ------
Set out below is information about the credit risk exposure on
the Group's trade receivables, detailing past due but not impaired,
based on agreed terms and conditions with the customer:
2021 2020
GBPm GBPm
---------------------------------- ----- -----
Overdue by less than 30 days 125.2 65.9
Overdue by between 31 and 90 days 59.6 31.0
Overdue by more than 90 days 20.2 25.9
---------------------------------- ----- -----
205.0 122.8
---------------------------------- ----- -----
20 Cash and cash equivalents
2021 2020
GBPm GBPm
----------------------------------------------------- ----- -----
Bank balances 77.9 64.2
Short-term deposits 4.8 2.1
----------------------------------------------------- ----- -----
Cash and cash equivalents in the balance sheet 82.7 66.3
Bank overdrafts (0.9) (4.7)
----------------------------------------------------- ----- -----
Cash and cash equivalents in the cash flow statement 81.8 61.6
----------------------------------------------------- ----- -----
Cash and cash equivalents include GBP2.7m (2020: GBP3.1m) of the
Group's share of cash and cash equivalents held by joint
operations, and GBP1.7m (2020: GBP0.5m) of restricted cash which is
subject to local country restrictions .
21 Assets held for sale
2021 2020
GBPm GBPm
-------------------- ---- ----
Plant and machinery 3.1 7.9
Inventories 0.3 0.3
Trade receivables - 0.5
-------------------- ---- ----
3.4 8.7
-------------------- ---- ----
Assets held for sale mainly comprise plant and machinery in
Waterway, as a result of the wind-down of the business, and
equipment in the North America Division following a rationalisation
exercise.
22 Trade and other payables
2021 2020
GBPm GBPm
----------------------------------------------- ----- -----
Trade payables 268.8 169.3
Other taxes and social security payable 25.2 23.0
Other payables 117.2 97.3
Contract liabilities 46.5 43.9
Accruals 48.0 47.7
Fair value of derivative financial instruments - 0.5
505.7 381.7
----------------------------------------------- ----- -----
Other payables include contingent and deferred consideration of
GBP12.3m (2020: GBP0.8m).
23 Provisions
Insurance
Employee Restructuring Contract and legal Other
provisions provisions provisions provisions provisions Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
At 31 December 2020 9.3 5.6 35.3 39.5 3.7 93.4
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
Restatement(1) - - - 32.4 - 32.4
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
As at 31 December 2020 (restated) 9.3 5.6 35.3 71.9 3.7 125.8
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
Charge for the year 4.7 5.2 22.8 12.3 0.8 45.8
Acquired with businesses (note 5) - - 0.5 - 0.9 1.4
Disposal of businesses (note 5) (0.1) - - - - (0.1)
Used during the year (4.4) (6.9) (11.6) (7.1) (0.9) (30.9)
Unused amounts reversed (0.1) (0.2) (4.9) (3.4) (0.9) (9.5)
Unwinding of discount and changes in the
discount rate 0.4 - - (0.1) - 0.3
Exchange movements 0.1 (0.2) (0.2) (0.8) - (1.1)
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
At 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
Current 3.2 3.5 34.1 9.4 3.6 53.8
Non-current 6.7 - 7.8 63.4 - 77.9
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
At 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
----------------------------------------------- ---------- ------------- ---------- ---------- ---------- ------
1 The comparative balance sheet has been restated to present
gross insurance provisions with a separate reimbursement asset
recognised for amounts recoverable from insurance providers, as
outlined in note 2 to the financial statements.
Employee provisions
Employee provisions relate to various liabilities in respect of
employee rights and benefits, including the workers' compensation
scheme in North America and long service leave benefits in
Australia.
At 31 December 2021, the provision in respect of workers'
compensation was GBP6.5m (2020: GBP6.8m). A provision is recognised
when the an employee informs the company of a workers' compensation
claim. The provision is measured based on information provided by
the workers' compensation insurer. The actual costs that may be
incurred in respect of these claims are dependent on the assessment
of an employee's claim and potential medical expenses, with timing
of outflows variable depending on the claim.
At 31 December 2021, the provision in respect of long service
leave was GBP1.7m (2020: GBP1.6m). A provision is recognised at the
point an employee joins the company, with an adjustment made to
factor the likelihood that the employee will remain in continuous
service with the company to meet the threshold to receive the
benefits. It is measured at the present value of expected future
benefit for services provided by employees up to the reporting
date. The actual costs that may be incurred are dependent on the
length of service for employees and amended for any starters and
leavers. The provision is utilised when the leave is taken by the
employee or when unused leave is paid on termination of
employment.
Employee provisions also includes an amount of GBP1.4m (2020:
GBP0.9m) in respect of social security contributions on share
options. This provision is utilised as the options are exercised by
employees, which occurs when the awards vest.
Restructuring provisions
A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring, has raised
a valid expectation in those individuals affected and liabilities
have been identified. The measurement of a restructuring provision
includes only the direct expenditures arising from the
restructuring.
The restructuring provisions in 2021 relate primarily to the
relevant activities in the Europe and Asia-Pacific, Middle East and
Africa Divisions. The provisions comprise mainly amounts for
redundancy costs. Estimates may differ from the actual charges
depending on the finalisation of redundancy amounts. These
provisions are expected to be utilised within the next 12
months.
Contract provisions
Contract provisions include onerous contracts where the forecast
costs of completing the contract exceed the revenue. Provision is
made in full when such losses are foreseen, based on the estimated
unavoidable costs of meeting the obligations of the contract, where
these exceed the economic benefits expected to be received. The
unavoidable costs under a contract reflect the least net cost of
exiting from the contract, which is the lower of the cost of
fulfilling it and any compensation or penalties arising from
failure to fulfil it. The majority of this balance is expected to
be utilised in the next 12 months, given the general short-term
nature of contracts. The non-current element of the provision
relates to longer-term contracts and customer claims and
disputes.
Insurance and legal provisions
Insurance and legal provisions comprises the liability for legal
claims against the Group, including those that are retained within
the Group's captive insurer (the 'captive'). The captive covers
both public liability and professional indemnity claims for the
Group. The captive covers liabilities below an upper limit above
which third-party insurance applies.
Following the identification of an error (refer to note 2 for
further details) there was a change in accounting policy for the
presentation of provisions for legal claims and related insurance
receivables. Provisions for insurance and legal claims are made
based on the best estimate of the likely total settlement value of
a claim against the Group. Management seek specialist input from
legal advisers and the Group's insurance claims handler to estimate
the most likely legal outcome. The outcome of legal negotiations is
inherently uncertain; as a result, there can be no guarantee that
the assumptions used to estimate the provision will result in an
accurate prediction of the actual costs that may be incurred.
A provision is recognised when it is judged likely that a legal
claim will result in a payment to the claimant and the amount of
the claim can be reliably estimated. Provisions are utilised as
insurance claims are settled, which may take a number of years. A
separate insurance receivable is recognised to the extent that
confirmed third-party insurance is expected to cover any element of
an estimated claim value and is virtually certain to be recovered.
The asset is recognised within other non-current assets (refer to
note 17) and trade and other receivables (refer to note 19).
Management considers that there are no instances of reimbursable
assets which are probable in nature.
Other provisions
Other provisions are in respect of property dilapidation arising
from lease obligations and other operational provisions. Where a
lease includes a 'make-good' requirement, provision for the cost is
recognised as the obligation is incurred, either at the
commencement of the lease or as a consequence of using the asset,
and the cost of the expected work required can be reliably
estimated. These are expected to be utilised over the relevant
lease term which ranges from 3 to 15 years across the Group.
24 Other non-current liabilities
2021 2020
GBPm GBPm
--------------------------------------------- ---- ----
Non-qualifying compensation plan liabilities 15.8 14.8
--------------------------------------------- ---- ----
Other liabilities 5.4 7.2
--------------------------------------------- ---- ----
21.2 22.0
--------------------------------------------- ---- ----
Other liabilities include deferred consideration of GBP0.4m
(2020: contingent consideration of GBP2.2m) and GBP4.7m (2020:
GBP4.5m) in respect of US social security tax deferrals, refer to
note 7 for further information.
Refer to note 17 for further information on the non-qualifying
deferred compensation plan.
25 Financial instruments
Exposure to credit, interest rate and currency risks arise in
the normal course of the Group's business and have been identified
as 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 and Australian dollars.
The Group manages its currency flows to minimise transaction
exchange risk. Forward contracts are used to hedge significant
individual transactions. The majority of such currency flows within
the Group relate to the repatriation of profits, intra-group loan
repayments and any foreign currency cash flows associated with
acquisitions. The Group's treasury risk management is performed at
the Group's head office.
As at 31 December 2021, the fair value of outstanding foreign
exchange forward contracts was GBPnil (2020: GBP0.5m, included in
current liabilities).
Interest rate risk
Interest rate risk is managed by either fixed and floating rate
borrowings dependent upon the purpose and term of the
financing.
As at 31 December 2021, approximately 99% (2020: 97%) of the
Group's third-party borrowings were at floating interest rates.
Hedging currency risk and interest rate risk
The Group hedges currency risk and interest rate risk. Where
hedging instruments are used to hedge significant individual
transactions, the Group ensures that the critical terms, including
dates, currencies, nominal amounts, interest rates and lengths of
interest periods, are matched. The Group uses both qualitative and
quantitative methods to confirm this and to assess the
effectiveness of the hedge.
For currency hedging, the main source of hedge ineffectiveness
is the relative movement of the forward points of the different
currencies.
For interest rate hedging, the main sources of hedge
ineffectiveness include changes in the US 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 Group exposures.
These represent the Group's maximum exposure to credit risk in
relation to financial assets.
The Group has procedures to manage counterparty risk and the
assessment of customer credit risk is embedded in the contract
tendering processes. 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.
Customer credit risk is mitigated by the Group's relatively
small average contract size and diversity, both geographically and
in terms of end markets. No individual customer represented more
than 3% of revenue in 2021. The ageing of trade receivables that
were past due but not impaired is shown in note 19.
The Group evaluates each new customer and assesses their
creditworthiness before any contract is undertaken.
The Group reviews customer receivables (including contract
assets) on an ageing basis and provides against expected
unrecoverable amounts. Experience has shown the level of historical
provision required to be relatively low. Credit loss provisioning
reflects past experience, economic factors and specific
conditions.
The Group's estimated exposure to credit risk for trade
receivables and contract assets is disclosed in note 19. This
amount is the accumulation of several years of provisions for known
or expected credit losses. Consideration of future events is
generally taken into account when deciding when and how much to
provide for of the Group's trade receivables and contract
assets.
Liquidity risk and capital management
The Group's capital structure is kept under constant review,
taking into account the need for availability and cost of various
sources of funding. The capital structure of the Group consists of
net debt and equity as shown in the consolidated balance sheet. The
Group maintains a balance between the certainty of funding and a
flexible, cost-effective financing structure, with all main
borrowings being from committed facilities. The Group's policy
ensures 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
$75m private placement repayable in December 2024 and a GBP375m
syndicated revolving credit facility expiring in November 2025.
These facilities are subject to certain covenants linked to the
Group's financing structure, specifically regarding the ratios of
net debt and interest to profit. The Group has complied with these
covenants throughout the year.
At the year end, the Group also had other borrowing facilities
available of GBP76.0m (2020: GBP385.3m). In 2020, facilities
available included GBP300m available under the Bank of England
Covid Corporate Financing Facility, which expired on 23 March
2021.
Private placements
In October and December 2014, $50m and $75m respectively was
raised through a private placement with US institutions. The
proceeds of the issue of $50m Series A notes 3.81% due 2021 and
$75m Series B notes 4.17% due 2024 were used to refinance maturing
private placements. In October 2021 the $50m private placement was
repaid, in line with the agreed terms. The US private placement
notes are accounted for on an amortised cost basis, adjusted for
the impact of hedge accounting (as described below), and are
retranslated at the exchange rate at each period end. The carrying
value of the private placement liabilities at 31 December 2021 was
GBP58.1m (2020: GBP97.3m).
Hedging
The 2014 $50m and $75m fixed rate private placement liabilities
were swapped into floating rates 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. The objective is to protect
against the Group's exposure to changes in the fair value of the US
private placement debt and to protect related interest cash flows
due to changes in US dollar interest rates.
The fair value of the 2014 swaps at 31 December 2021 was GBP2.6m
(2020: GBP6.2m); of this amount GBP2.6m (2020: GBP5.4m) is included
in other non-current assets. At 31 December 2020, GBP0.8m was
included in trade and other receivables. The effective portion of
the changes in the fair value of the 2014 swaps gave rise to a loss
of GBP3.6m (2020: gain of GBP2.8m), which has been taken to the
income statement along with the equal and opposite movement in fair
value of the corresponding hedged items. In October 2021, the
interest rate swap hedging the tranche of the private placement
liability repaid in the year was closed out in line with the agreed
terms.
All hedges are tested for effectiveness every six months. All
hedging relationships remained effective during the year.
Accounting classifications
2021 2020
GBPm GBPm
--------------------------------------------------------------- ------- -------
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 20.6 18.3
Interest rate swaps 2.6 6.2
Financial assets measured at amortised cost
Trade receivables 448.8 383.2
Contract assets 107.6 71.3
Cash and cash equivalents 82.7 66.3
Financial liabilities at fair value through profit or loss
Forward exchange contracts - (0.5)
Contingent and deferred consideration (12.7) (3.0)
Financial liabilities measured at amortised cost
Trade payables (268.8) (169.3)
Contract liabilities (46.5) (43.9)
Loans and borrowings (200.6) (185.0)
Lease liabilities (75.4) (73.8)
--------------------------------------------------------------- ------- -------
Effective interest rates and maturity analysis
In respect of financial liabilities, the following table
indicates their effective interest rates and undiscounted
contractual cash flows at the balance sheet date:
2021
---------------------------------------------------------------------------------------
Due after Carrying amount
Effective Due within Due within Due within more than as shown in the
interest rate 1 year 1-2 years 2-5 years 5 years Total balance sheet
% GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------ ---------- ---------- --------- ------ ---------------
Bank loans and overdrafts 1.0 1.5 0.4 139.3 0.1 141.3 141.8
Bonds and other loans 1.6 3.6 2.3 57.8 - 63.7 58.8
Lease liabilities - 30.3 17.4 27.3 7.6 82.6 75.4
Contract liabilities - 46.5 - - - 46.5 46.5
Trade payables - 268.8 - - - 268.8 268.8
Contingent consideration - 12.3 0.4 - - 12.7 12.7
-------------------------- ------------- ------------ ---------- ---------- --------- ------ ---------------
363.0 20.5 224.4 7.7 615.6 604.0
-------------------------- ------------- ------------ ---------- ---------- --------- ------ ---------------
2020
------------------------------------------------------------------------------------
Due after Carrying amount
Effective Due within Due within Due within more than as shown in the
interest rate 1 year 1-2 years 2-5 years 5 years Total balance sheet
% GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ---------- ---------- ---------- --------- ----- ---------------
Bank loans and overdrafts 2.1 4.9 - 80.1 0.5 85.5 85.3
Bonds and other loans 1.6 40.6 4.5 59.3 - 104.4 99.7
Lease liabilities - 27.4 18.7 24.7 11.1 81.9 73.8
Contract liabilities - 43.9 - - - 43.9 43.9
Trade payables - 169.2 - - - 169.3 169.3
Contingent consideration - 0.8 2.2 - - 3.0 3.0
-------------------------- ------------- ---------- ---------- ---------- --------- ----- ---------------
286.8 25.4 164.1 11.6 488.0 475.0
-------------------------- ------------- ---------- ---------- ---------- --------- ----- ---------------
Loans and borrowings analysis
2021 2020
GBPm GBPm
---------------------------------------------------------------------- ----- -----
$75m private placement (due December 2024) 58.1 60.0
$50m private placement (repaid October 2021) - 37.3
GBP375m syndicated revolving credit facility (expiring November 2025) 138.5 78.3
Bank overdrafts 0.9 4.7
Other bank borrowings 2.4 2.3
Other loans 0.7 2.4
Lease liabilities (note 26) 75.4 73.8
Total loans and borrowings 276.0 258.8
---------------------------------------------------------------------- ----- -----
The Group has substantial borrowing facilities available to it.
The undrawn committed facilities available at 31 December 2021
amounted to GBP235.5m (2020: GBP313.2m). This mainly comprised the
unutilised portion of the Group's GBP375m revolving credit
facility, which expires on 23 November 2025. In addition, the Group
had undrawn uncommitted borrowing facilities totalling GBP56.4m at
31 December 2021 (2020: GBP359.4m). In 2020 this included GBP300m
available under the Bank of England Covid Corporate Financing
Facility (CCFC) which expired 23 March 2021. No drawings were made
on the CCFC. Other uncommitted bank borrowing facilities are
normally reaffirmed by the banks annually, although they can
theoretically be withdrawn at any time. Facilities totalling
GBP3.2m (2020: GBP4.0m) are secured against certain assets. Future
obligations under finance leases on a former IAS 17 basis totalled
GBP1.5m (2020: GBP2.2m), including interest of GBP0.1m (2020:
GBPnil).
Changes in loans and borrowings were as follows:
Foreign
Acquisition of exchange Fair value
2020 Cash flows Other(1) New leases businesses movements changes 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ---------- -------- ---------- --------------- --------------- --------------- -------
Bank overdrafts (4.7) 3.7 - - - 0.1 - (0.9)
Bank loans (80.6) (59.0) (1.2) - - (0.1) - (140.9)
Other loans (99.7) 37.2 0.6 - - (0.5) 3.6 (58.8)
Lease
liabilities
(note 26) (73.8) 29.8 (7.1) (23.4) (1.4) 0.5 - (75.4)
--------------- ------- ---------- -------- ---------- --------------- --------------- --------------- -------
Total loans and
borrowings (258.8) 11.7 (7.7) (23.4) (1.4) - 3.6 (276.0)
--------------- ------- ---------- -------- ---------- --------------- --------------- --------------- -------
Derivative
financial
instruments 5.7 - - - - - (3.1) 2.6
--------------- ------- ---------- -------- ---------- --------------- --------------- --------------- -------
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities.
Cash flow hedges
At 31 December 2021, the Group held no instruments to hedge
exposures to changes in foreign currency rates. At 31 December
2020, the Group held the following instruments:
2020
----------------------------- -----------------------------
Maturity Carrying amount Change in fair
----------------------------- -----------------------------
value used for
calculating
hedge Nominal
<1 year 1-2 years 2-5 years >5 years Asset Liability(1) ineffectiveness amount
GBPm GBPm GBPm GBPm GBPm GBPm GBPm $m
Forward exchange contracts (0.5) - - - - (0.5) - 25.0
1 Included within other liabilities.
Fair value hedges
The Group held the following instruments to hedge exposures to
changes in interest rates:
2021
-----------------------------
Maturity Carrying amount Change in fair
----------------------------- -----------------------------
value used for
calculating
hedge Nominal(2)
<1 year 1-2 years 2-5 years >5 years Asset(1) Liability ineffectiveness amount
GBPm GBPm GBPm GBPm GBPm GBPm GBPm $m
Interest rate swaps - - 2.6 - 2.6 - - 9.4
2020
Maturity Carrying amount Change in fair
value used for
calculating
hedge Nominal(2)
<1 year 1-2 years 2-5 years >5 years Asset(1) Liability ineffectiveness amount
GBPm GBPm GBPm GBPm GBPm GBPm GBPm $m
Interest rate swaps 0.8 - 5.4 - 6.2 - - 14.4
1 Included within other assets.
2 The average fixed interest rate is 4.0%.
The Group had the following hedged items relating to the above
instruments :
2021 2020
Change in fair Change in fair
value used for Hedge(2) value used for Hedge(2)
Carrying(1) calculating ineffectiveness Carrying(1) calculating ineffectiveness
amount hedge in profit amount hedge in profit
liability ineffectiveness or loss liability ineffectiveness or loss
GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ---------------
$75m private
placements (2020:
$125m) (58.1) - - (97.3) - -
Fair value hedge
adjustments 3.6 - - 2.8 - -
----------- -----------
1 Included within loans and borrowings.
2 Included in operating profit for the year.
Non-interest-bearing financial liabilities comprise trade
payables and contract liabilities of GBP315.3m (2020: GBP213.2m),
payable within one year.
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; being
derivatives, interest-bearing loans and borrowings, contingent and
deferred consideration and payables, receivables and construction
assets.
Derivatives
The fair values of interest rate and cross-currency swaps are
calculated based on expected future principal and interest cash
flows, discounted using market rates prevailing at the balance
sheet date. The valuation methods of all of the Group's derivative
financial instruments carried at fair value are categorised as
Level 2. Level 2 assets are financial assets and liabilities that
do not have regular market pricing, but whose fair value can be
determined based on other data values or market prices.
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and
interest cash flows discounted using appropriate discount rates
prevailing at the balance sheet date.
Contingent and deferred 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 appropriate discount
rates prevailing at the balance sheet date and the probability of
contingent events and targets being achieved.
The valuation methods of the Group's contingent consideration
carried at fair value are categorised as Level 3. Level 3 assets
are financial assets and liabilities that are considered to be the
most illiquid. Their values have been estimated using available
management information, including subjective assumptions.
There are no individually significant unobservable inputs used
in the fair value measurement of the Group's contingent
consideration as at 31 December 2021.
The following table shows a reconciliation from the opening to
closing balances for contingent and deferred consideration:
2021 2020
GBPm GBPm
------------------------------------- ----- -----
At 1 January 3.0 2.4
Acquisition of businesses (note 5) 8.8 -
Additional amounts provided (note 8) 1.3 0.8
Paid during the period (0.4) -
Released during the period (0.1) -
----- -----
Exchange movements 0.1 (0.2)
------------------------------------- ----- -----
At 31 December 12.7 3.0
------------------------------------- ----- -----
During the year, the Group acquired RECON Services Inc.
Contingent consideration is payable in respect of certain contract
awards; the total fair value of the contingent consideration at 31
December 2021 is GBP8.0m. This amount has been agreed with the
vendor (refer to note 34). The Group also acquired Voges Drilling.
Deferred consideration of GBP0.8m is to be paid over a three-year
period. Refer to note 5 for further details.
Additional contingent consideration payable of GBP1.3m relates
to the acquisition of the Geo Construction Group (Bencor) in 2015,
following the finalisation of items referenced in the sale and
purchase agreement. This now reflects the maximum value payable
under the sale and purchase agreement.
Contingent consideration was paid during the period of GBP0.4m
in respect of the Geo Instruments acquisition in 2017, with an
additional GBP0.1m released in the period. In the prior period, an
additional GBP0.8m was provided.
At 31 December 2021, contingent consideration of GBP11.9m (2020:
GBP2.4m) is payable between one and two years (2020: GBP0.8m for
Geo Instruments payable in one year).
At 31 December 2021, GBP0.4m deferred consideration in respect
of Voges Drilling, is payable in one year and GBP0.4m payable in
one to 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 contract assets
For payables, receivables and contract assets with an expected
maturity of one year or less, the carrying amount is deemed to
reflect the fair value.
Interest rate and currency profile
The profile of the Group's financial assets and financial
liabilities after taking account of the impact of hedging
instruments was as follows:
2021
GBP USD EUR CAD Other(1) Total
---
Weighted average fixed debt interest rate (%) - - 1.5 - 6.1 -
Weighted average fixed debt period (years) - - 4.1 - 0.3 -
--- --- --- --- -------- -----
GBPm GBPm GBPm GBPm GBPm GBPm
------ ------- ------ ----- ------ -------
Fixed rate financial liabilities - - (1.7) - (1.3) (3.0)
Floating rate financial liabilities (63.3) (111.8) (0.1) - (22.4) (197.6)
Lease liabilities (3.5) (45.1) (12.7) (3.2) (10.9) (75.4)
Financial assets 4.3 14.7 6.9 8.4 48.4 82.7
------ ------- ------ ----- ------ -------
Net debt (62.5) (142.2) (7.6) 5.2 13.8 (193.3)
------ ------- ------ ----- ------ -------
2020
-----------------------------------
GBP USD EUR CAD Other(1) Total
---------------------------------------------- ---
Weighted average fixed debt interest rate (%) - - 1.3 - 8.4 -
Weighted average fixed debt period (years) - - 4.6 - 1.4 -
---------------------------------------------- --- --- --- --- -------- -----
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ ------- ------ ----- ------ -------
Fixed rate financial liabilities - - (2.6) - (2.1) (4.7)
Floating rate financial liabilities (43.5) (97.3) (12.3) (5.2) (22.0) (180.3)
Lease liabilities (1.2) (46.4) (12.2) (3.5) (10.5) (73.8)
Financial assets 3.7 9.7 10.1 1.8 41.0 66.3
------------------------------------ ------ ------- ------ ----- ------ -------
Net debt (41.0) (134.0) (17.0) (6.9) 6.4 (192.5)
------------------------------------ ------ ------- ------ ----- ------ -------
1 Included within other floating rate financial liabilities are
AUD revolver loans of GBP21.5m (2020: GBP5.8m). Included within
other financial assets are AUD cash balances of GBP4.1m (2020:
GBP1.5m), ZAR cash balances of GBP5.6m (2020: GBP4.4m) and SGD cash
balances of GBP4.3m (2020: GBP2.3m).
Sensitivity analysis
At 31 December 2021, it is estimated that a general movement of
one percentage point in interest rates would increase or decrease
the Group's profit before taxation by approximately GBP1.2m (2020:
GBP1.1m).
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 GBP5.0m for the year ended 31
December 2021 (2020: GBP12.0m). The estimated impact of a 10
percentage point decrease in the value of sterling is an increase
of GBP6.1m (2020: GBP14.6m) 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.
26 Lease liabilities
Set out below are the carrying amounts of lease liabilities
(included within note 25 within loans and borrowings) and the
movements during the year :
2021 2020
GBPm GBPm
------
At 1 January 73.8 78.4
Additions 24.8 22.5
Contract modifications 4.0 0.3
Interest expense 3.1 3.8
Payments (29.8) (30.2)
Exchange movements (0.5) (1.0)
At 31 December 75.4 73.8
------
Current 27.5 24.8
Non-current 47.9 49.0
------
27 Share capital and reserves
2021 2020
GBPm GBPm
---------------------------------------------------------- ---- ----
Allotted, called up and fully paid equity share capital:
73,099,735 ordinary shares of 10p each (2020: 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 of GBP7.6m 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 of GBP56.9m 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.
As at 31 December 2021, the total number of shares held in
treasury was 777,917 (2020: 889,733).
During the year to 31 December 2021, 417,240 ordinary shares
were purchased by the Keller Group Employee Benefit Trust (2020:
nil), to be used to satisfy future obligations of the company under
the Keller Group plc Long Term Incentive Plan. The cost of the
market purchases was GBP3.7m (2020: GBPnil).
There is a dividend waiver in place for both shares held in
treasury and by the Keller Group Employee Benefit Trust.
28 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:
2021 2020
GBPm GBPm
----------------------------- ---- ----
Short-term employee benefits 8.2 8.3
Post-employment benefits 0.3 0.4
Termination payments 0.4 0.4
----------------------------- ---- ----
8.9 9.1
----------------------------- ---- ----
Other related party transactions
As at the year end there was a net balance of GBP0.1m owed by
(2020: GBP0.1m owed by) the joint venture. These amounts are
unsecured, have no fixed date of repayment and are repayable on
demand.
29 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred was GBP7.2m (2020: GBP7.5m) and relates
to property, plant and equipment purchases.
30 Guarantees, contingent liabilities and contingent assets
Claims against the Group arise in the normal course of business,
some of which lead to litigation or arbitration procedures. Such
claims are predominantly covered by the Group's insurance
arrangements. The Group recognises provisions for liabilities when
it is more likely than not that a settlement will be required and
the value of such a payment can be reliably estimated.
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 2021, the Group had outstanding standby
letters of credit and surety bonds for the Group's captive
insurance arrangements totalling GBP26.5m (2020: GBP25.4m). The
Group enters into performance and advance payment bonds and other
undertakings in the ordinary course of business. At 31 December
2021, the Group has GBP138.3m outstanding related to performance
and advanced payment bonds (2020: GBP154.0m). These are treated as
a contingent liability until such time it becomes probable that
payment will be required under the individual terms of each
arrangement.
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.
At 31 December 2021, the Group had no contingent assets (2020:
GBPnil).
31 Share-based payments
The Group operates a Long Term Incentive Plan (the 'Plan').
Outstanding awards are as follows:
Number
Outstanding at 1 January 2020 2,090,277
Granted during 2020 788,062
Lapsed during 2020 (662,030)
Exercised during 2020 (152,899)
Outstanding at 31 December 2020 and 1 January 2021 2,063,410
Granted during 2021 805,367
Lapsed during 2021 (782,525)
Exercised during 2021 (111,816)
Outstanding at 31 December 2021 1,974,436
Exercisable at 1 January 2020 -
Exercisable at 31 December 2020 and 1 January 2021 -
Exercisable at 31 December 2021 -
The average share price during the year was 865.1p (2020:
651.0p).
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: 2021 2020
------------------------------------------------------- ------- -------
Share price at grant 856.0p 720.0p
Weighted average exercise price 0.0p 0.0p
Expected volatility 47.3% 39.1%
Expected life 3 years 3 years
Risk-free rate 0.14% 0.11%
Expected dividend yield 0.00% 0.00%
------------------------------------------------------- ------- -------
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 GBP3.9m (2020: GBP2.4m) related to equity-settled,
share-based payment transactions.
The weighted average fair value of options granted in the year
was 827.6p (2020: 695.5p).
The awards, which are taken as shares, are intended to be
satisfied from shares held under the Keller Group Employee Benefit
Trust (the 'Trust') or from treasury shares held. The shares held
by the Trust are accounted for as a deduction from equity in
retained earnings. At 31 December 2021, 417,240 ordinary shares
were held by the Trust with a value of GBP3.7m. These shares were
purchased during the year. At 31 December 2020, no shares were held
in the Trust.
32 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 two employer-nominated trustees. An
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
established by the trustees. 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 2020), the Group has agreed to pay annual
contributions of GBP2.7m, to increase by 3.6% per annum, until 5
August 2024, subject to a review of the level of employer
contributions at the next actuarial review in 2023.
Between 1990 and 1997, the Scheme members accrued a Guaranteed
Minimum Pension (GMP). This amount differed between men and women
in accordance with the rules which were applicable at that time. 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. In 2018,
the estimated increase in the Scheme's liabilities was GBP1.3m,
which was recognised as a past service cost in 2018 as a charge to
non-underlying items. On 20 November 2020, there was an updated
judgement requiring an allowance to be made for past transfers. The
estimated increase in the Scheme's liability in respect of this is
less than GBP0.1m. These estimates remain appropriate for 2021. 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 2021 (2020: GBPnil). The total UK
defined contribution pension charge for the year was GBP1.4m (2020:
GBP1.2m).
The Group 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 either five or ten years of employment with the
Group, depending on the area or field they are working in. The
amount of benefit payable depends on the grade of the employee and
the number of years of service. Benefits under these schemes only
apply to employees who joined the Group prior to 1997. 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 has a number of end of service schemes in the Middle
East as required by local laws and regulations. The amount of
benefit payable depends on the current salary of the employee and
the number of years of service. These 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
GBP6.4m (2020: GBP5.9m).
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 10.0% (2020:
9.5%). The total Australian pension charge for the year was GBP3.8m
(2020: GBP3.1m).
Details of the Group's defined benefit schemes are as
follows:
The Keller The Keller German,(1) German,(1)
Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Present value of the scheme liabilities (58.3) (65.0) (18.9) (21.9)
Fair value of assets 63.7 58.0 - -
Surplus/(deficit) in the scheme 5.4 (7.0) (18.9) (21.9)
Irrecoverable surplus (12.2) (2.2) - -
Net defined benefit liability (6.8) (9.2) (18.9) (21.9)
1 Included in this balance is GBP3.0m (2020: GBP2.9m) in
relation to the end of service schemes in the Middle East.
For the Keller Group Pension Scheme, based on the net deficit of
the Scheme as at 31 December 2021 and the committed payments under
the Schedule of Contributions agreed on 17 November 2020, there is
a notional surplus of GBP12.2m (2020: GBP2.2m). Management is of
the view that, based on the Scheme rules, it does not have an
unconditional right to a refund of a surplus under IFRIC 14, and
therefore an additional balance sheet liability in respect of a
'minimum funding requirement' has been recognised. The minimum
funding requirement is calculated using the agreed contributions of
GBP2.7m a year with effect from 1 January 2021, increasing by 3.6%
per annum on 1 January going forward to 5 August 2024. The
contributions will be reviewed following the next actuarial review
to be prepared as at 5 April 2023.
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
2021 2020 2021 2020
% % % %
Discount rate 2.0 1.2 0.8 0.3
Interest on assets 2.0 1.2 - -
Rate of increase in pensions in payment 3.5 3.4 2.0 2.0
Rate of increase in pensions in deferment 2.9 2.7 3.2 1.6
Rate of inflation 3.5 3.3 3.2 1.6
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
2021 2020 2021 2020
Male currently aged 65 21.0 20.9 19.5 19.4
Female currently aged 65 23.3 23.3 22.8 22.8
The assets of the schemes were as follows:
The Keller The Keller German, German,
Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Equities 16.8 17.5 - -
Target return funds(1) 8.1 14.5 - -
Gilts - 10.1 - -
Bonds 19.7 10.0 - -
Liability driven investing (LDI) portfolios(2) 15.9 - - -
Cash 3.2 0.1 - -
63.7 52.2 - -
1 A diversified growth fund split between mainly UK listed
equities, bonds and alternative investments which are capped at 20%
of the total fund.
2 A portfolio of gilt and swap contracts, backed by
investment-grade credit instruments, that is designed to hedge the
majority of the interest rate and inflation risks associated with
the Schemes' obligations.
The Keller The Keller German,(1) German,(1)
Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Changes in scheme liabilities
Opening balance (65.0) (60.4) (21.9) (20.7)
Current service cost - - (0.6) (0.7)
Interest cost (0.8) (1.2) (0.1) (0.1)
Benefits paid 2.1 3.7 1.5 1.2
Exchange movements - - 1.0 (0.8)
Experience loss on defined benefit obligation - (0.4) - -
Changes to demographic assumptions (0.6) 2.7 - -
Changes to financial assumptions 6.0 (9.4) 1.2 (0.8)
Closing balance (58.3) (65.0) (18.9) (21.9)
Changes in scheme assets
Opening balance 58.0 52.2 - -
Interest on assets 0.7 1.0 - -
Administration costs (0.2) (0.2) - -
Employer contributions 2.7 2.6 - -
Benefits paid (2.1) (3.7) - -
Return on plan assets less interest 4.6 6.1 - -
Closing balance 63.7 58.0 - -
Actual return on scheme assets 5.3 7.1 - -
Statement of comprehensive income
Return on plan assets less interest 4.6 6.1 - -
Experience loss on defined benefit obligation - (0.4) - -
Changes to demographic assumptions (0.6) 2.7 - -
Changes to financial assumptions 6.0 (9.4) 1.2 (0.8)
Change in irrecoverable surplus (10.0) (0.4) - -
Remeasurements of defined benefit plans - (1.4) 1.2 (0.8)
Cumulative remeasurements of defined benefit plans (25.6) (25.6) (9.2) (10.4)
Expense recognised in the income statement
Current service cost - - 0.6 0.7
Administration costs 0.2 0.2 - -
Operating costs 0.2 0.2 0.6 0.7
Net pension interest cost 0.1 0.2 0.1 0.1
Expense recognised in the income statement 0.3 0.4 0.7 0.8
Movements in the balance sheet liability
Net liability at start of year 9.2 10.0 21.9 20.7
Expense recognised in the income statement 0.3 0.4 0.7 0.8
Employer contributions (2.7) (2.6) - -
Benefits paid - - (1.5) (1.2)
Exchange movements - - (1.0) 0.8
Remeasurements of defined benefit plans - 1.4 (1.2) 0.8
Net liability at end of year 6.8 9.2 18.9 21.9
1 Other comprises end of service schemes in the Middle East of
GBP3.0m (2020: GBP2.9m).
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. A decrease in the mortality rate
by one year would decrease the deficit in the schemes by GBP1.4m.
Note that these sensitivities do not include end of service schemes
in the Middle East as these are not material to the Group.
The weighted average duration of the defined benefit obligation
is approximately 17 years for the UK scheme and 11 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, including the end of service schemes in
the Middle East, are as follows:
2021 2020 2019 2018 2017
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------ ------ ------ ------
Present value of defined benefit obligation (77.2) (86.9) (81.1) (71.7) (75.3)
Fair value of scheme assets 63.7 58.0 52.2 45.2 46.1
--------------------------------------------- ------ ------ ------ ------ ------
Deficit in the schemes (13.5) (28.9) (28.9) (26.5) (29.2)
--------------------------------------------- ------ ------ ------ ------ ------
Irrecoverable surplus (12.2) (2.2) (1.8) (1.4) -
Net defined benefit liability (25.7) (31.1) (30.7) (27.9) (29.2)
--------------------------------------------- ------ ------ ------ ------ ------
Experience adjustments on scheme liabilities 6.6 (7.9) (8.2) 3.7 (1.8)
--------------------------------------------- ------ ------ ------ ------ ------
Experience adjustments on scheme assets 4.6 6.1 5.4 (1.5) 3.2
--------------------------------------------- ------ ------ ------ ------ ------
33 Non-controlling interests
Financial information of subsidiaries that have a material
non-controlling interest is provided below :
Name Country of incorporation 2021 2020
---- ----
Keller Fondations Speciales SPA Algeria 49% 49%
Keller Turki Company Limited Saudi Arabia 35% 35%
---- ----
Loss attributable to non-controlling interests :
2021 2020
GBPm GBPm
----- -----
Keller Fondations Speciales SPA (0.5) (0.6)
Keller Turki Company Limited (0.3) (1.0)
Other interests (0.1) 0.2
----- -----
(0.9) (1.4)
----- -----
Share of net assets of non-controlling interests:
2021 2020
GBPm GBPm
----- ----
Keller Fondations Speciales SPA 2.9 3.5
Keller Turki Company Limited (0.3) 0.1
Other interests 0.2 0.1
----- ----
2.8 3.7
----- ----
Aggregate amounts relating to material non-controlling
interests:
2021 2021 2020 2020
GBPm GBPm GBPm GBPm
------------- ------------ ------------- ------------
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
------------- ------------ ------------- ------------
Revenue 0.9 4.2 0.8 1.5
Operating costs (1.2) (4.5) (1.4) (2.5)
------------- ------------ ------------- ------------
Operating loss (0.3) (0.3) (0.6) (1.0)
Finance costs - - - -
------------- ------------ ------------- ------------
Loss before taxation (0.3) (0.3) (0.6) (1.0)
Taxation (0.2) - - -
------------- ------------ ------------- ------------
Loss attributable to non-controlling interests (0.5) (0.3) (0.6) (1.0)
2021 2021 2020 2020
GBPm GBPm GBPm GBPm
------------- ------------ ------------- ------------
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
------------- ------------ ------------- ------------
Non-current assets 0.9 0.7 1.2 0.9
Current assets 2.8 2.4 4.0 1.0
Current liabilities (0.8) (2.8) (1.7) (1.1)
Non-current liabilities - (0.6) - (0.7)
------------- ------------ ------------- ------------
Share of net assets/(liabilities) 2.9 (0.3) 3.5 0.1
34 Post balance sheet events
On 15 February 2022, an agreement was reached with the vendor of
RECON Services Inc. to finalise the amount of contingent
consideration payable in respect of the acquisition made in July
2021. A final settlement amount of GBP8.7m (US$11.7m) was agreed in
respect of the remaining contingent consideration payable and other
liabilities arising from the sale and purchase agreement. This
represents a non-adjusting post balance sheet event under IFRS. The
change in fair value of the contingent consideration between the 31
December 2021 balance sheet date and the agreement reached on 15
February will be reflected in the income statement for the period
ending 31 December 2022.
Adjusted performance measures
The Group's results as reported under International Financial
Reporting Standards (IFRS) and presented in the consolidated
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 and/or are non-trading in nature,
including amortisation of acquired intangible assets and other
non-trading amounts relating to acquisitions and disposals
(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 consolidated 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 2020
results of overseas operations into sterling at the 2021 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 to the
consolidated financial statements. A reconciliation between the
2020 underlying result and the 2020 constant currency result is
shown below and compared to the underlying 2021 performance:
Revenue by segment
2021 2020
Impact of exchange Constant Statutory Constant currency
Statutory Statutory movements currency change change
GBPm GBPm GBPm GBPm % %
North America 1,323.1 1,227.5 (80.7) 1,146.8 +8% +15%
Europe 549.2 538.5 (16.3) 522.2 +2% +5%
Asia-Pacific, Middle East
and Africa 352.1 296.5 (4.0) 292.5 +19% +20%
Group 2,224.4 2,062.5 (101.0) 1,961.5 +8% +13%
Underlying operating profit by segment
2021 2020
Impact of exchange Constant Underlying Constant currency
Underlying Underlying movements currency change change
GBPm GBPm GBPm GBPm % %
North America 73.0 83.2 (5.9) 77.3 -12% -6%
Europe 24.3 18.4 (0.8) 17.6 +32% +38%
Asia-Pacific, Middle East and
Africa 3.4 15.5 (0.7) 14.8 -78% -77%
Central items (7.9) (7.0) - (7.0) n/a n/a
Group 92.8 110.1 (7.4) 102.7 -16% -10%
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 (statutory)
2021 2020
GBPm GBPm
Underlying operating profit 92.8 110.1
Depreciation and impairment of owned property, plant and equipment 65.9 66.3
Depreciation and impairment of right-of-use assets 30.9 28.0
Amortisation of intangible assets 0.6 0.6
Underlying EBITDA 190.2 205.0
Non-underlying items in operating costs (9.6) (29.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 181.3 176.1
EBITDA (IAS 17 covenant basis)
2021 2020
GBPm GBPm
------
Underlying operating profit 92.8 110.1
Depreciation and impairment of owned property, plant and equipment 65.9 66.3
Depreciation and impairment of right-of-use assets 30.9 28.0
Legacy IAS 17 operating lease charges (32.7) (30.0)
Amortisation of intangible assets 0.6 0.6
------
Underlying EBITDA 157.5 175.0
Non-underlying items in operating costs (9.6) (29.6)
Non-underlying items in other operating income 0.7 0.7
------
EBITDA 148.6 146.1
Net finance costs
2021 2020
GBPm GBPm
-----
Finance income (0.4) (1.1)
Underlying finance costs 9.3 14.3
-----
Net finance costs (statutory) 8.9 13.2
Finance charge on lease liabilities(1) (3.0) (3.6)
Lender covenant adjustments (0.7) (1.5)
-----
Net finance costs (IAS 17 covenant basis) 5.2 8.1
1 Excluding legacy IAS 17 finance leases.
Net capital expenditure
2021 2020
GBPm GBPm
---------------------------------------------------- ----- -----
Acquisition of property, plant and equipment 84.0 72.5
Acquisition of other intangible assets 0.4 0.5
Proceeds from sale of property, plant and equipment (9.8) (7.4)
----------------------------------------------------- ----- -----
Net capital expenditure (1) 74.6 65.6
----------------------------------------------------- ----- -----
1 Net capital expenditure excludes right-of-use assets.
Net debt
2021 2020
GBPm GBPm
------
Current loans and borrowings 29.8 67.0
Non-current loans and borrowings 246.2 191.8
Cash and cash equivalents (82.7) (66.3)
------
Net debt (statutory) 193.3 192.5
------
Lease liabilities(1) (73.9) (71.6)
Net debt (IAS 17 covenant basis) 119.4 120.9
1 Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying
EBITDA.
Statutory
2021 2020
GBPm GBPm
Net debt 193.3 192.5
Underlying EBITDA 190.2 205.0
Leverage ratio (x) 1.0 0.9
-----
IAS 17 covenant basis
2021 2020
GBPm GBPm
Net debt 119.4 120.9
Underlying EBITDA 157.5 175.0
Leverage ratio (x) 0.8 0.7
-----
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 consolidated 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.
Financial record
2012 2013 2014 2015 2016 2017 2018 2019(1) 2020(1) 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Consolidated income
statement
Continuing operations
Revenue 1,317.5 1,438.2 1,599.7 1,562.4 1,780.0 2,070.6 2,224.5 2,300.5 2,062.5 2,224.4
Underlying EBITDA 91.9 124.2 141.9 155.5 158.6 177.2 167.5 198.4 205.0 190.2
Underlying operating profit 48.3 77.8 92.0 103.4 95.3 108.7 96.6 103.8 110.1 92.8
Underlying net finance costs (4.8) (3.7) (6.9) (7.7) (10.2) (10.0) (16.1) (22.5) (13.2) (8.9)
Underlying profit before
taxation 43.5 74.1 85.1 95.7 85.1 98.7 80.5 81.3 96.9 83.9
Underlying taxation (13.5) (23.8) (29.7) (33.0) (29.8) (24.7) (22.5) (22.4) (28.3) (20.1)
Underlying profit for the
year 30.0 50.3 55.4 62.7 55.3 74.0 58.0 58.9 68.6 63.8
Non-underlying items(2) - (20.2) (56.6) (36.4) (7.3) 13.5 (71.8) (37.2) (27.5) (1.7)
Profit/(loss) for the year 30.0 30.1 (1.2) 26.3 48.0 87.5 (13.8) 21.7 41.1 62.1
Underlying EBITDA (IAS 17
covenant basis) 91.9 124.2 141.9 155.5 158.6 177.2 167.5 170.8 175.0 157.5
Consolidated balance sheet
Working capital 97.6 124.1 104.1 97.1 152.5 181.3 225.4 200.9 180.3 158.4
Property, plant and
equipment 248.5 281.9 295.6 331.8 405.6 399.2 422.0 460.6 434.9 443.4
Intangible and other
non-current assets 112.1 202.8 203.4 183.0 218.2 198.3 179.5 192.3 183.5 234.0
Net debt (statutory) (51.2) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (289.8) (192.5) (193.3)
Other net liabilities (71.3) (92.5) (154.6) (94.9) (41.1) (77.1) (114.2) (166.5) (196.2) (199.8)
Net assets 335.7 372.6 346.3 334.0 429.6 472.2 426.5 397.5 410.0 442.7
Net debt (IAS 17 covenant
basis) (51.2) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (213.1) (120.9) (119.4)
Underlying key performance
indicators
Diluted earnings per share
from continuing operations
(p) 45.0 71.9 74.2 85.4 74.8 101.8 79.1 81.3 96.3 88.4
Dividend per share (p) 22.8 24.0 25.2 27.1 28.5 34.2 35.9 35.9 35.9 35.9
Operating margin 3.7% 5.4% 5.8% 6.6% 5.4% 5.2% 4.3% 4.5% 5.3% 4.2%
Return on capital
employed(3) 11.6% 16.7% 18.3% 20.5% 15.3% 15.1% 13.2% 14.4% 16.4% 14.4%
Net debt: EBITDA (statutory) 0.6x 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.5x 0.9x 1.0x
Net debt: EBITDA (IAS 17
covenant basis) 0.6x 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.2x 0.7x 0.8x
1 Working capital, intangible and other non-current assets and
other net liabilities presented here do not correspond to the
published 2020 consolidated financial statements. The comparative
balance sheet has been restated to present gross insurance
provisions with a separate reimbursement asset recognised for
amounts recoverable from insurance providers and customer
retentions receivable in more than one year to other non-current
assets, as outlined in note 2 to the consolidated financial
statements.
2 Non-underlying items are items which are exceptional by their
size and/or are non-trading in nature and are disclosed separately
in the financial statements where it is necessary to do so to
provide further understanding of the financial position of the
Group.
3 Calculated as operating profit expressed as a percentage of
average capital employed. 'Capital employed' is net assets before
non-controlling interests plus net debt and net defined benefit
retirement liabilities.
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END
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