Trading Update

RNS Number : 1148I

Keller Group PLC

22 November 2018

 

For immediate release                                                                                  22 November 2018

Keller Group plc ("Keller" or "the Group")

Trading Update, APAC Strategic Review and Completion of Refinancing

Trading update

Group trading in the second half of the year has continued in line with the Board's full year expectations.

In North America, our geotechnical businesses (Hayward Baker, Case, McKinney, HJ, Bencor and Keller Canada) continue to trade in line with expectations and have avoided any material impact from Hurricanes Florence and Michael.  The integration of the Moretrench acquisition is progressing very well.  We are currently negotiating an adjustment due to scope increase on a large long-term Bencor contract.  Whilst we are confident of the position we have taken, there is some uncertainty as to the exact timing and quantum of the final settlement.  The unusually poor weather in Texas in October has adversely affected Suncoast, our post-tension business, compounding the previously announced impact of steel price increases.

In EMEA, our businesses have performed in line with expectations, demonstrating year on year profitable growth, excluding the reducing beneficial effect from the significant projects in the Middle East and the Caspian.  Within this overall performance, growth in our core European, Middle Eastern and North African markets has continued to be offset by challenging market conditions in Brazil and South Africa, reflecting the geo-political environment in those countries.  As part of our continued focus on the shape of our global capacity we are taking proactive measures to scale back our operations in these difficult markets, primarily though capacity reduction, whilst maintaining bidding discipline.

In APAC, we have undertaken a strategic review to address the losses in our ASEAN and Waterway businesses and are taking immediate actions, as described below.  Austral retains an excellent market position with leading Australian natural resources companies and is having a record year, whilst Keller Australia has recovered well from its challenging contracts in 2017 with improved contract bidding and execution.  India continues its profitable growth.  All of these three businesses are trading in line with expectations and demonstrating good progress on the prior year.

The group-wide outlook for 2019 is somewhat mixed.  Our main markets remain healthy and our order book remains sound, but as previously indicated the contribution from major projects will be lower than this year.

Results of APAC strategic review

On 11 October the Group announced that as a consequence of deteriorating ASEAN market conditions, and the reassessment of project performance in ASEAN and Waterway, it expected that the APAC division would make a pre-tax loss of between £12m-£15m in 2018, in contrast with the previous expectation of a small profit.  As a consequence, the Group announced it would be conducting a strategic review of its activities in ASEAN and Waterway, which account for the APAC losses in the year. 

In ASEAN, we have conducted a thorough review of our product and business portfolio in the context of the current political and competitive landscape.  As a result, we are downsizing the business to focus on those product lines offering the greatest opportunity to leverage our market-leading technologies.  The Group will therefore undertake a managed exit of its Heavy Foundations activities (bored piling, driven piling and diaphragm walls) in Singapore and Malaysia, which have become highly commoditised and continue to see heavy competitive and pricing pressure.  These operations have a combined annual revenue of approximately £60m and represent substantially all of the expected 2018 loss in ASEAN.  Going forward, we will focus on higher margin Ground Improvement activities (vibro, grouting and deep soil mixing) in the ASEAN region, where we hold a technological competitive advantage.

In Waterway, we will improve performance by exiting the highly congested bridge superstructure market and refocusing on higher margin projects.  Although the two business units will retain their independent brands and operations, we are sharing key leadership roles and functional support between Austral and Waterway, reducing overhead and improving business processes.  Legacy lower margin contracts in Waterway are expected to be substantially worked through by the end of H1 2019.

The Group expects that these measures, along with leadership changes and actions already implemented, will have the combined effect of returning the APAC region to profit in H2 2019.

Group-wide restructuring programme

The actions described in ASEAN, Waterway, Brazil and South Africa are part of a group-wide programme of portfolio and capacity actions.  The Group currently expects to take an exceptional restructuring charge of approximately £57m in its Full Year 2018 results.  Around £30m will relate to goodwill and around £20m will relate to fixed asset and other impairments.  Restructuring cash costs in 2018 will be around £7m offset by income from asset disposals in 2019 of around £5m, with a net cash cost therefore of around £2m.  We estimate these measures will result in a reduction of around 700 employees.

Completion of scheduled refinancing

The Group also announces today that it has successfully negotiated improved terms in the scheduled refinancing of its existing debt facilities which were due to mature in September 2019, by entering into a new syndicated revolving credit facility totalling £375m.  The new facility, syndicated to a broader club of eight banks, has a maturity of five years to November 2023, incorporates two additional one year extension options and a £200m accordion at the discretion of the banks, and has been agreed on improved terms and rates in comparison to the existing facility.

Alain Michaelis, Chief Executive, said:

"We are taking tough but necessary actions to reduce our cost base and exposure to unprofitable market segments, and we are also sharpening our control regime.  We continue to focus on improving operational performance and remain well positioned to address the long term market trends in our industry."

Keller will announce its Full Year 2018 results on 4 March 2019.

For further information, please contact:

Keller Group plc	020 7616 7575
Alain Michaelis, Chief Executive Officer Michael Speakman, Chief Financial Officer Victoria Huxster, Head of Investor Relations
Finsbury	020 7251 3801
Gordon Simpson

Notes to Editors:

Keller is the world's largest geotechnical contractor, providing technically advanced geotechnical solutions to the construction industry.  With annual revenue of around £2.0bn, Keller has approximately 11,000 staff world-wide.  Keller is the clear market leader in the US, Canada, Australia and South Africa; it has prime positions in most established European markets and a strong profile in many developing markets.

For more information, please go to: http://www.keller.com/investors.aspx and http://www.keller.com/investors/investment-case.aspx.

LEI:  549300QO4MBL43UHSN10

Classification:  Inside Information (DTR 6 Annex 1)

This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations. On the publication of this announcement via a Regulatory Information Service ("RIS"), this information is considered to be in the public domain.

 

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