Interim Results

Keller Group PLC 21 August 2006 Under embargo until 07.00 a.m. Monday, 21 August 2006 Keller Group plc Interim Results for the six months ended 30 June 2006 Keller Group plc ('Keller' or 'the Group'), the international ground engineering specialist, is pleased to announce its interim results for the six months ended 30 June 2006. Highlights include: • Sales of £450.0m (2005: £335.0m) up 34%, driven by excellent organic growth across all our international markets • Record first-half operating margin of 7.9% (2005: 5.2%) • Good first-time contributions from recent acquisitions • Profit before tax up 114% to £33.4m (2005: £15.6m) • Basic earnings per share up 135% to 30.3p (2005:12.9p) • Interim dividend per share increased by 11% to 4.2p (2005: 3.8p) • £9.6m acquisition of Piling Contractors in Australia announced separately last week Justin Atkinson, Keller Chief Executive said: 'In addition to another excellent performance from our North American businesses, we can report very strong organic growth and a significant increase in margins in all our other geographic regions. 'We have started the second half with excellent trading and continue to have an order book representing around six months' budgeted sales. As a result, the Board now expects that the Group's results for the year as a whole will exceed current market expectations.' For further information, please contact: Keller Group plc www.keller.co.uk Justin Atkinson, Chief Executive 020 7616 7575 James Hind, Finance Director Smithfield Reg Hoare/Rupert Trefgarne 020 7360 4900 A presentation for analysts will be held at 9.15 for 9.30am at The Theatre & Gallery, London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS Print resolution images are available for the media to download from www.vismedia.co.uk Chairman's Statement Financial Overview I am pleased to report an outstanding set of results for the six months ended 30 June 2006. An excellent performance from our North American businesses has been a recurring theme in our recent results announcements. Now, in addition, we can report very strong organic growth and a significant increase in margins in all our other geographic regions. Group sales for the period were up 34% at £450.0m (2005: £335.0m). Operating profit was £35.7m (2005: £17.6m) and the first-half operating margin rose to its highest-ever level of 7.9% (2005: 5.2%). As stated in our AGM trading update in June, the first-half results were enhanced by the receipt of several large claim settlements relating to jobs undertaken in prior years, totalling about £5m, as well as benign winter weather conditions in North America. However, even after adjusting for these factors, the Group operating margin was a record for the first half. Profit before tax more than doubled to £33.4m (2005: £15.6m) and earnings per share were up 135% at 30.3p (2005: 12.9p). Cash generated from operations increased to £28.8m, compared to last year's £13.8m, underlining the quality of the earnings. The period end net debt was £47.6m, which compares to £65.3m at the end of June 2005. This year-on-year decrease is stated after expenditure of about £12m on acquisitions and a £4m one-off contribution into the UK pension scheme. Capital expenditure in the first half was £12.9m (2005: £4.5m), higher than historic levels, to support the expanding workload. A further £9.6m has been spent since the half year end on the acquisition of Piling Contractors, announced on 16 August 2006. Dividend The Board has declared an interim dividend of 4.2p per share (2005: 3.8p), representing an increase of 11%. This will be paid on 1 November 2006 to shareholders on the register at 6 October 2006. Operational Overview North America Our North American operations had an excellent first half and continued to gain market share, with all four businesses beating their previous record performances. Sales of £241.1m (2005: £177.7m) were up 36%, whilst operating profit of £27.8m (2005: £13.6m) was more than twice the previous year. Suncoast The first half result from Suncoast was extremely strong, with sales in both slab-on-grade products for single-family homes and its commercial high-rise products significantly above the same period last year. On the West Coast, the business continued to show good growth, as the customer base in that region expands, whilst we further increased our market share in Texas, where new housing starts are bucking the national trend. Whilst we are now beginning to feel the impact of the residential market cooling down, we believe the impact on Suncoast will be mitigated by the opportunities for product substitution in favour of post-tension foundations as an alternative to traditional foundation methods. Hayward Baker All five of Hayward Baker's regions performed very well. The northern region benefited from a first-time contribution from Donaldson, the New England business acquired in September 2005, which surpassed expectations. Among the many projects which Hayward Baker undertook in the first half were several dry soil mixing contracts which formed part of the New Orleans levee and canal repair programme. One of these involved working from a barge on the 17th Street Canal, where we used a combination of dry soil mixing and jet grouting to depths of 70 feet below the surface to strengthen the soft soils. This will enable the construction of a new floodgate, to close off storm surge from Lake Pontchartrain to the north of New Orleans, while allowing flood waters to be pumped back out of the city. Case At Case, the first half saw good progress on several large and technically demanding contracts. The foundations for the new Goldman Sachs headquarters building in Lower Manhattan are now virtually complete, on time and to budget, whilst the second phase of a two-year, $20m (£11m) project to install four water intake shafts and a slurry wall for the Elm Road Generating Station in Wisconsin is progressing well. McKinney Our other US foundation business, McKinney, whose small to mid-diameter caissons complement the larger caissons offered by Case, also had an excellent first half. The Murano Tower condominium project in Philadelphia, which McKinney is performing in joint venture with Case, is nearing completion and is a good example of the synergies that have developed between these two businesses. North American Outlook Looking ahead to the rest of the year, although the residential sector as a whole is slowing down, the commercial and public infrastructure sectors continue to grow and, with a good order book, we expect another strong performance from North America in the second half. Continental Europe & Overseas Our Continental Europe & Overseas business reported much improved results from most of its territories. Sales of £125.8m (2005: £93.8m) were 34% ahead of the previous year, whilst operating profit of £7.0m was 52% ahead (2005: £4.6m). In Germany, we are experiencing a gradual strengthening of the market with more public infrastructure and commercial projects coming on stream. These improved market conditions, together with the restructuring and process improvements introduced in 2005, resulted in a significantly improved performance. In France, we benefited from a buoyant domestic market and from increased demand for low-rise commercial structures, such as warehousing and logistics centres, for which Keller's vibro techniques are well suited. In addition, our French operation saw good demand in some of its export markets, particularly Algeria. The first half of the year saw further strong sales growth in Spain, albeit with some weakening of Keller-Terra's excellent margins. Amongst the many projects successfully completed in the first half was the installation of stone columns at Campa de los Ingleses, as part of the riverside restoration and redevelopment in Bilbao's former heavy industry zone. Sales in Eastern Europe were up around 50%, albeit from a relatively small base, with another very good contribution from Poland, our largest operation in this region. Within our Overseas business, Keller benefited from continuing high levels of investment in the Middle East, with our operations in Saudi Arabia, Bahrain and the UAE all working at full capacity for most of the period. Our work in Dubai took us back to the man-made island of Palm Jumeirah, where we are now preparing the foundations for several large hotel developments. The Group's business in the Far East had a good first half, during which ground improvement works were completed on Jurong Island, Singapore for the Universal Terminal, which will become one of the largest oil storage facilities in Asia. UK Within Keller Ground Engineering, the foundation support division had a buoyant first half. Major jobs undertaken in the period include the foundations for a 52,000m(2) supermarket distribution centre at Dartford, using a combination of piling, dynamic compaction and vibro techniques. The geotechnical division had a quieter first half, but has recently started to see an uplift in its activity levels. Phi, the retaining wall specialist acquired in April 2006 for an initial consideration of £5.0m, traded very well in its first three months under Keller ownership. Keller's existing earth retention activities have already been integrated with Phi and the enlarged business is now able to take full advantage of the opportunities in this growing sector. Makers returned an improved result compared with the second half of last year, partly reflecting a reduction in its cost base which was achieved in spite of increased volumes. The social housing order book remains good. As part of the ongoing rationalisation of this business, the Martech concrete testing and inspection division was sold to management for a nominal sum in April 2006. Australia Our Australian business had an excellent first half, with sales up by more than 30% and a doubling of its operating margin. This was achieved on a balanced spread of contracts, in terms of size and geography, and against the backdrop of a very strong market. In its third year since start-up, the ground engineering business is now trading profitably and offering a variety of products to the marketplace. This has been possible due to a good deal of support from other areas within the Keller Group and illustrates how we are able to transfer our skills and technologies across regions. Since the period end, we have acquired Piling Contractors, Australia's second largest specialist foundations contractor, for an initial amount of A$24m (£9.6m) net of acquired cash and an additional earn-out of up to A$3m (£1.2m) based on future profits. Piling Contractors, which had annual sales of around A$50m (£20m) in the year ended 30 June 2006, has strong links with the civil engineering, infrastructure and mining sectors, in which Keller was under-represented and this acquisition consolidates our position as market leader in Australia. Outlook We have started the second half with excellent trading and continue to have an order book representing around six months' budgeted sales. These factors lead the Board to believe that the second-half result should be around last year's exceptional second half. As a result, the Board now expects that the Group's results for the year as a whole will exceed current market expectations. Dr J.M.West Chairman 21 August 2006 Consolidated income statement for the half year ended 30 June 2006 Half year to Half year to Year to 30 June 30 June 31 December Note 2006 2005 2005 £000 £000 £000 ------------------------------- ----- -------- -------- -------- Revenue 3 450,007 335,037 731,039 Operating costs (414,345) (317,481) (677,960) ------------------------------- ----- -------- -------- -------- Operating profit 3 35,662 17,556 53,079 Finance income 900 629 1,544 Finance costs (3,210) (2,571) (5,775) ------------------------------- ----- -------- -------- -------- Profit before taxation 33,352 15,614 48,848 Taxation 4 (13,052) (6,245) (19,888) ------------------------------- ----- -------- -------- -------- Profit for the period 20,300 9,369 28,960 ------------------------------- ----- -------- -------- -------- Attributable to: Equity holders of the parent 19,859 8,402 27,286 Minority interests 441 967 1,674 -------------------------------- ----- -------- -------- -------- 20,300 9,369 28,960 -------------------------------- ----- -------- -------- -------- Basic earnings per share 6 30.3p 12.9p 41.8p Diluted earnings per share 6 30.0p 12.8p 41.6p -------------------------------- ----- -------- -------- -------- Consolidated statement of recognised income and expense for the half year ended 30 June 2006 Half year to Half year to Year to 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 ------------------------------------ -------- -------- -------- Exchange differences on translation of foreign operations (6,011) 3,501 8,642 Actuarial gains/(losses) on defined benefit pension schemes 764 1,224 (5,894) Tax on items taken directly to equity (186) (367) 1,777 ------------------------------------ -------- -------- -------- Net (expense)/income recognised directly in equity (5,433) 4,358 4,525 Profit for the period 20,300 9,369 28,960 ------------------------------------ -------- -------- -------- Total recognised income and expense for the period 14,867 13,727 33,485 ------------------------------------ -------- -------- -------- Attributable to: Equity holders of the parent 14,454 12,760 32,091 Minority interests 413 967 1,394 ------------------------------------ -------- -------- -------- 14,867 13,727 33,485 ------------------------------------ -------- -------- -------- Consolidated balance sheet as at 30 June 2006 As at As at As at 30 June 30 June 31 December Note 2006 2005 2005 £000 £000 £000 ------------------------------- ----- -------- -------- -------- Assets Non-current assets Intangible assets 58,904 53,512 55,693 Property, plant and equipment 93,464 79,695 90,375 Deferred tax assets 7,722 2,779 5,706 -------------------------------- ----- -------- -------- -------- 160,090 135,986 151,774 -------------------------------- ----- -------- -------- -------- Current assets Inventories 25,723 23,675 24,437 Trade and other receivables 235,998 182,264 194,574 Cash and cash equivalents 8 24,479 20,463 25,910 -------------------------------- ----- -------- -------- -------- 286,200 226,402 244,921 -------------------------------- ----- -------- -------- -------- Total Assets 446,290 362,388 396,695 -------------------------------- ----- -------- -------- -------- Liabilities Current liabilities Loans and borrowings (10,183) (17,030) (7,183) Current tax liabilities (10,125) (8,058) (11,046) Trade and other payables (204,286) (144,284) (168,499) -------------------------------- ----- -------- -------- -------- (224,594) (169,372) (186,728) -------------------------------- ----- -------- -------- -------- Non-current liabilities Loans and borrowings (61,896) (68,753) (59,578) Employee benefits (15,462) (15,628) (21,158) Deferred tax liabilities (4,897) (6,204) (5,524) Other liabilities (12,800) (3,677) (6,520) -------------------------------- ----- -------- -------- -------- (95,055) (94,262) (92,780) -------------------------------- ----- -------- -------- -------- Total liabilities (319,649) (263,634) (279,508) -------------------------------- ----- -------- -------- -------- Net Assets 126,641 98,754 117,187 -------------------------------- ----- -------- -------- -------- Equity Share capital 6,573 6,537 6,552 Share premium account 36,861 36,043 36,370 Capital redemption reserve 7,629 7,629 7,629 Translation reserve (2,724) (2,165) 3,259 Retained earnings 72,585 45,420 57,248 -------------------------------- ----- -------- -------- -------- Equity attributable to equity holders of the parent 7 120,924 93,464 111,058 Minority interests 5,717 5,290 6,129 -------------------------------- ----- -------- -------- -------- Total equity 126,641 98,754 117,187 -------------------------------- ----- -------- -------- -------- Consolidated cash flow statement for the half year ended 30 June 2006 Half year to Half year to Year to 30 June 30 June 31 December Note 2006 2005 2005 £000 £000 £000 ------------------------------- ----- -------- -------- -------- Cash flows from operating activities Operating profit 35,662 17,556 53,079 Depreciation of property, plant and equipment 6,468 5,730 11,775 Amortisation of intangible assets 10 53 83 Profit on sale of property, plant and equipment (261) (98) (120) Other non-cash movements 104 94 539 Foreign exchange losses/(gains) 48 (146) 144 ------------------------------- ----- -------- -------- -------- Operating cash flows before changes in working capital and provisions 42,031 23,189 65,500 (Decrease)/increase in provisions and employee benefits (4,126) 121 (2,202) (Increase)/decrease in inventories (1,888) 1,343 1,692 Increase in trade and other receivables (45,992) (22,027) (32,416) Increase in trade and other payables 38,801 11,202 40,874 ------------------------------- ----- -------- -------- -------- Cash generated from operations 28,826 13,828 73,448 Interest paid (2,465) (1,834) (5,058) Income tax paid (15,948) (5,914) (18,769) ------------------------------- ----- -------- -------- -------- Net cash inflow from operating activities 10,413 6,080 49,621 ------------------------------- ----- -------- -------- -------- Cash flows from investing activities Interest received 284 79 1,239 Proceeds from sale of property, plant and equipment 1,021 721 1,907 Acquisition of subsidiaries, net of cash acquired (5,942) (1,933) (7,807) Acquisition of property, plant and equipment (12,909) (4,465) (15,750) ------------------------------- ----- -------- -------- -------- Net cash outflow from investing activities (17,546) (5,598) (20,411) ------------------------------- ----- -------- -------- -------- Cash flows from financing activities Proceeds from the issue of share capital 512 17 359 New borrowings 9,477 4,573 1,045 Repayment of borrowings - (632) (10,998) Payment of finance lease liabilities (84) (121) (138) Dividends paid (6,204) (5,680) (8,133) ------------------------------- ----- -------- -------- -------- Net cash inflow/(outflow) from financing activities 3,701 (1,843) (17,865) ------------------------------- ----- -------- -------- -------- Net (decrease)/increase in cash and cash equivalents (3,432) (1,361) 11,345 Cash and cash equivalents at beginning of period 23,307 11,109 11,109 Effect of exchange rate fluctuations (894) 182 853 ------------------------------- ----- -------- -------- -------- Cash and cash equivalents at end of period 8 18,981 9,930 23,307 ------------------------------- ----- -------- -------- -------- Notes to the interim report: 1. Basis of preparation This interim financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2005, with the exception that the company has adopted the amendments to IAS 39 and IFRS 4 in relation to financial guarantee contracts, which apply to periods commencing on or after 1 January 2006. Where group companies enter into financial guarantee contracts to guarantee the indebtedness or obligations of other companies within the group, these are considered to be insurance arrangements, and accounted for as such. In this respect, the guarantee contract is treated as a contingent liability until such time as it becomes probable that the guarantor will be required to make a payment under the guarantee. Accordingly the amendments have not had any impact on the interim financial statements. The figures for the year to 31 December 2005 have been extracted from the Group's statutory accounts for that financial year which received an unqualified auditors' report and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. Exchange rates The exchange rates used in respect of principal currencies are: Half year to Half year to Year to 30 June 30 June 31 December 2006 2005 2005 ------------------------------------ -------- -------- -------- US dollar: average for period 1.79 1.87 1.82 period end 1.82 1.80 1.72 Euro: average for period 1.46 1.46 1.46 period end 1.45 1.50 1.45 Australian dollar: average for period 2.41 2.43 2.39 period end 2.49 2.37 2.36 ---------------- -------------------- -------- -------- -------- 3. Segmental analysis Revenue Operating profit ---------------- ------------------------------- ----------------------------- Half year Half year Year Half year Half year Year to to 30 to 30 to 31 to 30 to 30 31 June June December June June December 2006 2005 2005 2006 2005 2005 £000 £000 £000 £000 £000 £000 ---------------- -------- -------- -------- -------- -------- -------- United Kingdom 60,017 46,150 89,221 863 394 (332) North America 241,119 177,663 399,943 27,800 13,581 42,125 Continental Europe & Overseas 125,788 93,833 204,736 7,007 4,592 12,742 Australia 23,083 17,391 37,139 2,240 709 1,764 ---------------- -------- -------- -------- -------- -------- -------- 450,007 335,037 731,039 37,910 19,276 56,299 Central items and eliminations - - - (2,248) (1,720) (3,220) ---------------- -------- -------- -------- -------- -------- -------- 450,007 335,037 731,039 35,662 17,556 53,079 ---------------- -------- -------- -------- -------- -------- -------- 4. Taxation Taxation based on the profit before tax is: Half year to Half year to Year to 31 30 June 2005 30 June 2005 December 2005 £000 £000 £000 ---------------------------------- -------- -------- -------- UK corporation tax at 30% (2005: 30%) - - - Overseas tax 13,052 6,245 19,888 ---------------------------------- -------- -------- -------- 13,052 6,245 19,888 ---------------------------------- -------- -------- -------- 5. Dividends paid Ordinary dividends on equity shares: Half year to Half year to Year to 31 30 June 2006 30 June 2005 December 2005 £000 £000 £000 ---------------------------------- -------- -------- -------- Amounts recognised as distributions to equity holders in the period: Final dividend for year ended December 2005 of 8.2p (2004:7.3p) per share 5,379 4,771 4,771 Interim dividend for year ended December 2005 of 3.8p per share - - 2,486 ---------------------------------- -------- -------- -------- 5,379 4,771 7,257 ---------------------------------- -------- -------- -------- In addition to the above, an interim ordinary dividend of 4.2p per share (2005: 3.8p) will be paid on 1 November 2006 to shareholders on the register at 6 October 2006. This proposed dividend has not been included as a liability in these interim statements and will be accounted for in the period in which it is paid. 6. Earnings per share Earnings per share is calculated as follows: 2006 2006 2005 2005 Basic Diluted Basic Diluted £000 £000 £000 £000 ---------------------------------------- ------ ------ ------ ------ Profit attributable to equity holders of the parent 19,859 19,859 8,402 8,402 ---------------------------------------- ------ ------ ------ ------ No. of No. of No. of No. of shares shares shares shares 000s 000s 000s 000s ---------------------------------------- ------ ------ ------ ------ Weighted average of ordinary shares in issue 65,505 65,505 65,294 65,294 ---------------------------------------- ------ ------ ------ ------ Adjusted weighted average of ordinary shares in issue 65,505 66,252 65,294 65,511 ---------------------------------------- ------ ------ ------ ------ 2006 2006 2005 2005 Pence Pence Pence Pence ---------------------------------------- ------ ------ ------ ------ Earnings per share 30.3 30.0 12.9 12.8 ---------------------------------------- ------ ------ ------ ------ 7. Reconciliation of movements in equity attributable to equity holders of the parent Half year to Half year to Year to 31 30 June 2006 30 June 2005 December 2005 £000 £000 £000 ---------------------------------- -------- -------- -------- Equity at start of period 111,058 85,358 85,358 Total recognised income and expense 14,454 12,760 32,091 Dividends to shareholders (5,379) (4,771) (7,257) Share-based payments 279 100 507 Share capital issued* 512 17 359 ---------------------------------- -------- -------- -------- Equity at end of period 120,924 93,464 111,058 ---------------------------------- -------- -------- -------- * Includes share premium. 8. Analysis of closing net debt As at As at As at 31 30 June 30 June December 2006 2005 2005 £000 £000 £000 ----------------------------------- -------- -------- -------- Bank balances 24,479 20,461 25,906 Short-term deposits - 2 4 ----------------------------------- -------- -------- -------- Cash and cash equivalents in the balance sheet 24,479 20,463 25,910 Bank overdrafts (5,498) (10,533) (2,603) ----------------------------------- -------- -------- -------- Cash and cash equivalents in the cash flow statement 18,981 9,930 23,307 Bank and other loans (61,278) (70,793) (58,978) Loan notes due within one year (2,752) (3,011) (2,804) Finance leases (2,551) (1,446) (2,376) ----------------------------------- -------- -------- -------- Closing net debt (47,600) (65,320) (40,851) ----------------------------------- -------- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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