Keller Group Plc · LSE:KLR
Keller — FY2018 Earnings Presentation
58 slides from Keller's earnings presentation, Mar 4, 2019
Slide 1: Full year results 2018
Keller Group plc Full year results 2018 4 March 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
Aircraft service centre, Rzesow Poland 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 £2,225m £96.6m 4.3% 79.1p £1.0bn 35.9p Up 7% Down 11% Down 0.9% Down 22% No change Up 5% (Up 11%cc) (Down 8%cc) (Down 20%cc) • Disappointing performance with strong H1 and weak H2. Losses in AS
Slide 5: 2018 issues and remediation actions
2018 issues and remediation actions Area Issue Remediation actions ASEAN • Tough markets and poor • New business unit leadership Waterway project performance – significant loss • Comprehensive restructuring – 350 job losses • Exit of product lines (heavy foundations and bridge work) • ASEAN now focu
Slide 6: 2018 issues and remediation actions (continued)
2018 issues and remediation actions (continued) Area Issue Remediation actions Suncoast • Steel cost increases and • Pricing increases passed margin compression through and margin substantially restored • £7m reduction in YoY profit Large project • Successful completion • Strong improvement in pipel
Slide 7: Financial results
Financial results
Slide 8: Summary income statement
Summary income statement 2018 (Audited) 2017 (Audited) Non- Non- £m Underlying Total Underlying Total underlying underlying Revenue 2,224.5 - 2,224.5 2,070.6 - 2,070.6 Operating costs (2,129.5) (64.2) (2,193.7) (1,961.9) (1.6) (1,963.5) Amortisation of acquired - (7.9) (7.9) - (9.0) (9.0) intangible
Slide 9: Summary income statement
Summary income statement Revenue Total growth 7% FX -4% Constant currency 11% 2018 (Audited) Moretrench 5% Non- Organic 6% £m Underlying Total underlying Revenue 2,224.5 - 2,224.5 Operating profit Total -11% Operating costs (2,129.5) (64.2) (2,193.7) FX -3% Amortisation of acquired Constant currency
Slide 10: Underlying operating profit bridge
Underlying operating profit bridge £m North America EMEA APAC Central items Up £2.3m Down £12.3m Down £1.7m Up £3.1m £108.7 £12.2 £(15.1) £9.2 £(7.1) £(3.5) £3.1 £14 £(18.7) £(5.6) £96.6 £8.6 £3.1 £(29.1) £16.8 2017 2018 FX Moretrench Suncoast US data Other NA US NQ EMEA large Other Project ASEAN/ I
Slide 11: Summary income statement
Summary income statement Non underlying operating costs 2018 (Audited) Goodwill 30.1 Asset impairments 22.8 £m Underlying Non-underlying Total Total non cash 52.9 Redundancies, reorganisation 8.5 Revenue 2,224.5 - 2,224.5 Total restructuring 61.4 Operating costs (2,129.5) (64.2) (2,193.7) Other – no
Slide 12: Cash flow
Cash flow £m 2018 2017 Depreciation/Capex Underlying operating profit 96.6 108.7 Capex/Depreciation 109% Depreciation and amortisation 70.9 68.5 Fleet renewal programme complete Underlying EBITDA 167.5 177.2 Non-cash items 3.6 5.7 Working capital Dividends from joint ventures 0.9 - Volume (Q4 volume
Slide 13: Balance sheet
Balance sheet 31 December 2018 31 December 2017 £m Intangibles (Audited) (Audited) Opening 170.9 Intangibles 153.4 170.9 Acquisitions inc Moretrench 20.2 Impairment goodwill (30.1) Impairment acquired intangibles (1.2) Managed assets Amortisation acquired (7.9) Tangible fixed assets 422.0 399.2 Amor
Slide 14: Net debt profile
Net debt profile 379 371 365 365 367 343 351 359 355 Moretrench completion 286 258 268 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 2023 • At year e
Slide 15: Financial modelling considerations
Financial modelling considerations 2018 2019 Trading/profit NA Moretrench acquisition £9.2m Small annualisation effect NA Suncoast pricing £(7.1)m YoY Substantial recovery expected EMEA large projects £(29.1)m YoY £(16)m YoY APAC recovery £(18.0)m loss Return to profit H2 Operating profit Reduction
Slide 16: Business update
Business update
Slide 17: Safety performance
Safety performance Sadly three fatalities in Accident Frequency Focus on key risk – rig 2018 – thorough Rate of 0.19 at all time overturns, with launch of investigations and low (69% decrease in last group wide standard lessons learned shared five years) compared to US industry norm of 0.6* Accident
Slide 18: Notable projects
Notable projects 1 Platform, Canada First ever cutter soil mixing job in Canada 2 Texas Rangers stadium, USA Retention system more than 4,000ft long - believed to be largest permanent soil nail 3 wall ever constructed in US 1 New Chancellor's Square, Germany 2 3 4 Creation of one of Germany's larges
Slide 19: North America Operating review
North America Texas Rangers Operating review Stadium United States £m 2018 2017 Constant £m £m currency Revenue 1,161.4 968.7 +24% Underlying operating profit 78.6 78.7 +3% Underlying operating margin 6.8% 8.1% Order book - next 12 months* 531.7 448.1 +19% * Comparative order book stated at constant
Slide 20: Moretrench acquisition
Moretrench acquisition Geotechnical contracting company, mainly on East Coast of US Acquired March 500 2018 for US$90m employees Teams successfully integrated and synergies delivered ahead of plan 2018 revenue EBITDA (nine months) $127m $16m Growing our Benefits to Keller product range Global access
Slide 21: EMEA Operating review
EMEA ST25 Putzerei Plachy Austria Operating review £m 2018 2017 Constant £m £m currency Revenue 668.2 737.2 -8% Underlying operating profit 39.7 53.3 -24% Underlying operating margin 5.9% 7.2% Order book - next 12 months 242.8 264.1 -8% * Comparative order book stated at constant currency • Revenue
Slide 22: APAC Operating review
APAC Obra, Uttar Pradesh India Operating review £m 2018 2017 Constant £m £m currency Revenue 394.9 364.7 +13% Underlying operating profit (18.0) (16.5) -10% Underlying operating margin (4.6%) (4.5%) Order book - next 12 months £141.3 £246.7 -43% * Comparative order book stated at constant currency •
Slide 23: APAC restructuring largely complete
APAC restructuring largely complete APAC ASEAN Waterway • New leadership • New leadership • Shared leadership and • Strengthening capability to • Downsized business functional support with maintain business Austral, reducing overhead • Managed exit from heavy and improving business improvement momen
Slide 24: Vision and strategy
Vision and strategy Building a more Vision strategic, connected To be the world leader in geotechnical solutions and capable company to maximise opportunities of scale Strategy and skill, and ensure more consistent Growing our product range and entering new markets, performance organically and by ac
Slide 25: Polavaram Dam
Polavaram Dam Successful technology transfer to India Challenge • High-profile infrastructure project • 110,000m2 of jet grouting over 3km for two cofferdams - first jet grouting project in India Solution Effective transfer of technology • Support from Global Product Team Government safety awards •
Slide 26: Equipment innovation
Equipment innovation Vibrocat new model type 5 • Complete re-design with newest standards of technology and functionality • Double Lock System allows automatic material feeding avoiding 25-50 second wait per charge Vibro S-alpha dive • Submersible system offering more depth, improved performance and
Slide 27: Keller data acquisition (Keller DAQ)
Keller data acquisition (Keller DAQ) • Collecting, processing and visualising data from Keller or third party equipment in one, easy-to-use platform • Gives project managers a standard interface to track key site information in real time − Improving project assurance, problem solving and productivit
Slide 28: Keller LEAN programme
Keller LEAN programme Keller Spain pilot Applied flow and process stabilisation to project preparation and planning process Process review • Stop points and process problems leading to delays on site, mis-allocation of resources and re-planning Actions • Designed improved planning process for short
Slide 29: Keller Operating System
Keller Operating System Keller standards Policy Set expectations we will meet globally ‘What Keller aims to achieve’ • Requirements that must be met • Focus on the ‘what’ - more discretion Standard around ‘the how’ ‘Expectations we will meet’ • Sit within a broader ‘document management’ framework Pr
Slide 30: Procurement
Procurement Continue to leverage spend and influence buying patterns with supply base North America Active national purchasing agreements with 42 suppliers Now have around 40% of our external addressable spend covered by rebate deals (up from 20% in 2016) Procurement team worked with bid teams on 20
Slide 31: Outlook
Outlook
Slide 32: North American markets still growing
North American markets still growing Steady market, little sign US construction output value (US$ million) of a slow down 2018-2022 CAGR = 2.2% Residential markets mixed and highly regional • Texas strong, South Florida slowing Good opportunities in industrial • Data centres, steel and LNG plants In
Slide 33: Growth in other main markets
Growth in other main markets German market German construction output value (€ million) • Steady market with growth of 1-2% 2018-2022 CAGR = 1.9% per annum • Government committed to increased spending on road construction (+12% year on year in 2018) • Good opportunities in Germany in general market
Slide 34: Healthy order book of £1.0bn
Healthy order book of £1.0bn Geographic mix Order book (£m) (Orders to be completed in next 12 months – YoY) 1200 North America 1100 Five year CAGR of 9%(cc) +19% 1000 900 EMEA large EMEA projects 800 -8 % APAC reset 700 APAC 600 -43% 500 400 2012 2013 2014 2015 2016 2017 2018 34
Slide 35: 2019 characteristics for Keller
2019 characteristics for Keller North America EMEA APAC • Robust markets • Margin decline post • Markets mixed completion of two large • Expect revenue decline • Expect solid growth projects from exit of ASEAN • Expect improvement in • Positive outlook in main heavy foundations and margin as cost ma
Slide 36: Strategic priorities for 2019
Strategic priorities for 2019 • Continue connecting and professionalising the group • Deliver group-wide business improvement projects that add short term value • Continue focus on under-performing areas of portfolio • Strengthen risk management and improve Picture to be added project management rig
Slide 37: Outlook
Leipziger Platz xx Berlin, Germany Outlook • Market fundamentals remain healthy • Quality order book of £1.0bn • Expectations: − Revenue broadly flat − Good recovery in profit − Strong cash generation − Debt to reduce to 1.0-1.5x 37
Slide 38: Keller overview
Keller overview
Slide 39: 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 40: 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 41: 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 42: 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 43: Market demand trends play to our strengths
Market demand trends play to our strengths More than half the world’s population Urbanisation and more large- 01 scale development projects lives 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 44: 2018 market conditions
2018 market conditions North America EMEA APAC Geographic • Overall markets • Market in • Malaysian market highlights remained solid Continental Europe shift downwards generally positive • Canada market • Slow Australia continued to recover • UK was flat recovery • Conditions in Africa and Brazil ch
Slide 45: 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 46: Full product range
Full product range Right combination of products leads to optimal solutions for the soil conditions and structure type 46
Slide 47: 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 48: 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 49: 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 50: 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 51: 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% 80 CAGR = 10% 1,200 60 800 40 400 20 0 0 Dividend per share (pence) Share price (pence) 40 35 1,250 30 1,000 25 CAGR = 9% 750 CAGR = 6% 20 15 500 10 5 250 0 0 TSR of 9.3
Slide 52: Strategic progress
Strategic progress Growing our • Successful integration of Moretrench product range and • Two small acquisitions in Sweden and Finland entering new markets, • Global product teams proactive on organically and by technology transfer acquisition Building strong, • Restructuring in ASEAN, Brazil, South
Slide 53: 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, and appointment of Quality Director • Keller Data Acquisition programme to make project performa
Slide 54: Successful completion of Caspian Region project
Successful completion of Caspian Region project €150 million project to supply and install 42,000 pre-cast piles for one of the world’s largest on-shore oil fields in Kazakhstan Three years of excellent execution, particularly in quality and safety, and in tough climate Success factors • Team dedica
Slide 55: South Florida basements
South Florida basements Teaming up to win and execute work Challenge • Constructing below ground parking basements where water table is a few feet below surface, and soil and rock highly permeable 12 Solution Basements completed to date • HJ Foundation and Hayward Baker joint venture Up to 42 feet o
Slide 56: Thames Tideway trial
Thames Tideway trial Challenge • UK water’s largest ever infrastructure project – required intersecting shafts more then 50m deep either end • Jet grouting to these depths in UK is unprecedented Solution • Colleagues from Germany, Austria and Poland shared expertise with UK • Successfully completed
Slide 57: 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: 52% North America, 30% EMEA, revenue 18% APAC (only c3% of business in UK) •
Slide 58: Investor Relations contact
Investor Relations contact Victoria Huxster Head of Investor Relations +44 20 7616 7575 [email protected] 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 Cap