Full year results 2017 26 February 2018 Agenda Summary Financial - - PowerPoint PPT Presentation

Keller Group plc Full year results 2017

26 February 2018

Texas Rangers Baseball Stadium (Dallas Cowboys Stadium in background) Dallas

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Agenda

• Summary
• Financial results
• Business update
• Outlook
• Questions and answers

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2017 – A positive year

• Record revenue and strong profit growth
• North America: Solid result, better second half
• EMEA: Very strong profit growth and excellent execution
• APAC: Loss reduced, with progress masked by two

significant contract losses

• Order book up 5% excluding Caspian project
• Good progress against £50m benefits target from

strategic objectives

• Total dividend per share up 20% to 34.2p

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Results summary

Revenue

£2,071m

+16% (+10% cc) 2016: £1,780m

Operating margin

5.2%

• 0.2%

2016: 5.4%

Earnings per share

102.2p

+35% (+30% cc) 2016: 75.9p

Operating profit

£108.7m

+14% (+10% cc) 2016: 95.3m

ROCE

15.1%

• 0.2%

2016: 15.3%

*cc = Constant currency

Dividend

34.2p

2016: 28.5p +20% YOY

Financial results

Brenner Base Tunnel, Austria Jet grouting, micropiles and innovative water driven hammer drilling on the new Brenner railway line running from Munich to Verona

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Group income statement* Double digit revenue and profit growth

£m 2017 2016 % Change Revenue 2,070.6 1,780.0 +16% EBITDA 177.2 158.6 +12% Operating profit 108.7 95.3 +14% Net finance cost (10.0) (10.2) Profit before tax 98.7 85.1 +16% Tax (24.7) (29.8)

• Profit after tax

74.0 55.3 +34% EBITDA % 8.6% 8.9%

• 0.3bps

Operating profit % 5.2% 5.4%

• 0.2bps

Record revenue 10% up on a constant currency basis ROCE 15.1% (2016:15.3%)

* Before non-underlying items

Effective tax rate 25% (FY2016: 35%) £9.7m benefit from US tax reforms

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Group income statement* (continued) Dividend up 20%

£m 2017 2016 % Change Profit after tax* 74.0 55.3 +34% Non-underlying items Amortisation of acquired intangibles (9.0) (9.7) Exceptional restructuring charge

• (14.3)

Exceptional Avonmouth credit 21.0 14.3 Other (0.1) (1.5) 11.9 (11.2) Tax on non-underlying items 1.6 3.9 Non-controlling interests (0.4) (0.8) Attributable to shareholders 87.1 47.2 Earnings per share* 102.2p 75.9p +35% Dividend per share 34.2p 28.5p +20% Non-underlying profits mainly relate to Avonmouth

* Before non-underlying items

Dividend up 20% 3.0x covered by underlying earnings

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Divisional results*

£m 2017 2016 Revenue OP Margin Revenue OP Margin North America 968.7 78.7 8.1% 952.9 86.9 9.1% EMEA 737.2 53.3 7.2% 552.6 30.2 5.5% APAC 364.7 (16.5)

• 4.5%

274.5 (18.0)

• 6.6%

2,070.6 115.5 5.6% 1,780.0 99.1 5.6% Central items

• (6.8)
• (3.8)

2,070.6 108.7 5.2% 1,780.0 95.3 5.4% Constant currency revenues up 10%: North America -4% EMEA +26% APAC +25%

* Before non-underlying items

Contract margins remain healthy in North America Excellent revenue and profit growth at EMEA Helped by Caspian project APAC loss slightly reduced Progress masked by two loss makers Organic growth of 10%

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North America Summary

• Overall US market remains solid, but with

regional and sectoral variations − Residential strong but infrastructure spend down

• Dollar revenue and profit down

− Revenue growth restored in H2 − Contract margins remain healthy − Estimated £3m cost of Q3 hurricanes

• Hayward Baker had excellent year
• Suncoast challenged by material price increases
• Case and HJ profits down by £16m mainly

reflecting slowdown in their core geographic markets

• Canada returned to profit
• NA order book up 5%

Columbia Manhattanville, US Hayward Baker Moretrench joint venture to deliver excavation ‘and foundations for university campus

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EMEA Summary

• Strong growth in revenue and especially

profit

• Two large projects, virtually complete,

contributed c£100m of revenue and £30m of profit

• European businesses had a good year

− Germany, Poland and Austria strong

• Significant and profitable growth in Middle

East

• Year end order book healthy, up 10%

excluding run off of large projects

• Expect further underlying progress in 2018

Port Said, Egypt Design and installation of vertical drains across an area

• f 8 million m2

as part of industrial redevelopment

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Asia-Pacific Summary

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• Good revenue growth
• Underlying progress masked by two

projects which lost £14m combined, mainly in H2

• Losses significantly reduced in Keller

Australia

• Mixed year for near-shore marine
• ASEAN heavy foundations improving but

still loss-making; ground improvement profitable

• India - revenue doubled, margins up
• Order book up 20% with higher margins

Rail upgrade project, Melbourne Delivering projects worth A$25 million as part of programme to replace 50 level crossings in Melbourne

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Delivering against our 2020 £50m benefits target

• Targeting £50m of annualised gross benefits by 2020

− Half to be incremental profit; half invested to enhance competitive positioning

• One third of this target achieved in 2017

− Largely from procurement − Operational improvements will be slower burn

• Estimate £5-7m profit benefit in 2017

£m Gross benefits 2020 target Progress to date Procurement 20.0 11.3 Operational improvements 20.0 1.3 Growth 10.0 4.6 50.0 17.2

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Group balance sheet Remains robust

£m 2017 2016 Goodwill/intangibles 170.9 188.0 Property, plant & equipment 399.2 405.6 Other non-current assets 27.4 30.2 597.5 623.8 Inventories 72.6 59.4 Receivables 589.2 528.5 Payables (480.5) (435.4) Working capital 181.3 152.5 Capital employed 778.8 776.3 Non-current assets held for sale

• 54.0

Other liabilities/provisions (41.3) (53.6) Retirement benefits (29.2) (31.4) Tax (6.6) (10.1) Net debt (229.5) (305.6) Net assets 472.2 429.6 Net capital expenditure of £74.5m invested in fleet Working capital increase reflects Q4 growth

Receivables days (ex-retentions) down from 85 to 82

Net debt 1.3x EBITDA (2016: 1.9x)

1.5x on a covenant basis (2016: 2.1x)

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Group cash flow statement Reduction in net debt

Cash from operations represents 77% of EBITDA 2017 acquisitions: Geo Instruments and Sotkamon Porapaalu £62m non-current assets held for sale is the Avonmouth property £m 2017 2016 Cash from operations before non-underlying items 136.1 135.7 Cash inflows from non-underlying items 10.6 4.9 Cash from operations 146.7 140.6 Capex – net (74.5) (73.0) Interest (12.2) (11.6) Tax (26.0) (25.3) Acquisitions (6.5) (14.6) Non-current assets held for sale 62.0 (62.0) Dividends (21.2) (20.5) Net cash flow 68.3 (66.4) Opening net debt (305.6) (183.0) Opening 2006 swap liability

• (24.6)

Exchange movements 7.8 (31.6) Closing net debt (229.5) (305.6)

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2018 planning guidance

Currency

• 2018 assumption is £1 = US$1.40

− Restating 2017 at $1.40 (from $1.29) reduces operating profit by £9m and EPS by 9p Tax

• US tax reforms expected to reduce group tax rate to 27-29%

Capex

• Expected to be around £80m, between 1.1x and 1.2x depreciation

Business update

Koolan island, Australia New seawall, 437m long, 1.2m wide and 45m deep, to enable Mount Gibson iron ore mine to reopen

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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

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Strategic progress Growing product range and markets

• Actively bidding in India and

Africa

• Capex investment in Australia

Investment in Marine capability

• Geo-Instruments, North

America

• Sotkamon Porapaalu, Finland
• Potential acquisition of

Moretrench in the US New acquisitions

• Order book continues positive

multi-year trend

• Broad based, with good

geographical spread Healthy

• rder book

North America 46% EMEA 28% APAC 26%

Order book split Order book (£m constant currency)

400 500 600 700 800 900 1000 1100 1200 2012 2013 2014 2015 2016 2017

CAGR = 9%

Reflects run

• ff of Caspian

project

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Successfully executed 6,300 projects in 2017, driving 10% organic growth

Innes, Iceland Folloline, Norway Clairwood, South Africa Monad Terrace, US Hotel Titlis Palace, Switzerland Spirit, Australia Polavaram Dam, India Cattle Creek, Australia Arctic Circle, Finland IVS1, Kuala Lumpur Wolf Point East US Innes, Iceland

• Typical project range £25k to £10m
• Average project value £300,000

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Organic growth example A$7 million investment in 400-tonne-capacity barge

• Increasing demand for new/upgraded port

facilities for mining market

• The largest self-elevating modular

platform (SEMP) in Australia

• Enables us to complete jobs that require

larger cranes and foundation equipment

• Already scheduled for wharf upgrades

and channel marker project in the Pilbara

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Potential acquisition of Moretrench

• Renowned US geotechnical contractor
• Operating mostly along the east coast
• f the US
• 500 employees
• Will bring good ground freezing,

dewatering and industrial client expertise to Keller

• US$170m revenue and EBITDA of

US$14m in 2016

• Has partnered with Keller on a number
• f successful project JVs
• Expect to close in March

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Strategic progress Customer-focused business units

• Strengthened Hayward Baker on

West Coast, US

• Canada – urban focus and returned

to profitability

• Invested in local branch network:

Charlotte, Hamburg and Hannover Consolidated position in key markets

• Strategic planning embedded in all

businesses driving operational improvements and longer term growth Strategic focus

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Strategic progress Leveraging scale and expertise

Continue to transfer technology

• Divisional teams at strength
• Total savings of £11.3m in 2017

Procurement gaining momentum

• New IT tools to support global

collaboration Creation of

• ne global IT
• rganisation
• Vertical drains from Europe to

large scale ground improvement project in Egypt

• Jet grouting from Europe and US

to India

• Rigid inclusions from France to

South Africa

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Strategic progress Enhancing Engineering and Operations

‘Design and build’ for 50%

• f work
• New generation of vibro equipment
• Spread of D-wall and soil mixing

around the world

• Innovations in small diameter drilling

enabling us to drill deeper, faster and more cheaply Global product teams actively implementing improvements

• Optimisation software for our design

solutions

• Alternative design for Marassi Al

Bahrain project delivered 40% cost savings

• 40,000 piles installed in Caspian

region to high safety, quality and productivity levels

• Fleet management and utilisation up
• 5S rolled out to all business units

Progress on

• perational

improvement

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Strategic progress Investing in people

Safety performance

• Divisional President APAC
• New business unit and

functional leaders Leadership strength

• Think Safe programme has

reduced accidents by 80%, AFR is now at an all time low

• High performance culture

programme

• Global Leadership Conference
• Global Project Manager

Academy Investment in leadership

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APAC project performance

Two significant loss makers in Australia

• Commercial development in Sydney
• Marine project in New South Wales

Drivers

• Tough contractual environment
• Ground condition issues
• Challenging technical designs

Actions taken

• Risk management tightening
• Leadership strengthening
• Functional skills
• Keller learning process

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A lasting memorial South Africa

• On 4 July 2017 a truck collided

with two buses carrying Franki Africa employees to the Nkomati Mine project

• 18 people died and 15 were

injured

• Tragic day for everyone in Keller
• Franki Africa Memorial Fund to

provide educational bursaries to children of the deceased

• Partnering with Arrive Alive to

improve road safety in Africa

Outlook

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Outlook

• Most of our markets remain robust
• Group order book of more than £1 billion and healthy bidding activity

gives us confidence

• Well positioned to take

advantage of industry trends

• APAC to return to profit in

2018

• Further underlying

progress expected

Mostaganem, Algeria A major power plant project for 2018

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20 40 60 80 100 120 140

Operating profit (£m)

400 800 1,200 1,600 2,000 2,400

Revenue (£m)

5 10 15 20 25 30 35 40

Dividend per share (pence)

200 400 600 800 1,000 1,200 1,400

Share price (pence)

Financial performance since listing in 1994

CAGR = 11% CAGR = 9% CAGR = 11% CAGR = 10%

TSR of 12% CAGR vs 7% FTSE-all-share CAGR

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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).

Keller overview

Yonge Eglinton, Canada Technically-complex supporting works on the Eglinton Crosstown line’s busiest interchange while line stays open

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Keller today

Every day millions of people around the world live, work and play on ground prepared by Keller Our purpose Our vision Our values To be the world’s leading geotechnical contractor

• Integrity
• Collaboration
• Excellence

To help create infrastructure that improves the world’s communities

£

2.1bn

revenue

180

branches

10,000

employees

6,300

contracts pa 21 business units

Three divisions

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Keller investment case

We operate in the large and growing global construction and infrastructure market We are the number 1 business worldwide given our size, profitability and capabilities (wide product portfolio, branch network, equipment fleet, technical leadership and operational track record) We still have many areas for improvement and a strategy to deliver the benefits We have a stable business model with a long-term track record

• f growth and value creation

The specialist geotechnical contracting sub-sector has higher margins and favourable market trends

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Geotechnical market size and share

Non-addressable market mainly China, Korea, Japan and Russia

Bauer (contracting) Soletanche / Bachy / Menard Keller General contractor-

• wned

Country / regional specific, smaller players Trevi (contracting)

Market size Share of addressable market

Keller today $2.7bn Geotechnical contracting markets where Keller operates today $27bn Global geotechnical contracting market $52B bn

Source: IHS Global Insight, Keller 2017 data

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Geographical market approach

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US markets Outlook

Private residential:

• Continued expansion in single family homes expected, especially in southern states

(Florida, Texas), +9% for 2018 construction starts [Dodge]

• Multi-family home market expected to contract further in 2018, -8% for 2018

construction starts [Dodge] Private non-residential:

• Commercial and industrial property expected to be roughly flat in 2018, +2% for

2018 construction starts [Dodge] Public:

• Institutional and public works

expected to rise roughly 3% in 2018 [Dodge]

• Infrastructure investment plan

should provide some momentum in the mid term

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Market demand trends play to our strengths

More than 1,000 metro stations will be built over the next 10 years Most inner city sites are 2nd or 3rd generation 1 in 3 German railway bridges are more than 100 years old Geotechnical instrumentation and monitoring market growing >10%pa 200,000 people are added daily to urban areas

Increasing land shortage, driving a need to use more brownfield and marginal land Infrastructure renewal and expansion eg road, rail, power Increasing technical complexity Urbanisation and more large-scale development projects

1 2 3 4 5

Sources: WEF Shaping the Future of Construction, May 2016. Research and Markets

Increasing demand from customers for complete solutions not just products

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Factors to consider in geotechnical engineering

Site conditions

• Sand, silt, clay,

rock, organic

• Loose, soft, stiff,

hard, porous

• Deep, shallow,

cavities

• Water levels (high,

low) Loading conditions

• Spread, low intensity
• Slender, high

intensity, sensitive

• Seismic loading and

liquefaction

• Dynamic, wind

Requirements

• Performance

(allowable settlements)

• Schedule
• Cost

Constraints

• Neighbouring

buildings

• Noise, vibration
• Utilities, other

underground structures

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Full product range

• Allows us to make the right choice for the given soil and structure type
• Right combination of products leads to optimal solutions
• Special equipment available for our products

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Value engineering

• Employ around 1,500 geotechnical engineers

worldwide; over 200 focused purely on design

• 50% of our projects are ‘design and build’

where value engineering can reduce cost by up to 40% and save time Maiden Lane, New York

• 57-storey tower, lower

Manhattan

• Congested site where

conventional solution unbuildable

• Keller provided solution using

jet grouting which saved $5m (31%) and three months

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The equipment advantage Large fleet and design and manufacture capability

Keller total fleet

• Total equipment fleet is 1,300 rigs

− The largest equipment fleet in the world with net book value

• f £350m

Keller manufactured fleet

• We manufacture specialist

equipment in Germany

• Available only to Keller
• 20% of our projects are executed

using Keller equipment generating a revenue over £300m

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Operational excellence Safety, quality, productivity

• Strong reputation for
• perational excellence
• Strong safety record

− Accident Frequency Ratio < 0.3 (industry average c0.8) − Numerous safety awards

• High level of training for

frontline crews

• Strong network of global

resources we can rely on

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Support for United Nations Sustainability Development Goals

• Health and safety: AFR <0.3 (vs. industry

average c0.8)

• Climate change: Carbon Disclosure Project

rating A-

• Sustainable solutions: Low carbon products

eg stone columns and sand compaction, and

• ffer to offset embedded carbon
• Quality education: Safety, technical and

competency-based training, graduate and leadership programmes

• Gender equality: Reviewed workforce make-

up, updated diversity and inclusiveness policies and developing plan for delivery

• Decent work and economic growth: Employ

around 10,000 people worldwide

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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

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20 40 60 80 100 120 140

Operating profit (£m)

400 800 1,200 1,600 2,000 2,400

Revenue (£m)

5 10 15 20 25 30 35 40

Dividend per share (pence)

200 400 600 800 1,000 1,200 1,400

Share price (pence)

Financial performance since listing in 1994

CAGR = 11% CAGR = 9% CAGR = 11% CAGR = 10%

TSR of 12% CAGR vs 7% FTSE-all-share CAGR

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Through the cycle financial targets

• Revenue

− Organic growth ahead of market

• Last five years: Keller 5.2%; relevant construction markets 0.8%

− Double digit CAGR including acquisitions

• Continuation of long term trend
• Profitability

− ROCE in excess of 20% − £50m of gross benefits from improvement initiatives by 2020

• Half to drop through to incremental profit
• Dividend

− Continued growth through the cycle (rebased upwards in 2017)

• Gearing

− Headline net debt typically between 1.5x and 2.0x EBITDA

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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. Return capital to 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

• pportunities/cash requirements

Any short term return of capital likely to be share buy-back

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Targeted £50m gross benefits

10 20 30 40 50 2017 2018 2019 2020

Procurement Operational improvement Faster growth

• Targeting £50m of annualised gross

benefits by 2020 − Half to be incremental profit; half invested to enhance competitive positioning

• Benefits expected to accumulate
• ver time

− Many are slow burn − Upfront investment required

• Internal quarterly monitoring system

established

• Will publicly report annually on

progress

Indicative realisation of £50m of gross benefits

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Cost and efficiency Where will they come from?

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Keller fact sheet

• Established 1860, now number 1 geotechnical

contractor globally

• Revenue by division (FY17): 47% North America, 35%

EMEA, 18% APAC (only c3% of business in UK)

• Revenue by sector (FY17): 35% Infrastructure/Public

buildings, 24% Residential, 23% Power/Industrial, 18% Office/Commercial

• Room to grow:

− Global geotechnical contracting market - $52bn − Geotechnical contracting markets where Keller

• perates - $27bn (excludes China, Japan, Korea and

Russia) − Keller today c$2.7bn – a 5% global market share and a 10% share of the markets in which we operate

• Operate in 40 countries, across six continents
• Three divisions, 21 business units, 180 branches
• About 10,000 employees, of which around 1,500 are

geotechnical engineers, >200 focused purely on design

• 1,300 rigs globally, net book value c£350m (FY17)
• About 20% of our capex is spent on our own equipment,

mainly vibro and jet grouting

• On average we work on c6,300 contracts per year
• About 50% of our contracts are design and build, 50% are

build only

• Contracts over £5m revenue make up under 1% of the

number of contracts, but account for c20% of total revenue

• Typical contract value range £25k to £10m
• On average c25 sites mobilised every day, across the world
• We typically spend a few weeks on site (smaller projects)

with up to two years for large projects

• We have over 50 techniques or products, with 10 major

product groups

• Product split (FY17): 41% Heavy foundations, 24% Ground

improvement, 14% Earth retention, 10% Grouting, 10% Post-tension systems, 1% Instrumentation and monitoring

• Industry trends are favourable to Keller: Urbanisation/large

scale development, Brownfield/marginal land, Infrastructure renewal, Complete Solutions, Technical complexity

• We are the leading consolidator in the industry - over 20

acquisitions since 2000

• Strong safety focus, AFR <0.3 (vs. industry average c0.8)
• Keller supports the UN Global Compact and aims to adhere

to its 10 principles in the areas of anticorruption, environment, human rights and labour

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Investor Relations contact

Victoria Huxster Head of Investor Relations +44 20 7616 7575 victoria.huxster@keller.co.uk Victoria Huxster joined Keller in August 2017 and brings 15 years’ of stock market experience – she started her career in Equity Sales at Cazenove and subsequently joined Liberum Capital at its inception. She spent two years at financial PR firm Tulchan advising a broad range of listed UK companies, before moving in house to be Head of Investor Relations at Jimmy Choo PLC.