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Home Investor Relations 2011 - Year in review Chairman’s statement
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Chairman’s statement

Results1

Group revenue increased by 8% to £1,154.3m (2010: £1,068.9m) and the operating profit was £28.9m (2010: £43.3m), resulting in an operating margin of 2.5%, compared with the previous year’s 4.1%. Profit before tax was £21.9m (2010: £39.6m) and earnings per share were 24.8p (2010: 44.0p).

These results reflect tough market conditions which remained very challenging throughout 2011, with the uncertain macro-economic outlook impeding any significant recovery in our mature construction markets - principally the US and Western Europe - and overcapacity maintaining pressure on margins.

Against this backdrop, the Group has continued to take steps to reduce its fixed cost base. Actions taken in 2011 will deliver a further £5m of savings in 2012, bringing the total fixed overhead reduction in North America and Western Europe since 2009 to over £20m, a reduction of around 20%. Going forward, we will continue to keep costs under close scrutiny.

Cash flow and net debt2

The Group continues to focus hard on maximising cash flow in these difficult times. Cash generated from operations was £54.8m (2010: £70.3m), which represented 77% of EBITDA (2010: 83%).

Whilst emphasising cash generation, we continue to make investments where they are necessary to develop the business and to secure future growth, which in 2011 included strategic capital expenditure for Asia and Australia. After net capital expenditure of £37.4m (2010: £28.6m), net debt at the end of the year stood at £102.5m (2010: £94.0m), which represents 1.4x EBITDA.

The financial position of the Group remains strong. There is comfortable headroom in the Group’s main financing facilities, which run to 2015, and we continue to operate well within all of our financial covenants.

Dividends

The Board has recommended a final dividend of 15.2p per share (2010: 15.2p per share), to be paid on 31 May 2012 to shareholders on the register at 4 May 2012. Together with the interim dividend paid of 7.6p, this brings the total dividend for the year to 22.8p (2010: 22.8p). This unchanged dividend reflects the Board’s confidence in the Group’s prospects. Dividend cover for the full year is 1.1x (2010: 1.9x).

Strategy

During the year we undertook a review of the Group’s business and strategy, facilitated by an independent third party and involving many of the Group’s senior managers. This process, which was undertaken over a period of six months culminating in the fourth quarter, reaffirmed our overall strategy: to extend further our global leadership in specialist ground engineering through both organic growth and targeted acquisitions.

The review also highlighted certain areas where a concerted programme of initiatives, together with some internal changes, could deliver significant improvements to the Group’s business and profitability. This programme focuses principally on: increasing our revenue and profit from large projects; further improvement of the Group’s risk management; and accelerating our global transfer of technologies. The review also reinforced local or regional initiatives which were already in progress and on which we are redoubling our efforts.

To help maximise the benefits of Keller’s global reach and technical capability, Dr Wolfgang Sondermann (formerly Managing Director, CEMEA) has been appointed to the new role of Director, Group Technology & Best Practice. A large part of this new role will be to drive the Group-wide initiatives to improve further our risk management and transfer of technology.

Employees

2011 was another challenging year for many of our employees; and yet, from my visits to our operations around the Group I have seen first-hand their continued resolve and pride in the business, together with a willingness to explore new ways of working together more effectively. I would like to thank them for their contribution and wish all of them personal success in 2012.

Board

In May 2011, Mr Richard Scholes stepped down as a Non-executive Director, having served for more than nine years on the Board. Mr Chris Girling joined the Board in February and took over as Audit Committee Chairman in May. His considerable experience of the construction sector and strategic strengths make him an excellent addition to the Keller Board. In August, Mr David Savage was appointed to the Board, bringing strong entrepreneurial skills and a track record in building contracting businesses in Asia and the Middle East.

Outlook

After a period of stabilisation in 2011, certain recent data indicate that US construction markets may be turning the corner. However, the European debt crisis continues to weigh heavily and is expected to impede recovery in construction markets across Europe. Looking to Australia and our other developing markets, recent major contract awards indicate that our businesses in these regions will have a busy year.

For the Group as a whole, contract awards in recent months have been strong and, as a result, at the end of January 2012 our order book was at an all-time high level and 40% ahead of the previous year. This includes the £120m Wheatstone contract announced in January, most of which will be undertaken in 2013. Excluding work to be undertaken in 2013/14, the Group order book at the end of January was 10% ahead of the previous year.

Overall, whilst the business is expected to show steady improvement in 2012, the year will not be without further challenges, particularly given the economic uncertainty and a slow start to the year in Europe. However, with signs of strengthening demand in certain of our key markets, an increased number of larger contracts in the order book and with the benefits of our group-wide business improvement initiatives starting to come through, we are confident that 2012 will be a year of progress.

12010 results are stated before a £21.8m goodwill impairment charge.
2Net debt represents total loans and borrowings less cash and short-term deposits.

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