Keller Group Plc · LSE:KLR
Keller — H1 2019 Earnings Presentation
52 slides from Keller's earnings presentation, Jul 29, 2019
Slide 1: Keller Group plc Half year results 2019
Keller Group plc Half year results 2019 29 July 2019 keller.com
Slide 2: Cautionary statements
Cautionary statements This document contains certain ‘forward looking statements’ with For a more detailed description of these risks, uncertainties and respect to Keller’s financial condition, results of operations and other factors, please see the Risk Management approach and business and certain
Slide 3: Agenda
Agenda Summary Financial results Business update Outlook Questions and answers
Slide 4: Summary
Summary Underlying Underlying operating operating Underlying Revenue profit margin EPS Order book Dividend £1,092m £37.5m 3.4% 28.5p £1bn 12.6p Up 2% Down 24% Down 1.2% Down 30% No change Up 5% (Down 2% CC) (Down 29% CC) (Down 36% CC) • First half results in line with expectations driven by an incre
Slide 5: Summary of management actions
Summary of management actions Area Issue / opportunity Actions ASEAN • Tough markets and poor • New business unit leadership project performance – significant loss in 2018 • Comprehensive restructuring • Exit of product lines (heavy foundations) • A focus on ground improvement • Returned to profit i
Slide 6: Management actions by area
Area Issue / opportunity Actions Brazil • Still tough markets • Capacity reduction in 2018 Franki Africa • Further cost actions potentially required in H2 2019 Suncoast • Steel cost increases and • Pricing increases now passed margin compression in through and margin restored 2018 Large project • Su
Slide 7: Financial results
iW \ Financial results } KELLER
Slide 8: Summary income statement
Summary income statement H1 20192 H1 2018 Underlying Effect of Underlying Non- Total Underlying Non- Total £m (IAS 17 basis) IFRS 161 (IFRS 16 basis) underlying (IFRS 16 basis) (IAS 17 basis) underlying (IAS 17 basis) Revenue 1,091.7 - 1,091.7 - 1,091.7 1,075.1 - 1,075.1 Operating costs (1,054.3) 0.
Slide 9: Summary income statement - Underlying
Summary income statement - Underlying Revenue Organic -5% H1 20192 Moretrench +3% Underlying Effect of Underlying Non- Total Constant currency -2% £m (IAS 17 basis) IFRS 161 (IFRS 16 basis) underlying (IFRS 16 basis) FX +4% Total +2% Revenue 1,091.7 - 1,091.7 - 1,091.7 Operating costs (1,054.3) 0.8
Slide 10: Underlying operating profit bridge H1 2018 to H1 2019
Underlying operating profit bridge H1 2018 to H1 2019 65.0 EMEA APAC North America Central items Down £1.5m Down £10.4m Down £2.2m Down £1.0m 60.0 4.0 (2.3) (6.4) 55.0 3.2 3.5 50.0 (11.3) 49.1 45.0 3.7 (5.9) 0.9 40.0 (1.0) 0.8 37.5 38.3 35.0 30.0 H1 H1 H1 2018 2019 2019 (IAS 17 (IAS 17 (IFRS 16 basi
Slide 11: Summary income statement – IFRS 16
Summary income statement – IFRS 16 H1 20192 IFRS 16 Operating costs Depreciation charge on Underlying Effect of Non- Underlying Total right-of-use assets (11.9) £m (IAS 17 IFRS 161 (IFRS 16 basis) underlying (IFRS 16 basis) basis) Operating lease expense 12.7 0.8 Revenue 1,091.7 - 1,091.7 - 1,091.7
Slide 12: Summary income statement – Non underlying
Summary income statement – Non underlying H1 20192 Non underlying operating costs Underlying Waterway restructuring charge (11.0) Effect of Underlying Non- Total £m (IAS 17 IFRS 161 (IFRS 16 basis) underlying (IFRS 16 basis) ASEAN restructuring provision release 4.9 basis) Other (0.8) Revenue 1,091.
Slide 13: Cash flow
Cash flow H1 2019 Depreciation/Capex £m H1 2018 (IAS 17 basis) Capex/Depreciation 73% Underlying operating profit 37.5 49.1 Fleet renewal programme complete Depreciation and amortisation 34.7 34.4 Underlying EBITDA 72.2 83.5 Working capital Non-cash items 0.6 1.3 Compared to H2 2018 Share of post-ta
Slide 14: Balance sheet – IFRS 16 impact
Balance sheet – IFRS 16 impact FY 2018 Tangible fixed assets £m H1 2019 H1 2018 (Audited) Opening 422.0 Right-of-use assets 84.4 Intangibles 153.3 153.4 187.6 Capex 26.8 Disposals/transfers (1.0) Managed assets Depreciation (34.4) Impairment (6.9) Tangible fixed assets 488.0 422.0 429.4 Other/FX (2.
Slide 15: Net debt profile (£m)
Net debt profile (£m) 2018 2019 367 379 365 367 371 352 347 359 355 328 343 336 339 334 323 268 287 258 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Term debt and committed facilities comprise $125m of US private placements maturing 2021 to 2024 and £375m multi-currency credit facility expiring
Slide 16: Financial modelling considerations
Financial modelling considerations 2018 2019 Status Trading/profit NA Moretrench acquisition £9.2m Small annualisation effect Annualisation = £3.2m NA Suncoast pricing £(7.1)m YoY Substantial recovery expected H1 = £4.0m EMEA large projects £(29.1)m YoY £(16.0)m YoY H1 = (£11.3)m APAC recovery £(
Slide 17: Phasing H1 vs H2 – Historical patterns
Phasing H1 vs H2 – Historical patterns Revenue split H1 vs H2 Operating profit split H1 vs H2 56% 55% 100% 54% 53% 53% 78% 52% 52% 52% 52% 80% 68% 72% 52% 51% 63% 64% 63% 53% 61% 60% 60% 49% 47% 45% 48% 49% 48% 48% 48% 48% 40% 55% 51% 47% 40% 46% 47% 37% 39% 36% 37% 44% 20% 45% 32% 28% 22% 40% 0% 20
Slide 18: Business update
iW \ Business update } KELLER
Slide 19: Safety performance
Safety performance • Accident Frequency Rate is 30% lower than a • 50% reduction in working year ago and 70% lower than five years ago platform incidents in 2019 as we • 0.16 compared to US industry norm of 0.6* embed a new global standard Accident Frequency Rate (AFR) Per 100,000 hours 1.2 0.61 0.3
Slide 20: Healthy order book in excess of £1bn
Healthy order book in excess of £1bn Geographic mix Order book (£m) (Full order book) 1200 North America 1100 £607m +8% 1000 900 EMEA large EMEA projects ASEAN reset 800 £267m +3 % 700 APAC 600 £156m -36% 500 400 2012 2013 2014 2015 2016 2017 2018 H1 2019 20
Slide 21: Building on our excellent customer reputation
Building on our excellent customer reputation 1 Complex hill stabilisation, Wyoming, US Removal of 40,000 yards of earth and construction of horizontal drains to prevent landslides bordering a local school. 2 Washington DC Wharf redevelopment, US Jet grouting; displacement, soldier and sheet piles;
Slide 22: North America Operating review
North America Operating review £m H1 2019 H1 2018 Constant £m £m currency Revenue 611.0 534.3 7% Underlying operating profit 32.4 31.7 -4% Underlying operating margin 5.3% 5.9% n/a Order book* 607.1 564.1 8% * Comparative order book stated at constant currency • Increased revenue driven by Moretrenc
Slide 23: North American reorganisation
North American reorganisation • Integrating all foundation businesses into one unified company, and rebranding to Keller • Seven geographically based business units plus specialty services • Suncoast and Moretrench Industrial will stay as separate businesses and retain their brands • Effective 1 Jan
Slide 24: EMEA Operating review
EMEA Operating review £m H1 2019 H1 2018 Constant £m £m currency Revenue 342.4 324.7 5% Underlying operating profit 10.6 19.7 -50% Underlying operating margin 3.1% 6.1% n/a Order book* 267.3 258.3 3% * Comparative order book stated at constant currency • Increased revenue • Decline in profitability
Slide 25: Early works involvement (HS2)
HS2 Early works involvement Section C2/3 • Engaged with Professional Services Agreements on the Central Sections (C1 and C2/3) • Awarded advance trials on C1 for ALIGN • Tendering for main works − C1 JV with Intrafor − C2/3 JV with Bauer − South and Central instrumentation and Section C1 monitoring
Slide 26: APAC Operating review
APAC Sun Metals Corporation zinc refinery Operating review Queensland, Australia £m H1 2019 H1 2018 Constant £m £m currency Revenue 138.3 216.1 -35% Underlying operating profit (2.6) (0.4) n/a Underlying operating margin -1.9% -0.2% n/a Order book* 156.4 243.9 -36% * Comparative order book stated at
Slide 27: Progress in ASEAN
Progress in ASEAN • 2018 decision to exit Heavy Foundations (bored piling, driven piling and diaphragm walls) in Singapore and Malaysia • Successful execution of this managed exit is nearing completion Business returned to profit in first half Effective restructuring has resulted in lower than expec
Slide 28: Waterway to cease operations
Waterway to cease operations • Many years of delivering important high-quality marine infrastructure along the east coast of Australia • Marine market dynamics have changed significantly in recent years • Despite best efforts to trade through the challenges, not able to achieve success • With no mat
Slide 29: Outlook
iW } KELLER
Slide 30: Strategic priorities for 2019
Strategic priorities for 2019 Tank farm, What we said in March still stands: Galveston, US • Continue connecting and professionalising the group • Deliver group-wide business improvement projects • Continue to focus on under-performing areas of portfolio • Strengthen risk management and improve proj
Slide 31: Outlook
Outlook We reiterate full year guidance • Market fundamentals remain healthy • Quality order book in excess of £1bn Drivers • Maintaining Q2 momentum in North America • Specific project wins in Australia • Continuing to deliver on restructuring programme Leads to expectations for the full year • Rev
Slide 32: Questions and answers
iW Tatty Questions and answers } KELLER
Slide 33: Keller overview
iW Keller overview } KELLER
Slide 34: Keller today
Keller today Every day millions of people around the world live, work and play on ground prepared by Keller 3 divisions Our purpose Our vision Our values 22 business units To help create To be the world Integrity infrastructure leader in that improves geotechnical Collaboration 190 the world’s solut
Slide 35: Keller investment case
Keller investment case We operate in the large The specialist geotechnical and growing global contracting sub-sector has construction and higher margins and infrastructure market favourable market trends We are the number 1 business worldwide given our size, profitability 1 and capabilities (wide pr
Slide 36: Geotechnical market size and share
Geotechnical market size and share Market size Share of addressable market Global geotechnical contracting market $54bn Geotechnical contracting markets where Keller operates today $26bn Keller today $2.85bn* Non-addressable market mainly Keller Trevi (contracting) China, Korea, Japan and Russia Sol
Slide 37: Specialist versus generalist business model
Specialist versus generalist business model Project lifespan Keller General contractor Ground engineering General construction • Early stage, short contracts • Longer, larger projects • Specialist design capability • Some design and build • Low complexity of supply chain • Integration of multiple su
Slide 38: Market demand trends play to our strengths
Market demand trends play to our strengths More than half the world’s population lives 01 Urbanisation and more large- scale development projects in cities, and 65m people will be added to the urban population every year Increasing land shortage, 02 driving a need to use more brownfield and marginal
Slide 39: North American markets stable
North American markets stable No sign of a downturn in US market US construction output value (US$ million) with confidence remaining strong 2018-2022 CAGR = 2.2% Increasingly difficult to hire skilled employees Residential construction down year on year but highly regional, with Texas and Florida r
Slide 40: Growth in other main markets
Growth in other main markets German construction output value (€ million) German market • Steady market with growth of 1-2% 2018-2022 CAGR = 1.9% per annum • Still strong internal demand • Good opportunities in general market and larger infrastructure projects Australian market Australian constructi
Slide 41: Factors to consider in geotechnical engineering
Factors to consider in geotechnical engineering Site conditions Requirements Loading Constraints • Performance conditions • Neighbouring • Sand, silt, clay, rock, organic (allowable • Spread, low buildings settlements) intensity • Loose, soft, stiff, • Noise, vibration hard, porous • Schedule • Slen
Slide 42: Full product range
Full product range Right combination of products leads to optimal solutions for the soil conditions and structure type 42
Slide 43: Value engineering
Value engineering Employ around 50% of our projects are 1,500 geotechnical ‘design and build’ where engineers worldwide; value engineering can over 200 focused reduce cost by up to purely on design 40% and save time Maiden Lane, New York 57-storey tower, lower Manhattan Congested site where conventi
Slide 44: The equipment advantage
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 Keller manufactured fleet • We manufacture specialist equipment in Germany • Available only to Keller • 20% of our projects ar
Slide 45: The people advantage
The people advantage Enabling high performance by investing in our people Project Manager Academy • 150 project managers trained globally − Significant improvement in gross margin already being evidenced Field Supervisor Academy • 120 supervisors have attended − Improving both performance and retent
Slide 46: Medium term financial targets
Medium term financial targets Revenue Profitability • Organic growth ahead of market • ROCE in excess of 20% − 2012-2017: Keller 4.9% − Last five years: 13-20.5% − Relevant construction markets 1.3% Dividend Gearing • Continued progressive growth through • Headline net debt between the cycle (rebase
Slide 47: Capital allocation priorities
Capital allocation priorities 01 02 (on hold in 2019) 03 Profitable Bolt-on Ordinary organic acquisitions dividends growth meeting Keller’s At a level allowing dividend growth opportunities investment through the cycle criteria 04 Return capital to shareholders • Only where the balance sheet allows
Slide 48: Financial performance since listing in 1994
Financial performance since listing in 1994 Revenue (£m) Underlying operating profit (£m) 2,400 140 2,000 120 100 1,600 CAGR = 11% CAGR = 10% 80 1,200 60 800 40 400 20 0 0 Dividend per share (pence) Share price (pence) 40 1,250 35 1,000 30 25 CAGR = 9% CAGR = 7% 750 20 15 500 10 250 5 0 0 TSR of 9.6
Slide 49: Strategic progress
Strategic progress Growing our • Moretrench integration continues to contribute product range and positively entering new markets, • Global product teams proactive on organically and by knowledge and technology transfer acquisition • Reorganisation of foundation businesses in Building strong, North
Slide 50: Strategic progress
Strategic progress Enhancing our • Clear product strategies developed engineering and • Equipment innovation operational • Investment in Lean leadership and 5S to capabilities reduce variation and waste • New digital app to simplify site administration will launch by end 2019 • Keller Data Acquisiti
Slide 51: Keller fact sheet
Keller fact sheet • Established 1860, now number 1 geotechnical specialist • Contracts over £5m revenue make up around 2% of the contractor globally number of contracts, but account for c25% of total • Revenue by division: 56% North America, 31% EMEA, revenue 13% APAC (only c3% of business in UK) •
Slide 52: Investor Relations contact
Investor Relations contact Caroline Crampton Interim Head of Investor Relations +44 20 7616 7575 caroline.crampton@keller.com 52