Full year results 2016 27 February 2017 Caspian region North rth - - PowerPoint PPT Presentation

Keller Group plc Full year results 2016

27 February 2017

Caspian region North rth Eas ast Euro rope pe Busines ness Unit

2

Agenda

• Summary and

business update

• Financial results
• Strategic progress
• Outlook
• Questions and answers

Summary and business update

Entergy power project, Louisiana, US Hayward rd Baker er Wick k Drains ns Division

4

2016: Mixed performance

• Trading in North America and EMEA remained

strong with some areas of excellent performance

• Asia-Pacific had a very poor year but we have

taken the right steps to recover

• Order book at all time high, 20% above last year,

with some major recent contract wins

• Progressing well against strategic objectives

5

Results summary

Revenue

£1,780m

Operating margin

5.4%

Dividend

28.5p

Order book

20% YOY

ROCE

15.3%

14% 2015: £1,562m 2015: 6.6% 2015: 27.1p

Earnings per share

75.9p

12% 2015: 86.4p 2015: 20.5%

6

Markets in 2016

Asia-Pacific Europe, Middle East and Africa North America

• Steady growth in US
• Total construction spend

up 4% on 2015

• Canada difficult,

especially Western

• Steady growth in

Northern and Western Europe

• Southern Europe steady

with some weak spots

• Middle East steady
• South Africa challenging
• Brazil difficult
• South East Asia difficult,

especially Singapore, heavy foundation demand and ground improvement margins

• Australia difficult
• Some pricing down 20%

year-on-year

• India continuing to grow

7

Action taken in difficult markets

• Appropriate

response in each market

• Base capabilities

maintained so well positioned for market recovery

8

A closer look at Asia-Pacific actions

Financial results

Ritz Carlton residences, Miami HJ Found ndat ation

10 10

Group income statement*

Record revenue

• 3% up on a constant

currency basis £m 2016 2015 % Change Revenue 1,780.0 1,562.4 +14% EBITDA 158.6 155.5 +2% Operating profit 95.3 103.4

• 8%

Net finance cost (10.2) (7.7) Profit before tax 85.1 95.7

• 11%

Tax (29.8) (33.0) Profit after tax 55.3 62.7

• 12%

EBITDA % 8.9% 10.0%

• 1.1bps

Operating profit % 5.4% 6.6%

• 1.2bps

Effective tax rate 35% (2015: 34.5%) Strong performances from North America and EMEA

• Offset by APAC loss

* Before non-underlying items

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Group income statement* (continued)

£m 2016 2015 % Change Profit after tax* 55.3 62.7

• 12%

Non-underlying items Amortisation of acquired intangibles (9.7) (7.3) Exceptional restructuring charge (14.3)

• Exceptional Avonmouth credit

14.3

• Goodwill impairment
• (31.2)

Other (1.5) (0.9) (11.2) (39.4) Tax on non-underlying items 3.9 3.0 Non-controlling interests (0.8) (0.8) Attributable to shareholders 47.2 25.5 Earnings per share* 75.9p 86.4p

• 12%

Dividend per share 28.5p 27.1p +5% Restructuring charge relates to Australia, Singapore, Canada and South Africa – largely non-cash

* Before non-underlying items

Avonmouth credit is mainly insurance proceeds and valuation uplift Dividend 2.7x covered by underlying earnings

11

12 12

Operating profit and margin*

Constant currency revenues up 3%: − North America - flat − EMEA +16% − APAC -8% £m 2016 2015 Revenue Op profit Margin Revenue Op profit Margin North America 952.9 86.9 9.1% 851.2 76.4 9.0% EMEA 552.6 30.2 5.5% 441.5 21.3 4.8% APAC 274.5 (18.0)

• 6.6%

269.7 11.7 4.3% 1,780.0 99.1 5.6% 1,562.4 109.4 7.0% Central costs

• (3.8)
• (6.0)

1,780.0 95.3 5.4% 1,562.4 103.4 6.6%

* Before non-underlying items

Excellent margin in North America Strong performance and improved margins at EMEA APAC deterioration mainly due to: – Non-recurrence of 2015 Wheatstone profit – Some contract execution issues – Very challenging markets

13 13

2016 Operating margin* and ROCE** progression

0% 1% 2% 3% 4% 5% 6% 7% 8% 2012 2013 2014 2015 2016 **Underlying operating profit / average shareholder funds + net debt + retirement benefits 0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 2016

Operating margin ROCE

* Before non-underlying items

2016 pre-tax ROCE of 15.3% (2015: 20.5%) compares to a pre-tax WACC of around 10%

Group target WACC

15.3%

14 14

North America Summary

• Another strong year in North America
• Outstanding performance from Suncoast

− Benefitted from strong residential market in its region and lower steel prices − New automated cut-lines will improve efficiency

• Hayward Baker, Case and HJ Foundation all

performed well

• New organisation structure at McKinney
• Canada continues to be challenging

− £25m Toronto subway due to start spring 2017 − Annualised overheads reduced by £5m

• Year-end order book stable

Post-tension system Tempe Town Lake , Arizona Suncoast

15 15

EMEA Summary

• Strong growth in revenue and profit
• Operating margin improved from 4.8% to 5.5% -

highest since 2009

• Driven by main European businesses and

project in Caspian region − Best result in Europe for many years

• Other markets remain difficult

− Middle East relatively quiet in 2016 − South Africa very challenging − Brazil: concentrating on integrating Tecnogeo

• Excellent orders in H2

− Very large orders in Middle East, South Africa, Caspian region

• Year-end order book up more than 50% - major

projects should mean excellent result in 2017

St Kanzian Keller er Austria

16 16

Asia-Pacific Summary

16

• Division recorded an £18m loss

− Split broadly equally between Asia and Australia

• Very difficult conditions in Australia and

Singapore − Some pricing down 20% year-on-year

• Australian geotechnical businesses fully

integrated; resources downsized significantly

• Near-shore marine businesses also operating in

difficult markets

• Singapore piling business halved and merged

with Malaysia

• Divisional cost base reduced by £12m

annualised; £3.3m realised in 2016

• India doing well, expanding product range
• Year end order book up 25%, mainly Australia

Mayfield Wharf, Newcastle, Australia Waterw terway ay Cons nstru ructi tions ns

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Group balance sheet

£m 2016 2015 Goodwill/intangibles 188.0 160.1 Property, plant & equipment 405.6 331.8 Other non-current assets 30.2 22.9 623.8 514.8 Inventories 59.4 47.3 Receivables 528.5 423.2 Payables (435.4) (348.8) Working capital 152.5 121.7 776.3 636.5 Non-current assets held for sale 54.0

• Other liabilities/provisions

(53.6) (89.0) Retirement benefits (31.4) (23.1) Tax (10.1) (7.4) Net debt (305.6) (183.0) Net assets 429.6 334.0 Period end exchange rates:

– US$1.23 (2015: US$1.48) – C$1.66 (2015: C$2.05) – €1.17 (2015: €1.36) – S$1.78 (2015: S$2.09) – A$1.71 (2015: A$2.03)

Working capital increase due to FX and acquisition Net debt 1.9x EBITDA

– 2.1x on a covenant basis

Non-current assets held for sale is the UK warehousing facility purchased in May 2016

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UK warehousing facility update

• Property purchased in May 2016 for £62m

− On balance sheet as ‘held for sale’ at £54m

• Gross annual rental of £4.25m
• Insurance recoveries progressing

− £7.5m received in 2016, £5.9m in 2017 − Further discussions ongoing

• £14.3m exceptional credit in 2016

19 19

Group cash flow statement

Cash from operations before non-underlying items 86% of EBITDA (2015: 92%) £m 2016 2015 Cash from operations before non-underlying items 135.7 142.3 Cash flows from non-underlying items 4.9 (27.5) Cash from operations 140.6 114.8 Capex – net (73.0) (69.9) Interest (11.6) (6.1) Tax (25.3) (44.3) Acquisitions (76.6) (52.5) Dividends (20.5) (19.1) Net cash flow (66.4) (77.1) Opening net debt (183.0) (102.2) Opening swap liability (24.6)

• Exchange movements

(31.6) (3.7) Closing net debt (305.6) (183.0) 2016 acquisitions: – UK warehousing facility – Tecnogeo (Brazil) – Smithbridge (Australia) 2015 cash flows from exceptional items relate to settlement of historic contract dispute

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Cash generation and dividend payments

5 10 15 20 25 30

Cash from operations* Dividend per share

20 40 60 80 100 120 140 160 180 EBITDA Cash from operations

10-year cash conversion rate of 98% 10-year EBITDA of £1,212m 10-year cash from operations of £1,188m Dividend increased or maintained every year since 1994 flotation

* Before non-underlying items £m Pence

Strategic progress

22 22

Positive industry trends

23 23

Vision and strategy

Growing our product range and entering new markets, organically and by acquisition Building strong, customer-focused businesses Leveraging the scale and expertise of the group Enhancing our engineering and operational capabilities Investing in our people Strategy To be the world leader in geotechnical solutions Vision

24 24

Progressing well against strategy What has been changing?

• Company is more connected and collaborative
• Strategic alignment is much improved
• Our capabilities are expanding

− Larger projects − Knowledge sharing − Intra-company benchmarking − Product technology

• Uncovering much more opportunity

25 25

Progressing well against strategy Examples

• Technology transfer: eg Secured first ever diaphragm wall

contracts in India and Malaysia

• A stronger, more unified Keller brand: Emphasising all our

companies are connected and ensuring worldwide brand recognition

• Increased business unit collaboration: Securing and delivering

contracts they wouldn’t have won on their own eg Hayward Baker and HJ Foundation

• Leveraging global product teams: Achieving success on bid

assistance; new design methods; technology transfer; and equipment development

• Improving productivity: Investing in DAQ systems for our 400

vibrocats and jet grouting rigs enables remote fault-finding and fixing

26 26

Targeting improvements

• £50m gross benefit by 2020
• Benefit expected to be split

evenly between P&L and enhanced competitive positioning

• Targeting consistent 20%+ pre-

tax Return on Capital Employed

Gross benefit (£m)

Outlook

Keller’s in-house equipment manufacturing Renchen en, Germ rmany any

28 28

Order book at all time high +20% above last year

• Some major recent contract wins

including the Caspian region extension, Zayed City in Abu Dhabi’s Capital District, the East Port Said Development Complex and Clairwood Logistics Park.

• Total order book now more than

£1 billion for first time in Keller’s history

• Well spread in terms of contract size and

geography

• Greater connectivity is helping us win

more, and more complex, projects

29 29

We expect US to remain a strong market

Market still below long-term average, forecast to continue to grow steadily

US Housing Starts (000s)

Source: US Census Bureau Housing Starts

US housing starts continue to increase, up 6% in the year and still well below the long term norm

US Construction spend as % GDP

Source: IHS global insight and World Bank

30 30

US infrastructure opportunities

• Keller US revenue from infrastructure £276m in 2016
• Current work includes bridges, combined sewer outflow (Case) and

East Branch Dam (Bencor)

• Keller well placed to support infrastructure spending acceleration

California Department of Water Resources via Reuters

• Recent Oroville

dam issues illustrate national challenge

• Emerging political

consensus for significant investment

31 31

Outlook

• Long term drivers of market growth remain robust

− We are well placed to take advantage of any acceleration in public infrastructure spending − We remain an active consolidator in a fragmented market

• Our strategy remains clear and consistent and we’re making

good progress − Significant opportunities to improve the business − Targeting £50m of gross benefits by 2020

• APAC performance expected to improve in 2017 and return

to profit in 2018

• Steadily growing construction markets in US and Europe,

and management actions, give us confidence for 2017

32 32

33 33

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

• perates; 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. All written or verbal forward looking statements, made in this document or made subsequently, which are attributable to Keller or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Keller does not intend to update these forward looking statements. Nothing in this document should be regarded as a profits forecast. This document is not an offer to sell, exchange or transfer any securities of Keller Group plc or any of its subsidiaries and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. Securities may not be offered, sold or transferred in the United States absent registration or an applicable exemption from the registration requirements of the US Securities Act of 1933 (as amended).

Appendices

35 35

What we do

• Keller is renowned for providing technically advanced and cost effective ground

engineering solutions to the construction industry

• We offer a wide portfolio of products, unrivalled by our competitors and manufacture
• ur own equipment where there’s a competitive advantage in doing so

Ground improvement Grouting Heavy foundation Earth retention Post-tension systems Instrumentation and monitoring 20% 10% 45% 14% 10% 1%

• Vibro

Compaction

• Vibro

replacement

• Rigid Inclusions
• Soil mixing
• Vertical drains
• Dynamic

compaction

• Dynamic

replacement

• Jet Grouting
• Compensation

Grouting

• Compaction

Grouting

• Fracture

Grouting

• Cavity Grouting
• Chemical

Grouting

• Bored Piles
• Continuous

flight auger Piles

• Driven Piles
• Micro Piles
• Push Piers
• Marine and

near-short structures

• Diaphragm walls
• Secant walls
• Contiguous walls
• Sheet pile walls
• Soldier pile walls
• Micro pile walls
• Gravity walls
• Ground anchors
• Soil nails
• Slab-on-grade

foundations

• High-rise

structures

• Data capture of

structures and project attributes

36 36

Number one globally with strong local presence

• Operations in more

than 40 countries across five continents

• 21 business units
• Strong local

relationships that keep us responsive and competitive locally

Countries where we’re operational

Top three in terms

• f market share in

11 countries:

• United States
• Canada
• Germany
• Poland
• Austria
• Slovakia
• Bahrain
• Brazil
• South Africa
• Australia
• Malaysia

37 37

An excellent reputation and a long and rich history

Only larger and most recent acquisitions shown

• More than 20 acquisitions since 2000

38 38

Revenue 2007 - 2016

(Continuing operations)

Ten year track record

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 North America EMEA APAC

1,197 1,038 1,069 1,438 1,600 1,780 1,562 955 1,154 1,318

£m

39 39

Operating profit 2007 - 2016

(From continuing operations and before non-underlying items)

Ten year track record

• 40
• 20

20 40 60 80 100 120 140 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Head Office Costs North America EMEA APAC

103 48 107 119 77 43 29 78 92

£m

95

40 40

Historical performance Operating margin

Operating margin %

0% 2% 4% 6% 8% 10% 12% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

41 41

Keller is well placed versus the competition

Independent global / equipment manufacturers (Bauer, Trevi) Captive global (Vinci-Soletanche) Keller Captive local / regional (General contractor-owned)

Approximate market share (Where we operate today)

Independent local / regional (country / regional specific, smaller players) As industry consolidates, we are well-placed to gain market share

42 42

Strong local relationships keep us responsive and competitive locally

• 21 business units
• Typical revenues of £40m to £100m

“Other competitors do not have the same knowledge base related to execution, design and quality control as Keller” Project Superintendent, Industrial Client, NA “Excellent delivery of project in limited time, from procurement of materials to installation” Commercial Lead, Manufacturing Client, APAC “Having used Keller for many years, we like the fact they have a wide range of solutions…a real benefit when determining the most cost effective option” Commercial Director, Residential Developer, EMEA

43 43

Resilience through diversity

Revenue – by product 2016 Revenue – by market 2016

44 44

Well positioned to access global growth opportunities

• Keller has a roughly a 10% share of

the markets where we operate today

• Clear market leader in North America,

Australia and Sub-Saharan Africa

• Prime positions in most established

European markets

• Strong profile in many developing markets

45 45

Group country split

2016 Revenue by country

Total revenue £1,780m

2015 Revenue by country

Total revenue £1,562m 49% 9% 5% 12% 50% 10% 11%

46 46

Geographical market approach

47 47

Two routes to high margin

HJ Foundation

• Mainly ‘construct only’
• Few products
• Strong market presence
• Highly efficient

North East Europe (Poland)

• ‘Design and construct’
• Multiple products
• Strong design capability
• Good market share

48 48

Continued progress on safety

• Continued progress on safety

but two fatalities

• ‘Think Safe’ programme has

helped reduce accidents in our business by approximately 45%

• Benchmarking shows our performance

is around 50% better than UK construction and specialist construction sectors

Accelerated Frequency Rate (AFR) Comparative AFR 2015/16

49 49

A clear organisational model

Line Project execution Customer management People management Business strategy Functional strategy Best practice Minimum standards Global product teams Best practice Minimum standards Product strategy Profit and Loss Function

50 50

A stronger, more unified Keller brand

51 51

Management framework includes standard dashboards and internal benchmarking

Top tier Middle tier Bottom tier

52 52

Notable contract awards East Port Said Development Complex, Egypt

53 53

Notable contract awards Clairwood Logistics Park, Durban, South Africa

54 54

Notable contract awards Zayed city infrastructure works, Abu Dhabi

55 55

Capital allocation priorities

1. Profitable organic growth opportunities 2. Bolt-on acquisitions meeting Keller’s investment criteria 3. Ordinary dividends

• At a level allowing dividend growth through the cycle

4. Deploying funds for the benefit of shareholders

• Only where the balance sheet allows
• Unlikely to be considered if could take net debt to > 1.5x EBITDA
• After taking account of other investment opportunities/cash requirements

Leverage typically to be maintained at between 1.0x and 2.0x EBITDA Any short term return of capital likely to be share buy-back