Interim Results
Keller Group PLC
22 August 2005
22 August 2005
Keller Group plc
Interim Results for the
Six Months Ended 30 June 2005
Keller Group plc ('Keller' or 'the Group'), the international ground engineering
specialist, reports excellent results for the first half of 2005. Highlights
include:
• Turnover increased by 14% to £335.0m (2004: £294.1m)
• Half-year operating margin increased to 5.2% from 4.5%
• Profit before tax up 39% to £15.6m (2004: £11.2m)
• Earnings per share up 50% to 12.9p (2004: 8.6p)
• Excellent results from all four US businesses
• Record order book
• Interim dividend raised 5.5% to 3.8p (2004: 3.6p)
Justin Atkinson, Keller Chief Executive said:
'This is an excellent result for the Group, particularly from North America
where all four businesses have taken full advantage of the strong market
conditions and are performing very well.
'We go into the second half with a record order book. Based on this and our very
strong current trading, the Board anticipates that the Group's results for the
year as a whole will be ahead of market expectations.'
Enquiries:
Keller Group plc www.keller.co.uk
Justin Atkinson, Chief Executive 020 8341 6424
James Hind, Finance Director
Smithfield 020 7360 4900 / 07831 406117
Reg Hoare/Rupert Trefgarne
A briefing for analysts will be held at 9.15 for 9.30 am on Monday, 22 August
2005 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 excellent set of results for the first half of 2005,
driven by a very strong performance from our North American businesses.
Group sales for the period were up 14% at £335.0m (2004: £294.1m), reflecting
another period of good organic growth. Profit before tax increased by 39% to
£15.6m (2004: £11.2m) and the operating margin rose to 5.2% from 4.5% in the
first half of 2004. This exceptional first-half performance means that the
results for the full year are expected to be more first-half weighted than in
previous years.
Earnings per share were up 50% at 12.9p (2004: 8.6p).
Operating cash flow was much improved at £13.8m, compared to last year's £6.3m.
The period end net debt was £65.3m, which compares to £71.8m at the end of June
2004 and £58.7m at the end of December 2004.
As now required, these results are reported under International Financial
Reporting Standards (IFRS) and the 2004 comparatives have been restated
accordingly. This restatement had a minor impact on profits and reduced the
reported 2004 net assets by about £10m. Further details are set out in our
announcement on IFRS restatement dated 17 June 2005, a copy of which is posted
on the Group's website.
Dividend
The Board has declared an interim dividend of 3.8p per share (2004: 3.6p),
representing an increase of 5.5%. This will be paid on 1 November 2005 to
shareholders on the register at 7 October 2005.
Operational Overview
North America
Our North American operations had an excellent first half, with record results
from all four of our businesses. This in part reflects a strong market in which
the three main sectors - residential, commercial and public infrastructure -
were all buoyant. Sales of £177.7m (2004: £133.1m) were up 33%, whilst operating
profit of £13.6m (2004: £9.2m) was 48% ahead of the previous year, despite a
small adverse impact from currency translation.
Hayward Baker's first half was characterised by a strong performance across the
business, particularly on the West Coast. In addition to the favourable market
conditions, its good results reflected recent operational improvements. Amongst
the many projects worked on in the first half was the Los Angeles Metro Gold
Line Eastside Extension. Hayward Baker is undertaking grouting, both to
stabilise the ground ahead of tunnelling and to counter potential settlement, on
this six-mile, light rail system linking Union Station and East Los Angeles.
Case had a good first half, despite its contract for the new Goldman Sachs
headquarters building not proceeding in the period as planned. Good progress was
made however on the contract to provide foundations and excavation support for
the new Trump International Hotel and Tower in Chicago. Case's order book has
recently been further bolstered by the award of a $20m contract to install
shafts to provide intake water for the Elm Road Generating Station in Milwaukee.
This two-year project, set in over 40 feet of water one mile offshore in Lake
Michigan, involves working from barges and two large drilling platforms which
have been set on piles driven into the lake bed.
McKinney, our other US foundation business now in its third year under Keller
ownership, built on last year's good performance. With a new generation of
management now at the helm, after a well-planned and executed transition,
McKinney continues to exceed our pre-acquisition expectations. The successful
integration and strong returns of this business illustrate the Group's proven
ability to deliver value from acquisitions.
The first half result from Suncoast was also excellent, with an outstanding
contribution from the commercial high-rise division and further growth in
residential sales. Across the business, a combination of high volumes, stable
raw material costs and operating cost efficiencies continued to benefit margins.
Further progress was made in growing sales outside Suncoast's traditional Texan
market, through targeted growth in California and Arizona in particular.
Revenues from outside Texas, which represent about 45% of total sales, are now
three times the level of 2002, the first year under Keller's ownership.
Overall, there are few signs at present of the market momentum in the US
stalling and, as a result, we expect another good performance from our US
businesses in the second half.
Continental Europe & Overseas
Our Continental Europe & Overseas business reported another commendable
performance, given the mixed markets in which it is operating. Sales of £93.8m
(2004: £87.9m) were 7% ahead of the previous year, whilst operating profit was
£4.6m (2004: £5.0m).
Keller-Terra reported another strong result for the period, with a consistently
high performance across all its product lines, in a Spanish market that is
showing no signs of softening. In Eastern Europe both sales and profit were
about twice their level in the same period last year.
In Central Europe we faced challenging market conditions, notably a continued
decline in construction in Germany and distinct signs of overcapacity in Austria
, following the drift of German competition into the Austrian market. In both of
these territories, our operations were also affected by adverse weather in
January and February. Activity increased in the second quarter, with a number of
major projects getting into full swing, including jet-grouting works under
Amsterdam's Central Station and on the major underground rail link project in
Cologne. Cost-reduction measures in Germany, which were implemented as
anticipated in the first half, will realise benefits in the second half of the
year.
Within our Overseas businesses, the Far East rallied after a slow start to the
year and enters the second half with a strong order book. In the second quarter
we commenced work on Penang Island, Malaysia at the site for a new sewerage
treatment plant. Here, we were awarded the contract ahead of local competition,
following our redesign of the client's original proposal which enabled us to
reduce the cost to the client, whilst ensuring the same performance. Good
results were reported in the Middle East, in particular in Bahrain where we
completed a design and build contract for the foundations of a new power station
at Al Ezzel.
UK
Makers contributed a modest half-year profit, with its result being held back by
low volumes in its social housing business, as the interval between winning
preferred contractor status and getting on site increased. With a new management
team now established, and with a good recent order intake in a market that
remains strong, the business is expected to have a better second half.
Within Keller Ground Engineering, the foundation support division was busy,
whilst the geotechnical division suffered from a lack of major infrastructure
projects. In June, both divisions commenced work at the Millennium Dome. The
broad range of solutions at our disposal enabled us to re-use some of the
original foundations which we installed back in 1998 and to supplement these
with a combination of driven cast in situ piles, continuous flight auger piles
and minipiles, to take account of the uniqueness of the site and the different
structures soon to be constructed within the shell of the Dome.
Australia
After a slow first quarter, the Australian businesses picked up pace in the
second quarter and, with some good prospects for the second half, are well
positioned to achieve a satisfactory result for the full year.
Outlook
We go into the second half with a record order book, representing over four
months' sales. Based on this and our very strong current trading, the Board
anticipates that the Group's results for the year as a whole will be ahead of
market expectations.
Dr J.M.West
Chairman
22 August 2005
Consolidated income statement
for the half year ended 30 June 2005
Note Half year Half year Year
to to to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
------------------------------- ----- -------- -------- --------
Revenue 3 335,037 294,124 595,856
Operating costs (317,481) (280,892) (561,961)
------------------------------- ----- -------- -------- --------
Operating profit 3 17,556 13,232 33,895
Interest receivable 79 122 340
Finance costs (2,021) (2,156) (4,487)
------------------------------- ----- -------- -------- --------
Profit before taxation 15,614 11,198 29,748
Taxation 4 (6,245) (4,718) (11,874)
------------------------------- ----- -------- -------- --------
Profit for the period 9,369 6,480 17,874
------------------------------- ----- -------- -------- --------
Attributable to:
Equity holders of the parent 8,402 5,590 15,743
Minority interests 967 890 2,131
------------------------------- ----- -------- -------- --------
9,369 6,480 17,874
------------------------------- ----- -------- -------- --------
Earnings per share 6 12.9p 8.6p 24.2p
Diluted earnings per share 6 12.8p 8.6p 24.1p
------------------------------- ----- -------- -------- --------
Consolidated statement of recognised income and expense
for the half year ended 30 June 2005
Half year Half year Year
to to to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
------------------------------------ -------- -------- --------
Exchange differences on translation
of foreign operations 3,501 (3,173) (5,676)
Actuarial gains/(losses) on defined
benefit pension schemes 1,224 (1,833) (2,668)
Tax on items taken directly to
equity (367) 554 856
------------------------------------ -------- -------- --------
Net income/(expense) recognised
directly in equity 4,358 (4,452) (7,488)
Profit for the period 9,369 6,480 17,874
------------------------------------ -------- -------- --------
Total recognised income and expense
for the period 13,727 2,028 10,386
------------------------------------ -------- -------- --------
Attributable to:
Equity holders of the parent 12,760 1,138 8,255
Minority interests 967 890 2,131
------------------------------------ -------- -------- --------
13,727 2,028 10,386
------------------------------------ -------- -------- --------
Consolidated balance sheet
as at 30 June 2005
Note As at As at As at
30 June 30 June 31 December
2005 2004 2004
£000 £000 £000
------------------------------- ----- -------- -------- --------
Assets
Non-current assets
Intangible assets 53,512 52,161 51,761
Property, plant and equipment 79,695 79,298 80,937
Deferred tax assets 2,779 2,862 3,146
------------------------------- ---- -------- -------- --------
135,986 134,321 135,844
------------------------------- ---- -------- -------- --------
Current assets
Inventories 23,675 21,850 24,319
Trade and other receivables 182,264 161,321 143,926
Cash and cash equivalents 20,463 10,436 16,416
------------------------------- ----- -------- -------- --------
226,402 193,607 184,661
------------------------------- ----- -------- -------- --------
Total Assets 362,388 327,928 320,505
------------------------------- ----- -------- -------- --------
Liabilities
Current liabilities
Loans and borrowings (17,030) (31,223) (9,787)
Current tax liabilities (8,058) (5,690) (5,538)
Trade and other payables (144,284) (129,984) (120,701)
------------------------------- ----- -------- -------- --------
(169,372) (166,897) (136,026)
------------------------------- ----- -------- -------- --------
Non-current liabilities
Loans and borrowings (68,753) (51,043) (65,286)
Employee benefits (15,628) (15,782) (17,211)
Deferred tax liabilities (6,204) (6,644) (8,138)
Other liabilities (3,677) (2,329) (2,875)
------------------------------- ----- -------- -------- --------
(94,262) (75,798) (93,510)
------------------------------- ----- -------- -------- --------
Total liabilities (263,634) (242,695) (229,536)
------------------------------- ----- -------- -------- --------
Net Assets 98,754 85,233 90,969
------------------------------- ----- -------- -------- --------
Equity
Share capital 6,537 6,535 6,536
Share premium account 36,043 36,014 36,027
Capital redemption reserve 7,629 7,629 7,629
Translation reserve (2,165) (3,191) (5,666)
Retained earnings 45,420 33,486 40,832
------------------------------- ----- -------- -------- --------
Equity attributable to equity
holders of the parent 7 93,464 80,473 85,358
Minority interests 5,290 4,760 5,611
------------------------------- ----- -------- -------- --------
Total equity 98,754 85,233 90,969
------------------------------- ----- -------- -------- --------
Consolidated cash flow statement
for the half year ended 30 June 2005
Note Half year Half year Year
to to to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
------------------------------- ----- -------- -------- --------
Cash flows from operating
activities
Cash generated from operations 8 13,828 6,325 33,577
Interest paid (1,834) (2,264) (4,368)
Income tax paid (5,914) (1,358) (7,339)
------------------------------- ----- -------- -------- --------
Net cash from
operating
activities 6,080 2,703 21,870
------------------------------- ----- -------- -------- --------
Cash flows from investing
activities
Proceeds from sale of
property, plant & equipment 721 333 2,063
Interest received 79 122 339
Acquisition of subsidiary, net
of cash acquired (1,933) (2,835) (3,422)
Acquisition of property, plant
& equipment (4,465) (5,847) (13,887)
Acquisition of intangible fixed
assets - - (15)
------------------------------- ----- -------- -------- --------
Net cash from investing
activities (5,598) (8,227) (14,922)
------------------------------- ----- -------- -------- --------
Cash flows from financing
activities
Proceeds from the issue of
share capital 17 15 15
New borrowings 4,573 16,815 55,982
Repayment of borrowings (632) (7,970) (52,498)
Payment of finance lease
liabilities (121) (84) (373)
Dividends paid (5,680) (6,225) (9,345)
------------------------------- ----- -------- -------- --------
Net cash from financing
activities (1,843) 2,551 (6,219)
------------------------------- ----- -------- -------- --------
Net (decrease)/increase in cash
and cash equivalents (1,361) (2,973) 729
Cash and cash equivalents at
beginning of period 11,109 10,812 10,812
Effect of exchange rate
fluctuations 182 (807) (432)
------------------------------- ----- -------- -------- --------
Cash and cash equivalents at
end of period 9,930 7,032 11,109
------------------------------- ----- -------- -------- --------
As at As at As at
30 June 30 June 31 December
2005 2004 2004
£000 £000 £000
------------------------------------ -------- -------- --------
Analysis of closing net debt
Cash in hand 20,461 10,217 15,907
Short term deposits 2 219 509
Bank overdrafts (10,533) (3,404) (5,307)
------------------------------------ -------- -------- --------
Net cash 9,930 7,032 11,109
Bank and other loans (70,793) (73,819) (65,114)
Loan notes due within one year (3,011) (3,188) (3,036)
Finance leases (1,446) (1,855) (1,616)
------------------------------------ -------- -------- --------
Closing net debt (65,320) (71,830) (58,657)
------------------------------------ -------- -------- --------
Notes to the interim report:
1. Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the company, for the year ending 31 December 2005, be
prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the EU ('adopted IFRS').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRS in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first annual reporting date at
which it is required to use adopted IFRS. Based on these adopted and unadopted
IFRS, the directors have made assumptions about the accounting policies expected
to be applied when the first annual IFRS financial statements are prepared for
the year ending 31 December 2005. These accounting policies are set out in the
announcement 'Restatement of financial information for 2004 under International
Financial Reporting Standards' dated 17 June 2005, available on the Group's web
site www.keller.co.uk.
In particular, the directors have assumed that IAS 19 Employee Benefits will be
adopted by the EU in sufficient time that it will be available for use in the
annual IFRS financial statements for the year ending 31 December 2005.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2005 may still be subject to change or to additional interpretations and
therefore cannot be determined with certainty. Accordingly, the accounting
policies for that annual period will be determined finally only when the annual
financial statements are prepared for the year ending 31 December 2005.
The comparative figures for the financial year ended 31 December 2004 have been
restated to comply with adopted IFRS and are not the company's statutory
accounts for that financial year. Those accounts, which were prepared under UK
Generally Accepted Accounting Practices, have been reported on by the company's
auditors and delivered to the registrar of companies. The report of the auditors
was unqualified 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 31
30 June 30 June December
2005 2004 2004
-------------- -------------------- -------- -------- --------
US dollar: average for period 1.87 1.82 1.83
period end 1.80 1.81 1.93
Euro: average for period 1.46 1.49 1.47
period end 1.50 1.50 1.41
Australian
dollar: average for period 2.43 2.47 2.49
period end 2.37 2.62 2.47
-------------- -------------------- -------- -------- --------
3. Segmental analysis
Revenue Operating profit
Half year Half year Year to Half year Half year Year to
to 30 to 30 31 to 30 to 30 31
June June December June June December
2005 2004 2004 2005 2004 2004
£000 £000 £000 £000 £000 £000
--------------- -------- -------- -------- -------- -------- --------
United Kingdom 46,150 54,756 108,263 394 (205) 1,901
North America 177,663 133,121 280,212 13,581 9,178 20,981
Continental
Europe &
Overseas 93,833 87,905 175,024 4,592 4,989 11,867
Australia 17,391 18,342 32,357 709 870 1,671
--------------- -------- -------- -------- -------- -------- --------
335,037 294,124 595,856 19,276 14,832 36,420
Less:
Unallocated
central costs - - - (1,720) (1,600) (2,525)
--------------- -------- -------- -------- -------- -------- --------
335,037 294,124 595,856 17,556 13,232 33,895
--------------- -------- -------- -------- -------- -------- --------
4. Taxation
Taxation based on the profit before tax is:
Half year to Half year to Year to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
------------------------------------ -------- -------- --------
UK corporation tax at 30% (2004:30%) - - -
Overseas tax 6,245 4,718 11,874
------------------------------------ -------- -------- --------
6,245 4,718 11,874
------------------------------------ -------- -------- --------
5. Dividends payable to equity holders of the parent
Half year to Half year to Year to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
--------------------------------- -------- -------- --------
Ordinary dividends paid on equity
shares 4,771 4,522 6,872
--------------------------------- -------- -------- --------
In addition to the above, an interim ordinary dividend of 3.8p per share (2004:
3.6p) will be paid on 1 November 2005 to shareholders on the register at 7
October 2005.
6. Earnings per share
Earnings per share is calculated as follows:
2005 2005 2004 2004
Basic Diluted Basic Diluted
£000 £000 £000 £000
--------------------------- -------- -------- -------- --------
Profit attributable to
equity holders of the
parent 8,402 8,402 5,590 5,590
--------------------------- -------- -------- -------- --------
--------------------------- -------- -------- -------- --------
No. of No. of No. of No. of
shares shares shares shares
000s 000s 000s 000s
--------------------------- -------- -------- -------- --------
Weighted average of
ordinary shares in issue 65,294 65,294 64,980 64,980
--------------------------- -------- -------- -------- --------
Adjusted weighted average
of ordinary shares in issue 65,294 65,511 64,980 65,097
--------------------------- -------- -------- -------- --------
Earnings per share 12.9p 12.8p 8.6p 8.6p
--------------------------- -------- -------- -------- --------
7. Reconciliation of movements in equity attributable to equity holders of the
parent
Half year to Half year to Year to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
--------------------------------- -------- -------- --------
Equity at start of period 85,358 83,829 83,829
Total recognised income and
expense 12,760 1,138 8,255
Dividends to shareholders (4,771) (4,522) (6,872)
Shares issued* 17 667 682
Share options granted 100 41 144
Share capital to be issued - (680) (680)
--------------------------------- -------- -------- --------
Equity at end of period 93,464 80,473 85,358
--------------------------------- -------- -------- --------
* Includes share premium.
8. Reconciliation of operating profit to cash generated from operations
Half year to Half year to Year to 31
30 June 30 June December
2005 2004 2004
£000 £000 £000
--------------------------------- -------- -------- --------
Operating profit 17,556 13,232 33,895
Depreciation of property, plant
and equipment 5,730 5,272 10,992
Amortisation of intangible assets 53 23 87
Foreign exchange (gains)/losses (146) 499 501
Gain on sale of property, plant
and equipment (98) (101) (727)
Other non-cash movements 94 58 117
--------------------------------- -------- -------- --------
Operating cash flows before
changes in working capital and
provisions 23,189 18,983 44,865
Increase in trade and other
receivables (22,027) (15,887) (11,483)
Decrease/(increase) in
inventories 1,343 (5,591) (8,559)
Increase in trade and other
payables 11,202 8,719 8,548
Increase in provisions and
employee benefits 121 101 206
--------------------------------- -------- -------- --------
Cash generated from operations 13,828 6,325 33,577
--------------------------------- -------- -------- --------
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