TIDMKLR
RNS Number : 0758S
Keller Group PLC
07 March 2023
7 March 2023
Keller Group plc Unaudited Preliminary Results for the year
ended 31 December 2022
Keller Group plc ('Keller' or 'the Group'), the world's largest
geotechnical specialist contractor, announces its results for the
year ended 31 December 2022.
Record revenue, strong underlying profit growth and dividend
increased
Michael Speakman, Chief Executive Officer, said:
"In 2022 Keller made some notable achievements and delivered
strong growth in revenue and underlying profits as well as
maintaining a robust order book of GBP1.4bn. We also faced, and
dealt with, a number of challenges and headwinds, which held us
back during the year. The Group will continue to pursue organic and
targeted M&A growth opportunities and we will also look to
further refine the portfolio as we continue to execute our
strategy. Whilst higher interest rates will increase our interest
expense in 2023, we have entered the new financial year with
increased momentum, a more solid operational base and are well
placed for major contract awards. This, together with the actions
we have taken, gives us confidence that 2023 will be a year of good
progress".
2022 2021(1) Constant currency
GBPm GBPm % change % change
-------- -------- -----------
Revenue 2,944.6 2,222.5 +32% +24%
Underlying operating profit(2) 108.6 88.5 +23% +12%
Underlying operating profit margin(2) 3.7% 4.0% -30bps n/a
Underlying profit before tax(2) 93.5 79.6 +17% +6%
Underlying diluted earnings per share(2) 100.7p 84.2p +20%
Free cash flow (33.8) 62.5 n/a
Net debt (bank covenant IAS 17 basis) (3) 218.8 119.4 +83%
Dividend per share 37.7p 35.9p +5%
Statutory operating profit 67.8 76.4 -11%
Statutory profit before tax 56.3 67.5 -17%
Statutory diluted earnings per share 62.4p 77.2p -19%
Net cash inflow from operating activities 54.8 153.3 -64%
Statutory net debt (IFRS 16 basis) 298.9 193.3 +55%
------------------------------------------- -------- -------- ----------- ------------------
(1) Restated for prior period accounting error arising from the
financial reporting fraud at Austral and prior period business
combination measurement adjustments as detailed in notes 3 and 6 to
the consolidated financial statements
(2) Underlying operating profit, underlying 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 9 of the
consolidated financial statements
(3) 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 a record GBP2,944.6m, up 32%, comprised
organic growth of 22%, acquisition growth of 2% and an FX tailwind
of 8%
-- Underlying operating profit increased to GBP108.6m, up 12%
(at constant currency) as a result of continued strategic and
operational delivery in a turbulent, challenging market
environment, and despite events at Austral
-- Whilst North American margins recovered in H2 as expected,
Group operating margin reduced in the year to 3.7% largely driven
by the impact of inflationary cost pressures, supply chain
challenges and operational issues in North America Foundations in
H1. We expect that the actions we have taken will continue to
restore Group margins in 2023
-- No material change from the position we announced in January
2023 with respect to a financial reporting fraud at Austral. An
external forensic investigation has now confirmed that there has
been no cash leakage. The impact on the Group's historically stated
operating profits was cGBP7.3m in H1 2022, GBP4.3m in 2021 and
GBP6.7m in the years prior to 2021
-- A robust year-end order book at GBP1.4bn; up 8% (broadly unchanged at constant currency)
-- NEOM project in Saudi Arabia is progressing in line with our
expectations operationally and financially; piling on the cGBP40m
initial Works Order was completed in February 2023, ahead of
schedule and we are in advanced discussions on the next tranche of
work. The precise phasing of this potentially material project is
fluid and will require measured investment in equipment and working
capital as it accelerates
-- Underlying EPS of 100.7p, up 20%, driven by higher operating
profit and a reduction in the effective tax rate partially offset
by increased finance costs
-- Statutory profit before tax decreased by 17% to GBP56.3m, as
a result of increased non-underlying costs of GBP37.2m, comprising
GBP24.0m of non-cash goodwill impairments and amortisation of
acquired intangible assets and GBP13.2m of cash items including the
ERP implementation costs of GBP6.3m and restructuring costs of
GBP5.3m
-- Free cash outflow of GBP33.8m (2021: GBP62.5m inflow) driven
by a GBP110.5m (2021: GBP1.2m inflow) increase in working capital,
largely driven by 22% increase in organic revenue, supplier
behaviour mainly in NA, and an inventory surplus at Suncoast
-- Net debt (on a bank covenant IAS 17 basis) of GBP218.8m,
increased by GBP99.4m, equating to net debt/EBITDA leverage ratio
of 1.2x (2021: 0.8x), well within the Group's leverage target of
0.5x-1.5x and the covenant limit of 3.0x. As a consequence of the
anticipated investment in NEOM, we expect to remain in the upper
end of our target range
-- A slight decline in Group safety performance with an increase
in finger injuries; overall accident frequency rate increased to
0.10, representing 26 lost time injuries across our c10,000
employees
-- The short, medium and long-term actions required to achieve
Net Zero emissions by 2050 are in progress . We are ahead of our
Scope 2 carbon reduction target of 10%, achieving 28% reduction
from our 2019 baseline
-- Further successful execution of strategy, with continued
portfolio rationalisation and two bolt-on acquisitions that build
our share in our chosen markets
-- Recommended final dividend of 24.5p, brings the total
dividend for the year to 37.7p (2021: 35.9p) an increase of 5%. The
increased dividend continues the Group's uninterrupted track record
of increasing or maintaining dividends every year for 28 years and
reflects the financial strength of the Group and our confidence in
the future
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 7 March 2023
and will also be available later the same day on demand
https://www.investis-live.com/keller/63da8f583e92bb0c00491950/ksds
Conference call: Accessing the telephone replay:
Participants joining by telephone: A recording will be available until
UK: 0800 640 6441 14 March 2023
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: 760899 3001
Access Code: 730110
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.
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 and underlying earnings per share,
each of which are the equivalent 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. Net debt (bank covenant IAS 17 basis) is provided
as a key measure for measuring bank covenant compliance and is
calculated as the equivalent statutory measure adjusted to exclude
the additional lease liabilities relating to the adoption of IFRS
16. 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, where
applicable, in the adjusted performance measures section in this
Announcement.
Chief Executive Officer's review
Overview
The Group delivered a strong performance in 2022 in a turbulent
and challenging market environment. Whilst markets generally began
to recover in volume terms, the residual pandemic-related labour
and supply chain shortages were compounded by more localised
effects of the war in Ukraine, resulting in increased supply chain
issues and stronger inflationary pressures than the global economy
has seen for some time. Against this uneven macroeconomic backdrop,
construction demand has reacted variably across geographies and
sectors and almost all our businesses faced the challenge of
serving increased market demand with a decreasing and more
expensive supply base. Whilst the execution of our strategy has
structurally put the Group in a strong position, it is a credit to
our businesses and management teams that together Keller generated
a record revenue for the Group, close to GBP3bn, as well as a
strong growth in the underlying operating profit.
In January 2023, we announced our internal systems had
identified a financial reporting fraud discrete to Austral, a
business unit in Australia. An external forensic investigation has
now confirmed that there has been no cash leakage. This was an
isolated and contained incident. The impact of the financial
reporting fraud on the Group's historical operating profits was
cGBP7.3m in the first half of 2022, GBP4.3m in 2021 and GBP6.7m in
the years prior to 2021. We will take the lessons learned from this
incident and embed any identified improvements into our management
and financial control processes.
Nonetheless, overall the Group progressed well in 2022 and
finished the year with a robust year-end order book of GBP1.4bn
(2021: GBP1.3bn), which excludes expected upcoming sizeable
packages in relation to the large NEOM project.
Keller has an unbroken record of dividends, having consistently
and materially grown its dividend in the 28 years since listing
which clearly demonstrates the Group's ability to continue to
prosper through economic downturns, including both the global
financial crisis and the pandemic. The Board is committed to paying
dividends through the cycle, and despite the increase in net debt
driven by growth in the year, the Board is recommending an
increased dividend for 2022 in keeping with its confidence in the
future.
Financial performance
Group revenue was GBP2,944.6m, up 24% on the prior year on a
constant currency basis, with increased trading activity across all
our markets. We delivered an underlying operating profit of
GBP108.6m, an increase of 12% on a constant currency basis. Whilst
in North America Foundations some project execution issues
continued throughout the year, the supply chain and inflationary
pressures that were all a feature of the first half of the year
were largely addressed in the second half and the recovery in
margin is on track. Europe grew notably year-on-year whilst
maintaining its operating margin. In Asia-Pacific, Middle East and
Africa (AMEA), despite the Austral setback, the division advanced
well in terms of volume and profit. The Group margin for the year
was 3.7% (2021: 4.0%), down on prior year, albeit, as anticipated,
the North America margin improved in the second half and we expect
further progress in 2023.
Our cash flow generation was suppressed by the growth in working
capital as a result of the record revenue, reflecting the increased
activity and the pressures of supply chain payment terms. As a
result, net debt (IAS 17 lender covenant) increased by GBP99.4m to
GBP218.8m, equating to a net debt/EBITDA leverage ratio of 1.2x,
well within our leverage target of 0.5x-1.5x and our covenant limit
of 3.0x.
Operational performance
In North America revenue increased by 29% (on a constant
currency basis) driven by improved trading volume across all
businesses, largely driven by Suncoast (before a slowdown in the
fourth quarter in residential demand) and with a material
contribution from the accelerated LNG contract at RECON. Despite
contract losses in the foundations business, supply chain issues,
inflationary pressures and a non-repeat claim resolution in the
prior year, underlying operating profit increased marginally, up
1%, on a constant currency basis with these issues more than offset
by the benefit from the increased volume across the division.
Importantly, the operating margin improved by 150 basis points to
5.0% in the second half compared to the first half, demonstrating
the continuing improvement in the business.
In Europe, revenue increased by 19% on a constant currency
basis, with growth in all business units despite the macroeconomic
backdrop and the impact of the Ukraine war. Underlying operating
profit increased by 20% on a constant currency basis, reflecting
the growth in trading activity and the ability to pass on the
majority of inflationary cost pressures, partially offset by
challenges in North-East Europe.
Notwithstanding the issue in Austral, the AMEA Division
performed strongly. Revenue increased by 9% on a constant currency
basis, driven by a recovery in trading in Keller Australia, the
Middle East and Africa, and continued strength in India. NEOM in
Saudi Arabia is rapidly gaining momentum and is ramping up in terms
of activity. We started the initial Works Order in December and the
piling works have completed ahead of schedule in February 2023. We
are in advanced discussions on sizeable packages in relation to
this project and the quantum of further work will require
investment in 2023.
Underlying operating profit in the AMEA Division increased to
GBP6.6m from a restated GBP0.9m loss in the prior year, despite the
losses in Austral, driven by the recovery in trading in Keller
Australia and the UAE as well as the impact of the asset impairment
reversal related to equipment previously deployed in Mozambique
that will be brought back into use elsewhere in the Group which
improved year-on-year operating profit by GBP6.1m. The result was
partly offset by challenges on marine projects in Austral that are
nearing completion. In light of the reporting fraud at Austral, a
goodwill impairment of GBP7.7m has been taken in the non-underlying
items reflecting the current more cautious view taken of its future
profitability.
Strategy
Our strategy remains 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 strategic business model provides the Group with diversity
in revenue streams in terms of sectors, applications and
geographies and helps to provide revenue resilience and lessen the
impact of business cycles and geopolitical uncertainly. This in
turn ensures that both the consistency of profit generation and the
quality of cash conversion are also robust over time, as evidenced
by the dividend history of the Group.
We are focused on strengthening and simplifying our asset
portfolio and building local market share leadership, in line with
our strategy. During the year we made two bolt-on acquisitions that
strengthen our existing market positions. As part of our continuing
strategic review of our asset portfolio, we took the decision to
exit two of our peripheral geographies earlier in the year in the
Europe Division. Whilst there are an increasing number of quality
acquisition opportunities emerging, the Group will retain its
disciplined approach to M&A and will only pursue targets which
will generate attractive financial returns and shareholder
value.
In terms of organic growth opportunities, the residual impact of
the pandemic and the war in Ukraine has materially influenced the
opportunities that are currently emerging. The high natural gas
price and fluctuating oil price have emphasised the need for
governments to diversify energy supply and develop independent
supply chains. The short-term focus on energy security is driving
investment in traditional hydrocarbon industries and
infrastructure, whilst the growing global political will to
decarbonise economies is driving long-term power generation
construction away from carbon-based energy production projects.
Both drivers provide attractive opportunities for the Group.
Infrastructure renewal remains a major driver of growth, reflecting
the efforts by governments and public institutions to accelerate
investment to stimulate activity, especially in an economically
constrained time. Investment is being made in battery manufacture,
green energy is expanding, and in some markets these are replacing
logistics, warehousing and data centres as the higher growth
segments.
Whilst we take pride in the quality of our project management
and project execution, we recognise that we can always improve and
we are engaged in a process of re-energising our project execution
and other continuous improvement initiatives. The latest part of
this programme is 'Project Performance Management' which is the
next incremental improvement that captures the latest best practice
across the Group and will ensure that it is accessible to all
project managers throughout the Group.
During the year we commenced the design of an enterprise
resource planning (ERP) system. This initiative will embed
operational excellence in all foundations businesses across the
Group by introducing new ways of working, streamlining processes
and providing data to drive our growth. Using an ERP system,
processes become more consistent and standardised, thereby
increasing opportunities for automation and accuracy. The overall
result is improved efficiency, driving increased productivity and
the profitability of the Group. It will also help address the
likely evolution of the UK regulatory landscape as it relates to
financial reporting and internal controls. The initiative will be
implemented over five years and we will leverage our risk
management processes to help control the challenges associated with
implementing the programme of work.
Progress on strategic priorities in 2022
In North America, we successfully integrated RECON, a
geotechnical and industrial services company acquired in July 2021,
into our North America Division. The RECON project to develop an
energy facility in the Gulf Coast region of the USA is c90%
complete and has been very successful to date. We continue to
explore further opportunities related to LNG in the region. We have
consolidated our Midwest Business Unit into our North-East Business
Unit; they are commercially similar and this will reduce our cost
base. In May 2022, the division completed the bolt-on acquisition
of GKM Consultants Inc., a small geo-structural measurements and
monitoring business based in Quebec, Canada, for cGBP5m. GKM is
integrating into our Speciality Services business and will help
accelerate our growth in this specialist segment.
In Europe, in November 2022 the division acquired Nordwest
Fundamentering AS, a specialist geotechnical contractor based in
Trondheim, in the west of Norway, for c GBP6m. This builds our
market share in the region. As part of our continuing strategic
review of our asset portfolio, we took the decision to exit our
peripheral businesses in Denmark and the Ivory Coast.
In Saudi Arabia, to meet the increasing needs of the NEOM
project we established an operations base in the Tabuk province, in
the north west of the country. Equipment and people were sourced
and work started on the first Works Order in December, worth
cGBP40m, and the piling works has now been completed.
Strategic priorities for 2023
Our diversified model of operating in a number of sectors,
applications and geographies generates revenues that are resilient
whilst lessening the impacts that can arise from business cycles
and geopolitics. In line with our strategy, we will continue to
focus on increased market penetration and cost reduction. We remain
customer focused through our branch structure and continue to drive
for a leading share in our chosen markets.
We continue to review our diverse markets to ensure that we
focus only on sustainable markets and attractive projects that
generate long-term returns.
Through our expertise and scale, we will continue to share
product knowledge. Colleagues in the North America Foundations
business have teamed up with colleagues at RECON at the ground
improvement project for the development of an LNG facility. The
contract involves early site preparation and soil stabilisation.
The North America Foundations team introduced a new technique to
their RECON colleagues that was a faster solution, saving the
client time and money, and which was also more environmentally
friendly in using less cement.
Growth through organic development and a disciplined approach to
M&A will remain a priority in 2023, and we will maintain our
diligent assessment of potential acquisitions. At the same time, as
part of our continuing strategic review of our asset portfolio, we
will continue to refine our existing portfolio, and exit non-core
businesses where appropriate.
In our effort to drive efficiencies and cost savings, we are
assessing opportunities for back-office consolidation.
The NEOM project is ramping up and will become a significant
revenue generator for the Group. The project is progressing in line
with our expectations operationally and financially; piling on the
cGBP40m initial Works Order was completed in February 2023, ahead
of schedule, and we are in advanced discussions on the next tranche
of work. The precise phasing of this potentially material project
is fluid and will require measured investment in equipment and
working capital as it accelerates. We will continue to focus our
efforts on successfully delivering for the client as the project
gains further momentum.
Environmental, Social and Governance (ESG)
We align our ESG and sustainability approach with the UN
Sustainable Development Goals (SDGs) through a number of global and
local initiatives. Of the 17 SDGs, we specifically focus on those
that are most closely aligned to Keller's core business and where
we can have the greatest impact. In addition, there are a number of
local initiatives that are being supported at local business level
that are relevant and appropriate to their community context.
We are progressing well against the carbon reduction targets we
set out last year to achieve net zero 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). The short, medium and long-term actions
required to achieve these goals are in progress and in some
instances we are ahead of target, particularly around our Scope 2
carbon reduction. Scope 2 covers indirect emissions from the
electricity we use. These emissions mostly occur as a result of
electricity use in our offices and maintenance yards. Whilst it is
by far the smallest Scope of carbon emissions for Keller, it is
where we can make the most immediate impact and therefore where we
aligned our Executive and BU management remuneration for 2022.
There are many opportunities to save electricity and these savings
have already included energy efficiency improvements to our
equipment and lighting, as well as generating our own renewable
energy. Whilst Europe and AMEA have significantly reduced their
emissions, North America's Scope 2 emissions increased in 2022,
driven mostly by local weather events, as well as the acquisition
of RECON. For the Group as a whole, Scope 2 emissions reduced by
28% from our 2019 baseline, significantly ahead of our 10%
target.
We continue to pay relentless attention to safety and our
people. Disappointingly, we saw the key indicator for injury, the
accident frequency rate, increase to 0.1, representing 26 lost time
injuries, an increase of seven lost times injuries on the prior
year. There have been a number of key initiatives in the year
including a Group-wide safety stand down day, which together with
the introduction of 'mechanised handling steering groups' is
targeted upon reducing hand injuries. We have invested in cameras
for all c300 of our owned rigs in order to provide the rig driver
with reverse and blind spot visibility. With the return to growth
and an expanding workforce, we have introduced a new induction
process for new employees. The completion of a safety induction
will appear on an employee's 'Safety Passport' within Insite, which
is an increasingly important tool in keeping our employees safe and
managing projects effectively and efficiently.
We have made progress against our Diversity, Equity and
Inclusion priorities. Our Inclusion Commitments define the
framework we use to set priorities and ensure alignment and
progress across the Group and in 2022 we saw these embed deeper
into the organisation. This is important as we strive to build a
more diverse, equitable and inclusive workplace.
In terms of partnerships, we work with organisations to drive
change and those that align with our own focus on the UN
Sustainable Development Goals. To that end we have continued our
partnership with UNICEF UK and have entered into a three-year
partnership, starting with a funding contribution of GBP250,000 in
2022 towards its Core Resources for Children. Keller's support with
unrestricted funding allows UNICEF to rapidly respond to
emergencies across the world, including the devastating earthquakes
that have affected children and their families in Turkey and
Syria.
People
Our people are the major differentiator of our business and
pivotal to everything we do. As I travel around the Group I
continue to be immensely impressed by the skill, dedication and
tenacity of our team and, despite the significant headwinds of the
last year, the team has continued to outperform our peers. I would
like to acknowledge this endeavour, and thank all Keller employees
for their commitment, hard work and expertise during another very
challenging year.
We want our people to be inspired and motivated, equipped with
the right skills, tools and standards to be successful. To that
end, it is important that as Directors we understand and learn from
the views of our employees. Our culture and engagement programme
provides a structured way of getting and actioning employee
feedback, the aim being to continually improve employee experience
and drive better business performance. Successfully piloted in four
businesses in 2021, it rolled out to a further seven business units
in 2022. Having considered the current cost of living crisis that
we are experiencing, salary increases across the Group have taken
inflationary pressures into account, and we have targeted higher
increases across those who are more junior and lower paid amongst
our employees.
Whilst we had no projects in Ukraine, we have several employees
based in the country and over 20 Ukrainian nationals working for us
for many years in our North-East Europe Business Unit. It was
therefore incredibly sad that in February 2023 we lost a Ukrainian
colleague who was killed defending his country against the Russian
invasion. One year after the initial invasion, the Ukrainian people
continue to defend their country and their independence. The impact
on all people is significant, with destruction, displacement,
separation and loss of all daily norms. Money raised through
'Fundacia Keller', a charitable foundation set up by Keller Poland,
is given directly to our Ukrainian employees and their families who
have been affected by the conflict so they can buy what they need
most.
Dividend
Keller has an unbroken record of dividends, having consistently
and materially grown its dividend in the 28 years since listing
which clearly demonstrates the Group's ability to continue to
prosper through economic downturns, including both the global
financial crisis and the pandemic. The Board is committed to paying
dividends through the cycle and, despite the increase in net debt
driven by growth in the year, the Board is recommending an
increased dividend for 2022 in keeping with its confidence in the
future. The Board has recommended a 5% increase in the final
dividend which follows the 5% increase in the interim dividend and
marks the resumption of the Group's progressive dividend policy.
The final dividend of 24.5p (2021: 23.3p) will be paid on 23 June
2023 to shareholders on the register as at the close of business on
2 June 2023. This will bring the 2022 total dividend payable to
37.7p (2021: 35.9p).
Outlook
In 2022 Keller made some notable achievements and delivered
strong growth in revenue and underlying profits as well as
maintaining a robust order book of GBP1.4bn. We also faced, and
dealt with, a number of challenges and headwinds, which held us
back during the year. The Group will continue to pursue organic and
targeted M&A growth opportunities and we will also look to
further refine the portfolio as we continue to execute our
strategy. Whilst higher interest rates will increase our interest
expense in 2023, we have entered the new financial year with
increased momentum, a more solid operational base and are well
placed for major contract awards. This, together with the actions
we have taken, gives us confidence that 2023 will be a year of good
progress.
Operating review
North America
2022 2021 Constant
currency
GBPm GBPm
---------------------- -------- --------
Revenue 1,896.1 1,323.1 +29.3%
Underlying operating
profit 82.0 73.0 +1.0%
Underlying operating
margin 4.3% 5.5% -120bps
Order book (1) 761.3 787.0 -13.0%
---------------------- -------- -------- ----------
(1) Comparative order book stated at constant currency
In North America, revenue was up by 29.3% (on a constant
currency basis) driven by improved trading volume across all
businesses, largely driven by Suncoast (before a slowdown in the
fourth quarter in residential demand) and with a material
contribution from the accelerated LNG contract at RECON. Despite
contract losses in the foundations business, supply chain issues,
inflationary pressures and a non-repeat claim resolution in the
prior year, underlying operating profit increased marginally, up
1%, on a constant currency basis, with these issues more than
offset by the benefit from the increased volume across the
division. In the foundations business trading continued with a high
level of activity. As a direct result of management actions, the
challenges of project execution and productivity impacted by supply
chain disruption began to reduce in the latter part of the year,
and started to benefit the North America operating margin which
improved from 3.5% in H1 to 5.0% in H2. Further year on year
progress in the margin is expected in 2023.The supply chain issues
impacted performance through lower productivity due to delayed
delivery and put pressure on working capital as suppliers tightened
up credit terms on raw materials that were in short supply. The
accident frequency rate, our key safety metric, increased from 0.02
in 2021 to 0.08 in 2022.
Suncoast, the Group's post tension business, experienced high
volumes in the residential sector despite some market headwinds,
with revenue and profit ahead of prior year, despite a continued
slowdown in the housing market in the final quarter as interest
rates rose. In the high-rise sector, the business benefited from
the unwind of the prior years' adverse impact on profit from its
long-term customer contracts and a reduction in the price of steel
strand, its major raw material.
Moretrench Industrial, our business which operates in the highly
regulated industrial, environmental and power segments, delivered a
solid performance. RECON, the geotechnical and industrial services
company we acquired in July 2021, performed strongly and ahead of
expectations. RECON's contract to provide the foundations for an
energy facility in the Gulf of Mexico is nearing completion and we
see continuing further opportunities related to LNG in the
region.
On 1 May 2022, the business completed the bolt-on acquisition of
GKM Consultants Inc, a small geo-structural measurements and
monitoring business based in Quebec, Canada. GKM will integrate
into our Speciality Services business and will help accelerate our
growth in this specialist segment.
The order book for North America at the period end was at
GBP761.3m, down 13.0% (on a constant currency basis) from the
closing position at the end of 2021. The decrease year on year is
predominantly driven by the near completion of the large LNG
contract in the RECON business. Excluding this contract, the order
book is broadly flat on a constant currency basis.
Europe
2022 2021 Constant
currency
GBPm GBPm
---------------------- ------ ------
Revenue 649.3 549.2 19.4%
Underlying operating
profit 29.1 24.3 20.2%
Underlying operating
margin 4.5% 4.4% +10bps
Order book(1) 347.5 332.7 +1.5%
---------------------- ------ ------ ----------
(1) Comparative order book stated at constant currency
In Europe, revenue increased by 19.4% on a constant currency
basis, with growth reported by all business units despite the
challenging macro environment. Underlying operating profit
increased by 20.2% on a constant currency basis, reflecting the
growth in revenue, partly offset by challenges in North-East
Europe. The businesses were largely able to pass on the significant
cost inflation experienced during the first half of 2022,
benefiting revenue and helping to maintain the operating margin.
The accident frequency rate reduced from 0.23 to 0.19 in the
year.
The growth in revenue and operating profit were achieved against
the backdrop of the war in Ukraine, and the resulting
macro-economic challenges in Europe. The significant escalation in
supplier costs and energy prices experienced following the Russian
invasion in February 2022 and subsequent delays obtaining materials
resulted in some non-productive time, particularly in the first
half. Material price inflation and supply shortages receded to some
extent in the second half of the year. We were able to include
price adjustment measures into most of our contracts and therefore
were largely able to pass price increases onto customers.
Our North-East Europe business was the most affected by the war
in Ukraine, both from a financial and humanitarian perspective.
Despite these challenges, Poland, which benefited from the
successful completion of a large oil refinery project, delivered
record revenue. Cost inflation and resource scarceness were felt
most acutely in Poland and the surrounding countries and,
accordingly, contract margins were adversely impacted.
Following a strong 2021, South-East Europe and Nordics delivered
another year of record revenue, up by 20% year-on-year, with the
largest gains reported in Austria, Italy, Norway, Slovakia and the
Czech Republic. The Nordic countries received two substantial
multi-year contract awards during the year, Tangenvika, a bridge
project in Norway worth cGBP39m and Södertäliye, a lock project in
Sweden worth cGBP34m. Work will start on both projects in 2023. In
November 2022, the business acquired Nordwest Fundamentering AS, a
specialist geotechnical contractor based in Trondheim, in the west
of Norway.
The UK business reported revenue growth following increased
levels of activity through the core Foundations and Geotechnique
businesses and continued good delivery on the High Speed 2 (HS2)
rail contract.
Our business in Central Europe increased revenue and profit with
good trading activity across the region. Despite delays to contract
starts during the early part of the year in Germany, the businesses
benefited from strong activity levels by year end, including
expansion into Belgium, where we registered a new branch.
South West Europe was our business most affected by the impact
of COVID-19 during 2021, with extended country lockdowns and delays
to contract starts. However, in 2022 the business delivered growth
in both revenue and profit in the period.
As part of our continuing strategic review of our asset
portfolio we took the decision to exit our businesses in Denmark
and the legacy business in Ivory Coast. We continue to review our
diverse European markets to ensure that we focus only on
sustainable markets and attractive projects, including those in the
energy sectors, that generate long-term returns.
During 2022 the European core business responded well to the
prevailing macro-economic conditions. The robust year-end order
book provides good near term coverage with some of the recent
larger contract wins extending beyond 2023. Nevertheless, the
threat of recession that hangs over a number of the European
markets will provide additional challenges during the year and we
will respond appropriately. We expect to manage the risks and
maintain the recent levels of profit margin.
The Europe order book at the end of the period was GBP347.5m,
broadly flat on the prior year on a constant currency basis.
A sia-Pacific, Middle East and Africa (AMEA)
2021
2022 Restated(1)
GBPm GBPm Constant
currency
----------------------------- ------ -------------
Revenue 399.2 350.2 +9.0%
Underlying operating profit 6.6 (0.9) n/a
Underlying operating margin 1.7% (0.3)% n/a
Order book(2) 298.4 182.4 +55.8%
----------------------------- ------ ------------- ----------
(1) Restated for prior period accounting error arising from the
financial reporting fraud at Austral
(2) Comparative order book stated at constant currency
In AMEA, revenues increased by 9% on a constant currency basis,
driven by a recovery in trading in Keller Australia, in Middle East
and Africa (MEA) and in India. Underlying operating profit
increased to GBP6.6m driven by the recovery in trading and an asset
impairment reversal related to equipment in Mozambique that has
been repatriated, partly offset by challenges on marine projects in
Austral which will be completed during 2023, and mobilisation at
NEOM. The accident frequency rate increased to 0.02, with the
division reporting two injuries compared to zero in the prior
period.
On 9 January 2023, Keller announced that it had identified a
financial reporting fraud discrete to its Austral Business Unit in
Australia. The financial reporting fraud related to the
overstatement of Austral's performance from 2019 onwards by two
senior individuals in the finance function. An external forensic
investigation has confirmed there was no cash leakage and the
impact of the financial reporting fraud on the Group's historical
operating profits was cGBP7.3m in the first half of 2022, GBP4.3m
in 2021 and GBP6.7m in the years prior to 2021. The strengthening
of project reviews at Austral has been implemented and will improve
financial control and management reporting. Following the
investigation, we have relocated one of the Group's experienced
Managing Directors into the business while we review and develop a
longer-term succession plan. In light of the reporting fraud at
Austral, a goodwill impairment of GBP7.7m has been taken reflecting
the current more cautious view taken of its future
profitability.
Excluding Austral, the AMEA Division performed well. Keller
Australia rebounded strongly from a loss in the prior year due to
COVID-19. The recovery of trading activity reported in the first
half further strengthened in the second half and was accompanied by
a high level of tendering activity. The ASEAN business continues to
experience market softness with low levels of activity, though it
is expected that trading will improve in 2023 with several sizeable
projects in the pipeline. The Indian business continued to perform
strongly, growing revenue and profit in the period. Our MEA
business delivered strong growth in revenue, and recovered in terms
of profitability following a loss in the prior year. In Mozambique,
whilst the LNG project remained suspended in the period, underlying
profit improved year on year by GBP6.1m from the impact of an asset
impairment reversal related to equipment previously deployed in the
country and will be brought back into use elsewhere in the
Group.
In Saudi Arabia our longstanding presence has enabled us to
undertake work on the prestigious NEOM Giga project in the Tabuk
Province in the North West of the country. The first major element
of the NEOM project is The Line, a 170 kilometre long mega city,
starting in the west at the Gulf of Aqaba, continuing through the
Sharma Valley and terminating at the NEOM International Airport
within the upper valley region. Following the signing of the
overall Framework Agreement, we received the first Works Order
worth cGBP40m and started piling in December. We completed the
piling work in February 2023, ahead of schedule, and w e are in
advanced discussions on sizeable packages. The majority of
mobilisation costs were taken in 2022. The Framework Agreement
paves the way for multiple contract awards. While we are in the
early stages of this project, it is evolving into a significant and
material opportunity for the future.
The AMEA order book strengthened strongly and at the end of the
period was at GBP298.4m, up 55.8% (on a constant currency basis) on
the prior year. The increase is predominantly driven by the
strengthening opportunities in Australia, India, the UAE and Saudi
Arabia.
Chief Financial Officer's review
This report comments on the key financial aspects of the Group's
2022 results.
2022 2021(1)
GBPm GBPm
----------------------------------------- ------- -------
Revenue 2,944.6 2,222.5
Underlying operating profit(2) 108.6 88.5
Underlying operating profit %(2) 3.7% 4.0%
Non-underlying items in operating profit (40.8) (12.1)
Statutory operating profit 67.8 76.4
Statutory operating profit % 2.3% 3.4%
------------------------------------------ ------- -------
(1) Restated for prior period accounting error arising from the
financial reporting fraud at Austral and prior period measurement
adjustments as detailed in notes 3 and 6 to the consolidated
financial statements
(2) Details of non-underlying items are set out in note 9 to the
consolidated financial statements. Reconciliations to statutory
numbers are set out in the adjusted performance measures
section
Revenue and underlying operating profit split by geography
Revenue Underlying operating profit(2) Underlying operating profit margin(2)
GBPm GBPm %
Year ended 2022 2021(1) 2022 2021(1) 2022 2021(1)
------------------ ------- ------- ------------- ------------------ -------------- ------------------------
Division
North America 1,896.1 1,323.1 82.0 73.0 4.3% 5.5%
Europe 649.3 549.2 29.1 24.3 4.5% 4.4%
AMEA 399.2 350.2 6.6 (0.9) 1.7% -
Central - - (9.1) (7.9) - -
------------------ ------- ------- ------------- ------------------ -------------- ------------------------
Group 2,944.6 2,222.5 108.6 88.5 3.7% 4.0%
------------------ ------- ------- ------------- ------------------ -------------- ------------------------
Austral financial reporting fraud
On 9 January 2023, the Group announced that it had identified a
financial reporting fraud in the Austral business based in
Australia which resulted in an overstatement of revenue and profit
in 2021 and prior years. A forensic investigation of the fraud
incident has now completed. This confirmed the fraud was financial
reporting in nature and there was no cash leakage from the
business. We will take the lessons learned from this incident and
embed any identified improvements into our management and financial
control processes.
Due to the overstatement of revenue and profits, there is now
sufficient uncertainty over the future profitability of the Austral
business such that we have recognised a goodwill impairment of
GBP7.7m in respect of the total balance of goodwill associated with
this cash generating unit.
Prior year restatement
The impact of the fraud on the prior periods was material, and
we have therefore restated the comparative results for 2021
presented in the Annual Report to show the corrected amounts. The
retained earnings at 31 December 2021 have been reduced by
GBP15.4m, comprising an opening reserves reduction of GBP8.7m and a
reduction in profit after tax in 2021 of GBP6.7m.
Revenue for 2021 has been reduced by GBP1.9m to GBP2,222.5m,
underlying operating profit has been reduced by GBP4.3m to GBP88.5m
and underlying diluted earnings per share has been reduced by 4.2p
to 84.2p.
The statutory operating profit has been reduced by GBP4.3m to
GBP76.4m and the statutory diluted earnings per share has been
reduced by 8.9p to 77.2p. The impact on statutory earnings includes
the restatement of the non-underlying deferred tax credit
recognised last year in respect of Australia tax losses.
In addition to the prior year restatement for Austral, the 2021
income statement and balance sheet have been restated for the prior
year measurement period adjustments in respect of acquisitions in
2021 as required by IFRS 3, 'Business combinations'. The fair value
of net assets acquired has been finalised, resulting in adjustments
to the value of goodwill, intangible assets, trade receivables and
deferred tax liabilities as at 31 December 2021.
The detail of these adjustments is set out in note 3 to the
consolidated financial statements.
Revenue
Revenue of GBP2,944.6m (2021(1) : GBP2,222.5m) was up 32%, and
up by 24% at constant currency, driven by increased trading volumes
across all three divisions . In North America, organic growth from
RECON, acquired in July 2021, combined with increased volume across
all businesses delivered a revenue increase of 29%. In Europe,
revenue increased by 19%, with growth across all business units
despite the macro economic backdrop and the impact of the Ukraine
war. In AMEA, a recovery in volumes in Keller Australia and Middle
East and Africa, combined with continuing strength in India, led to
a revenue increase of 9%.
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 6% of the
Group's revenue. The top 10 customers represent 17% of the Group's
revenue (2021: 15%). The Group worked on more than 6,000 projects
in the year with 54% 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 GBP108.6m was 23% up on prior
year (2021(1) : GBP88.5m), which on a constant currency basis was
12% up despite the significant operational challenges at Austral
that had been masked by the financial reporting fraud. In North
America, despite contract losses in the foundations business,
supply chain issues, inflationary pressures and a non-repeat claim
resolution in the prior year, underlying operating profit increased
marginally, up 1%, on a constant currency basis, with these issues
more than offset by the benefit from the increased volume at
Suncoast and RECON . In Europe, operating profit was 20% up on a
constant currency basis reflecting the growth in trading activity
and the ability to largely pass on inflationary pressures. In AMEA,
operating profit grew to GBP6.6m from a restated GBP0.9m loss in
the prior year, despite the poor performance at Austral. Keller
Australia contributed to the profit growth and the division
benefited from an asset impairment reversal related to equipment
previously in Mozambique that will be brought back into use
elsewhere in the Group. The result was partly offset by challenges
on marine projects in Austral which will be completed during 2023.
Central costs have increased by GBP1.2m from GBP7.9m to
GBP9.1m.
Share of post-tax results from joint ventures
The Group recognised an underlying post-tax profit of GBP1.5m in
the year (2021: GBP0.4m) from its share of the post-tax results
from joint ventures. The share of the post-tax amortisation charge
of GBP1.2m (2021: GBP0.6m) arising from the acquisition of NordPile
by our joint venture KFS Oy in 2021 is included as a non-underlying
item. No dividends (2021: nil) were received from joint ventures in
the year.
Statutory operating profit
Statutory operating profit comprising underlying operating
profit of GBP108.6m (2021(1) : GBP88.5m) and non-underlying items
comprising net costs of GBP40.8m (2021(1) : GBP12.1m), decreased by
11% to GBP67.8m (2021(1) : GBP76.4m). The reduction in statutory
operating profit is a reflection of the increase in non-underlying
operating costs in 2022 to GBP40.8m. This includes non-cash costs
of GBP24.0m comprising goodwill impairments and amortisation of
acquired intangible assets, including the Austral goodwill
impairment cost of GBP7.7m and increased amortisation of acquired
intangible assets of GBP8.9m on the RECON intangibles. Cash
non-underlying costs of GBP16.8m includes the new ERP
implementation costs of GBP6.3m and exceptional restructuring costs
of GBP5.3m. The non-underlying costs are set out in further detail
below.
Net finance costs
Net underlying finance costs increased by 69.7% to GBP15.1m
(2021: GBP8.9m). The increase has been driven by the increase in
underlying interest rates and an increase in the average net debt
levels through the year. The average net borrowings, excluding IFRS
16 lease liabilities, during the year were GBP252.1m (2021:
GBP147.6m).
Taxation
The Group's underlying effective tax rate decreased to 22%
(2021(1) : 24%), largely due to the change in the profit mix of
where the Group is subject to tax. Cash tax paid in the year of
GBP5.9m (2021: GBP15.9m) was a decrease of GBP10.0m over the prior
year and was mainly attributable to a delay in paying the estimated
US tax charge for 2022. The Group was awaiting a possible US law
change on the timing of deductions for research and development
expenditure which has not materialised. As such, the Group will pay
its estimated US tax charge of GBP17m in April 2023. Further
details on tax are set out in note 12 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 9
to the financial statements. The total pre-tax non-underlying items
in the year increased to GBP37.2m (2021(1) : GBP12.1m), due to the
start of the ERP implementation project, exceptional historic
contract dispute costs and the amortisation of intangible assets
acquired with RECON in 2021.
2022 2021(1)
GBPm GBPm
------------------------------------------------------ ----- -------
ERP implementation costs 6.3 -
Goodwill impairment 12.5 -
Exceptional restructuring costs 5.3 7.3
Exceptional historic contract dispute 3.5 -
Claims related to closed business 2.5 -
Impairment costs 0.3 -
Contingent consideration: additional amounts provided 0.1 1.3
Change in fair value of contingent consideration (0.7) -
Acquisition costs 0.2 0.5
Loss on disposal of operations - 0.5
Amortisation of acquired intangible assets 10.3 2.6
Amortisation of joint venture acquired intangibles 1.2 0.6
Contingent consideration received (0.7) (0.7)
Total non-underlying items in operating profit 40.8 12.1
-----
Non-underlying items in finance income (3.6) -
------------------------------------------------------- ----- -------
Total non-underlying items before taxation 37.2 12.1
------------------------------------------------------- ----- -------
Non-underlying taxation (9.0) (7.0)
------------------------------------------------------- ----- -------
Total non-underlying items 28.2 5.1
------------------------------------------------------- ----- -------
1 Restated for prior period accounting error resulting from the
financial reporting fraud at Austral and prior year measurement
adjustments in respect of business combinations as detailed in note
3 to the consolidated financial statements
Non-underlying items in operating profit
The Group has commenced a strategic project to implement a new
cloud computing enterprise resource planning (ERP) system across
the Group. As this is a complex implementation, project costs are
expected to be incurred over the next five years. Non-underlying
ERP costs of GBP6.3m include only costs relating directly to the
implementation, including external consultancy costs and the cost
of the dedicated implementation team. Non-underlying costs does not
include operational post-deployment costs such as licence costs for
businesses that have transitioned.
The goodwill impairment of GBP12.5m relates mainly to Austral
(GBP7.7m) due to uncertainty over the future profitability of the
business, following the discovery of the financial reporting fraud
and Sweden (GBP4.5m); due to a downward revision to the medium-term
forecast, forward projections did not fully support the carrying
value of the goodwill.
Exceptional restructuring costs of GBP5.3m comprises GBP3.4m in
the North America Division, GBP1.8m in the Europe Division, a
credit of GBP0.6m in AMEA and GBP0.7m incurred centrally. In North
America, the costs arose as a result of a management and property
reorganisation within the parts of the business located in Texas.
Costs include redundancy costs and property duplication costs. In
Europe, the costs related to the scheduled exit of Ivory Coast and
Morocco businesses, including asset impairments and redundancy
costs. In AMEA, the credit arose from restructuring costs provided
for in prior years as costs incurred were lower than originally
anticipated.
The GBP3.5m exceptional historic contract charge relates to a
provision made for additional legal costs relating to the
historical Avonmouth contract dispute following a negotiation with
insurers during 2022. In addition, a GBP2.5m provision for a legal
claim in respect of a closed business has been recognised.
An impairment charge of GBP0.3m by the North-East Europe
Business Unit is in respect of trade receivables in Ukraine that
are not expected to be recovered due to the ongoing conflict.
Additional contingent consideration of GBP0.1m relates to the
acquisition of the Geo Instruments US business in 2017.
A credit of GBP0.7m arose from the reduction in the fair value
of contingent consideration payable in respect of the RECON and GKM
acquisitions. The contingent consideration paid in respect of RECON
has been finalised and was settled during the year.
Acquisition costs of GBP0.2m in the year comprised professional
fees relating to the NWF acquisition in Norway..
Non-underlying finance costs
During the year the Group entered into an interest rate
derivative with the purpose of hedging a highly probable forecast
transaction. The forecast transaction did not take place and as a
result the amount arising from the hedging instrument has been
recognised in the income statement. This has resulted in the
recognition of GBP3.6m of finance income which has been included in
non-underlying as it is material in size and is not reflective of
the underlying finance income and costs of the Group.
Non-underlying taxation
A non-underlying tax credit of GBP9.0m (2021(1) : GBP7.0m)
includes the GBP4.7m (2021(1) : GBP1.3m) tax impact of the
non-underlying loss. The remaining GBP4.3m (2021(1) : GBP5.7m)
arises from the re-recognition of deferred tax assets in Canada, as
the de-recognition of the deferred tax asset was booked through the
non-underlying tax charge in prior years, the credit from the
re-recognition of the deferred tax asset has also been treated as a
non-underlying item.
Earnings per share
Underlying diluted earnings per share increased by 20% to 100.7p
(2021(1) : 84.2p) driven by higher operating profit and the
effective tax rate reduction partially offset by the increase in
finance costs. Statutory diluted earnings per share was 62.4p
(2021(1) : 77.2p) which includes the impact of the non-underlying
items.
Dividend
Keller has an unbroken record of dividends, having consistently
and materially grown its dividend in the 28 years since listing
which clearly demonstrates the Group's ability to continue to
prosper through economic downturns, including both the global
financial crisis and the pandemic. The Board is committed to paying
dividends through the cycle, and despite the increase in debt,
driven by growth in the year, the Board is recommending an
increased dividend for 2022 in keeping with its confidence in the
future. The Board has recommended a 5% increase in the final
dividend which follows the 5% increase in the interim dividend and
marks the resumption of the Group's progressive dividend policy.
The final dividend of 24.5p (2021: 23.3p) will be paid on 23 June
2023 to shareholders on the register as at the close of business on
2 June 2023. This brings the 2022 total dividend payable to 37.7p
(2021: 35.9p). The 2022 dividend earnings cover, before
non-underlying items, was 2.7x (2021: 2.3x).
Keller Group plc has distributable reserves of GBP122.1m at 31
December 2022 (2021: GBP122.9m) that are available to support the
dividend policy, which comfortably covers the proposed full-year
dividend for 2022 of GBP17.7m. 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.
Free cash flow
The Group's free cash flow was an outflow of GBP33.8m (2021(1) :
inflow of GBP62.5m) as a result of the increased working capital
demands of the Group in the year. The basis of deriving free cash
flow is set out below.
Free cash flow
2022 2021(1)
GBPm GBPm
---------------------------------------------------------------------- ------- -------
Underlying operating profit 108.6 88.5
Depreciation, amortisation and impairment 97.0 97.4
----------------------------------------------------------------------- ------- -------
Underlying EBITDA 205.6 185.9
----------------------------------------------------------------------- ------- -------
Non-cash items (1.1) -
Dividends from joint ventures - -
(Increase)/decrease in working capital (110.5) 1.2
(Decrease)/increase in provisions and retirement benefit liabilities (13.4) (7.8)
Net capital expenditure (73.5) (72.2)
Additions to right-of-use assets (24.8) (23.4)
Free cash flow before interest and tax (17.7) 83.7
-------
Free cash flow before interest and tax to underlying operating profit (16%) 95%
----------------------------------------------------------------------- ------- -------
Net interest paid (10.2) (5.3)
Cash tax paid (5.9) (15.9)
----------------------------------------------------------------------- ------- -------
Free cash flow (33.8) 62.5
----------------------------------------------------------------------- ------- -------
Dividends paid to shareholders (26.4) (25.9)
Purchase of own shares (1.2) (3.7)
Acquisitions (22.4) (31.8)
Business disposals 0.7 7.1
Non-underlying items (6.2) (3.9)
Fair value movements in net debt 2.6 -
Right-of-use assets/lease liability modifications (1.6) (4.0)
Foreign exchange movements (17.3) (1.1)
----------------------------------------------------------------------- ------- -------
Movement in net debt (105.6) (0.8)
----------------------------------------------------------------------- ------- -------
Opening statutory net debt (193.3) (192.5)
----------------------------------------------------------------------- ------- -------
Closing statutory net debt (298.9) (193.3)
----------------------------------------------------------------------- ------- -------
1 Restated for prior period accounting error resulting from the
financial reporting fraud at Austral, prior year measurement
adjustments in respect of business combinations and the
reclassification of proceeds from the sale of assets held for sale
as detailed in note 3 to the consolidated financial statements
Working capital
Net working capital increased by GBP110.5m (2021(1) : decrease
of GBP1.2m), the net movement comprises GBP44.2m increase in
inventories and a GBP110.0m increase in trade and other
receivables, offset by an increase in trade and other payables of
GBP43.7m. The increase in inventory mainly arose at Suncoast as we
bought steel strand upfront given the volatility in the market
following the Ukraine war, the subsequent slowdown in the
residential market resulted in levels being higher at year end.
Organic revenue growth of 22% has driven a significant increase in
the trade and other receivables, which has been only partly matched
by the increase in trade and other payables. We have seen the
impact of the supply side disruption on the payment terms demanded
by some suppliers, particularly in the US.
A reduction in provisions and retirement benefit liabilities
increased the cash outflow in respect of working capital by
GBP13.4m (2021: GBP7.8m). This mainly comprises payments in respect
of amounts previously provided for contracts or legal claims. The
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 GBP73.5m (2021:
GBP72.2m) was net of proceeds from the sale of equipment of GBP8.2m
(2021: GBP12.2m). 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 115% (2021: 127%).
Acquisitions
On 1 May 2022, the Group acquired GKM Consultants Inc. for an
initial cash consideration of GBP3.4m, including a GBP0.1m working
capital adjustment, and conditional consideration with an initial
fair value of GBP1.2m of contingent consideration. The business is
an instrumentation and monitoring provider based in Quebec, Canada
and is included in the North America Division.
On 15 November 2022, the Group acquired Nordwest Fundamentering
AS for cash consideration of GBP5.8m and deferred consideration of
GBP0.5m. Nordwest Fundamentering is a small specialist geotechnical
contractor based in Norway and is included in the Europe
Division.
As noted above, the accounting for the 2021 RECON and
Subterranean acquisitions was finalised during 2022, giving rise to
prior period measurement adjustments which are set out in note 3 to
the consolidated financial statements.
Deferred and contingent consideration in respect of prior period
acquisitions of GBP12.4m was paid in the year.
Financing facilities and net debt
The Group's total net debt of GBP298.9m (2021: GBP193.3m)
comprises loans and borrowings and related derivatives of GBP319.0m
(2021: GBP200.6m), lease liabilities of GBP81.0m (2021: GBP75.4m)
net of cash and cash equivalents of GBP101.1m (2021: GBP82.7m). The
Group's term debt and committed facilities principally comprise a
US$75m US private placement repayable in December 2024 and a
GBP375m multi-currency syndicated revolving credit facility, which
matures in November 2025. In addition, in November 2022, the Group
increased committed borrowing facilities by agreeing a US$115m
bilateral term loan facility, expiring in November 2024. At the
year end, the Group had undrawn committed and uncommitted borrowing
facilities totalling GBP273.8m (2021: GBP291.9m).
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 1.2x (2021: 0.8x), well within
the covenant limit of 3.0x and within the Group's 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 1.5x at 31
December (2021: 1.0x). Underlying EBITDA, excluding the impact of
IFRS 16, to net finance charges was 15.7x (2021: 29.5x), well above
the limit of 4.0x.
On an IFRS 16 basis, year-end gearing, defined as statutory net
debt divided by net assets, was 60% (2021: 44%).
The average month-end net debt during 2022, excluding IFRS 16
lease liabilities, was GBP252.1m (2021: GBP147.6m). 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, although we do look to negotiate advance
payments on larger projects such as NEOM.
At 31 December 2022 the Group had drawn upon uncommitted
overdraft facilities of GBP6.9m (2021: GBP0.9m) and had drawn
GBP190.6m of bank guarantee facilities (2021: GBP150.4m).
Retirement benefits
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 GBP2.8m a year
with effect from 1 January 2022 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 2022 year-end IAS 19 valuation of
the UK scheme showed assets of GBP42.2m, liabilities of GBP39.0m
and a pre-tax surplus of GBP3.2m before an IFRIC 14 adjustment to
reflect the minimum funding requirement for the scheme, which
adjusts the closing position to a deficit of GBP4.1m.
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
GBP13.2m at 31 December (2021: GBP15.9m). 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 GBP3.5m at 31 December 2022 (2021:
GBP3.0m).
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 impacts 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:
2022 2021
Closing Average Closing Average
------- ------- ------- -------
USD 1.21 1.24 1.35 1.38
CAD 1.63 1.61 1.71 1.72
EUR 1.12 1.17 1.19 1.16
SGD 1.62 1.70 1.82 1.85
AUD 1.76 1.78 1.86 1.83
------- ------- ------- -------
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
2022 was 14.9% (2021(1) : 13.9%).
Consolidated income statement
For the year ended 31 December 2022
2022 2021 (Restated(1) )
--------------------- ----------------- ------------------------------------- -------------------------------------
Non-underlying Non-underlying
items items
Underlying (note 9) Statutory Underlying (note 9) Statutory
--------------------- ----------------- ---------- -------------- --------- ---------- -------------- ---------
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------------- ---------- -------------- --------- ---------- -------------- ---------
Revenue 4,5 2,944.6 - 2,944.6 2,222.5 - 2,222.5
Operating costs 7 (2,837.5) (30.0) (2,867.5) (2,134.4) (9.6) (2,144.0)
Amortisation of acquired
intangible assets - (10.3) (10.3) - (2.6) (2.6)
Other operating income - 0.7 0.7 - 0.7 0.7
Share of post-tax results of
joint ventures 17 1.5 (1.2) 0.3 0.4 (0.6) (0.2)
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
Operating profit/(loss) 4 108.6 (40.8) 67.8 88.5 (12.1) 76.4
Finance income 10 0.5 3.6 4.1 0.4 - 0.4
Finance costs 11 (15.6) - (15.6) (9.3) - (9.3)
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
Profit/(loss) before taxation 93.5 (37.2) 56.3 79.6 (12.1) 67.5
Taxation 12 (20.3) 9.0 (11.3) (18.9) 7.0 (11.9)
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
Profit/(loss) for the year 73.2 (28.2) 45.0 60.7 (5.1) 55.6
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
Attributable to:
Equity holders of the parent 74.2 (28.2) 46.0 61.6 (5.1) 56.5
Non-controlling interests 34 (1.0) - (1.0) (0.9) - (0.9)
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
73.2 (28.2) 45.0 60.7 (5.1) 55.6
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
Earnings per share
Basic 14 102.1p 63.3p 85.2p 78.1p
Diluted 14 100.7p 62.4p 84.2p 77.2p
--------------------------------- ----- ---------- -------------- --------- ---------- -------------- ---------
1 The 31 December 2021 consolidated income statement has been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2021
2022 (Restated(1) )
Note GBPm GBPm
-------------------------------------------------------------------- ---- ----- ---------------
Profit for the year 45.0 55.6
-------------------------------------------------------------------- ---- ----- ---------------
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange movements on translation of foreign operations 46.3 (3.8)
Exchange movements on translation of non-controlling interests - -
Transfer of translation reserve on disposal of subsidiaries - (0.4)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes 33 2.8 1.2
Tax on remeasurements of defined benefit pension schemes 12 (0.6) (0.2)
-------------------------------------------------------------------- ---- ----- ---------------
Other comprehensive income/(loss) for the year, net of tax 48.5 (3.2)
-------------------------------------------------------------------- ---- ----- ---------------
Total comprehensive income for the year 93.5 52.4
-------------------------------------------------------------------- ---- ----- ---------------
Attributable to:
Equity holders of the parent 94.0 53.3
Non-controlling interests (0.5) (0.9)
-------------------------------------------------------------------- ---- ----- ---------------
93.5 52.4
-------------------------------------------------------------------- ---- ----- ---------------
1 The 31 December 2021 consolidated statement of comprehensive
income has been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period
business combination measurement adjustments, as outlined in notes
3 and 6 to the consolidated financial statements.
Consolidated balance sheet
As at 31 December 2022
At 31 December At 1 January
At 31 December 2021 2021
2022 (Restated(2) ) (Restated(1) )
Note GBPm GBPm GBPm
---------------------------------------------------- ---- ------------------- --------------- ---------------
Assets
Non-current assets
Goodwill and intangible assets 15 137.2 139.5 118.8
Property, plant and equipment 16 486.5 443.4 434.9
Investments in joint ventures 17 4.4 4.0 4.4
Deferred tax assets 12 15.1 8.8 8.3
Other assets 18 60.8 88.5 60.3
---------------------------------------------------- ---- ------------------- --------------- ---------------
704.0 684.2 626.7
---------------------------------------------------- ---- ------------------- --------------- ---------------
Current assets
Inventories 19 124.4 72.1 60.1
Trade and other receivables 20 764.6 585.5 495.4
Current tax assets 5.0 8.9 2.1
Cash and cash equivalents 21 101.1 82.7 66.3
---------------------------------------------------- ---- ------------------- --------------- ---------------
Assets held for sale 22 2.8 3.4 8.7
---------------------------------------------------- ---- ------------------- --------------- ---------------
997.9 752.6 632.6
---------------------------------------------------- ---- ------------------- --------------- ---------------
Total assets 4 1,701.9 1,436.8 1,259.3
---------------------------------------------------- ---- ------------------- --------------- ---------------
Liabilities
Current liabilities
Loans and borrowings 26 (34.2) (29.8) (67.0)
Current tax liabilities (52.5) (17.9) (17.1)
Trade and other payables 23 (585.6) (508.0) (381.9)
Provisions 24 (52.7) (53.8) (54.4)
---------------------------------------------------- ---- ------------------- --------------- ---------------
(725.0) (609.5) (520.4)
---------------------------------------------------- ---- ------------------- --------------- ---------------
Non-current liabilities
Loans and borrowings 26 (365.8) (246.2) (191.8)
Retirement benefit liabilities 33 (20.8) (25.7) (31.1)
Deferred tax liabilities 12 (5.3) (28.3) (21.3)
Provisions 24 (66.9) (77.9) (71.4)
Other liabilities 25 (21.3) (21.2) (22.0)
---------------------------------------------------- ---- ------------------- --------------- ---------------
(480.1) (399.3) (337.6)
---------------------------------------------------- ---- ------------------- --------------- ---------------
Total liabilities 4 (1,205.1) (1,008.8) (858.0)
---------------------------------------------------- ---- ------------------- --------------- ---------------
Net assets 4 496.8 428.0 401.3
---------------------------------------------------- ---- ------------------- --------------- ---------------
Equity
Share capital 28 7.3 7.3 7.3
Share premium account 38.1 38.1 38.1
Capital redemption reserve 28 7.6 7.6 7.6
Translation reserve 57.9 12.1 16.3
Other reserve 28 56.9 56.9 56.9
Retained earnings 326.7 303.2 271.4
---------------------------------------------------- ---- ------------------- --------------- ---------------
Equity attributable to equity holders of the parent 494.5 425.2 397.6
Non-controlling interests 34 2.3 2.8 3.7
---------------------------------------------------- ---- ------------------- --------------- ---------------
Total equity 496.8 428.0 401.3
---------------------------------------------------- ---- ------------------- --------------- ---------------
1 The 1 January 2021 consolidated balance sheet has been
restated in respect of the correction of prior period errors
arising from the fraud at Austral as outlined in note 3 to the
consolidated financial statements.
2 The 31 December 2021 consolidated balance sheet has been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
These consolidated financial statements were approved by the
Board of Directors and authorised for issue on 6 March 2023.
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 2022
Capital Attributable Non-
Share Share redemption Other Hedging to equity controlling
capital premium reserve Translation reserve reserve Retained holders of interests Total
(note 28) account (note 28) reserve (note 28) (note 26) earnings the parent (note 34) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
At 1 January 2021 (as
presented) 7.3 38.1 7.6 16.3 56.9 - 280.1 406.3 3.7 410.0
Prior year adjustment - - - - - - (8.7) (8.7) - (8.7)
At 1 January 2021 (restated(1)
) 7.3 38.1 7.6 16.3 56.9 - 271.4 397.6 3.7 401.3
Profit/(loss) for the year
(restated(1) ) - - - - - - 56.5 56.5 (0.9) 55.6
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other comprehensive income
Exchange movements on
translation of foreign
operations (restated(1) ) - - - (3.8) - - - (3.8) - (3.8)
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 (restated(1) ) - - - (4.2) - - 1.0 (3.2) - (3.2)
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Total comprehensive (loss)/
income for the year
(restated(1) ) - - - (4.2) - - 57.5 53.3 (0.9) 52.4
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
(restated(1) ) 7.3 38.1 7.6 12.1 56.9 - 303.2 425.2 2.8 428.0
Profit/(loss) for the year - - - - - - 46.0 46.0 (1.0) 45.0
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other comprehensive income
Exchange movements on
translation of foreign
operations - - - 45.8 - - - 45.8 0.5 46.3
Remeasurements of defined
benefit pension schemes - - - - - - 2.8 2.8 - 2.8
Tax on remeasurements of
defined benefit pension
schemes - - - - - - (0.6) (0.6) - (0.6)
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Other comprehensive
(loss)/income for the year,
net of tax - - - 45.8 - - 2.2 48.0 0.5 48.5
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Total comprehensive (loss)/
income for the year - - - 45.8 - - 48.2 94.0 (0.5) 93.5
Dividends - - - - - - (26.4) (26.4) - (26.4)
Purchase of own shares for ESOP
trust - - - - - - (1.2) (1.2) - (1.2)
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
Share-based payments - - - - - - 2.9 2.9 - 2.9
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
At 31 December 2022 7.3 38.1 7.6 57.9 56.9 - 326.7 494.5 2.3 496.8
------------------------------- ----------- ------- ---------- ----------- --------- --------- -------- ------------ ----------- ------
1 Retained earnings as at 1 January 2021 have been restated in
respect of the correction of prior period errors arising from the
fraud at Austral, as outlined in note 3 to the consolidated
financial statements. Retained earnings as at 31 December 2021 have
been restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements
Consolidated cash flow statement
For the year ended 31 December 2022
2022 2021 (Restated(1) )
Note GBPm GBPm
--------------------------- --------------------------------------------------------- ------- -------------------
Cash flows from operating activities
Profit before taxation 56.3 67.5
Non-underlying items 9 40.8 12.1
Finance income 10 (4.1) (0.4)
Finance costs 11 15.6 9.3
------------------------------------------------------------------------------- ----- ------- -------------------
Underlying operating profit 4 108.6 88.5
Depreciation/impairment of property, plant and equipment 16 96.6 90.6
Amortisation of intangible assets 15 0.4 0.6
Share of underlying post-tax results of joint ventures 17 (1.5) (0.4)
Profit on sale of property, plant and equipment (3.3) (1.8)
Other non-cash movements (including charge for share-based payments) 3.7 8.3
Foreign exchange losses - 0.1
------------------------------------------------------------------------------- ----- ------- -------------------
Operating cash flows before movements in working capital and other underlying
items 204.5 185.9
(Increase)/decrease in inventories (44.2) (18.3)
(Increase)/decrease in trade and other receivables (110.0) (102.5)
Increase/(decrease) in trade and other payables 43.7 121.4
(Decrease)/increase in provisions, retirement benefit and other non-current
liabilities (13.4) (7.8)
------------------------------------------------------------------------------- ----- ------- -------------------
Cash generated from operations before non-underlying items 80.6 178.7
Cash outflows from non-underlying items: ERP costs (5.4) -
Cash outflows from non-underlying items: restructuring costs (0.6) (3.9)
Cash outflows from non-underlying items: acquisition costs (0.2) (0.5)
Cash generated from operations 74.4 174.3
Interest paid (10.1) (2.0)
Interest element of lease rental payments (3.6) (3.1)
Income tax paid (5.9) (15.9)
------------------------------------------------------------------------------- ----- ------- -------------------
Net cash inflow from operating activities 54.8 153.3
------------------------------------------------------------------------------- ----- ------- -------------------
Cash flows from investing activities
Interest received 4.0 0.4
Proceeds from sale of property, plant and equipment 8.2 12.2
Proceeds on disposal of businesses 6 0.7 7.1
Acquisition of businesses, net of cash acquired 6 (20.2) (29.9)
Acquisition of property, plant and equipment 16 (81.6) (84.0)
Acquisition of other intangible assets 15 (0.1) (0.4)
Net cash outflow from investing activities (89.0) (94.6)
------------------------------------------------------------------------------- ----- ------- -------------------
Cash flows from financing activities
Increase in borrowings 99.3 91.2
Cash flows from derivative instruments 0.2 -
Repayment of borrowings (1.4) (69.4)
Payment of lease liabilities (29.5) (29.8)
Purchase of own shares for ESOP trust (1.2) (3.7)
------------------------------------------------------------------------------- ----- ------- -------------------
Dividends paid 13 (26.4) (25.9)
------------------------------------------------------------------------------- ----- ------- -------------------
Net cash outflow from financing activities 41.0 (37.6)
------------------------------------------------------------------------------- ----- ------- -------------------
Net increase/(decrease) in cash and cash equivalents 6.8 21.1
------------------------------------------------------------------------------- ----- ------- -------------------
Cash and cash equivalents at beginning of year 81.8 61.6
Effect of exchange rate movements 5.6 (0.9)
------------------------------------------------------------------------------- ----- ------- -------------------
Cash and cash equivalents at end of year 21 94.2 81.8
------------------------------------------------------------------------------- ----- ------- -------------------
1 Operating cash flows before movements in working capital and
the movements in trade and other receivables and trade and other
payables for the year ended 31 December 2021 have been restated in
respect of the correction of prior period errors arising from the
fraud at Austral and prior period business combination measurement
adjustments, as outlined in notes 3 and 6 to the consolidated
financial statements. Cash generated from operations and proceeds
from the disposal of property, plant and equipment have been
restated to reclassify cash received on the disposal of assets held
from sale.
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 2022 were authorised for issue in accordance with the
resolution of the Directors on 6 March 2023.
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.
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.
The financial information for the year ended 31 December 2021
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. A copy of the statutory accounts for that
year has been delivered to the Registrar of Companies. The
independent auditors' report on the full financial statements for
the year ended 31 December 2021 was unqualified and did not contain
an emphasis of matter paragraph or any statement under section 498
of the Companies Act 2006. This preliminary announcement does not
constitute the Group's full financial statements for the year ended
31 December 2022.
The Group's full financial statements will be approved by the
Board of Directors and reported on by the auditors in March 2023.
Accordingly, the financial information for 2022 is presented
unaudited in the preliminary announcement.
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.
Prior year restatements
Prior year financial reporting fraud
Following an internal management operational review at the
Austral business in Australia, the Group has identified a
historical overstatement of revenue and profit relating to the
years ended 31 December 2021, 31 December 2020 and 31 December 2019
due to a financial reporting fraud. This reporting error has been
corrected by restating the prior year comparatives, reducing
contract assets and prepayments (included with trade and other
receivables) by GBP8.1m and GBP0.3m respectively, and increasing
other payables (included within trade and other payables) by
GBP2.3m at 31 December 2021. Contract assets were reduced by
GBP6.5m and other payables were increased by GBP0.2m as at 1
January 2021.
The impact on the consolidated income statement for the year
ended 31 December 2021 is a decrease in revenue of GBP1.9m and an
increase in operating costs of GBP2.4m, resulting in a decrease in
operating profit and profit before tax of GBP4.3m.
The lower profit before tax recognised within the consolidated
Australia group of entities as a result, has impacted the
recognition of deferred tax assets recognised in respect of tax
losses carried forward as the asset is no longer regarded as
recoverable. The deferred tax asset at 31 December 2021 is reduced
by GBP4.2m and the deferred tax asset at 1 January 2021 is reduced
by GBP2.0m. The deferred tax charge for the year ended 31 December
2021 is increased by GBP2.4m.
Net assets are GBP14.9m lower than previously reported at 31
December 2021 and GBP8.7m lower at 1 January 2021. The consolidated
cash flow statement has been restated to show the change in profit
before tax and the change in trade and other receivables and trade
and other payables. There is no impact on the cash generated from
operations for the year ended 31 December 2021.
The restatement decreased diluted statutory earnings per share
from 86.1p to 77.2p and diluted underlying earnings per share from
88.4p per share to 84.2p per share for the year ended 31 December
2021. The basic statutory earnings per share was reduced from 89.5p
to 85.2p. Notes 4, 5, 7, 9, 12, 14, 15, 20, 23 and the alternative
performance measures set out on pages [x] have also been restated,
where relevant, to incorporate these changes.
A reconciliation of the changes made to the restated financial
results for the year ended 31 December 2021 are set out in detail
in note 3.
Prior year measurement period adjustment
In the year to 31 December 2021, the Group acquired RECON
Services Inc. and the trade and assets of Subterranean (Manitoba)
Ltd. At 31 December 2021, the purchase price allocation for both
business combinations was prepared on a provisional basis in
accordance with IFRS 3 'Business Combinations'. Under IFRS 3
'Business Combinations' there is a measurement period of no longer
than 12 months in which to finalise the valuation of the acquired
assets and liabilities.
During the measurement period, the Group finalised the valuation
of intangible assets recognised on acquisition of RECON in respect
of the tradename and customer relationships and the associated
deferred tax liabilities. The Group also finalised the valuation of
trade receivables acquired with Subterranean. The impact of the
measurement period adjustments has been applied retrospectively,
meaning that the results and financial position for the year to 31
December 2021 have been restated. The impact of these adjustments
on the comparatives for the year ended 31 December 2021 is included
in note 3 and further detail is set out in note 6.
Going concern
At 31 December 2022, the Group had undrawn committed and
uncommitted borrowing facilities totalling GBP273.8m, comprising
GBP113.6m of the unutilised portion of the revolving credit
facility, GBP114.1m of other undrawn committed borrowing facilities
and undrawn uncommitted borrowing facilities of GBP46.1m, as well
as cash and cash equivalents of GBP101.1m. At 31 December 2022, the
Group's net debt to underlying EBITDA ratio (calculated on an IAS
17 covenant basis) was 1.2x, well within the limit of 3.0x.
The Group has prepared a forecast of financial projections for
the three-year period to 31 December 2025. The forecast underpins
the going concern assessment which has been made for the period
through to 31 March 2024, , 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.
The base case reflects the assumptions made by the Group with
respect to increased market penetration including key project wins,
organic growth, a focus on cost reduction, and mobilisation and
delivery of the NEOM project. The forecast shows significant
headroom and supports the position that the Group can operate
within its available banking facilities and covenants throughout
this period.
For the going concern assessment, management ran a series of
downside scenarios over the base case forecast to assess covenant
headroom against available funding facilities. 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 the 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 GBP42.9m over the
period to 31 March 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. The most extreme downside scenario modelled, included
an aggregation of all risks considered and showed a decrease in
operating profit of 29.8% and an increase in net debt of 45.2%
against the Group's latest forecast profit and cash flow
projections for the review period up to 31 March 2024. The adjusted
projections within this scenario does not forecast 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 2024, 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.
Climate change
In preparing the consolidated financial statements, management
has considered the impact of climate change, particularly in the
context of the risks identified through our risk management
processes including consideration of the Task Force on
Climate-related Disclosures (TCFD) framework. There has been no
material impact identified on the financial reporting judgements
and estimates. In particular, management considered the impact of
climate change in respect of the following areas:
-- estimates of future cash flows used in impairment assessments
of the carrying value of goodwill;
-- the useful economic life of plant, equipment and other intangible assets; and
-- going concern and viability of the Group over the next three years.
Whilst there is currently no medium-term impact expected from
climate change, management are aware of the variable risks arising
from climate change and will regularly assess these risks against
judgement and estimates made in preparation of the Group's
financial statements.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The following applicable amendments became effective during the
year to 31 December 2022:
-- Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a Contract'.
-- Amendments to IAS 16 'Property, Plant and Equipment: Proceeds before Intended Use'.
-- IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for derecognition of financial liabilities'.
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 IAS 37 'Onerous Contracts - Costs of Fulfilling a
Contract'
An onerous contract is a contract under which the unavoidable
costs (ie, the costs that the Group cannot avoid because it has the
contract) of meeting the obligations under the contract exceed the
economic benefits expected to be received under it. The amendments
specify that when assessing whether a contract is onerous or
loss-making, an entity needs to include costs that relate directly
to a contract to provide goods or services including both
incremental costs (eg, the costs of direct labour and materials)
and an allocation of costs directly related to contract activities
(eg, depreciation of equipment used to fulfil the contract as well
as costs of contract management and supervision). General and
administrative costs do not relate directly to a contract and are
excluded unless they are explicitly chargeable to the counterparty
under the contract. This amendment does not have an impact on the
consolidated financial statements of the Group as an allocation of
costs directly related to contract activities was previously
included in the unavoidable costs used in the costs to complete
assessment for onerous contracts and the Group does not include an
allocation of general overheads.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds
before Intended Use'
The amendments prohibit entities from deducting from the cost of
an item of property, plant and equipment, any proceeds of the sale
of items produced while bringing that asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management. Instead, an entity recognises the proceeds
from selling such items, and the costs of producing those items, in
profit or loss. These amendments had no impact on the consolidated
financial statements of the Group as there were no sales of such
items produced by property, plant and equipment made available for
use on or after the beginning of the earliest period presented.
IFRS 9 Financial Instruments 'Fees in the '10 per cent' test for
derecognition of financial liabilities'
The amendment clarifies the fees that an entity includes when
assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the
original financial liability. These fees include only those paid or
received between the borrower and the lender, including fees paid
or received by either the borrower or lender on the other's behalf.
This amendment had no impact on the consolidated financial
statements of the Group as there were no modifications of the
Group's financial instruments during the period.
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.
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 2022 2021
------------------ ---- ----
US dollar 1.24 1.38
Canadian dollar 1.61 1.72
Euro 1.17 1.16
Singapore dollar 1.70 1.85
Australian dollar 1.78 1.83
------------------ ---- ----
Year-end rates 2022 2021
------------------ ---- ----
US dollar 1.21 1.35
Canadian dollar 1.63 1.71
Euro 1.12 1.19
Singapore dollar 1.62 1.82
Australian dollar 1.76 1.86
------------------ ---- ----
Revenue from construction contracts
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 12.
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. 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.
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 16 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 1.07% to 16.78%.
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
---------------------- ------------
Software-as-a-service arrangements
The Group's current SaaS arrangements are arrangements in which
the Group does not control the underlying software used in the
arrangement.
Software development costs incurred to configure or customise
application software provided under a cloud computing arrangement
and associated fees are recognised as operating expenses as and
when the services are received where the costs represent a distinct
service provided to the Group.
When such costs incurred do not provide a distinct service, the
costs are recognised as expenses over the duration of the SaaS
contract. The Group capitalises other software costs when the
requirements of IAS 38 'Intangible Assets' are satisfied, including
configuration and customisation costs which are distinct and within
the control of the Group. Such software costs are capitalised and
carried at cost less any accumulated amortisation and impairment,
and amortised on a straight-line basis over the period which the
developed software is expected to be used.
Amortisation commences when the development is complete and the
asset is available for use and is included in the operating costs
item of the consolidated income statement. The amortisation is
reviewed at least at the end of each reporting period and any
changes are treated as changes in accounting estimates.
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 indication 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). At each reporting date, the Group evaluates
the estimated recoverability of trade receivables and contract
assets and records allowances for ECLs based on experience.
The Group applies the simplified approach to measurement of ECLs
in respect of trade receivables, which requires expected lifetime
losses to be recognised from initial recognition of the receivable.
Immediately after an individual trade receivable or contract asset
is assessed to be unlikely to be recovered, an impairment is
recognised as the difference between the carrying amount of the
receivable and the present value of estimated future cash flows.
Customer specific factors are considered when identifying
impairments, which can include the geographic location and credit
rating of a customer.
Where there are no specific concerns over recovery, other than
the increasing age of a trade receivable or contract asset balance
past payment terms, the Group uses a provision matrix, where
provision rates are based on days past due. The provision matrix
used reflects estimates based on past experience, current economic
factors and consideration of forward looking estimates of economic
conditions. Generally, trade receivables are written-off completely
if past due for more than 180 days. Default is defined as the point
where there is no further legal address available for the Group to
recover the receivable amount.
The information about the ECLs on the Group's trade receivables
and contract assets is disclosed in note 20.
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, i.e. 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 the recognition of a
non-financial asset or liability, the amount accumulated in equity
is included in the initial cost or carrying amount of the hedged
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 24.
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.
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.
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, goodwill
impairment, 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 5 and 24). 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 2022, at an average
revenue of approximately GBP500,000 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. Contract assets are GBP105.3m and contract
liabilities are GBP85.6m at 31 December 2022. 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. The amount included within provisions in
respect of contract provisions is GBP37.8m (2021: GBP41.9m).
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.
The restatement of the prior period financial statements for the
impact of the financing reporting fraud at Austral has involved the
use of estimates. Primarily this has been in calculating the
correct accrued cost inputs at a project level and therefore the
relevant revenue to be recognised on a percentage of completion
basis. The estimated costs to complete included in the restatement
of the 31 December 2020 and 2021 balance sheets are management's
best estimate and no individual estimate or judgement would result
in a materially different outcome.
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, goodwill
impairment, 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.
The Group exercises judgement in assessing whether restructuring
items should be classified as non-underlying. This assessment
covers the nature of the item, cause of the occurrence and scale of
impact of that item on the reported performance. Typically,
management will categorise restructuring costs incurred to exit a
specific geography as non-underlying, in addition restructuring
programmes which are incremental to normal operations undertaken to
add value to the business are included in non-underlying items. The
value of exceptional restructuring costs in 2022 (GBP5.3m) is lower
than in 2021 (GBP7.3m).
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 15 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. A 10% shortfall in expected profits would have a
proportional impact on the value of the deferred tax assets
recoverable.. Refer to note 12 for further information.
The restatement of the prior period financial statements for the
impact of the financing reporting fraud at Austral has involved the
use of estimates in determining the amount of deferred tax assets
that should be recognised on the restated balance sheets as at 31
December 2020 and 2021. The restatement impact was to reduce the
deferred tax assets by GBP2.0m at 31 December 2020 and by GBP4.2m
at 31 December 2021. This is the maximum impact, an increase in the
forecast taxable profit of 10% would not have a material impact on
the value of these adjustments.
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 24 for further information.
3 Prior year correction of errors arising from the fraud at
Austral and business combination measurement period adjustments as
at 31 December 2021
As set out in the basis of preparation, following an internal
management operational review at the Austral business in Australia,
the Group has identified a historical overstatement of revenue and
profit relating to the years ended 31 December 2021, 31 December
2020 and 31 December 2019 due to a financial reporting fraud.
The errors have been corrected by restating each of the affected
financial statement line items for the prior periods.
In addition, the results and financial position for the year to
31 December 2021 have been restated to reflect the final purchase
price allocation adjustments in respect of 2021 business
combinations. The impact of the measurement period adjustments has
been applied retrospectively, in accordance with IFRS 3 Business
Combinations. Further detail is included in note 6.
The following tables summarise the impacts on the Group's
financial statements.
Restatement of consolidated income statement for the year ended
31 December 2021 (statutory results)
Impact of
measurement
2021 Statutory Impact of prior period 2021 Statutory
(as presented) period error adjustments (as restated)
------------------
GBPm GBPm GBPm GBPm
------------------ ------------------------- --------------- --------------- ----------------- ----------------
Revenue 2,224.4 (1.9) - 2,222.5
Operating costs (2,141.6) (2.4) - (2,144.0)
Amortisation of acquired intangible assets (2.8) - 0.2 (2.6)
Other operating income 0.7 - - 0.7
Share of post-tax results of joint ventures (0.2) - - (0.2)
-------------------------------------------- --------------- --------------- ----------------- --------------
Operating profit/(loss) 80.5 (4.3) 0.2 76.4
Finance income 0.4 - - 0.4
Finance costs (9.3) - - (9.3)
-------------------------------------------- --------------- --------------- ----------------- --------------
Profit/(loss) before taxation 71.6 (4.3) 0.2 67.5
Taxation (9.5) (2.4) - (11.9)
-------------------------------------------- --------------- --------------- ----------------- --------------
Profit/(loss) for the year 62.1 (6.7) 0.2 55.6
-------------------------------------------- --------------- --------------- ----------------- --------------
Attributable to:
Equity holders of the parent 63.0 (6.7) 0.2 56.5
Non-controlling interests (0.9) - - (0.9)
-------------------------------------------- --------------- --------------- ----------------- --------------
62.1 (6.7) 0.2 55.6
-------------------------------------------- --------------- --------------- ----------------- --------------
Earnings per share
Basic 87.1p (9.3p) 0.3p 78.1p
Diluted 86.1p (9.2p) 0.3p 77.2p
-------------------------------------------- --------------- --------------- ----------------- --------------
Restatement of consolidated income statement for the year ended
31 December 2021 (underlying results)
2021
2021 Underlying Impact of prior Impact of measurement Underlying
(as presented) period error period adjustments (as restated)
------------------ ------------------ -----------------
GBPm GBPm GBPm GBPm
------------------ ------------------ ----------------- ---------------- ------------------------ -------------
Revenue 2,224.4 (1.9) - 2,222.5
Operating costs (2,132.0) (2.4) - (2,134.4)
Share of post-tax results of
joint ventures 0.4 - - 0.4
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
Operating profit/(loss) 92.8 (4.3) - 88.5
Finance income 0.4 - - 0.4
Finance costs (9.3) - - (9.3)
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
Profit/(loss) before taxation 83.9 (4.3) - 79.6
Taxation (20.1) 1.2 - (18.9)
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
Profit/(loss) for the year 63.8 (3.1) - 60.7
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
Attributable to:
Equity holders of the parent 64.7 (3.1) - 61.6
Non-controlling interests (0.9) - - (0.9)
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
63.8 (3.1) - 60.7
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
Earnings per share
Basic 89.5p (4.3p) - 85.2p
Diluted 88.4p (4.2p) - 84.2p
------------------------------ ------ ----------------- ---------------- ------------------------ -------------
The impact of the restatement of deferred tax in respect of the
Austral accounting error is split between underlying and
non-underlying as it comprises the reversal of a GBP1.2m underlying
deferred tax charge and a GBP3.6m non-underlying deferred tax
credit originally recognised in 2021. The restatement results in a
net GBP2.4m increase in the Group's statutory tax charge for
2021.
Restatement of consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2021
(as presented) Impact of prior period error Impact of measurement period adjustments (as restated)
GBPm GBPm GBPm GBPm
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Profit for the
year 62.1 (6.7) 0.2 55.6
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Other
comprehensive
income
Items that may
be reclassified
subsequently to
profit or loss:
Exchange
movements on
translation of
foreign
operations (4.3) 0.5 - (3.8)
Transfer of
translation
reserve on
disposal of
subsidiaries (0.4) - - (0.4)
Items that will
not be
reclassified
subsequently to
profit or loss:
Remeasurements
of defined
benefit pension
schemes 1.2 - - 1.2
Tax on
remeasurements
of defined
benefit pension
schemes (0.2) - - (0.2)
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Other
comprehensive
loss for the
year, net of
tax (3.7) 0.5 - (3.2)
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Total
comprehensive
income for the
year 58.4 (6.2) 0.2 52.4
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Attributable to:
Equity holders
of the parent 59.3 (6.2) 0.2 53.3
Non-controlling
interests (0.9) - - (0.9)
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
58.4 (6.2) 0.2 52.4
---------------- --------------- ---------------------------- ---------------------------------------- ---------------
Restatement of consolidated balance sheet at 1 January 2021
At
At 1 January 2021 Impact of prior 1 January 2021
(as presented) period error (as restated)
GBPm GBPm GBPm
---------------------------------------------------- ----------------- --------------- ----------------
Assets
Non-current assets
Goodwill and intangible assets 118.8 - 118.8
Property, plant and equipment 434.9 - 434.9
Investments in joint ventures 4.4 - 4.4
Deferred tax assets 10.3 (2.0) 8.3
Other assets 60.3 - 60.3
---------------------------------------------------- ----------------- --------------- ----------------
628.7 (2.0) 626.7
---------------------------------------------------- ----------------- --------------- ----------------
Current assets
Inventories 60.1 - 60.1
Trade and other receivables 501.9 (6.5) 495.4
Current tax assets 2.1 - 2.1
Cash and cash equivalents 66.3 - 66.3
---------------------------------------------------- ----------------- --------------- ----------------
Assets held for sale 8.7 - 8.7
---------------------------------------------------- ----------------- --------------- ----------------
639.1 (6.5) 632.6
---------------------------------------------------- ----------------- --------------- ----------------
Total assets 1,267.8 (8.5) 1,259.3
---------------------------------------------------- ----------------- --------------- ----------------
Liabilities
Current liabilities
Loans and borrowings (67.0) - (67.0)
Current tax liabilities (17.1) - (17.1)
Trade and other payables (381.7) (0.2) (381.9)
Provisions (54.4) - (54.4)
---------------------------------------------------- ----------------- --------------- ----------------
(520.2) (0.2) (520.4)
---------------------------------------------------- ----------------- --------------- ----------------
Non-current liabilities
Loans and borrowings (191.8) - (191.8)
Retirement benefit liabilities (31.1) - (31.1)
Deferred tax liabilities (21.3) - (21.3)
Provisions (71.4) - (71.4)
Other liabilities (22.0) - (22.0)
---------------------------------------------------- ----------------- --------------- ----------------
(337.6) - (337.6)
---------------------------------------------------- ----------------- --------------- ----------------
Total liabilities (857.8) (0.2) (858.0)
---------------------------------------------------- ----------------- --------------- ----------------
Net assets 410.0 (8.7) 401.3
---------------------------------------------------- ----------------- --------------- ----------------
Equity
Share capital 7.3 - 7.3
Share premium account 38.1 - 38.1
Capital redemption reserve 7.6 - 7.6
Translation reserve 16.3 - 16.3
Other reserve 56.9 - 56.9
Retained earnings 280.1 (8.7) 271.4
---------------------------------------------------- ----------------- --------------- ----------------
Equity attributable to equity holders of the parent 406.3 (8.7) 397.6
Non-controlling interests 3.7 - 3.7
---------------------------------------------------- ----------------- --------------- ----------------
Total equity 410.0 (8.7) 401.3
---------------------------------------------------- ----------------- --------------- ----------------
Restatement of consolidated balance sheet at 31 December
2021
At At
31 December 2021 Impact of prior Impact of measurement 31 December 2021
(as presented) period error period adjustments (as restated)
GBPm GBPm GBPm GBPm
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Assets
Non-current assets
Goodwill and intangible assets 141.5 - (2.0) 139.5
Property, plant and equipment 443.4 - - 443.4
Investments in joint ventures 4.0 - - 4.0
Deferred tax assets 13.0 (4.2) - 8.8
Other assets 88.5 - - 88.5
-------------------------------------- ----------------- ---------------- --------------------- ------------------
690.4 (4.2) (2.0) 684.2
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Current assets
Inventories 72.1 - - 72.1
Trade and other receivables 592.0 (8.4) 1.9 585.5
Current tax assets 8.9 - - 8.9
Cash and cash equivalents 82.7 - - 82.7
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Assets held for sale 3.4 - - 3.4
-------------------------------------- ----------------- ---------------- --------------------- ------------------
759.1 (8.4) 1.9 752.6
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Total assets 1,449.5 (12.6) (0.1) 1,436.8
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Liabilities
Current liabilities
Loans and borrowings (29.8) - - (29.8)
Current tax liabilities (17.9) - - (17.9)
Trade and other payables (505.7) (2.3) - (508.0)
Provisions (53.8) - - (53.8)
-------------------------------------- ----------------- ---------------- --------------------- ------------------
(607.2) (2.3) - (609.5)
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Non-current liabilities
Loans and borrowings (246.2) - - (246.2)
Retirement benefit liabilities (25.7) - - (25.7)
Deferred tax liabilities (28.6) - 0.3 (28.3)
Provisions (77.9) - - (77.9)
Other liabilities (21.2) - - (21.2)
-------------------------------------- ----------------- ---------------- --------------------- ------------------
(399.6) - 0.3 (399.3)
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Total liabilities (1,006.8) (2.3) 0.3 (1,008.8)
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Net assets 442.7 (14.9) 0.2 428.0
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Equity
Share capital 7.3 - - 7.3
Share premium account 38.1 - - 38.1
Capital redemption reserve 7.6 - - 7.6
Translation reserve 11.6 0.5 - 12.1
Other reserve 56.9 - - 56.9
Retained earnings 318.4 (15.4) 0.2 303.2
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Equity attributable to equity holders
of the parent 439.9 (14.9) 0.2 425.2
Non-controlling interests 2.8 - - 2.8
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Total equity 442.7 (14.9) 0.2 428.0
-------------------------------------- ----------------- ---------------- --------------------- ------------------
Restatement of consolidated cash flow statement for the year
ended 31 December 2021:
Impact of Presentation reclassification for proceeds from assets
2021 measurement period held for sale(1) 2021
(as presented) Impact of prior period error adjustments (as restated)
GBPm GBPm GBPm GBPm GBPm
--------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Cash flows from operating activities
Profit before taxation 71.6 (4.3) 0.2 - 67.5
Non-underlying items 12.3 - (0.2) - 12.1
Finance income (0.4) - - - (0.4)
Finance costs 9.3 - - - 9.3
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Underlying operating profit 92.8 (4.3) - - 88.5
Depreciation of property, plant and
equipment 90.6 - - - 90.6
Amortisation of intangible assets 0.6 - - - 0.6
Share of underlying post-tax results of
joint ventures (0.4) - - - (0.4)
Profit on sale of property, plant and
equipment (1.8) - - - (1.8)
Other non-cash movements 8.3 - - - 8.3
Foreign exchange losses 0.1 - - - 0.1
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Operating cash flows before movements in
working capital and other underlying
items 190.2 (4.3) - - 185.9
(Increase)/decrease in inventories (18.3) - - - (18.3)
(Increase)/decrease in trade and other
receivables (104.4) 1.9 - - (102.5)
Increase/(decrease) in trade and other
payables 119.0 2.4 - - 121.4
(Decrease)/increase in provisions,
retirement benefit and other
non-current liabilities (7.8) - - - (7.8)
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Cash generated from operations before
non-underlying items 178.7 - - - 178.7
Cash inflows from non-underlying items (2.0) - - (2.4) (4.4)
Cash generated from operations 176.7 - - (2.4) 174.3
Interest paid (2.0) - - - (2.0)
Interest element of lease rental
payments (3.1) - - - (3.1)
Income tax paid (15.9) - - - (15.9)
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Net cash inflow from operating
activities 155.7 - - (2.4) 153.3
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Net cash outflow from investing
activities (97.0) - - 2.4 (94.6)
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Net cash outflow from financing
activities (37.6) - - - (37.6)
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Net increase/(decrease) in cash and cash
equivalents 21.1 - - - 21.1
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Cash and cash equivalents at beginning
of year 61.6 - - - 61.6
Effect of exchange rate movements (0.9) - - - (0.9)
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
Cash and cash equivalents at end of year 81.8 - - - 81.8
---------------------------------------- --------------- ---------------------------- ------------------- ------------------------------------------------------ ---------------
1 The consolidated cash flow statement has also been restated to
reclassify cash flows arising from the disposal of assets held for
sale. These proceeds were previously disclosed as cash inflows from
non-underlying items and have now been classified within proceeds
from disposal of property, plant and equipment within net cash
outflow from investing activities.
4 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.
2022 2021 (Restated(4) )
------------------------------------- ------------------ ---------------------
Operating Operating
Revenue profit Revenue profit
------------------------------------- ------- --------- --------- ----------
GBPm GBPm GBPm GBPm
------------------------------------- ------- --------- --------- ----------
North America 1,896.1 82.0 1,323.1 73.0
Europe 649.3 29.1 549.2 24.3
Asia-Pacific, Middle East and Africa 399.2 6.6 350.2 (0.9)
------------------------------------- ------- --------- --------- ----------
2,944.6 117.7 2,222.5 96.4
Central items - (9.1) - (7.9)
------------------------------------- ------- --------- --------- ----------
Underlying 2,944.6 108.6 2,222.5 88.5
Non-underlying items (note 9) - (40.8) - (12.1)
------------------------------------- ------- --------- --------- ----------
2,944.6 67.8 2,222.5 76.4
------------------------------------- ------- --------- --------- ----------
2022
-----------------------------------------------------------------------
Tangible(3)
Depreciation(2) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ----------- -------- --------- --------------- -----------
North America 1,016.3 (349.1) 667.2 33.8 54.6 352.5
Europe 338.2 (208.0) 130.2 23.2 27.8 158.9
Asia-Pacific, Middle East and Africa 251.1 (163.4) 87.7 24.7 13.7 109.6
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,605.6 (720.5) 885.1 81.7 96.1 621.0
Central items(1) 96.3 (484.6) (388.3) - 0.9 2.7
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,701.9 (1,205.1) 496.8 81.7 97.0 623.7
------------------------------------- ------- ----------- -------- --------- --------------- -----------
2021(4)
-----------------------------------------------------------------------
Tangible(3)
Depreciation(2) and
Segment Segment Capital Capital and intangible
assets liabilities employed additions amortisation assets
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ----------- -------- --------- --------------- -----------
North America 826.9 (349.6) 477.3 36.4 46.1 332.7
Europe 273.9 (184.7) 89.2 23.8 25.0 143.7
Asia-Pacific, Middle East and Africa 209.6 (102.2) 107.4 24.2 19.5 103.5
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,310.4 (636.5) 673.9 84.4 90.6 579.9
Central items(1) 126.4 (372.3) (245.9) - 0.6 3.0
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1,436.8 (1,008.8) 428.0 84.4 91.2 582.9
------------------------------------- ------- ----------- -------- --------- --------------- -----------
1 Central items include net debt and tax balances, which are managed by the Group.
2 Depreciation and amortisation excludes amortisation of acquired intangible assets.
3 Tangible and intangible assets comprise goodwill, intangible
assets and property, plant and equipment.
4 The 31 December 2021 consolidated income statement and balance
sheet have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period
business combination measurement adjustments, as outlined in notes
3 and 6 to the consolidated financial statements.
Revenue analysed by country:
2021
2022 (Restated(1) )
GBPm GBPm
--------------- ------- ---------------
United States 1,758.0 1,197.6
Australia 228.4 200.5
Canada 137.9 125.1
United Kingdom 127.4 100.4
Germany 115.9 110.0
Other 577.0 488.9
--------------- ------- ---------------
2,944.6 2,222.5
--------------- ------- ---------------
1 The 31 December 2021 consolidated revenue has been restated in
respect of the correction of prior period errors arising from the
fraud at Austral, as outlined in note 3 to the consolidated
financial statements.
5 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
4) and timing of revenue recognition:
Year ended 31 December 2022 Year ended 31 December 2021 (Restated(1) )
--------------------------------------- ----------------------------------------------
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 1,434.7 461.4 1,896.1 1,005.0 318.1 1,323.1
Europe 649.3 - 649.3 549.2 - 549.2
Asia-Pacific, Middle East
and Africa 399.2 - 399.2 350.2 - 350.2
--------------------------- -------------- -------------- ------- ----------------- ----------------- --------
2,483.2 461.4 2,944.6 1,904.4 318.1 2,222.5
--------------------------- -------------- -------------- ------- ----------------- ----------------- --------
1 The 31 December 2021 consolidated revenue has been restated in
respect of the correction of prior period errors arising from the
fraud at Austral, as outlined in note 3 to the consolidated
financial statements.
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 2022 from performance obligations satisfied
in previous periods is GBP15.7m (2021: GBP28.0m).
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 2022, the total order book
is GBP1,407.1m (2021: GBP1,302.1m). The order book as at 31
December 2021 has been restated in respect of prior period
measurement adjustments.
The order book for contracts with a total duration over one year
is GBP384.5m (2021: GBP402.0m). Revenue on these contracts is
expected to be recognised as follows:
2022 2021
GBPm GBPm
-------------------- ----- -----
Less than one year 289.3 279.7
One to two years 87.1 103.7
More than two years 8.1 18.6
-------------------- ----- -----
384.5 402.0
-------------------- ----- -----
The following table provides information about trade
receivables, contract assets and contract liabilities arising from
contracts with customers:
2021
2022 (Restated(1) )
GBPm GBPm
--------------------- ------ ---------------
Trade receivables 615.4 450.7
Contract assets 105.3 99.2
Contract liabilities (85.6) (46.5)
--------------------- ------ ---------------
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in
notes 3 and 6 to the consolidated financial statements.
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 GBP121.3m (2021:
GBP85.9m) in respect of retentions anticipated to be receivable
within one year. Included in non-current other assets is GBP16.3m
(2021: GBP24.4m) 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:
2022 2021 (Restated(1) )
---------------------------------------- ------------------------------------- -------------------------------------
Contract assets Contract liabilities Contract assets Contract liabilities
---------------------------------------- --------------- -------------------- --------------- --------------------
GBPm GBPm GBPm GBPm
---------------------------------------- --------------- -------------------- --------------- --------------------
As at 1 January 99.2 (46.5) 64.7 (43.9)
Revenue recognised in the current year 911.2 824.2 652.4 516.0
Acquired with businesses 0.6 - 2.0 (0.3)
Amounts transferred to trade receivables (914.1) - (619.5) -
Cash received/invoices raised for
performance obligations not yet
satisfied - (858.9) - (518.3)
Exchange movements 8.4 (4.4) (0.4) -
---------------------------------------- --------------- -------------------- --------------- --------------------
As at 31 December 105.3 (85. 6) 99.2 (46.5)
---------------------------------------- --------------- -------------------- --------------- --------------------
1 The 31 December 2021 consolidated contract asset has been
restated in respect of the correction of prior period errors
arising from the fraud at Austral as outlined in note 3 to the
consolidated financial statements.
6 Acquisitions and disposals
Acquisitions
Current period
GKM Consultants Inc.
On 1 May 2022, the Group acquired 100% of the issued share
capital of GKM Consultants Inc., an instrumentation and monitoring
provider in Quebec, Canada, for an initial cash consideration of
GBP3.3m (CAD$5.3m). In addition, contingent consideration is
payable dependent on the cumulative EBITDA in the three-year period
post acquisition. At the acquisition date, the fair value of the
contingent consideration was GBP1.2m (CAD $2.0m), based on expected
cashflows generated by the business over a three year period at
that point in time. At 31 December 2022, the fair value of the
contingent consideration has been revised to GBP0.9m, with the
reduction in the amount payable recognised in the income statement
as a non-underlying item. The maximum value of the contingent
consideration is GBP1.2m, the minimum payable would be zero.
The fair value of intangible assets acquired represents the fair
value of customer contracts at the date of acquisition, customer
relationships and the tradename. Goodwill arising on acquisition is
attributable to the knowledge and expertise of the assembled
workforce, the expectation of future contracts and customer
relationships and the operating synergies that arise from the
Group's strengthened market position. The goodwill is not expected
to be deductible for tax purposes.
In the period to 31 December 2022, the acquisition contributed
GBP6.8m to revenue and a profit before tax of GBPnil. Had the
acquisition taken place on 1 January 2022, total Group revenue
would have been GBP2,984.0m and statutory profit before tax for the
period would have been GBP64.4m.
The identifiable assets and liabilities as at the date of
acquisition were:
Carrying Fair value Fair
amount adjustment value
GBPm GBPm GBPm
---------------------------------------------------- ----------- ----------- ---------
Assets
---------------------------------------------------- ----------- ----------- ---------
Intangible assets - 1.5 1.5
Property, plant and equipment 0.3 - 0.3
Inventories 0.6 - 0.6
Trade and other receivables(1) 2.8 (0.1) 2.7
Current tax assets 0.1 - 0.1
Cash and cash equivalents 0.2 - 0.2
---------------------------------------------------- ----------- ----------- ---------
4.0 1.4 5.4
---------------------------------------------------- ----------- ----------- ---------
Liabilities
Trade and other payables (1.9) - (1.9)
Deferred tax liabilities (0.1) (0.4) (0.5)
(2.0) (0.4) (2.4)
---------------------------------------------------- ----------- ----------- ---------
Total identifiable net assets 2.0 1.0 3.0
---------------------------------------------------- ----------- ----------- ---------
Goodwill 1.6
---------------------------------------------------- ----------- ----------- ---------
Total consideration 4.6
---------------------------------------------------- ----------- ----------- ---------
Satisfied by:
Initial cash consideration 3.3
Contingent consideration 1.2
Purchase price adjustment 0.1
---------------------------------------------------- ----------- ----------- ---------
4.6
---------------------------------------------------- ----------- ----------- ---------
Acquisition of businesses per the cash flow statement:
Initial cash consideration 3.3
Purchase price adjustment paid 0.1
Less cash acquired (0.2)
--------------------------------------------------------- ------ ----------- ---------
3.2
---------------------------------------------------- ----------- ----------- ---------
1 The fair value of trade receivables amounts to GBP2.7m. The
gross amount of trade receivables before the expected credit loss
provision is GBP2.8m and it is expected that the full contractual
amounts can be collected.
Nordwest Fundamentering AS
On 15 November 2022, the Group acquired 100% of the issued share
capital of Nordwest Fundamentering AS, a small specialist
geotechnical contractor provider in Norway, for an initial cash
consideration of GBP5.5m (NOK65m). In addition, deferred
consideration of GBP0.5m (NOK6m) is payable.
Due to the timing of the acquisition, the review of the fair
value of net assets acquired is expected to be completed in H1
2023. The value of assets acquired is therefore provisional and
will be finalised within 12 months of the acquisition date. All
asset values, other than for cash and cash equivalents, are
provisional, including the value of any intangible assets that have
been acquired with the business but not yet separated from the
goodwill balance. The provisional value of net assets acquired was
GBP1.0m, resulting in a goodwill and other intangibles value of
GBP5.3m.
In the period to 31 December 2022, the acquisition contributed
GBP2.0m to revenue and a profit before tax of GBPnil. Had the
acquisition taken place on 1 January 2022, total Group revenue
would have been GBP2,956.5m and statutory profit before tax for the
period would have been GBP66.2m.
The identifiable assets and liabilities as at the date of
acquisition were:
Carrying Fair value Fair
amount adjustment value
GBPm GBPm GBPm
---------------------------------------------------- ----------- ----------- ---------
Assets
---------------------------------------------------- ----------- ----------- ---------
Property, plant and equipment 0.3 - 0.3
Property, plant and equipment - right of use asset 2.1 - 2.1
Trade and other receivables 1.5 - 1.5
Cash and cash equivalents 1.1 - 1.1
---------------------------------------------------- ----------- ----------- ---------
5.0 - 5.0
---------------------------------------------------- ----------- ----------- ---------
Liabilities
Trade and other payables (1.5) - (1.5)
Loans and borrowings, including lease liabilities (2.2) - (2.2)
Deferred tax liabilities (0.3) - (0.3)
(4.0) - (4.0)
---------------------------------------------------- ----------- ----------- ---------
Total identifiable net assets 1.0 - 1.0
---------------------------------------------------- ----------- ----------- ---------
Goodwill 5.3
---------------------------------------------------- ----------- ----------- ---------
Total consideration 6.3
---------------------------------------------------- ----------- ----------- ---------
Satisfied by:
Initial cash consideration 5.5
Deferred consideration 0.5
Purchase price adjustment 0.3
---------------------------------------------------- ----------- ----------- ---------
6.3
---------------------------------------------------- ----------- ----------- ---------
Acquisition of businesses per the cash flow statement:
Initial cash consideration 5.5
Purchase price adjustment paid 0.3
Less cash acquired (1.1)
--------------------------------------------------------- ------ ----------- ---------
4.7
---------------------------------------------------- ----------- ----------- ---------
Prior year 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.
On 29 September 2021, the Group acquired the trade and assets of
Subterranean (Manitoba) Ltd., a geotechnical contractor in
Canada.
On 1 November 2021, the Group acquired the trade and assets of
Voges Drilling, a geotechnical foundation company based in Texas,
US.
Total contingent and deferred consideration in respect of prior
year acquisitions of GBP12.3m was paid during the period,
comprising GBP8.1m in respect of the RECON Services Inc.
acquisition in 2021 and GBP3.8m in respect of the Geo Construction
Group (Bencor) acquisition in 2015. These both represent final
agreements. Additionally, GBP0.2m was paid in respect of the Geo
Instruments acquisition and GBP0.2m deferred consideration in
respect of the Voges Drilling acquisition.
Prior period measurements adjustments
Under IFRS 3 'Business Combinations' there is a measurement
period of no longer than 12 months in which to finalise the
valuation of the acquired assets and liabilities. During the
measurement period, the acquirer retrospectively adjusts the
provisional amounts recognised at the acquisition date to reflect
any new information obtained about facts and circumstances that
existed as of the acquisition date and, if known, would have
affected the measurement of the amounts recognised as of that
date.
The valuation of the RECON Services Inc. acquired assets and
liabilities is now final and the adjustments to the provisional
fair values that were made during the measurement period are set
out in the table below:
Provisional fair value Adjustments during Revised provisional
recognised on measurement fair value recognised
acquisition period on acquisition
GBPm GBPm GBPm
---------------------------------------------- ---------------------- ------------------ ----------------------
Assets
Intangible assets(1) 18.9 (1.4) 17.5
Property, plant and equipment 4.7 - 4.7
Other non-current assets 0.1 - 0.1
Trade and other receivables 20.4 - 20.4
Current tax assets 1.4 - 1.4
---------------------------------------------- ---------------------- ------------------ ----------------------
Cash and cash equivalents 0.9 - 0.9
---------------------------------------------- ---------------------- ------------------ ----------------------
46.4 (1.4) 45.0
---------------------------------------------- ---------------------- ------------------ ----------------------
Liabilities
Lease liabilities (1.4) - (1.4)
Trade and other payables (11.2) - (11.2)
Current tax liabilities (1.1) - (1.1)
Deferred tax liabilities(2) (5.1) 0.3 (4.8)
Provisions (1.4) - (1.4)
Other non-current assets (0.3) - (0.3)
(20.5) 0.3 (20.2)
---------------------------------------------- ---------------------- ------------------ ----------------------
Total identifiable net assets 25.9 (1.1) 24.8
---------------------------------------------- ---------------------- ------------------ ----------------------
Goodwill 3.7 1.1 4.8
---------------------------------------------- ---------------------- ------------------ ----------------------
Total consideration 29.6 - 29.6
---------------------------------------------- ---------------------- ------------------ ----------------------
Satisfied by:
Initial cash consideration 20.2 - 20.2
Initial valuation of contingent consideration 9.5 - 9.5
Purchase price adjustment (0.1) - (0.1)
29.6 - 29.6
---------------------------------------------- ---------------------- ------------------ ----------------------
1 The adjustment to intangible assets relates to the revised
valuation of the tradename and customer relationships acquired.
2 The adjustment to deferred tax liabilities relates to the
updated value of intangible assets.
The impact of these adjustments has been applied
retrospectively, meaning that the results and financial position
for the year to 31 December 2021 have been restated, as detailed in
note 2. The adjustment to intangible assets at acquisition resulted
in a lower amortisation charge in the year to 31 December 2021 of
GBP0.2m, resulting in a net adjustment to the net book value of
intangible assets of GBP1.2m as at 31 December 2021.
The valuation of the Subterranean (Manitoba) Ltd . and Voges
Drilling acquired assets and liabilities is now final and the
adjustments to the provisional fair values that were made during
the measurement period are set out in the table below:
Provisional fair value Adjustments during Revised provisional
recognised on measurement fair value recognised
acquisition period on acquisition
GBPm GBPm GBPm
------------------------------- ---------------------- ------------------ ----------------------
Assets
Intangible assets 0.4 - 0.4
Property, plant and equipment 6.1 - 6.1
Trade and other receivables(1) 2.7 1.9 4.6
9.2 1.9 11.1
------------------------------- ---------------------- ------------------ ----------------------
Liabilities
Trade and other payables (1.3) - (1.3)
(1.3) - (1.3)
------------------------------- ---------------------- ------------------ ----------------------
Total identifiable net assets 7.9 1.9 9.8
------------------------------- ---------------------- ------------------ ----------------------
Goodwill 1.9 1.9 -
------------------------------- ---------------------- ------------------ ----------------------
Total consideration 9.8 - 9.8
------------------------------- ---------------------- ------------------ ----------------------
Satisfied by:
Initial cash consideration 9.2 - 9.2
Deferred consideration 0.8 - 0.8
Purchase price adjustment (0.2) - (0.2)
9.8 - 9.8
------------------------------- ---------------------- ------------------ ----------------------
1 The adjustment to trade and other receivables relates to the
revised valuation of fair value of the billed and unbilled
receivables acquired with Subterranean in relation to their
recoverability.
The impact of these adjustments has been applied
retrospectively, meaning that the results and financial position
for the year to 31 December 2021 have been restated, as detailed in
note 3. The adjustments did not result in any impact on the income
statement for the year ended 31 December 2021. A summary of the
prior period acquisitions after the final measurement period
adjustments is set out in the table below.
Fair
value
of other
Acquired identifiable
Acquired deferred assets
intangible tax and Consideration Cash Non-cash Net cash
Goodwill assets liabilities liabilities paid acquired elements outflow
Acquisition GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------- ----------- ------------ ------------- -------------- ---------- ---------- ---------
RECON 4.8 17.5 (4.8) 12.1 29.6 0.9 8.0 (20.7)
Subterranean
and Voges - 0.4 - 9.4 9.8 - 0.6 (9.2)
-------------- --------- ----------- ------------ ------------- -------------- ---------- ---------- ---------
4.8 17.9 (4.8) 21.5 39.4 0.9 8.6 (29.9)
-------------- --------- ----------- ------------ ------------- -------------- ---------- ---------- ---------
Disposals
Current year
There were no material disposals during the year to 31 December
2022. Contingent consideration of GBP0.7m was received in
accordance with the terms of the sale and purchase agreement of
Wannenwetsch GmbH, which was disposed of in 2020.
Prior year
In 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). A non-underlying loss on disposal of GBP0.2m
was recognised.
In 2021, the Group completed the disposal of its Colcrete
business, being 100% of the issued share capital of Keller Colcrete
Limited, for a cash consideration of GBP0.4m. A non-underlying loss
of disposal of GBP0.4m was recognised in 2020. Contingent
consideration of GBP0.7m in relation to the disposal of
Wannenwetsch GmbH was received in 2021 in addition to the initial
cash consideration received in 2020.
2021
7 Operating costs 2022 (Restated(1) )
Note GBPm GBPm
--------------------------------------------------------------------------- ------------ ------- ---------------
Raw materials and consumables 1,054.3 711.8
Staff costs 8 699.8 580.7
Other operating charges 764.7 583.2
Amortisation of intangible assets 15 0.5 0.6
Expenses relating to short-term leases and leases of low-value assets 201.7 154.8
Depreciation:
Owned property, plant and equipment 16a 71.1 64.1
Right-of-use assets 16b 29.7 26.5
-------------------------------------------------------------------------------- ------- ------- ---------------
Net expected credit loss of trade receivables and contract assets(2) 20 15.7 12.7
-------------------------------------------------------------------------------- ------- ------- ---------------
Underlying operating costs 2,837.5 2,134.4
-------------------------------------------------------------------------------- ------- ------- ---------------
Non-underlying items 9 30.0 9.6
-------------------------------------------------------------------------------- ------- ------- ---------------
Statutory operating costs 2,867.5 2,144.0
-------------------------------------------------------------------------------- ------- ------- ---------------
Other operating charges include:
Redundancy and other reorganisation costs - -
Fees payable to the company's auditor for the audit of the company's Annual
Report and Accounts 1.4 1.1
Fees payable to the company's auditor for other services:
The audit of the company's subsidiaries, pursuant to legislation 2.0 1.9
Other assurance services 0.1 0.1
-------------------------------------------------------------------------------- ------- ------- ---------------
1 The 31 December 2021 other operating charges has been restated
in respect of the correction of prior period errors arising from
the fraud at Austral and prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
2 Of this amount GBP11.5m (2021: GBP15.3m) are subject to enforcement activity.
During the year, the Group received GBPnil (2021: GBP2.4m) 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.
8 Employees
The aggregate staff costs of the Group were:
2022 2021
GBPm GBPm
---------------------- ----- -----
Wages and salaries 606.7 505.6
Social security costs 66.7 57.5
Other pension costs 23.1 13.7
Share-based payments 3.3 3.9
---------------------- ----- -----
699.8 580.7
---------------------- ----- -----
These costs include Directors' remuneration. Fees payable to
Non-executive Directors totalled GBP0.5m (2021: 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 was paid on 3 January
2023.
The average number of staff, including Directors, employed by
the Group during the year was:
2022 2021
Number Number
------------------------------------- ------ ------
North America 4,604 4,722
Europe 3,043 2,922
Asia-Pacific, Middle East and Africa 2,174 2,080
------------------------------------- ------ ------
9,821 9,724
------------------------------------- ------ ------
9 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, goodwill impairment, 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 in the table below.
As underlying results include the benefits of restructuring
programmes and acquisitions but exclude significant costs (such as
major restructuring costs and the amortisation of acquired
intangible assets) they should not be regarded as a complete
picture of the Group's financial performance, which is presented in
its total statutory results. The exclusion of non-underlying items
may result in underlying earnings being materially higher or lower
than total statutory earnings. In particular, when significant
impairments and restructuring charges are excluded, underlying
earnings will be higher than total statutory earnings.
2021
2022 (Restated(1) )
GBPm GBPm
ERP implementation costs 6.3 -
--------------------------------------------------------- ---------------------- ----------------
Goodwill impairment 12.5 -
--------------------------------------------------------- ---------------------- ----------------
Exceptional restructuring costs 5.3 7.3
--------------------------------------------------------- ---------------------- ----------------
Exceptional historic contract dispute 3.5 -
--------------------------------------------------------- ---------------------- ----------------
Claims related to closed business 2.5 -
Impairment costs 0.3 -
Contingent consideration: additional amounts provided 0.1 1.3
Change in fair value of contingent consideration (0.7) -
Loss on disposal of operations - 0.5
Acquisition costs and other costs 0.2 0.5
Non -- underlying items in operating costs 30.0 9.6
Amortisation of acquired intangible assets 10.3 2.6
Contingent consideration received (0.7) (0.7)
Non-underlying items in other operating income (0.7) (0.7)
--------------------------------------------------------- ---------------------- ----------------
Amortisation of joint venture acquired intangibles 1.2 0.6
Total non-underlying items in operating profit 40.8 12.1
--------------------------------------------------------- ---------------------- ----------------
Non-underlying items in finance income (3.6) -
--------------------------------------------------------- ---------------------- ----------------
Total non-underlying items before taxation 37.2 12.1
--------------------------------------------------------- ---------------------- ----------------
Taxation (9.0) (7.0)
--------------------------------------------------------- ---------------------- ----------------
Total non-underlying items after taxation 28.2 5.1
--------------------------------------------------------- ---------------------- ----------------
1 The 31 December 2021 consolidated amortisation of acquired
intangible assets has been restated in respect of prior period
business combination measurement adjustments, as outlined in notes
3 and 6 to the consolidated financial statements.
Non-underlying items in operating costs
ERP implementation costs
The Group has commenced a strategic project to implement a new
cloud computing enterprise resource planning (ERP) system across
the Group. Due to the size, nature and incidence of the relevant
costs expected to be incurred, the costs are presented as a
non-underlying item, as they are not reflective of underlying
performance of the Group. As this is a complex implementation,
project costs are expected to be incurred over the next five years.
Non-underlying ERP costs of GBP6.3m include only costs relating
directly to the implementation including external consultancy costs
and the cost of the dedicated implementation team. Non-underlying
costs does not include operational post-deployment costs such as
licence costs for businesses that have transitioned. There were no
ERP implementation costs in 2021.
Goodwill impairment
The goodwill impairment of GBP12.5m relates to Austral (GBP7.7m)
due to uncertainty over the future profitability of the
cash-generating unit following the discovery of the financial
reporting fraud; and Sweden (GBP4.8m) due to a downward revision to
the medium-term forecast as forward projections did not fully
support the carrying value of the goodwill. Refer to note 15 for
further information. There was no goodwill impairment cost in
2021.
Exceptional restructuring costs
Exceptional restructuring costs of GBP5.3m comprises GBP3.4m in
the North America Division, GBP1.8m in the Europe Division, a
credit of GBP0.6m in AMEA and GBP0.7m incurred centrally. In North
America, the costs arose as a result of a management and property
reorganisation within the parts of the business located in Texas.
Costs include redundancy costs and property duplication costs. In
Europe, the costs related to the scheduled exit of the Ivory Coast
and Morocco businesses, including asset impairments and redundancy
costs. In AMEA, the credit arose from restructuring costs provided
for in prior years as costs incurred were lower than originally
anticipated.
The Group exercises judgement in assessing whether restructuring
items should be classified as non-underlying. This assessment
covers the nature of the item, cause of the occurrence and scale of
impact of that item on the reported performance. Typically,
management will categorise restructuring costs incurred to exit a
specific geography as non-underlying, in addition restructuring
programmes which are incremental to normal operations undertaken to
add value to the business are included in non-underlying items. The
value of exceptional restructuring costs in 2022 (GBP5.3m) is lower
than in 2021 (GBP7.3m).
In 2021, exceptional restructuring costs 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 asset 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.
Exceptional historic contract dispute and claims related to
closed business
The GBP3.5m exceptional charge relates to a provision made for
additional legal costs relating to the historical Avonmouth
contract dispute following a negotiation with insurers during 2022.
In addition, a GBP2.5m provision for a legal claim in respect of a
closed business has been recognised.
Impairment costs
An impairment charge of GBP0.3m by the North-East Europe
Business Unit is in respect of trade receivables in Ukraine that
are not expected to be recovered due to the ongoing conflict.
Contingent consideration
Additional contingent consideration of GBP0.1m relates to the
acquisition of the Geo Instruments US business in 2017. A credit of
GBP0.7m arose from the reduction in the fair value of contingent
consideration payable in respect of the RECON and GKM acquisitions.
The contingent consideration paid in respect of RECON has been
finalised and was settled during the year.
In 2021, 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.
Loss on disposal of operations
In 2021, 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
Acquisition costs of GBP0.2m in the year comprised professional
fees relating to the NWF acquisition in Norway and centrally
incurred project costs. In 2021, acquisition costs of GBP0.5m in
the year comprised professional fees relating to the RECON and
Subterranean acquisitions.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets relates to the RECON,
GKM, Moretrench and Voges acquisitions, as restated for the prior
period measurement adjustment to the RECON acquired intangible
assets.
Non-underlying items in other operating income
During 2022, the second instalment of contingent consideration
was received in relation to the Wannenwetsch disposal in September
2020, in accordance with the terms of the sale and purchase
agreement. The first instalment was received during 2021.
Amortisation of joint venture acquired intangibles
Amortisation of joint venture intangibles relates to NordPile,
an acquisition by the Group's joint venture interest KFS Finland Oy
on 8 September 2021.
Non-underlying finance income
During the year the Group entered into an interest rate
derivative with the purpose of hedging a highly probable forecast
transaction. The forecast transaction did not take place and as a
result the amount arising from the hedging instrument has been
recognised in the income statement. This has resulted in the
recognition of GBP3.6m of finance income which has been included in
non-underlying as it material in size and is not reflective of the
underlying finance income and costs of the Group.
Non-underlying taxation
Refer to note 12 for details of the non-underlying tax
items.
10 Finance income
2022 2021
GBPm GBPm
----------------------------------- ---- ----
Bank and other interest receivable 0.3 0.2
Net pension interest income 0.1 -
Other finance income 0.1 0.2
----------------------------------- ---- ----
Underlying finance income 0.5 0.4
Non-underlying finance income 3.6 -
----------------------------------- ---- ----
Total finance income 4.1 0.4
----------------------------------- ---- ----
11 Finance costs
2022 2021
GBPm GBPm
---------------------------------------------------------------------------- ---- ----
Interest payable on bank loans and overdrafts 7.8 3.1
Interest payable on other loans 2.4 1.3
Interest on lease liabilities 3.6 3.1
Net pension interest cost 0.1 0.2
Other interest costs 1.5 1.0
---------------------------------------------------------------------------- ---- ----
Total interest costs 15.4 8.7
Unwinding of discount and effect of changes in discount rates on provisions 0.2 0.6
Total finance costs 15.6 9.3
---------------------------------------------------------------------------- ---- ----
12 Taxation
2021
2022 (Restated(1) )
GBPm GBPm
---------------------- ------ ---------------
Current tax expense:
Current year 46.6 14.0
Prior years (2.5) (3.0)
---------------------- ------ ---------------
Total current tax 44.1 11.0
---------------------- ------ ---------------
Deferred tax expense:
Current year (32.0) 0.7
Prior years (0.8) 0.2
---------------------- ------ ---------------
Total deferred tax (32.8) 0.9
---------------------- ------ ---------------
11.3 11.9
---------------------- ------ ---------------
UK corporation tax is calculated at 19% (2021: 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% (2021: 19%) as follows:
2022 2021 (Restated(1) )
--------------------------------- ---------------------------------
Non- Non-
underlying underlying
items items
Underlying (note 9) Statutory Underlying (note 9) Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Profit/(loss) before tax 93.5 (37.2) 56.3 79.6 (12.1) 67.5
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
UK corporation tax charge/(credit) at 19%
(2021: 19%) 17.8 (7.1) 10.7 15.1 (2.3) 12.8
Tax charged at rates other than 19% (2021:
19%) 3.1 (1.0) 2.1 5.1 (0.5) 4.6
Tax losses and other deductible temporary
differences not recognised 6.6 0.8 7.4 3.3 1.2 4.5
Utilisation of tax losses and other deductible
temporary differences previously unrecognised (0.7) (4.3) (5.0) (1.4) (5.5) (6.9)
Permanent differences (2.8) 2.6 (0.2) (0.5) 0.1 (0.4)
Adjustments to tax charge in respect of
previous periods (3.3) - (3.3) (2.8) - (2.8)
Other (0.4) - (0.4) 0.1 - 0.1
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Tax charge/(credit) 20.3 (9.0) 11.3 18.9 (7.0) 11.9
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
Effective tax rate 21.7% 24.1% 20.1% 23.7% 57.9% 17.6%
---------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------
1 The 31 December 2021 consolidated profit/(loss) before tax and
tax charge/(credit) have been restated in respect of the correction
of prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in
notes 3 and 6 to the consolidated financial statements.
The tax credit of GBP9.0m on non-underlying losses includes
GBP4.7m as the tax benefit of amounts which are expected to be
deductible for tax purposes and GBP4.3m from the re-recognition of
deferred tax assets in Canada at 31 December 2022. The deferred tax
asset has been reassessed as recoverable following the improved
performance of the business demonstrating a more reliable source of
taxable income in order to utilise the tax losses. As the
de-recognition of the deferred tax asset was booked through the
non-underlying tax charge, the credit from the re-recognition of
the deferred tax asset has also been treated as a non-underlying
item. The 2021 restated tax credit on non-underlying items is
GBP7.0m. This includes a partial re-recognition of Canadian
deferred tax assets of GBP5.5m and the benefit of a net tax credit
on other non-underlying charges which are expected to be deductible
for tax purposes.
The effective tax rate in 2022 on non-underlying items before
the re-recognition of the deferred tax asset is lower than the
effective tax rate on underlying items due to the inclusion of
goodwill impairment costs for which there is no corresponding tax
credit.
The Group is subject to taxation in over 40 countries worldwide
and the risk of changes in tax l egislation 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 UK government has released draft legislation introducing a
global minimum tax of 15% in line with the OECD's Pillar 2 rules.
If enacted the rules will apply to Keller from 1 January 2024.
Based on the draft legislation, it is not expected that the Pillar
2 rules will have a material impact on the group's overall tax
charge.
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(2)
tax capital benefit related Bad temporary
losses allowances obligations liabilities debts differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------ ----------- ----------- ----------- ------ ----------- ------
At 1 January 2021 (Restated (1) ) (8.9) 34.4 (4.0) (6.5) (6.2) 4.2 13.0
------------------------------------------ ------ ----------- ----------- ----------- ------ ----------- ------
(Credit)/charge to the income statement (4.2) 3.2 (0.7) 0.3 (2.4) 4.5 0.7
Charge to other comprehensive income - - 0.2 - - - 0.2
Acquisition and disposal of businesses - 0.3 - - - 4.4 4.7
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 and 1 January 2022
(Restated (1) ) (13.0) 38.2 (4.2) (6.3) (8.7) 13.5 19.5
------------------------------------------ ------ ----------- ----------- ----------- ------ ----------- ------
(Credit)/charge to the income statement (1.0) (31.2) 0.3 0.9 (0.3) (1.6) (32.9)
Charge to other comprehensive income - - 0.6 - - - 0.6
Acquisition of businesses - - - - - 0.8 0.8
Exchange movements (0.5) 3.9 0.1 (0.7) (1.1) 0.6 2.3
Other reallocations/transfers - - - - - (0.1) (0.1)
------------------------------------------ ------ ----------- ----------- ----------- ------ ----------- ------
At 31 December 2022 (14.5) 10.9 (3.2) (6.1) (10.1) 13.2 (9.8)
------------------------------------------ ------ ----------- ----------- ----------- ------ ----------- ------
1 The 1 January 2021 and 31 December 2021 consolidated deferred
tax assets have been restated in respect of the correction of prior
period errors arising from the fraud at Austral and prior period
business combination measurement adjustments, as outlined in notes
3 and 6 to the consolidated financial statements.
2 Other temporary differences are mainly in respect of intangible assets.
The movement from a net deferred tax liability of GBP19.5m at 31
December 2021 to a net deferred tax asset of GBP9.8m at 31 December
2022 is largely as a result of a change in law in the US with
regards to the timing of the deductibility of R&D expenditure
(totalling GBP29.3m included in the charge in accelerated capital
allowances for the year). Previously, R&D expenditure was tax
deductible in the year that it was incurred, whereas following the
law change in 2022 R&D expenditure is capitalised for tax
purposes and amortised over five years.
Deferred tax assets include amounts of GBP15.1m (2021 as
restated: GBP8.8m) 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 (GBP9.1m), the US (GBP4.1m)
and the UK (GBP1.8m). The amount of profits in each territory which
are necessary to be realised over the forecast period to support
these assets are GBP37m, GBP16m and GBP7m respectively. Canadian
tax rules currently allow tax losses to be carried forward up to 20
years. The UK and the US 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
2022 (Restated)
GBPm GBPm
------------------------- ------ -----------
Deferred tax liabilities 5.3 28.3
Deferred tax assets (15.1) (8.8)
------------------------- ------ -----------
(9.8) 19.5
------------------------- ------ -----------
At the balance sheet date, the Group had unused tax losses of
GBP140.9m (2021: GBP125.0m), 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, GBP118.2m (2021: GBP74.3m) may be carried forward
indefinitely. Of the remaining losses, GBP19.2m expire in 2025 and
GBP3.5m expire in 2035.
At the balance sheet date, the aggregate of other deductible
temporary differences for which no deferred tax asset has been
recognised was GBP18.0m (2021: GBP13.9m). 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
GBP156.7m (2021: GBP124.9m), 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 GBP10.2m (2021: GBP7.6m).
13 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares :
2022 2021
GBPm GBPm
-------------------------------------------------------------------------------------- ---- ----
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 23.3p (2020: 23.3p) per share 16.8 16.8
Interim dividend for the year ended 31 December 2022 of 13.2p (2021: 12.6p) per share 9.6 9.1
-------------------------------------------------------------------------------------- ---- ----
26.4 25.9
-------------------------------------------------------------------------------------- ---- ----
The Board has recommended a final dividend for the year ended 31
December 2022 of GBP17.7m, representing 24.5p (2021: 23.3p) per
share. The proposed dividend is subject to approval by shareholders
at the Annual General Meeting on 17 May 2023 and has not been
included as a liability in these financial statements.
14 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 adjusted
for the dilutive impact 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.
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of authorisation of these financial statements.
Basic and diluted earnings per share are calculated as
follows:
Underlying earnings attributable
to the equity holders of the Earnings attributable to the
parent equity holders of the parent
2021 2021
2022 (Restated(1) ) 2022 (Restated(1) )
Basic and diluted earnings (GBPm) 74.2 61.6 46.0 56.5
--------------------------------------- --------------- ---------------- ---------------- ---------------
Weighted average number of ordinary
shares (m)(2)
Basic number of ordinary shares
outstanding 72.7 72.3 72.7 72.3
Effect of dilution from:
Share options and awards 1.0 0.9 1.0 0.9
---------------
Diluted number of ordinary shares
outstanding 73.7 73.2 73.7 73.2
---------------
Earnings per share
Basic earnings per share (p) 102.1 85.2 63.3 78.1
Diluted earnings per share (p) 100.7 84.2 62.4 77.2
---------------
1 The 31 December 2021 consolidated earnings attributable to the
equity holders of the parent has been restated in respect of the
correction of prior period errors arising from the fraud at Austral
and prior period business combination measurement adjustments, as
outlined in notes 3 and 6 to the consolidated financial
statements.
2 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.
15 Goodwill and intangible assets
Arising on
Goodwill acquisition Other Total
GBPm GBPm GBPm GBPm
Cost
At 1 January 2021 219.6 58.9 23.3 301.8
Additions - - 0.4 0.4
Acquired with businesses(1) 4.8 17.9 - 22.7
Disposals - - (0.7) (0.7)
Exchange movements 1.1 0.5 (0.6) 1.0
At 31 December 2021 and 1 January 2022(1) 225.5 77.3 22.4 325.2
Additions - - 0.1 0.1
Acquired with businesses (note 6)(2) 6.9 1.5 - 8.4
Exchange movements 15.8 3.2 4.6 23.6
At 31 December 2022 248.2 82.0 27.1 357.3
Accumulated amortisation and impairment
At 1 January 2021 104.4 56.5 22.1 183.0
Amortisation charge for the year(1) - 2.6 0.6 3.2
Disposals - - (0.7) (0.7)
Exchange movements 0.6 (0.1) (0.3) 0.2
At 31 December 2021 and 1 January 2022(1) 105.0 59.0 21.7 185.7
Impairment charge for the year 12.5 - - 12.5
Amortisation charge for the year - 10.3 0.4 10.7
Exchange movements 5.4 1.4 4.4 11.2
At 31 December 2022 122.9 70.7 26.5 220.1
Carrying amount
At 1 January 2021 115.2 2.4 1.2 118.8
At 31 December 2021 and 1 January 2022(1) 120.5 18.3 0.7 139.5
At 31 December 2022 125.3 11.3 0.6 137.2
1 The 31 December 2021 consolidated balance sheet has been
restated in respect of prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
2 Goodwill arising on acquisition during the year relates to the
acquisition of GKM Consultants Inc. and Nordwest Fundamentering
AS.
Intangible assets arising on acquisition represent customer
contracts and relationships with a carrying amount of GBP5.5m
(2021: GBP12.4m) and trade names with a carrying amount of GBP5.8m
(2021: GBP5.9m). Other intangibles represent internally developed
software and licences. There are no indicators of impairment for
these assets at 31 December 2022.
For the purposes of impairment testing, goodwill has been
allocated to ten (2021: 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 95% of the
total (2021: 92%). 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:
2022 2021
---------------------------------------
Carrying Pre-tax Forecast Carrying Pre-tax Forecast
value discount rate(1) growth rate value discount rate(1) growth rate
Geographical
CGU segment GBPm % % GBPm % %
-------- ---------------- ----------- -------- ----------------
Keller US North America 51.9 13.6 2.0 45.0 11.6 2.0
Suncoast North America 35.5 13.5 2.0 31.9 11.6 2.0
Keller Canada North America 13.7 12.7 2.0 15.0 11.8 2.0
Keller Limited Europe 12.1 13.2 2.0 12.1 10.1 3.0
Asia-Pacific,
Middle East and
Austral Africa - - - 7.3 12.9 2.0
North America and
Other Europe 12.1 10.0
-------- ---------------- ----------- -------- ----------------
125.3 121.3
-------- ---------------- ----------- -------- ----------------
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 2023 and financial projections for 2024 and 2025 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 2025 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's assessment for Keller Limited is sensitive to the
future successful execution of business plans designed to address
the reduction in revenue, margins and profits from HS2 contracts,
scheduled to be completed within the three year-forecast
period.
Following the discovery of the financial reporting fraud at
Austral and the uncertainty over the forecast operating profit of
this CGU, the goodwill in Austral of GBP7.7m has been impaired. The
goodwill in Keller Grundlaggning was impaired during the year by
GBP4.5m, and the goodwill in Keller Getec impaired during the year
by GBP0.3m. For the remaining CGUs, 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 28.1 48.9 89.6
Suncoast North America 45.1 112.9 101.0
Keller Canada North America 15.1 21.9 74.3
Keller Limited Europe 4.3 5.3 35.7
---------------
1 The increase in discount rate and reduction in future growth
rate are presented as gross movements.
16 Property, plant and equipment
Property, plant and equipment comprises owned and leased assets
.
2022 2021
Note GBPm GBPm
Property, plant and equipment - owned assets 16a 409.5 375.5
Right-of-use assets - leased assets 16b 77.0 67.9
At 31 December 486.5 443.4
16 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 2021 68.9 878.7 7.3 954.9
Additions 3.4 79.3 1.3 84.0
Acquired with businesses 0.7 8.7 - 9.4
Disposals (2.5) (41.4) - (43.9)
Net transfers to held for sale - 1.3 - 1.3
Disposal of businesses - (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 and 1 January 2022 69.0 910.9 5.5 985.4
Additions 1.9 72.4 7.3 81.6
Acquired with businesses (note 6) - 0.7 - 0.7
Disposals - (34.8) - (34.8)
Net transfers to held for sale(1) - (1.5) - (1.5)
Reclassification - 2.2 (2.2) -
Exchange movements 5.3 68.2 0.6 74.1
------------
At 31 December 2022 76.2 1,018.1 11.2 1,105.5
Accumulated depreciation and impairment
At 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 - 0.9 - 0.9
Disposal of businesses - (0.3) - (0.3)
Impairments - 3.4 - 3.4
Exchange movements (0.5) (11.3) - (11.8)
------------
At 31 December 2021 and 1 January 2022 21.9 588.0 - 609.9
Charge for the year 1.9 69.2 - 71.1
Disposals - (30.1) - (30.1)
Net transfers to held for sale(1) - (1.2) - (1.2)
Exchange movements 1.6 44.7 - 46.3
------------
At 31 December 2022 25.4 670.6 - 696.0
Carrying amount
------------
At 1 January 2021 47.5 310.6 7.3 365.4
------------
At 31 December 2021 and 1 January 2022 47.1 322.9 5.5 375.5
------------
At 31 December 2022 50.8 347.5 11.2 409.5
1 The carrying amount of assets held for sale at the balance
sheet date are detailed in note 22.
The Group had contractual commitments for the acquisition of
property, plant and equipment of GBP17.6m (2021: GBP7.2m) at the
balance sheet date. These amounts were not included in the balance
sheet at the year end.
In 2021, impairments included 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 was not
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 9. Also
included are impairments related 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 of GBPnil, which resulted
in an underlying impairment charge of GBP1.8m.
16 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 sub-leasing 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 2021 42.2 27.3 69.5
Additions 11.3 12.1 23.4
Acquired with businesses 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 and 1 January 2022 42.9 25.0 67.9
Additions 5.9 18.9 24.8
Acquired with businesses - 2.1 2.1
Depreciation expense (14.1) (15.6) (29.7)
Impairment reversal - 4.2 4.2
Contract modifications 6.0 (4.4) 1.6
Exchange movements 3.4 2.7 6.1
At 31 December 2022 44.1 32.9 77.0
The carrying amounts of lease liabilities (included within note
26 within loans and borrowings) and the movements during the year
are set out in note 27.
Impairments in 2021 related to assets that were inaccessible due
to a contract suspension in AMEA. 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. The
impairment was subsequently reversed in the current year as the
assets were transported off site and their value-in-use was
reassessed.
17 Investments in joint ventures
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.
2022
GBPm
At 1 January 2022 4.0
Share of underlying post-tax results 1.5
Share of non-underlying post-tax results (note 9) (1.2)
Exchange movements 0.1
At 31 December 2022 4.4
2021
GBPm
At 1 January 2021 4.4
Share of underlying post-tax results 0.4
Share of non-underlying post-tax results (note 9) (0.6)
Exchange movements (0.2)
At 31 December 2021 4.0
In 2022, KFS Finland Oy earned total revenue of GBP20.7m (2021:
GBP36.8m) and a statutory profit after tax for the year of GBP0.3m
(2021: statutory loss after tax of GBP0.2m).
The joint venture had no contingent liabilities or commitments
as at 31 December 2022 (2021: GBPnil).
Aggregate amounts relating to joint ventures:
2022 2021
Non-underlying Non-underlying
items items
Underlying (note 9) Statutory Underlying (note 9) Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 20.7 - 20.7 18.4 - 18.4
Operating costs(1) (19.2) (1.2) (20.4) (17.9) (0.6) (18.5)
Operating profit/(loss) 1.5 (1.2) 0.3 0.5 (0.6) (0.1)
Finance costs (0.1) - (0.1) (0.1) - (0.1)
Profit/(loss) before taxation 1.4 (1.2) 0.2 0.4 (0.6) (0.2)
Taxation 0.1 - 0.1 - - -
Share of post-tax results 1.5 (1.2) 0.3 0.4 (0.6) (0.2)
1 Included within operating costs is depreciation on owned
assets of GBP1.1m (2021: GBP0.8m).
KFS Finland Oy Group's portion of
(100% of results) the joint venture
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
Non-current assets 18.0 20.4 9.0 10.2
Cash and cash equivalents 1.4 1.2 0.7 0.6
Other current assets 4.4 7.8 2.2 3.9
Total assets 23.8 29.4 11.9 14.7
Other current liabilities (3.4) (8.4) (1.7) (4.2)
Non-current loans and borrowings (10.8) (11.2) (5.4) (5.6)
Other non-current liabilities (0.8) (1.8) (0.4) (0.9)
Total liabilities (15.0) (21.4) (7.5) (10.7)
Share of net assets 8.8 8.0 4.4 4.0
On 8 September 2021, KFS Finland Oy acquired NordPile, a driven
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.
18 Other non-current assets
2022 2021
GBPm GBPm
Fair value of derivative financial instruments - 2.6
Non-qualifying deferred compensation plan assets 19.4 20.6
Customer retentions 16.3 24.4
Other assets 1.7 2.1
Insurance receivables 23.4 38.8
------
60.8 88.5
------
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 2022, non-current assets in relation to the
investments held in the trust were GBP19.4m (2021: GBP20.6m). The
fair value movement on these assets was GBP3.5m (2021: GBP2.0m).
During the period proceeds from the sale of NQ-related investments
were GBPnil (2021: GBPnil). At 31 December 2022, non-current
liabilities in relation to the participant investments were
GBP14.7m (2021: GBP15.8m). These are accounted for as financial
liabilities at fair value through profit or loss. The fair value
movement on these liabilities was GBP3.5m (2021: GBP2.1m). During
the year GBP1.2m (2021: GBP1.4m) of compensation was deferred.
19 Inventories
2022 2021
GBPm GBPm
Raw materials and consumables 56.3 40.6
Work in progress 1.9 1.8
Finished goods 66.2 29.7
124.4 72.1
During 2022, GBP2.0m (2021: GBP2.4m) of inventory write-downs
were recognised as an expense for inventories carried at net
realisable value. This is recognised within operating costs in the
consolidated income statement.
20 Trade and other receivables
2021
2022 (Restated(1) )
GBPm GBPm
Trade receivables 615.5 450.7
Contract assets 105.3 99.2
Other receivables 20.7 15.9
Fair value of derivative financial instruments - -
Prepayments 23.1 19.6
Insurance receivables - 0.1
764.6 585.5
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in
notes 3 and 6 to the consolidated 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 allowance for expected credit losses of
trade receivables and contract assets is as follows:
2022 2021
GBPm GBPm
------
At 1 January 53.7 42.9
Used during the year (4.4) (3.1)
Additional provisions 13.8 24.6
Unused amounts reversed (29.5) (11.9)
Acquisition with businesses 0.2 2.4
Exchange movements 2.2 (1.2)
------
At 31 December 36.0 53.7
------
Set out below is information about the credit risk exposure on
the Group's trade receivables and contract assets, detailing past
due but not impaired, based on agreed terms and conditions with the
customer:
2022
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
GBPm GBPm GBPm GBPm GBPm GBPm
Expected credit loss rate 1% 1% 0% 0% 43% 5%
Estimated total gross carrying amount at default 106.4 395.9 112.3 91.2 67.3 666.7
Expected credit loss (1.1) (5.3) (0.3) (0.4) (28.9) (34.9)
Carry amount as shown in the balance sheet 105.3 390.6 112.0 90.8 38.4 631.8
2021 (Restated(1) )
Contract assets Trade receivables and
non-current customer retentions
Days past due
Total Current <30 days 31-90 days >90 days Total
GBPm GBPm GBPm GBPm GBPm GBPm
Expected credit loss rate 1% 7% 0% 1% 63% 10%
Estimated total gross carrying amount at
default 99.9 288.9 125.3 60.0 53.9 528.1
Expected credit loss (0.7) (18.8) (0.1) (0.4) (33.7) (53.0)
Carry amount as shown in the balance sheet 99.2 270.1 125.2 59.6 20.2 475.1
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in
notes 3 and 6 to the consolidated financial statements.
21 Cash and cash equivalents
2022 2021
GBPm GBPm
----------------------------------------------------- ----- -----
Bank balances 97.0 77.9
Short-term deposits 4.1 4.8
----------------------------------------------------- ----- -----
Cash and cash equivalents in the balance sheet 101.1 82.7
Bank overdrafts (6.9) (0.9)
----------------------------------------------------- ----- -----
Cash and cash equivalents in the cash flow statement 94.2 81.8
----------------------------------------------------- ----- -----
Cash and cash equivalents include GBP8.5m (2021: GBP2.7m) of the
Group's share of cash and cash equivalents held by joint
operations, and GBP1.4m (2021: GBP1.7m) of restricted cash which is
subject to local country restrictions as it is held as collateral
in support of bank guarantees .
22 Assets held for sale
2022 2021
GBPm GBPm
Plant and machinery 2.8 3.1
Inventories - 0.3
Trade receivables - -
2.8 3.4
Assets held for sale in 2022 and 2021 mainly comprises equipment
in North America of GBP1.2m (2021: GBP1.3m), following a
rationalisation exercise, and machinery in the AMEA Division of
GBP1.4m (2021: GBP1.6m) as a result of the wind-down of the
Waterway business.
During the year, GBP0.9m of the North American assets were
disposed of. The Waterway assets remain in assets held for sale as
they are currently being marketed for sale. No new assets have been
added to the assets held for sale category during the year.
23 Trade and other payables
2021
2022 (Restated(1) )
GBPm GBPm
Trade payables 229.4 268.8
Other taxes and social security payable 21.5 25.2
Other payables 139.4 119.5
Contract liabilities 85.6 46.5
Accruals 109.7 48.0
585.6 508.0
1 The 31 December 2021 consolidated other payables have been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
Other payables includes contingent and deferred consideration of
GBP0.8m (2021: GBP12.3m) and contract specific accruals of
GBP117.6m (2021: GBP78.7m).
24 Provisions
Insurance
Employee Restructuring Contract and legal Other
provisions provisions provisions provisions provisions Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------
As at 31 December 2021 9.9 3.5 41.9 72.8 3.6 131.7
----------
Charge for the year 3.6 4.3 38.8 24.1 0.1 70.9
Acquired with businesses (note 6) - - - - - -
Disposal of businesses (note 6) - - - - - -
Used during the year (3.2) (3.0) (30.2) (28.9) (1.4) (66.7)
Unused amounts reversed (0.9) (1.0) (16.1) (4.7) (0.3) (23.0)
Unwinding of discount and changes in the
discount rate 0.1 - - 0.1 - 0.2
Exchange movements 0.9 0.3 3.4 1.6 0.3 6.5
----------
At 31 December 2022 10.4 4.1 37.8 65.0 2.3 119.6
----------
Current 3.6 3.8 32.4 10.8 2.1 52.7
Non-current 6.8 0.3 5.4 54.2 0.2 66.9
----------
At 31 December 2022 10.4 4.1 37.8 65.0 2.3 119.6
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 2022, the provision in respect of workers'
compensation was GBP7.1m (2021: GBP6.5m). 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 2022, the provision in respect of long service
leave was GBP1.9m (2021: GBP1.7m). 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 on an IAS 19 basis, 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 GBP0.8m (2021:
GBP1.4m) 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 2022 relate primarily to the
relevant activities in the North America and Europe 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.
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 18) and trade and other receivables (refer to note 20).
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.
25 Other non-current liabilities
2022 2021
GBPm GBPm
--------
Non-qualifying compensation plan liabilities 14.7 15.8
--------
Other liabilities 6.6 5.4
--------
21.3 21.2
--------
Other liabilities include deferred and contingent consideration
of GBP1.1m (2021: contingent consideration of GBP0.4m) and GBP5.2m
(2021: GBP4.7m) in respect of US social security tax deferrals,
refer to note 8 for further information.
Refer to note 18 for further information on the non-qualifying
deferred compensation plan.
26 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 2022, the fair value of outstanding foreign
exchange forward contracts was GBPnil (2021: GBPnil) included in
current assets/liabilities.
Interest rate risk
Our objectives are to add stability to the interest expense and
to manage our exposure to interest rate movements. To accomplish
these objectives, we primarily use external debt and interest rate
swaps as part of our interest rate risk management strategy.
Interest rate risk is managed by either fixed or floating rate
borrowings dependent upon the purpose and term of the
financing.
As at 31 December 2022, approximately 80% (2021: 99%) 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.
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 6% of revenue in 2022 (2021: 3%). The ageing of trade
receivables that were past due but not impaired is shown in note
20.
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 20. This
amount is the accumulation of several years of provisions for known
or expected credit losses.
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. In
November 2022 the Group increased borrowing facilities by a $115m
bilateral term loan facility, expiring November 2024. This facility
has not been used to date. 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
covenants are calculated on an IAS 17 basis, EBITDA to net debt
leverage must be below three times and EBITDA interest cover must
be above four times. The Group has complied with these covenants
throughout the year.
At the year end, the Group also had other borrowing facilities
available of GBP75.8m (2021: GBP76.0m), including overdraft
facilities, of which GBP3.2m was undrawn at 31 December 2022.
Private placements
In October and December 2014, $50m and $75m were 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 and are retranslated at the exchange
rate at each period end. The carrying value of the $75m private
placement liability at 31 December 2022 was GBP62.0m (2021:
GBP58.1m).
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'). In October 2021, the interest rate
swap hedging the tranche of the $50m private placement liability
repaid in the year was closed out in line with the agreed terms.
The outstanding 2014 swaps hedging the $75m private placement
liability that held the same maturity and were designated as fair
value hedges were settled on 18 May 2022 at a net loss of GBP0.4m,
which was reflected within finance costs in the income statement.
The swaps were settled before the maturity of the private placement
as a result of the implementation of Group's interest management
strategy.
The fair value of the 2014 swaps at 31 December 2022 was GBPnil
(2021: GBP2.6m); no amount was included in other non-current assets
(2021: GBP6.2m). The effective portion of the changes in the fair
value of the 2014 swaps was GBPnil (2021: loss of GBP3.6m), which
has been taken to the income statement along with the equal and
opposite movement in fair value of the corresponding hedged
items.
The Group entered into a Treasury lock on 25 August 2022. A
Treasury lock is a synthetic forward sale of a US Treasury note,
which is settled in cash based upon the difference between an
agreed-upon treasury rate and the prevailing treasury rate at
settlement. Such Treasury locks are entered into to effectively fix
the treasury component of an upcoming debt issuance. This was in
order to hedge the treasury rates on the highly probable launch of
a new US private placement issuance between the date the Treasury
lock was entered into and the intended finalisation of the
transaction on 28 September 2022. The financing transaction was
deferred; therefore, the Treasury lock was settled on maturity. The
treasury reference rates increased over the relevant period, and a
net credit was received of GBP3.6m, which was recognised as finance
income in the income statement as a non-underlying item.
All hedges are tested for effectiveness every six months. All
hedging relationships remained effective during the year while they
were in place. There are no designated hedging relationships at 31
December 2022.The interest rate hedging relationship in place
during 2021 as referred to above remained effective in 2021.
Accounting classifications
2021
2022 (Restated(1) )
GBPm GBPm
--------------------------------------------------------------- ------- ----------------
Financial assets measured at fair value through profit or loss
Non-qualifying deferred compensation plan 19.4 20.6
Interest rate swaps - 2.6
Financial assets measured at amortised cost
Trade receivables 615.5 450.7
Contract assets 105.3 99.2
Cash and cash equivalents 101.1 82.7
Financial liabilities at fair value through profit or loss
Contingent consideration payable (0.9) (12.7)
Financial liabilities measured at amortised cost
Trade payables (229.4) (268.8)
Contract liabilities (85.6) (46.5)
Bank and other loans (319.0) (200.6)
Lease liabilities (81.0) (75.4)
Deferred consideration payable (1.0) -
--------------------------------------------------------------- ------- ----------------
1 The 31 December 2021 consolidated trade receivables and
contract assets have been restated in respect of the correction of
prior period errors arising from the fraud at Austral and prior
period business combination measurement adjustments, as outlined in
notes 3 and 6 to the consolidated financial statements.
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:
2022
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 5.0 10.4 0.4 245.7 0.1 256.6 256.4
Other loans 4.2 3.2 64.6 - - 67.8 62.6
Lease liabilities - 28.3 21.4 32.9 7.1 89.7 81.0
Contract liabilities - 85.6 - - - 85.6 85.6
Trade payables - 229.4 - - - 229.4 229.4
Contingent and deferred
consideration - 0.8 1.1 - - 1.9 1.9
357.7 87.5 278.6 7.2 731.0 716.9
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
-------------------------- ---------- ---------- --------- -----
Loans and borrowings analysis
2022 2021
GBPm GBPm
---------------------------------------------------------------------- ----- -----
$75m private placement (due December 2024) 62.0 58.1
GBP375m syndicated revolving credit facility (expiring November 2025) 248.1 138.5
Bank overdrafts 6.9 0.9
Other bank borrowings 1.4 2.4
Other loans 0.6 0.7
Lease liabilities (note 27) 81.0 75.4
Total loans and borrowings 400.0 276.0
The Group has substantial borrowing facilities available to it.
The undrawn committed facilities available at 31 December 2022
amounted to GBP227.6m (2021: GBP235.5m). 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 GBP46.1m at
31 December 2022 (2021: GBP56.4m). Other uncommitted bank borrowing
facilities are normally reaffirmed by the banks annually, although
they can theoretically be withdrawn at any time. Facilities
totalling GBP1.5m (2021: GBP3.2m) are secured against certain
assets. Future obligations under finance leases on a former IAS 17
basis totalled GBP0.9m (2021: GBP1.5m), including interest of
GBP0.1m (2021: GBP0.1m).
Changes in loans and borrowings were as follows:
Foreign
Acquisition of exchange Fair value
2021 Cash flows Other(1) New leases businesses movements changes 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ----------
Bank overdrafts (0.9) (5.9) - - - (0.1) - (6.9)
Bank loans (140.9) (98.2) (0.5) - (0.1) (9.8) - (249.5)
Other loans (58.8) 0.3 - - - (6.5) 2.4 (62.6)
Lease
liabilities
(note 27) (75.4) 33.1 (5.2) (24.8) (2.1) (6.6) - (81.0)
------- ----------
Total loans and
borrowings (276.0) (70.7) (5.7) (24.8) (2.2) (23.0) 2.4 (400.0)
------- ----------
Derivative
financial
instruments 2.6 (0.2) - - - - (2.4) -
------- ----------
1 Other comprises disposals and contract modifications and
interest accretion on lease liabilities and the amortisation of
deferred financing costs on bank loans.
The Group has managed 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 was limited. The changes only applied to one
hedge relationship associated with managing the fixed rate on the
US private placement expiring in December 2024 (refer to note 25)
which was closed out in May 2022. 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.
Cash flow hedges
At 31 December 2022, the Group held no instruments to hedge
exposures to changes in foreign currency rates (2021: GBPnil). At
31 December 2021, the Group's net value of instruments held to
hedge exposures to changes in foreign currency rates was GBPnil
(2021: GBPnil).
Fair value hedges
The Group held the following instruments to hedge exposures to
changes in interest rates:
2022
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 - - - - - - - -
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
1 Included within other assets.
2 The average fixed interest rate is 4.2%.
The Group had the following hedged items relating to the above
instruments :
2022 2021
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 - - - (58.1) - -
Fair value hedge
adjustments - - - 3.6 - -
---------------- ----------------- ----------- ---------------
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 GBP315.8m (2021: GBP315.3m),
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 contract
assets, cash and cash equivalents.
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. During the
period, the interest rate swaps on the $75m private placement were
terminated.
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. The one
individually significant unobservable input used in the fair value
measurement of the Group's contingent consideration as at 31
December 2022 is the estimation of future profits at GKM in order
to determine the expected outcome of the earnout arrangement.
The following table shows a reconciliation from the opening to
closing balances for contingent and deferred consideration:
2022 2021
GBPm GBPm
-------------------------------------------------------------- ------ -----
At 1 January 12.7 3.0
Acquisition of businesses (note 6) 1.7 8.8
Additional amounts provided (note 9) 0.1 1.3
Paid during the period (12.3) (0.4)
Fair value in the income statement during the period (note 9) (0.7) (0.1)
Exchange movements 0.4 0.1
-------------------------------------------------------------- ------ -----
At 31 December 1.9 12.7
-------------------------------------------------------------- ------ -----
On 1 May 2022, the Group acquired GKM Consultants Inc.
Contingent consideration is payable dependent on the cumulative
EBITDA in the three-year period post acquisition. The fair value of
the contingent consideration was recognised at the date of
acquisition at GBP1.2m, but has been subsequently reduced following
movements in its fair value to GBP0.8m at 31 December 2022. On 15
November 2022, the Group acquired Nordwest Fundamentering AS and
the deferred contingent consideration payable relating to this
acquisition is GBP0.5m.
Additional contingent consideration provided of GBP0.1m relates
to the acquisition of the Geo Instruments US business in 2017.
Total contingent and deferred consideration of GBP12.3m was paid
during the period, comprising GBP8.1m in respect of the RECON
Services Inc. acquisition in 2021 and GBP3.8m in respect of the Geo
Construction Group (Bencor) acquisition in 2015. These both
represent final agreements. Additionally, GBP0.2m was paid in
respect of the Geo Instruments acquisition and GBP0.2m deferred
consideration in respect of the Voges Drilling acquisition in
2021.
Fair value movements during the period of GBP0.7m relate to a
fair value adjustment of the RECON contingent consideration on
finalisation of the amount payable (GBP0.3m) and the reduction in
the GKM payable noted above (GBP0.4m).
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.
Non-qualifying deferred compensation plan assets and
liabilities
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 of the assets and related liabilities
are recorded within net finance costs in the consolidated income
statement.
Refer to note 18 for further information on the non-qualifying
deferred compensation plan.
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:
2022
GBP USD EUR CAD AUD Other Total
---
Weighted average fixed debt interest rate (%) - 4.2 1.4 - - 3.5 -
Weighted average fixed debt period (years) - 2.0 3.2 - - 0.1 -
---- --- --- --- --- -----
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ------- ------ ----- ------ ------
Fixed rate financial liabilities - (62.0) (1.4) - - (0.6) (64.0)
Floating rate financial liabilities (75.3) (153.8) (0.2) - (25.6) (0.1) (255.0)
Lease liabilities (2.9) (48.4) (10.4) (4.4) (4.6) (10.3) (81.0)
Financial assets 7.1 4.4 14.9 4.7 11.6 58.4 101.1
------ ------- ------ ----- ------ ------
Net debt (71.1) (259.8) 2.9 0.3 (18.6) 47.4 (298.9)
------ ------- ------ ----- ------ ------
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)
------ ------- ------ ----- ------ -------
1 Included within other floating rate financial liabilities are
AUD revolver loans of GBP21.5m. Included within other financial
assets are AUD cash balances of GBP4.1m.
Sensitivity analysis
At 31 December 2022, 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 GBP1.5m (2021:
GBP1.2m).
It is estimated that a general increase of 10 percentage points
in the value of sterling against other principal foreign currencies
would have decreased the Group's profit before taxation and non --
underlying items by approximately GBP8.8m for the year ended 31
December 2022 (2021: GBP5.0m). The estimated impact of a 10
percentage point decrease in the value of sterling is an increase
of GBP7.2m (2021: GBP6.1m) 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.
27 Lease liabilities
Set out below are the carrying amounts of lease liabilities
(included within note 26 within loans and borrowings) and the
movements during the year :
2022 2021
GBPm GBPm
At 1 January 75.4 73.8
Additions 24.9 24.8
Acquired with businesses 2.1 -
Contract modifications 1.6 4.0
Interest expense 3.6 3.1
Payments (33.1) (29.8)
Exchange movements 6.5 (0.5)
At 31 December 81.0 75.4
Current 24.5 27.5
Non-current 56.5 47.9
28 Share capital and reserves
2022 2021
GBPm GBPm
---------------------------------------------------------- ---- ----
Allotted, called up and fully paid equity share capital:
73,099,735 ordinary shares of 10p each (2021: 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 2022, the total number of shares held in
treasury was 328,954 (2021: 777,917).
During the year to 31 December 2022, 135,050 ordinary shares
were purchased by the Keller Group Employee Benefit Trust (2021:
417,240), to be used to satisfy future obligations of the company
under the Keller Group plc Long Term Incentive Plan. This brings
the total ordinary shares held by the Employee Benefit Trust to
552,290 (2021: 417,240). The cost of the market purchases was
GBP1.2m (2021: GBP3.7m).
There is a dividend waiver in place for both shares held in
treasury and by the Keller Group Employee Benefit Trust.
29 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:
2022 2021
GBPm GBPm
----------------------------- ---- ----
Short-term employee benefits 4.5 8.2
Post-employment benefits 0.3 0.3
Termination payments 0.4 0.4
----------------------------- ---- ----
5.2 8.9
----------------------------- ---- ----
Other related party transactions
As at 31 December 2022, there was a net balance of GBP0.1m owed
by (2021: GBP0.1m owed by) the joint venture. These amounts are
unsecured, have no fixed date of repayment and are repayable on
demand.
30 Commitments
Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred was GBP17.6m (2021: GBP7.2m) and
relates to property, plant and equipment purchases.
31 Guarantees, contingent liabilities and contingent assets
Claims and disputes arise, both in the normal course of business
and in relation to the historic construction activities of the
Group, 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.
At 31 December 2022, the Group had outstanding standby letters
of credit and surety bonds for the Group's captive insurance
arrangements totalling GBP28.1m (2021: GBP26.5m). The Group enters
into performance and advance payment bonds and other undertakings
in the ordinary course of business, using guarantee facilities with
financial institutions to provide these bonds to customers. At 31
December 2022, the Group has GBP190.6m outstanding related to
performance and advanced payment bonds (2021: GBP138.3m). 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. It is judged to be a remote possibility that a
payment will be required under any of the current performance or
advance payment bonds.
At 31 December 2022, the Group had no contingent assets (2021:
GBPnil).
32 Share-based payments
The Group operates a Long Term Incentive Plan (the 'Plan').
Under the Plan, Executive Directors and certain members of senior
management are granted nil-cost share options with a vesting period
of three years. The awards are exercised automatically on vesting
with the exception of Executive Directors who are subject to a
two-year post-vesting holding period.
Performance share awards are granted to Executive Directors and
key management personnel which are subject to performance
conditions including total shareholder return, earnings per share,
return on capital employed and operating profit margin. Conditional
awards are granted under which senior management receive shares
subject only to service conditions, ie the requirement for
participants to remain in employment with the Group over the
vesting period. Participants are entitled to receive dividend
equivalents on these awards.
Outstanding awards are as follows:
Number
Outstanding at 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 and 1 January 2022 1,974,436
Granted during 2022 817,381
Lapsed during 2022 (365,677)
Exercised during 2022 (448,963)
Outstanding at 31 December 2022 1,977,177
Exercisable at 1 January 2021 -
Exercisable at 31 December 2021 and 1 January 2022 -
Exercisable at 31 December 2022 -
The average share price during the year was 759.3p (2021:
865.1p).
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: 2022 2021
------------------------------------------------------- ------- -------
Share price at grant 800.0p 856.0p
Weighted average exercise price 0.0p 0.0p
Expected volatility 41.2% 47.3%
Expected life 3 years 3 years
Risk-free rate 1.35% 0.14%
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 GBP2.9m (2021: GBP3.9m) related to equity-settled,
share-based payment transactions.
The weighted average fair value of options granted in the year
was 724.2p (2021: 827.6p). Options outstanding at the year-end have
a weighted average remaining contractual life of 1.2 years (2021:
1.1 years).
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 2022, 552,290 (2021: 417,240)
ordinary shares were held by the Trust with a value of GBP4.9m
(2021: GBP3.7m).
33 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 2022. 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 2022 (2021: GBPnil). The total UK
defined contribution pension charge for the year was GBP1.6m (2021:
GBP1.4m).
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
GBP14.6m (2021: GBP6.4m).
In Australia, there is a defined contribution scheme where the
Group is required to ensure that a prescribed level of
superannuation support of an employee's notional base earnings is
made. This prescribed level of support is currently 10.5% (2021:
10.0%). The total Australian pension charge for the year was
GBP4.6m (2021: GBP3.8m).
Details of the Group's defined benefit schemes are as
follows:
German,(1) German,(1)
The Keller The Keller Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
Present value of the scheme liabilities (39.0) (58.3) (16.7) (18.9)
Fair value of assets 42.2 63.7 - -
Surplus/(deficit) in the scheme 3.2 5.4 (16.7) (18.9)
Irrecoverable surplus (7.3) (12.2) - -
Net defined benefit liability (4.1 ) (6.8) (16.7) (18.9)
1 Included in this balance is GBP3.5m (2021: GBP3.0m) 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 2022 and the committed payments under
the Schedule of Contributions agreed on 17 November 2020, there is
a irrecoverable surplus of GBP7.3m (2021: GBP12.2m). 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:
German and
The Keller The Keller German and Austrian Austrian
Group Pension Scheme (UK) Group Pension Scheme (UK) schemes schemes
2022 2021 2022 2021
% %% %
Discount rate 4.8 2.0 3.5 0.8
Interest on assets 4.8 2.0- -
Rate of increase in pensions
in payment 3.4 3.5 2.5 2.0
Rate of increase in pensions
in deferment 2.7 2.9 8.3 3.2
Rate of inflation 3.3 3.5 8.3 3.2
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:
German and
The Keller The Keller German and Austrian Austrian
Group Penson Scheme (UK) Group Pension Scheme (UK) schemes schemes
2022 2021 2022 2021
Male currently aged 65 21.0 21.0 19.9 19.5
Female currently aged 65 23.4 23.3 23.3 22.8
The assets of the schemes were as follows:
German, German,
The Keller The Keller Austrian Austrian
Group Pension Group Pension and other and other
Scheme (UK) Scheme (UK) schemes schemes
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
Equities 7.8 16.8 - -
Target return funds(1) 5.0 8.1 - -
Gilts - - - -
Bonds 13.6 19.7 - -
Liability driven investing (LDI) portfolios(2) 12.9 15.9 - -
Cash 2.9 3.2 - -
42.2 63.7 - -
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.
German,(1) German,(1)
Austrian Austrian
The Keller The Keller and other and other
Group Pension Scheme (UK) Group Pension Scheme (UK) schemes schemes
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
Changes in scheme liabilities
Opening balance (58.3) (65.0) (18.9) (21.9)
Current service cost - - (0.8) (0.6)
Interest cost (1.1) (0.8) - (0.1)
Benefits paid 2.1 2.1 1.0 1.5
Exchange movements - - (0.8) 1.0
Experience loss on defined benefit
obligation (0.5) - - -
Changes to demographic assumptions - (0.6) - -
Changes to financial assumptions 18.8 6.0 2.8 1.2
Closing balance (39.0) (58.3) (16.7) (18.9)
Changes in scheme assets
Opening balance 63.7 58.0 - -
Interest on assets 1.2 0.7 - -
Administration costs (0.2) (0.2) - -
Employer contributions 2.8 2.7 - -
Benefits paid (2.1) (2.1) - -
Return on plan assets less interest (23.2) 4.6 - -
Closing balance 42.2 63.7 - -
Actual return on scheme assets (22.0) 5.3 - -
Statement of comprehensive income
Return on plan assets less interest (23.2) 4.6 - -
Experience gain on defined benefit
obligation (0.5) - - -
Changes to demographic assumptions - (0.6) - -
Changes to financial assumptions 18.8 6.0 2.8 1.2
Change in irrecoverable surplus 4.9 (10.0) - -
Remeasurements of defined benefit
plans - - 2.8 1.2
Cumulative remeasurements of defined
benefit plans (25.6) (25.6) (6.4) (9.2)
Expense recognised in the income
statement
Current service cost - - 0.8 0.6
Administration costs 0.2 0.2 - -
Operating costs 0.2 0.2 0.8 0.6
Net pension interest cost (0.1) 0.1 - 0.1
Expense recognised in the income
statement 0.1 0.3 0.8 0.7
Movements in the balance sheet
liability
Net liability at start of year 6.8 9.2 18.9 21.9
Expense recognised in the income
statement 0.1 0.3 0.8 0.7
Employer contributions (2.8) (2.7) - -
Benefits paid - - (1.0) (1.5)
Exchange movements - - 0.8 (1.0)
Remeasurements of defined benefit
plans - - (2.8) (1.2)
Net liability at end of year 4.1 6.8 16.7 18.9
1 Other comprises end of service schemes in the Middle East of
GBP3.5m (2021: GBP3.0m).
A reduction in the discount rate of 0.5% would increase the
deficit in the schemes by GBP2.5m (2021: reduction in the discount
rate of 0.1% would increase the deficit in the scheme by GBP1.1m),
whilst a reduction in the inflation assumption of 0.5%, including
its impact on the revaluation in deferment and pension increases in
payment, would decrease the deficit by GBP1.3m (2021: reduction in
the inflation assumption of 0.1% would decrease the deficit by
GBP0.7m). A decrease in the mortality rate by one year would
decrease the deficit in the schemes by GBP1.8m. 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 13 years for the UK scheme and 12 years for the
German and Austrian schemes. The history of experience adjustments
on scheme assets and liabilities for all the Group's defined
benefit pension schemes, including the end of service schemes in
the Middle East, are as follows:
2022 2021 2020 2019 2018
GBPm GBPm GBPm GBPm GBPm
Present value of defined benefit obligation (55.7) (77.2) (86.9) (81.1) (71.7)
Fair value of scheme assets 42.2 63.7 58.0 52.2 45.2
Deficit in the schemes (13.5) (13.5) (28.9) (28.9) (26.5)
Irrecoverable surplus (7.3) (12.2) (2.2) (1.8) (1.4)
Net defined benefit liability (20.8) (25.7) (31.1) (30.7) (27.9)
Experience adjustments on scheme liabilities 21.1 6.6 (7.9) (8.2) 3.7
Experience adjustments on scheme assets (23.2) 4.6 6.1 5.4 (1.5)
34 Non-controlling interests
Financial information of subsidiaries that have a material
non-controlling interest is provided below :
Name Country of incorporation 2022 2021
---- ----
Keller Fondations Speciales SPA Algeria 49% 49%
Keller Turki Company Limited Saudi Arabia 35% 35%
---- ----
Loss attributable to non-controlling interests :
2022 2021
GBPm GBPm
----- -----
Keller Fondations Speciales SPA (0.5) (0.5)
Keller Turki Company Limited (0.3) (0.3)
Other interests (0.2) (0.1)
----- -----
(1.0) (0.9)
----- -----
Share of net assets of non-controlling interests:
2022 2021
GBPm GBPm
----- -----
Keller Fondations Speciales SPA 2.7 2.9
Keller Turki Company Limited (0.6) (0.3)
Other interests 0.2 0.2
----- -----
2.3 2.8
----- -----
Aggregate amounts relating to material non-controlling
interests:
2022 2022 2021 2021
GBPm GBPm GBPm GBPm
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Revenue 0.1 4.6 0.9 4.2
Operating costs (0.6) (4.9) (1.2) (4.5)
Operating loss (0.5) (0.3) (0.3) (0.3)
Finance costs - - - -
Loss before taxation (0.5) (0.3) (0.3) (0.3)
Taxation - - (0.2) -
Loss attributable to non-controlling interests (0.5) (0.3) (0.5) (0.3)
2022 2022 2021 2021
GBPm GBPm GBPm GBPm
Keller Keller Turki Keller Keller Turki
Fondations Company Fondations Company
Speciales SPA Limited Speciales SPA Limited
Non-current assets 0.8 0.7 0.9 0.7
Current assets 2.8 6.0 2.8 2.4
Current liabilities (0.9) (6.2) (0.8) (2.8)
Non-current liabilities - (1.1) - (0.6)
Share of net assets/(liabilities) 2.7 (0.6) 2.9 (0.3)
35 Post balance sheet events
There were no material post balance sheet events between the
balance sheet date and the date of this report.
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 results announcement 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 2021
results of overseas operations into sterling at the 2022 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 9 to the
consolidated financial statements. A reconciliation between the
2021 underlying result and the 2021 constant currency result is
shown below and compared to the underlying 2022 performance:
Revenue by segment
2022 2021 (Restated(1) )
Impact of exchange Constant Statutory Constant currency
Statutory Statutory movements currency change change
GBPm GBPm GBPm GBPm % %
North America 1,896.1 1,323.1 143.6 1,466.7 +43% +29%
Europe 649.3 549.2 (5.4) 543.8 +18% +19%
Asia-Pacific, Middle East
and Africa 399.2 350.2 15.9 366.1 +14% +9%
Group 2,944.6 2,222.5 154.1 2,376.6 +32% +24%
1 The 31 December 2021 consolidated revenues have been restated
in respect of the correction of prior period errors arising from
the fraud at Austral and prior period business combination
measurement adjustments, as outlined in notes 3 and 6 to the
consolidated financial statements.
Underlying operating profit by segment
2022 2021 (Restated(1) )
Underlying Underlying Impact of exchange Constant Underlying Constant currency
movements currency change change
GBPm GBPm GBPm GBPm % %
North America 82.0 73.0 8.2 81.2 +12% +1%
Europe 29.1 24.3 (0.1) 24.2 +20% +20%
Asia-Pacific, Middle East and
Africa 6.6 (0.9) 0.8 (0.1) n/a n/a
Central items (9.1) (7.9) - (7.9) n/a n/a
Group 108.6 88.5 8.9 97.4 +23% +12%
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
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
2022 (Restated(1) )
GBPm GBPm
Underlying operating profit 108.6 88.5
Depreciation and impairment of owned property, plant and equipment 71.1 65.9
Depreciation and impairment of right-of-use assets 25.5 30.9
Amortisation of intangible assets 0.4 0.6
Underlying EBITDA 205.6 185.9
Non-underlying items in operating costs (excluding goodwill impairment) (17.6) (9.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 188.7 177.0
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
EBITDA (IAS 17 covenant basis)
2021
2022 (Restated(1) )
GBPm GBPm
Underlying operating profit 108.6 88.5
Depreciation and impairment of owned property, plant and equipment 71.1 65.9
Depreciation and impairment of right-of-use assets 25.5 30.9
Legacy IAS 17 operating lease charges (27.9) (32.7)
Amortisation of intangible assets 0.4 0.6
Underlying EBITDA 177.7 153.2
Non-underlying items in operating costs (excluding goodwill impairment) (17.6) (9.6)
Non-underlying items in other operating income 0.7 0.7
EBITDA 160.8 144.3
1 The 31 December 2021 consolidated operating profits have been
restated in respect of the correction of prior period errors
arising from the fraud at Austral and prior period business
combination measurement adjustments, as outlined in notes 3 and 6
to the consolidated financial statements.
Net finance costs
2022 2021
GBPm GBPm
Finance income (0.5) (0.4)
Underlying finance costs 15.6 9.3
Net finance costs (statutory) 15.1 8.9
Finance charge on lease liabilities(1) (3.6) (3.0)
Lender covenant adjustments (0.2) (0.7)
Net finance costs (IAS 17 covenant basis) 11.3 5.2
1 Excluding legacy IAS 17 finance leases.
Net capital expenditure
2021
2022 (Restated(1) )
GBPm GBPm
---------------------------------------------------- ----- ----------------
Acquisition of property, plant and equipment 81.6 84.0
Acquisition of other intangible assets 0.1 0.4
Proceeds from sale of property, plant and equipment (8.2) (12.2)
-------------------------------------------------------- ----- ----------------
Net capital expenditure 73.5 72.2
-------------------------------------------------------- ----- ----------------
Net debt
2022 2021
GBPm GBPm
Current loans and borrowings 34.2 29.8
Non-current loans and borrowings 365.8 246.2
Cash and cash equivalents (101.1) (82.7)
Net debt (statutory) 298.9 193.3
Lease liabilities(1) (80.1) (73.9)
Net debt (IAS 17 covenant basis) 218.8 119.4
1 Excluding legacy IAS 17 finance leases.
Leverage ratio
The leverage ratio is calculated as net debt to underlying
EBITDA.
Statutory
2021
2022 (Restated(1) )
GBPm GBPm
Net debt 298.9 193.3
Underlying EBITDA 205.6 185.9
------
Leverage ratio (x) 1.5 1.0
IAS 17 covenant basis
2021
2022 (Restated(1) )
GBPm GBPm
Net debt 218.8 119.4
Underlying EBITDA 177.7 153.2
------
Leverage ratio (x) 1.2 0.8
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
2013 2014 2015 2016 2017 2018 2019 2020 2021(1) 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Consolidated income
statement
Continuing operations
Revenue 1,438.2 1,599.7 1,562.4 1,780.0 2,070.6 2,224.5 2,300.5 2,062.5 2,222.5 2,944.6
Underlying EBITDA 124.2 141.9 155.5 158.6 177.2 167.5 198.4 205.0 185.9 205.6
------------------------
Underlying operating
profit 77.8 92.0 103.4 95.3 108.7 96.6 103.8 110.1 88.5 108.6
Underlying net finance
costs (3.7) (6.9) (7.7) (10.2) (10.0) (16.1) (22.5) (13.2) (8.9) (15.1)
------------------------
Underlying profit before
taxation 74.1 85.1 95.7 85.1 98.7 80.5 81.3 96.9 79.6 93.5
Underlying taxation (23.8) (29.7) (33.0) (29.8) (24.7) (22.5) (22.4) (28.3) (18.9) (20.3)
------------------------
Underlying profit for
the year 50.3 55.4 62.7 55.3 74.0 58.0 58.9 68.6 60.7 73.2
Non-underlying items(2) (20.2) (56.6) (36.4) (7.3) 13.5 (71.8) (37.2) (27.5) (5.1) (28.2)
------------------------
Profit/(loss) for the
year 30.1 (1.2) 26.3 48.0 87.5 (13.8) 21.7 41.1 55.6 45.0
------------------------
Underlying EBITDA (IAS
17 covenant basis) 124.2 141.9 155.5 158.6 177.2 167.5 170.8 175.0 153.2 177.7
------------------------
Consolidated balance
sheet
------------------------
Working capital 124.1 104.1 97.1 152.5 181.3 225.4 200.9 180.3 149.6 303.4
Property, plant and
equipment 281.9 295.6 331.8 405.6 399.2 422.0 460.6 434.9 443.4 486.5
Intangible and other
non-current assets 202.8 203.4 183.0 218.2 198.3 179.5 192.3 183.5 228.0 202.4
Net debt (statutory) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (289.8) (192.5) (193.3) (298.9)
Other net liabilities (92.5) (154.6) (94.9) (41.1) (77.1) (114.2) (166.5) (196.2) (199.7) (196.6)
------------------------
Net assets 372.6 346.3 334.0 429.6 472.2 426.5 397.5 410.0 428.0 496.8
------------------------
Net debt (IAS 17
covenant basis) (143.7) (102.2) (183.0) (305.6) (229.5) (286.2) (213.1) (120.9) (119.4) (218.8)
------------------------
Underlying key
performance indicators
Diluted earnings per
share from continuing
operations (p) 71.9 74.2 85.4 74.8 101.8 79.1 81.3 96.3 84.2 100.7
Dividend per share (p) 24.0 25.2 27.1 28.5 34.2 35.9 35.9 35.9 35.9 37.7
Operating margin 5.4% 5.8% 6.6% 5.4% 5.2% 4.3% 4.5% 5.3% 4.0% 3.7%
Return on capital
employed(3) 16.7% 18.3% 20.5% 15.3% 15.1% 13.2% 14.4% 16.4% 13.9% 14.9%
Net debt: EBITDA
(statutory) 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.5x 0.9x 1.0x 1.5x
Net debt: EBITDA (IAS 17
covenant basis) 1.2x 0.7x 1.2x 1.9x 1.3x 1.7x 1.2x 0.7x 0.8x 1.2x
1 Intangible and other non-current assets and other net
liabilities presented here do not correspond to the published 2021
consolidated financial statements. The 31 December 2021
consolidated income statement, balance sheet and key performance
indicators have been restated in respect of the prior period
reporting errors at Austral and prior period measurement business
combinations adjustments, as outlined in notes 3 and 6 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
FR FQLLBXXLLBBZ
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