Keller : Interim Results Announcement for the six months ended 27 June 2021

3 August 2021

Keller Group plc Interim Results for the half year ended 27 June 2021

Keller Group plc ('Keller' or 'the Group'), the world's largest geotechnical specialist contractor, announces its results for the half year ended 27 June 2021.

A better than expected performance in H1; strong momentum building into H2

				Constant
				currency
	H1 2021	H1 2020	% change	% change
	£m	£m
Revenue	984.1	1,039.1	-5%	-
Underlying operating profit1	39.5	47.9	-18%	-9%
Underlying operating profit margin1	4.0%	4.6%	-60bps	n/a
Underlying diluted earnings per share1	35.6p	39.5p	-10%	1%
Net debt (bank covenant IAS 17 basis)2	113.4	155.1	-27%	-24%
Dividend per share	12.6p	12.6p	-	-
Statutory operating profit	33.5	28.0	20%	31%
Statutory profit before tax	29.2	20.8	41%	57%
Statutory diluted earnings per share	28.2p	13.8p	104%	125%
Statutory net debt (IFRS 16 basis)	180.8	232.4	-22%	-17%

• Underlying operating profit and underlying diluted earnings per share arenon-statutory measures which provide readers of this Announcement with a balanced and comparable view of the Group's performance by excluding the impact of non-underlying items, as disclosed in note 7 of the interim condensed consolidated financial statements.
  2Net debt is presented on a lender covenant basis excluding the impact of IFRS 16 as disclosed within the adjusted performance measures in the interim condensed consolidated financial statements.

Highlights

• A better than expected first half trading performance, despite the anticipatedmarket-driven compression in contract margins as a result of COVID-19 and headwinds from foreign exchange
• Revenue of £984.1m was flat on a constant currency basis, with a slow Q1 followed by improved momentum in Q2
• Underlying operating profit decreased 9% to £39.5m, on a constant currency basis, after adjusting for a foreign exchange headwind of c£5m. The positive resolution of a historical claim in North America was more than offset by the anticipated impact ofCOVID-19, higher steel prices in the Suncoast business and unrecognised revenue on suspended contracts in Africa, predominantly a liquefied natural gas (LNG) contract in Mozambique
• Net debt (on a bank covenant IAS 17 basis) reduced by 27% to £113.4m, equating to net debt/EBITDA leverage ratio of 0.7x (H1 2020: 0.9x) driven by continued strong cash performance
• Further progress in operational safety evidenced by a 27% improvement in our overall accident frequency rate
• ESG: On climate action, one of the Group's 4 specific UN Sustainable Development Goals, we have now set ambitious net zero targets for all three of our emission scopes which will culminate in carbon neutrality by 2050 at the latest
• Execution of our strategy continued with the completion of restructuring actions in Europe and the acquisition of RECON Services, Inc in North America in July
• Maintained dividend of 12.6p, continuing the Group's uninterrupted record of maintaining or increasing the dividend since flotation in 1994

Outlook

• Our order book at the end of June up 11% to £1.2bn on the prior period and on a constant currency basis. A record high, reflecting the recovery of economic activity across our markets, particularly in North America and Europe
• The Group's performance for the full year is now anticipated to be materially ahead of the Board's previous expectations, with a modest second half bias

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Michael Speakman, Chief Executive Officer, said:

"The first half of this year saw the greatest impact of the COVID-19 pandemic on the business and now we have passed this anticipated inflection point, as evidenced by our record order book, our confidence for the remainder of the year has increased. The Group has weathered the challenges of the last twelve months well, and our materially improved expectation for the full year provides a great foundation to build from as we embark on delivering the next phase of our strategy."

For further information, please contact:

Keller Group plc	www.keller.com
Michael Speakman, Chief Executive Officer	020 7616 7575
David Burke, Chief Financial Officer
Caroline Crampton, Group Head of Investor Relations

FTI Consulting

Nick Hasell020 3727 1340

Matthew O'Keeffe

A webcast for investors and analysts will be held at 08.30am BST on 3 August 2021

and will also be available later the same day on demand

https://www.investis-live.com/keller/60eecc362527a916004f0c6a/hyr21

Conference call:	Accessing the telephone replay:
Participants joining by telephone:	A recording will be available until 10 August 2021
United Kingdom 0800 640 6441	UK: 020 3936 3001
United Kingdom (Local) 020 3936 2999	All other locations: [phone]
All other locations [phone]	Access Code: 829417
Participant access code: 002293

Notes to editors:

Keller is the world's largest geotechnical specialist contractor providing a wide portfolio of advanced foundation and ground improvement techniques used across the entire construction sector. With around 9,000 staff and operations across five continents, Keller tackles an unrivalled 6,000 projects every year, generating annual revenue of more than £2bn.

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 operates; 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. For a more detailed description of these risks, uncertainties and other factors, please see the Principal risks and uncertainties section of the Strategic report in the Annual Report and Accounts. 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).

LEI number: 549300QO4MBL43UHSN10

Classification: 1.2 (Half yearly financial reports)

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Adjusted performance measures

In addition to statutory measures, a number of adjusted performance measures (APMs) are included in this Interim Announcement to assist investors in gaining a clearer understanding and balanced view of the Group's underlying results and in comparing performance. These measures are consistent with how business performance is measured internally.

The APMs used include underlying operating profit, underlying earnings before interest, tax, depreciation and amortisation, underlying net finance costs and underlying earnings per share, each of which are the equivalent statutory measure adjusted to eliminate the amortisation of acquired intangibles and other significant one-off items not linked to the underlying performance of the business. Further underlying constant exchange rate measures are given which eliminate the impact of currency movements by comparing the current measure against the comparative restated at this year's actual average exchange rates. Where APMs are given, these are compared to the equivalent measures in the prior year.

APMs are reconciled to the statutory equivalent, where applicable, in the adjusted performance measures section in this Announcement.

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GROUP OVERVIEW

Financial performance

The Group performed well in the period, delivering a better than expected result despite foreign exchange headwinds and the impact of COVID-19 in terms of trading volume and margin compression.

The Group reported revenue of £984.1m, broadly flat on the prior period on a constant currency basis. As anticipated, the low level of activity at the end of 2020 continued into the early part of the year and gradually recovered through the second quarter as the success of the vaccination and lockdown programmes began to feed through to increased business confidence and improved market demand.

Underlying operating profit decreased to £39.5m, a reduction of 9% on a constant currency basis and against a very strong comparative performance last year. The positive resolution of a historical claim in North America was more than offset by the anticipated impact of COVID-19, higher steel prices in the Suncoast business and unrecognised revenue on suspended contracts in Africa, predominantly an LNG contract in Mozambique, which are subject to commercial resolution with clients.

Another strong cash performance has driven a 27% reduction in net debt (on a bank covenant IAS 17 basis) to £113.4m, equating to a net debt/EBITDA leverage ratio of 0.7x (H1 2020: 0.9x).

Operating performance

The slowdown of the global construction market that we highlighted previously led to lower trading volume at the end of 2020 and through the start of 2021. Whilst some countries continue to be impacted by COVID-19, notably Australia, India, the Middle East and parts of Europe, the success of vaccination and lockdown containment programmes in many other countries, most notably North America, has led to increased business confidence and improved market demand generally. However, the combination of increased activity and disrupted supply chains has caused some localised material shortages in some of our markets, affecting spot pricing and more importantly material availability.

In North America, our foundations business traded as expected, negatively impacted in the first quarter by COVID-19 and adverse weather whilst benefitting from the resolution of a historical claim in relation to a large civic project completed in 2017. Suncoast, the Group's post-tension business, was impacted by higher steel prices which were partially mitigated by strong demand from the residential single family home market. Moretrench Industrial, our business that operates in the highly regulated environmental remediation market, continued to make good progress in the period.

In Europe, our business activity at the start of the year was impacted by extreme winter weather and COVID-19 related project delays in several geographies, in addition to lower volumes following the exit from South America and the completion of a large oil refinery project in Mexico in 2020. Trading volumes benefitted from the High Speed 2 (HS2) rail project in the UK and the Sandbukta-Moss-Sastad (SMS2) rail project in Norway as well as other new projects across our European markets.

In AMEA (Asia-Pacific, Middle East and Africa), the ASEAN business continued to feel the impact of COVID-19 with reduced trading activity in the period, though we expect activity to pick up in the second half. Australia experienced a difficult first quarter due to unusually heavy rain on the East coast and cyclones on the West coast. Notwithstanding this, at Austral, the Cape Lambert project continued to progress well and we continued to benefit from securing additional mining-related projects, most recently work relating to Rio Tinto's Gudai-Darriiron-ore rail project. In Africa, the business was impacted by unrecognised revenue related to suspended projects, predominantly an LNG contract in Mozambique following an escalation in terrorist attacks in the local region. The suspended projects are subject to commercial resolution with clients. Business activity across the Middle East and South Africa is improving and whilst we expect this to continue during the course of this year, we expect the operating environment to remain challenging.

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Strategy

In December 2019 we announced a revised strategy to be the preferred international geotechnical specialist contractor focused on sustainable markets and attractive projects, generating long-term value for our stakeholders. Local businesses will leverage the Group's scale and expertise to deliver engineered solutions and operational excellence, driving market share leadership in our selected segments.

We have continued to successfully execute this strategy in 2021. In Europe, as well as rightsizing the divisional head office, we have simplified the structure of the division by reducing the number of business units from six to five, with the merger of French Speaking Countries with Iberia and Latin America, to form a new South West Europe business unit, effective 1 July 2021. The latter action has already secured work through the combined business unit that would not have been won previously, and has also reduced costs.

In North America, in July we furthered our drive to gain market share in our chosen markets with the acquisition of RECON Services, Inc (RECON), a geotechnical and industrial services company headquartered in Houston, Texas. Similar to Keller's existing Florida-based Moretrench Industrial business, RECON is focused on environmental remediation activities and the geographic proximity of the two businesses will provide revenue synergies from cross- selling opportunities, both between the two businesses and also the Keller Foundations businesses, and some, primarily volume-based, cost synergies. The additional revenue synergies provide the opportunity to increase the Group's overall market share in the important Gulf Coast area where Keller has historically been relatively under-represented. The initial cash consideration was US$23m (£17m), and there is an expected earn-out of US$15m (£11m) relating to specific future contract wins.

Safety

As always, safety is a management priority and we have made continued progress in this regard in respect of both operational and COVID-19 safety during the global pandemic. This approach has enabled us to work in a safe and productive manner on sites wherever the local regulatory regime allows, using applicable personal protective equipment and social distancing.

At the start of the year, a tragic fatality occurred following an accident on a site in Austria in which we lost a long-serving and valued employee, and whilst it has been determined Keller was not at fault for the accident, as a result we have actively advanced our safety programme.

Our key safety metric, the accident frequency rate, improved by 27% year-on-year with 0.08 injuries per 100,000 hours worked and there was a 25% improvement in the total recordable incident rate. However, we are not complacent in this regard, despite an industry-leading performance, and we continue to prioritise the health and safety of our employees with a number of safety initiatives underway to leverage our experience and safety knowledge across the Group. As our number of recordable incidents decrease, it is ever more important to document proactive reports to identify and address hazardous situations before they occur. Year-on-year near miss reports are up and leadership site interaction is strong, even with the site access challenges created by COVID-19. Proactive reporting is the reporting of near miss events, events that could have caused damage or harm, and hazardous situations that if not addressed could lead to an incident.

ESG

To reflect the growing importance of Environmental, Social and Governance matters and provide greater focus and oversight on these issues, as announced on 30 July 2021, the Board has established two new Board Committees; the Environment Committee and the Social and Community Committee. In addition, the Audit and the Nomination Committees have been renamed the Audit and Risk Committee and the Nomination and Governance Committee respectively to better reflect their remits. Further detail with regard to the membership and terms of reference for these Committees can be found at www.keller.com

The company has identified safety, good governance, gender diversity and carbon reduction as the most important areas of sustainability that the Group can focus on globally. These align with UN Sustainable Development Goals 3, 5, 13 and 16. Furthermore, in respect of carbon reduction, the Executive team has set ambitious but achievable net zero

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