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Global strength
and local focus.
Annual Report and Accounts 2016
Contents
Suncoast Post-Tension,
Tempe Town Lake, Arizona
Overview
1
Keller Group plc snapshot
Financial statements
88 Consolidated income
statement
88 Consolidated statement
of comprehensive income
89 Consolidated balance sheet
90 Consolidated statement
of changes in equity
91 Consolidated cash flow
statement
92 Notes to the consolidated
financial statements
116 Company balance sheet
117 Company statement of
changes in equity
118 Notes to the Company
financial statements
Other information
125 Adjusted performance
measures
127 Financial record
128 Our offices
128 Secretary and advisers
Strategic report
4 Chairman’s statement
6 Chief Executive Officer’s
review
10 Operating review
10 – North America
12 – Europe, Middle East
and Africa
14 – Asia‑Pacific
16 Finance Director’s review
20 Our five strategic levers
22 Strategy in action
32 Our markets
34 Our business model
36 Sustainability
41 Principal risks and
uncertainties
Governance
44 Corporate governance report
44 – Board of Directors
46 – Executive Committee
48 – Chairman’s introduction
50 – Leadership
51 – Effectiveness
52 – Accountability
53 – Health, Safety,
Environment & Quality
Committee report
54 – Nomination Committee
report
56 – Audit Committee report
59 Directors’ remuneration
report
59 – Annual statement from
the Chairman of the
Remuneration
Committee
63 – Remuneration Policy report
71 – Annual remuneration report
79 Directors’ report
81 Statement of Directors’
82
responsibilities
Independent Auditor’s
report
Keller Group plc
snapshot
Our vision
To be the world leader in
geotechnical solutions
Our purpose
To help create the infrastructure that improves
the world’s communities
Our products
What we do
P.3
– Ground improvement
– Grouting
– Heavy foundations
– Earth retention
– Post-tension systems
– Instrumentation
and monitoring
Our markets
How we are positioned
P.32
– Industry trends
– Industry overview
– Market growth
– About Keller
Business model
How our business delivers
value
P.34
Our business model is evolving
to realise our vision and drive
our new strategy, using our key
resources and relationships to
make it work:
– Our people
– Our technology
– Our market focus
– Our financial strength
Our five
strategic levers
How we will achieve our vision
P.20
1 Growth
Growing our product
range and entering new
markets, organically
and by acquisition
2 Customers
Building strong,
customer-focused
local businesses
3 Scale
Leveraging the scale and
expertise of the group
4 Engineering and
Operations
Enhancing our
engineering and
operational capabilities
Investing in our people
5 People
KPIs
How we monitor our success
P.21
– Revenue growth year-on-year
– Return on capital employed
– Operating margins
– Accident frequency rate
– Staff turnover rate
Financial Highlights
Group operating margin (%)
Cash generated from
operations (£m)
Operating profit (£m)
Earnings per share (pence)
Return on capital employed (%)
Underlying
2016
5.4
2015
6.6
Statutory
2016
4.8
2015
4.1
135.7
95.3
75.9
15.3
142.3 140.6
103.4
85.2
86.4
65.7
20.5
13.1
114.8
64.7
35.5
12.9
Risks
How we manage our risks
P.41
Financial
highlights
– Market risk
– Financial risk
– Strategic risks
– Operational risks
Sustainability
Delivering our corporate
social responsibilities
P.36
– Ensuring good health
and well-being
– Delivering quality education
– Providing working
opportunities and economic
growth locally
– Achieving gender equality
– Protecting the land we
operate on
– Understanding our
carbon contribution to
climate change
Group revenue up year-on-year by
14%
Underlying group operating margin
down to
5.4%
Cash generated from operations
before non-underlying items down to
£135.7m
Total dividend increased to
28.5p
per share
Revenue
£1,780.0m
2015: £1,562.4m
Underlying operating profit
£95.3m
2015: £103.4m
Underlying earnings per share
75.9p
2015: 86.4p
Return on capital employed before
non-underlying items
15.3%
2015: 20.5%
The Annual Report and Accounts
includes references to ‘constant
currency’ and ‘underlying’ measures.
The use of these measures is explained
in the Finance Director’s review on
page 16 and further defined and
reconciled to the statutory IFRS
measures in the adjusted performance
measures section on page 125.
Keller Group plc
Annual Report and Accounts 2016
1
Financial statementsGovernanceStrategic reportOverview
About Keller
We have the people,
expertise, experience
and financial stability to
respond quickly, see the
job through and get it
done safely.
Global strength and
local focus.
Every day, people around
the world live, work and
play on ground prepared
by Keller.
We are the world’s largest
geotechnical solutions
specialist. By connecting
global resources and local
knowledge, we tackle the
toughest engineering
challenges in over
40 countries.
With a North America presence
of over 60 years, Keller operates
as the market leader with over
50 offices throughout the US
and Canada.
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Hayward Baker offers extensive
geotechnical products and
solutions across the continent.
In the US, Case, McKinney and
HJ are heavy foundation
specialists and Suncoast
provides post-tension cable
systems. Keller Canada offers
micro-piling, ground anchors
and grouting services and a
broad range of piling solutions.
EMEA
Established by Johann Keller in
Germany in 1860, the heart of
Keller’s historical engineering
capability lies in our EMEA
Division, which offers our full
range of geotechnical products
and solutions.
EMEA now operates across 30
countries, notably in Germany,
France, Poland, Austria and the
UK in Europe, United Arab
Emirates and Saudi Arabia in the
Middle East, in South Africa and
certain parts of sub-Saharan
Africa, and in Brazil.
Asia‑Pacific
Keller has been operating in
Asia-Pacific (APAC) for over 30
years. It is the market leader in
Australia, and is well-established
in ASEAN and India.
APAC offers ground
improvement and heavy
foundation products and
solutions. Austral and Waterway
operate in Australia specialising
in near shore marine piling and
construction, a technology
recently expanded to India.
Revenue (£m)
+11.9%
Revenue (£m)
+25.2%
Revenue (£m)
+1.8%
£952.9m
£552.6m
£274.5m
Operating profit* (£m)
+13.7%
Operating profit* (£m)
+41.8%
Operating profit* (£m)
-253.8%
£86.9m
£30.2m
£(18.0)m
* Before non-underlying items.
* Before non-underlying items.
* Before non-underlying items.
Revenue by region (%)
Revenue by region (%)
Revenue by region (%)
US
Canada
92
8
Europe
Africa
Middle East
Other
75
10
10
5
Australia
Malaysia
Singapore
India
Other
62
18
12
6
2
2
Keller Group plc
Annual Report and Accounts 2016
Keller is renowned for
providing technically
advanced and cost
effective solutions often
involving a variety
of techniques.
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By engaging with our customers
from the earliest stage of a
project, we can apply our
engineering expertise to find
new and better ways of getting
the job done. Our ability to
design optimised solutions that
reduce content and cost for our
clients are what set us apart and
represent half of our work.
Ground improvement
Ground improvement
techniques are used to prepare
the ground for new construction
projects and to reduce the risk
of liquefaction in areas of
seismic activity.
Grouting
Grouting strengthens target
areas in the ground and controls
groundwater flow through
rocks and soils by reducing their
permeability. It is applicable
both to new construction
projects and to repair and
maintenance work.
Earth retention
Earth retention systems are
used to solve a wide range of
geotechnical solutions from
slope stabilisation to
excavation support.
Keller have a proven track record
in the design and construction
of complex retaining systems
and stabilisation solutions using
a single or a combination of
geotechnical products such as
secant walls, diaphragm walls,
soil mixed walls, jet grouting,
ground anchors and soil nails.
Post-tension systems
Post-tension cable systems
are used to reinforce concrete
foundations and structural
spans, enhancing their
load-bearing capacity by
applying a compressive force
to the concrete, once set.
Suncoast’s post-tension
systems are used in foundation
slabs for single family homes.
Heavy foundations
Heavy foundations are required
whenever weak soils have little
capacity to resist an existing
load or a change in existing load.
They involve the construction of
structural elements to transfer
loads down to stronger
underlying soils or rock.
Instrumentation
and monitoring
Keller specialises in providing
instrumentation and monitoring
solutions for a wide range
of applications. We provide
and install a wide range of
instruments and then provide
reliable and repeatable data.
Keller offer heavy foundation
solutions including bored, CFA,
driven piling, marine and near
shore structures, together with
underpin solutions using
micropiles and push piers.
Approximate split of products
Heavy foundations
Ground improvement
Earth retention
Grouting
Post-tension systems
Instrumentation and monitoring
45%
20%
14%
10%
10%
1%
Keller Group plc
Annual Report and Accounts 2016
3
Financial statementsGovernanceStrategic reportOverview The statutory profit before tax
was up 31% at £73.9m (2015:
£56.3m). After the statutory tax
charge of £25.9m (2015: £30.0m),
statutory profit after tax was
£48.0m (2015: £26.3m) and
statutory earnings per share
were 65.7p, compared with
35.5p in 2015.
Net debt at the year-end was
£305.6m (2015: £183.0m),
representing 1.9x underlying
EBITDA. The financial position
of the group remains strong with
undrawn borrowing facilities
totalling £149m. The group
continues to operate well within
all of its financial covenants.
Cash generated from
operations before non-
underlying items was £135.7m,
which represents 86% of
EBITDA. The group’s continued
focus on cash management
across its business has resulted
in another good cash
performance.
Dividends
The Board has decided to
recommend a final dividend of
19.25p per share (2015: 18.3p
per share), to be paid on 9 June
2017 to shareholders on the
register as at the close of
business on 19 May 2017.
Together with the interim
dividend paid of 9.25p, this
brings the total dividend per
share for the year to 28.5p
(2015: 27.1p), an increase of 5%
for the year. Dividend cover,
before non-underlying items, for
the full year was 2.7x (2015: 3.2x).
Group overview
Financial results
Group revenue for the year was
£1,780.0m, up 14% on 2015.
Constant currency revenue was
up 3%, primarily as a result of
strong growth in EMEA more
than offsetting lower revenues
from the APAC region. Constant
currency revenue in North
America was flat year-on-year.
Underlying operating profit
was £95.3m, a reduction of 8%
on the £103.4m generated in
2015. On a constant currency
basis underlying operating profit
was down 18%. The group
underlying operating margin
decreased from 6.6% to 5.4%.
The reduction in profitability is
attributable to the £18.0m loss
reported by the APAC Division
as a result of the very difficult
conditions in Singapore and
Australia which continued
through the second half. The
constant currency operating
profit in North America was up
2% year-on-year, whilst EMEA’s
was up 30%.
After taking account of £9.7m
of amortisation of acquired
intangible assets and other
non-underlying items, totalling
a net £0.4m expense, the
statutory operating profit was
£85.2m (2015: £64.7m). The 2015
statutory operating profit was
impacted by a £31.2m exceptional
impairment of goodwill relating
to Keller Canada.
On an underlying basis, after net
finance costs of £10.2m (2015:
£7.7m), the profit before tax was
£85.1m, down 11% on the
previous year’s £95.7m. The
effective tax rate on underlying
profit before tax increased from
34.5% in 2015 to 35.0% in 2016.
Underlying earnings per share
were 75.9p (2015: 86.4p).
Chairman’s
statement
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“The Board has decided to recommend a final
dividend of 19.25p per share, this brings the total
dividend per share for the year to 28.5p, an increase
of 5% for the year.”
Peter Hill CBE
Chairman
4
Keller Group plc
Annual Report and Accounts 2016
Looking ahead, Ruth Cairnie,
Non-executive Director and
Chairman of the Remuneration
Committee, has indicated to me
her intention to retire from the
Board at the conclusion of the
Annual General Meeting in May
2017. Ruth will have been on the
Board for seven years.
As part of our Board succession
planning process, we commenced
a selection process for an
additional Non-executive
Director to join the Board last
year, and I am pleased to
announce that Eva Lindqvist will
join us with effect from 1 June
2017 as an independent
Non-executive Director. Eva is
a Swedish national, and brings
a broad, very international
management skillset in the
industrial and service sectors to
the Board. Eva is a Non-executive
Director, and Chairman of the
Remuneration Committee,
at Bodycote plc.
Employees
Over 10,000 employees have
contributed to the group’s
performance during 2016. On
behalf of the Directors, I would
like to thank them for their hard
work and efforts.
Outlook
Conditions in the group’s major
markets are not expected to
change materially in 2017. The
US construction market is
forecast to continue to grow
steadily. Keller’s strong US
market share and large project
track record means we are very
well placed to benefit from any
acceleration of infrastructure
spending, although we believe
this will likely be an opportunity
for 2018 and beyond. Our main
European markets should
generally continue to be
relatively solid, although we
may see a slowdown in the UK.
Elsewhere, the group’s
markets are expected to
remain challenging and, while
we expect to see a material
improvement in APAC’s results
during 2017, we do not expect
to see a return of profitability
until 2018.
On a positive note, the group
begins 2017 with a record order
book, with work to be undertaken
over the next 12 months 20%
above last year on a constant
currency basis. Also encouragingly,
the order book includes some
major projects in some of the
most challenging markets;
Australia, the Middle East,
South Africa and Canada.
We are also beginning to see
tangible results from a number
of the strategic initiatives
launched in the last year;
product capabilities are being
transferred faster, Global
Product teams are positively
impacting contract performance
and real benefits are coming
from improved procurement.
As a result, the Board is
confident in the group’s
prospects for 2017.
Peter Hill CBE
Chairman
27 February 2017
Board
Roy Franklin announced his
intention to retire as Chairman
and from the Board in February
2016. Paul Withers, Senior
Independent Director, led the
selection process for the new
Chairman and, consequently,
I joined the Board as
Non-executive Director and
Chairman Designate with effect
from the close of the Company’s
Annual General Meeting on
24 May 2016. Roy Franklin retired
as Chairman and from the Board
after its meeting on 2 July 2016
when I became Chairman of the
Board. I also replaced Roy as
Chairman of the Nomination
Committee at that date.
In December 2016, we
announced that Dr Wolfgang
Sondermann was to stand down
from the Board and as an
Executive Director and
Engineering and Operations
Director of the Company with
effect from the end of the year.
Dr Venu Raju, who was appointed
Engineering and Operations
Director (Designate) at the
beginning of 2016 was appointed
an Executive Director from
1 January 2017.
Keller Group plc
Annual Report and Accounts 2016
5
Financial statementsGovernanceStrategic reportOverview Chief Executive
Officer’s review
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Keller remains at the forefront
of the geotechnical industry,
offering industry-leading
capability in ground improvement
and a full range of foundations
solutions. In 2016 we managed
some 6,000 projects around the
world, far in excess of any
competitor. This demonstration
of our customers’ ongoing trust
in us is something we are proud
of, but something we never take
for granted. We have continued
to make good progress in
strengthening the group and
ensuring a successful future for
all our stakeholders.
Strategic progress
Keller’s vision is to be the world
leader in geotechnical solutions.
We will achieve this through five
strategic levers:
– 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
Towards the end of 2015, the
group adopted a revised
organisational model to enhance
and accelerate efforts to progress
all the strategic levers. The model
was designed to make the group
better connected, to improve
functional capability and to
facilitate both the leveraging
of the group’s scale and the
sharing of knowledge and
best practice.
“The group continues to implement our strategic
initiatives which we are confident will realise gross
benefits of £50m by 2020, around half of which is
expected to be reflected as improved profitability.”
Alain Michaelis
Chief Executive Officer
6
Keller Group plc
Annual Report and Accounts 2016
Since then, we have launched a
number of strategic initiatives
across all the five levers, many
of which are beginning to deliver
real benefits. Based on our
assessment of the opportunities
and progress to date, the group
is confident that these initiatives
will realise gross benefits of £50m
by 2020, around half of which is
expected to be reflected as
improved profitability.
Growth
The long term drivers of market
growth remain robust. Our order
book is at an all-time high and
we’ve had some major contract
wins including work in the
Caspian Region, Zayed City in
Abu Dhabi’s Capital District, the
East Port Said Development
Complex and Clairwood
Logistics Park in South Africa.
We remain well placed to take
advantage of any acceleration
of public infrastructure spending
in the developed world, a subject
of much discussion in recent
months. We made good
progress on technology
transfer, particularly in
expanding our diaphragm wall
capability following the
acquisition of Bencor in 2015.
While a relatively quiet year on
the acquisitions front, we remain
an active consolidator in a
fragmented market.
Strong business units
All our business units continue
to strengthen capability. We have
consolidated sub scale units,
expanded product offerings in
a number of areas, and continue
to invest in leadership,
inter-company benchmarking
and sharing of knowledge across
the group. We revamped our
organisational framework in
late 2015, and 2016 has been
a good year of implementing
the changes. We have made
significant cost reductions in
business units in struggling
markets, but have been careful
to maintain base capabilities so
that we are well positioned for
market recovery.
Leverage of group and
divisional scale
Our group and divisional scale
provide a broad landscape of
opportunity for Keller and are a
lever for significant competitive
advantage. We have reinforced
our capabilities through stronger
functional leadership in domains
such as strategy, communication,
procurement and quality. Some
of the highlights were evolving
our corporate identity to present
a common customer look and
feel for the Company brands,
executing some valuable divisional
procurement contracts and
launching our group intranet. We
are a much better connected
company than a year ago.
Keller Group plc
Annual Report and Accounts 2016
7
Financial statementsGovernanceStrategic reportOverview Chief Executive
Officer’s review
continued
“ We are a much better connected company than a year ago.”
However, we still have too
many serious and preventable
incidents, and sadly saw two
fatalities in 2016, so this will
remain a constant focus for
the years ahead.
Engineering and Operations is at
our core: Dr Venu Raju replaced
Dr Wolfgang Sondermann as
Engineering and Operations
Director on 1 January 2017,
following Wolfgang’s retirement
from the Board and the Executive
Committee. I’d like to take this
opportunity to thank Wolfgang
for his huge contribution to
both Keller and the wider
geotechnical industry.
Summary
Keller has had a mixed year, with
disappointing financial results in
our most challenging markets,
notably Asia and Australia,
overshadowing continued good
progress in the US and Europe.
However, we have continued to
strengthen our industry position
in terms of geographic reach,
product range, and project scale.
Despite the ongoing challenges
in APAC, cost reduction
measures already implemented
and the group record order book
of more than £1bn gives us
confidence for 2017. We also
remain ideally placed to help
respond to any increase in
infrastructure spending in
the US and beyond.
Alain Michaelis
Chief Executive Officer
27 February 2017
Engineering and
operations
Designing and executing
projects remain at the core of
Keller. The design of solutions
that optimise all the relevant
project parameters account for
more than 50% of our revenue
base. We have a fleet of over a
thousand rigs around the world
which is part of our industry
leading capability and we
continue to invest in our in-house
manufacture of rigs and tooling
where this gives us competitive
advantage in specific product
ranges. Our newly formed global
product teams are having a
positive impact and we have
continued our quality journey
with the introduction of new
lean tools – 5S and Total
Productive Maintenance.
People
Our proven track record of
successful projects would not
be possible without the passion,
commitment and enthusiasm
of the 10,000 people who work
for Keller worldwide. I would also
like to thank them for their
continued efforts.
We launched a broader and
more comprehensive Code
of Business Conduct and
intensified our commitment
to sustainable development.
We continued to make progress
on safety with another year
of declining rates of incident.
With our lost time injury rate of
0.34 per 100,000 hours worked,
Keller is significantly better
than both the UK Construction
sector at 0.86 and the US
Bureau of Labor at 0.75.
8
Keller Group plc
Annual Report and Accounts 2016
Keller Group plc
Annual Report and Accounts 2016
9
Financial statementsGovernanceStrategic reportOverview Operating review
HJ Foundation, Miami
10
Keller Group plc
Annual Report and Accounts 2016
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These excellent performances
were offset by reduced profits in
the US piling companies. Case
and HJ Foundation, who both
reported record results in 2015,
returned to more normal levels
of profitability due to fewer large
jobs and increased competition
in their home cities of Chicago
and Miami. McKinney had a
number of poorly performing
projects. In response, we altered
the McKinney organisation to
introduce a more centralised
management and
organisational model.
Bencor, the diaphragm wall
company acquired in August
2015, continues to perform well,
with its $135m project to repair
and upgrade the East Branch
Dam in Pennsylvania
progressing to plan.
Canada
Canada continues to be a very
tough market, especially in the
west. Keller Canada continued
to struggle and recorded a small
loss for the year. The business
has undertaken further cost
reduction measures, reducing
overheads, streamlining the
equipment fleet and closing an
office. Annualised costs have
now been reduced by a total of
C$8m and we continue to look
at opportunities to consolidate
further and improve performance.
The Canadian result was also
adversely impacted by the delay
in the C$43m project in Toronto
in connection with the expansion
of the city’s metro system. This
was originally scheduled to
begin in April 2016, but is not
now due to start until the spring
of 2017.
Taken as a whole, constant
currency revenue was flat in
North America with underlying
constant currency operating
profit up 2%. The profit
improvement reflects a 4%
increase in the US, which
represents over 90% of North
American revenue, offset by a
deterioration in the Canadian
result. Canada recorded a small
loss in 2016 compared to a
small profit in 2015.
US
The US business had a strong
year, helped by a steadily
growing construction market.
Total construction spend in the
US in 2016 was up 4% on 2015,
driven by private construction
which grew by 6%. Public
expenditure on construction
marginally declined.
Keller’s US revenue was flat
year-on-year, reflecting lower
revenue from large jobs in 2016.
However, the operating margin
increased by 0.4 percentage
points as a result of good
contract performance and
better overall market conditions.
Our largest North American
business, Hayward Baker,
increased profits despite fewer
major contracts, proving the
strength of its business model
of performing a wide range of
small to medium sized contracts
across a broad range of
products and geographies.
Suncoast, the group’s post-
tension business which mainly
serves the residential
construction market, had an
outstanding year, benefiting
from the continued increase in
housing starts where it operates,
particularly in its home state of
Texas. Suncoast installed new,
more automated cut-lines in its
two largest facilities in the
second half. While these are still
relatively new, early signs are
that they will lead to significant
productivity improvements.
*
Underlying operating profit
expressed as a percentage of
average net operating assets
(including goodwill acquired through
acquisitions). ‘Net operating assets’
excludes net debt, tax balances,
deferred consideration and net
defined benefit pension liabilities.
Keller Group plc
Annual Report and Accounts 2016
11
Results summary
Revenue (£m)
£952.9m (+12%)
2016
2015
952.9
851.2
Underlying operating pro�t (£m)
£86.9m (+14%)
2016
86.9
2015
76.4
Underlying operating margin (%)
9.1%
2016
2015
KPIs
9.1
9.0
Return on net operating assets (%)*
2016
2015
Accident Frequency Rate
2016
2015
Staff turnover (%)
2016
2015
21.1
21.6
0.12
0.12
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Financial statementsGovernanceStrategic reportOverview
Operating review
continued
Results summary
Revenue (£m)
£552.6m (+25%)
2016
2015
441.5
552.6
Underlying operating pro�t (£m)
£30.2m (+42%)
2016
2015
21.3
30.2
Underlying operating margin (%)
5.5%
2016
5.5
2015
KPIs
4.8
Return on net operating assets (%)*
2016
2015
Accident Frequency Rate
2016
2015
0.37
Staff turnover (%)
2016
2015
15.5
14
0.48
5
5
12
Keller Group plc
Annual Report and Accounts 2016
l
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In EMEA, constant currency
revenue increased by 16% and
underlying constant currency
operating profit increased by
30%. As a result, the underlying
operating margin improved
from 4.8% to 5.5%, the highest
margin earned by the division
since 2009. This much
improved result reflects good
performances from all of the
most significant European
businesses (the UK, Germany,
Poland and Austria) and, in
particular, excellent project
execution at our large project
in the Caspian region.
Europe
Our businesses in central
Europe performed well, helped
by slowly improving markets.
Germany, Austria and Poland
are the original heart of Keller’s
engineering excellence and all
these countries’ results
continue to benefit from the
introduction of new products
and ongoing improvements
to existing products and
techniques. All are also leading
the way in helping business units
elsewhere in the world to
expand their product ranges,
offering significant expertise,
resources and training.
The UK also had a good year in
2016, working on a wide variety
of commercial and infrastructure
projects. The business had
fewer poorly performing
projects than in recent years,
following extensive work on
tendering and execution
disciplines. Whilst we have seen
some market slowdown
recently, much effort is currently
being devoted to securing
significant work on the major
infrastructure projects coming
up in the UK.
The major project in the Caspian
region was the group’s best
performing contract during the
year. We recently received
notices to proceed for a further
$80m which will take the total
project to around $180m.
Middle East and Africa
The group had a difficult year
in the Middle East and Africa.
Revenue in the Middle East can
be lumpy, being relatively
dependent on large projects,
and there were few such
projects in the first half of the
year. The result also suffered
from a poorly executed project
completed in the first half. The
revenue run rate improved in the
second half and should improve
significantly in 2017 following
the award of two major projects
announced recently: the £45m
East Port Said Development
Complex in Egypt, and the £25m
urban development project in
Zayed City, Abu Dhabi.
Franki Africa had a very difficult
year as the South African
construction market contracted
significantly as a result of the
economic and political
uncertainty in the country and
many projects elsewhere in
sub-Saharan Africa were
delayed. However, cost
reduction measures allowed the
business to record a small profit.
On a positive note, the Company
recently started work on a £40m
design and build contract for a
foundation solution at the
Clairwood Logistics Park
development. This project is
using a technique new to the
South African market and has
been introduced in conjunction
with Keller experts from Europe.
Brazil
We announced the acquisition of
Tecnogeo, one of Brazil’s largest
independent geotechnical
companies, in the first quarter
of 2016. Keller is now a top 3
player by market share and is
well placed to benefit from
the eventual market upturn.
As expected, trading has been
difficult in a depressed economy
with political challenges. Keller’s
existing business is being
integrated into Tecnogeo.
Operations from our Rio
location have been transferred
to São Paulo and an existing
Keller leader has recently been
relocated to Brazil to manage
the enlarged business.
*
Underlying operating profit
expressed as a percentage of
average net operating assets
(including goodwill acquired through
acquisitions). ‘Net operating assets’
excludes net debt, tax balances,
deferred consideration and net
defined benefit pension liabilities.
Keller Austria, St Kanzian
Keller Group plc
Annual Report and Accounts 2016
13
Financial statementsGovernanceStrategic reportOverview Operating review
continued
Waterway Constructions, Mayfield Wharf, Newcastle, Australia
14
Keller Group plc
Annual Report and Accounts 2016
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Results summary
Revenue (£m)
£274.5m (+2%)
2016
2015
274.5
269.7
Underlying operating (loss)/pro�t (£m)
£(18.0m) (-254%)
(18.0)
2016
2015
11.7
Underlying operating margin (%)
(6.6)%
2016
(6.6)
2015
4.3
KPIs
Return on net operating assets (%)*
2016
(12.0)
2015
10.9
Accident Frequency Rate
2016
2015
0.34
Staff turnover (%)
2016
2015
6
0.51
15
In APAC, constant currency
revenue was 8% down due to
continuing very difficult market
conditions, primarily faced by
our Singapore and Australia
businesses. The lower revenue
reflects both a reduction in
volumes and a very challenging
pricing environment. For some of
the group’s more commoditised
heavy foundation products,
pricing levels were more than
20% down year-on-year in both
Singapore and Australia.
The extremely difficult market
conditions, together with a
number of loss making contracts
in the year, resulted in the APAC
Division reporting an £18.0m
underlying operating loss for the
year. This compares to a profit of
£11.7m in 2015, although much
of that profit arose from the major,
stand-alone Wheatstone project
completed in that year. The 2016
loss was split broadly equally
between Asia and Australia. In
local currency, the second half
loss was S$4.2m (£2.4m at
current exchange rates) less
than that incurred in the first half.
This improvement was less than
expected as revenue growth was
below forecast and the results
of some key projects were
adversely impacted by
operational difficulties.
Significant restructuring has
been undertaken in both
Australia and ASEAN. Taken
together, these measures have
reduced the annualised cost base
in the division by £12.0m, of which
£3.3m benefited the 2016 result.
The merger of the Asia and
Australia divisions was completed
in the year. As anticipated, this
has allowed capability in Asia to
be upgraded, management
costs in Australia to be reduced
and increased collaboration
across the businesses.
Australia
The group’s geotechnical
businesses in Australia had an
extremely difficult year. Whilst
revenue excluding Wheatstone
was up 5% on a constant
currency basis, contract margins
were down about 4%, mainly
due to the very competitive
pricing environment. Proactive
reorganisation has achieved
significant cost savings; three
piling companies were
consolidated into one business
unit at the end of 2015,
achieving A$7m of annualised
overhead savings, whilst in 2016
the number of workshops in the
country were reduced from
ten to six and headcount was
reduced by a further 10%.
While margins remain under
pressure, there are some signs of
more work being awarded recently,
particularly in the infrastructure
sector, and the business begins
2017 with an order book well
above this time last year.
The group’s near-shore marine
businesses, Waterway and Austral,
also had a tough year with both
revenue and margins down on
2015. Austral suffered from the
major miners cutting their
maintenance spend, although
there are signs that this is now
recovering somewhat. The market
for Waterway’s more traditional
near-shore work has become
more competitive over the last
year, reflecting conditions in the
wider construction market.
Asia
The large loss in Asia was
mainly due to the group’s
piling business in Singapore.
A combination of intense
competition and a downturn in
the market has resulted in very
substantial price reductions. As
a result, all the major players are
recording significant losses and
downsizing their businesses.
Keller’s piling business in
Singapore was placed under
new management early in 2016
and has been significantly
restructured since. Headcount at
the end of 2016 was less than half
that at the beginning of the year
and a large part of the equipment
fleet has been either sold or
relocated to Malaysia, where the
market is much busier. Going
forward, the business will be
managed together with the
group’s existing heavy foundations
business in Malaysia as a single
business unit operating
throughout the ASEAN region.
The enlarged business will
concentrate on winning multi-
product, foundation solution
projects, avoiding the more
commoditised end of the market.
It is positive that the group
recently won a large station box
project in Kuala Lumpur, using
diaphragm wall technology for
the first time in the region.
Our ground improvement
business in Singapore and
Malaysia has performed
acceptably, although is not
immune from new competition.
It recorded a small profit in the
year, helped by the successful
large vibro-compaction
contract at Changi airport.
In contrast to the rest of the
region, Keller India continued
to perform well in 2016. The
business won its first ever
diaphragm wall contract as part
of the Lucknow metro project,
assisted by Keller teams from
Poland and Australia. It also
recently won its first near-shore
marine project, with support
from Australia. Prospects in
2017 are encouraging.
*
Underlying operating profit expressed
as a percentage of average net
operating assets (including goodwill
acquired through acquisitions). ‘Net
operating assets’ excludes net debt,
tax balances, deferred consideration
and net defined benefit pension
liabilities.
Keller Group plc
Annual Report and Accounts 2016
15
Financial statementsGovernanceStrategic reportOverview
Finance Director’s
review
“Group revenue for the year was £1,780.0m,
up 14% on 2015.”
James Hind
Finance Director
16
Keller Group plc
Annual Report and Accounts 2016
Statutory results
Revenue for the year was
£1,780.0m, up 14% on 2015
(£1,562.4m). Statutory operating
profit was £85.2m, an increase of
32% on the £64.7m generated in
2015, mainly due to the 2015
statutory operating profit being
impacted by a £31.2m exceptional
impairment of goodwill relating
to Keller Canada. Statutory profit
before tax was up 31% at £73.9m
(2015: £56.3m). After the
statutory tax charge of £25.9m
(2015: £30.0m), statutory profit
after tax was £48.0m (2015:
£26.3m) and statutory earnings
per share were 65.7p, up 85% on
the 35.5p earned in 2015. These
statutory results include the
impact of foreign exchange
movements, acquisitions and
non-underlying items.
Adjusted performance
measures
The group’s results as reported
under International Financial
Reporting Standards (IFRS) and
presented in the financial
statements (the ‘statutory
results’) are significantly
impacted by movements in
exchange rates relative to
sterling, as well as by exceptional
items and non-trading amounts
relating to acquisitions.
As a result, adjusted
performance measures have
been used throughout the
Annual Report and Accounts to
describe the group’s underlying
performance. The Board and
Executive Committee use these
adjusted measures to assess
the performance of the business
because they consider them
more representative of the
underlying ongoing trading
result and allow more meaningful
comparison to prior year. Where
not presented on the face of the
consolidated income statement
(page 88) or cash flow statement
(page 91), the adjusted measures
are defined and reconciled to
the amounts reported under
IFRS in the Adjusted performance
measures section on page 125.
The constant currency basis
(‘constant currency’) adjusts
the comparative to exclude
the impact of movements in
exchange rates relative to
sterling on the translation of the
results of overseas operations.
Retranslating at 2016 average
exchange rates increases prior
year revenue and underlying
operating profit by £168.2m
and £12.3m respectively.
The term ‘underlying’ excludes
the impact of exceptional items,
amortisation of acquired intangible
assets and other non-trading
amounts relating to acquisitions
(collectively ‘non-underlying
items’), net of any associated
tax. Non-underlying items
mainly comprise £9.7m
amortisation of acquired
intangible assets, £14.3m of
exceptional restructuring costs
and a £14.3m exceptional credit
relating to a historic contract
dispute on a project in
Avonmouth, in the UK.
Underlying trading
results1
Group revenue for the year was
£1,780.0m, up 14% on 2015.
Constant currency revenue was
up 3%, primarily as a result of
strong growth in EMEA more
than offsetting lower revenues
from the APAC region. Constant
currency revenue in North
America was flat year-on-year.
This significant difference
between the headline and
constant currency revenue
growth mainly reflects the
material weakening of sterling
over the course of 2016, which
impacted the reported results
of all three divisions. The
average US$:£ rate in 2016 was
1.36, compared with 1.53 in
2015, a weakening of 11%.
EBITDA was £158.6m,
compared to £155.5m in 2015,
and underlying operating profit
was £95.3m, a reduction of 8%
on the £103.4m generated in
2015. On a constant currency
basis underlying operating profit
was down £20.4m, an 18%
annual reduction. As a result,
the group’s underlying operating
margin decreased from 6.6% to
5.4%. The reduction in
profitability is attributable to
the £18.0m loss reported by
the APAC Division.
In North America, which
represents over 50% of group
revenue, operating profit
increased by 14% from £76.4m
in 2015 to £86.9m in 2016. On a
constant currency basis, revenue
was flat and operating profit
increased by 2%. The operating
margin was 9.1% (2015: 9.0%).
In the US, a strong performance
by Hayward Baker and Suncoast
was offset by a return to more
normal levels of profitability in
Case and HJ, both of which
generated record profits in 2015.
Our business in Canada continues
to experience very challenging
market conditions and reported
a small loss for the year.
Investment (£m)*
92.8
68.6
152.4
2016
2015
2014
2013
2012
33.7
Capital expenditure
Acquisitions
245.2
* Excludes acquisition of non-current
assets held for sale.
Covenant
limit
Current
position*
< 3x
Test
Net debt:
EBITDA
EBITDA
interest
cover
15.0x
Net worth > £200m £425.4m
2.1x
> 4x
*
Calculated in accordance with the
covenant, with certain adjustments
to net debt and net interest and
EBITDA is underlying and annualised
for acquisitions.
In EMEA, reported revenue
increased by 25% with constant
currency revenue up 16%.
Operating profit increased from
£21.3m to £30.2m, a 42%
increase (30% on a constant
currency basis), achieving a 5.5%
operating margin (2015: 4.8%).
Whilst a number of markets
remain challenging, the group’s
most significant European
businesses (the UK, Germany,
Poland and Austria) recorded
strong growth and profitability
in the year. The division also
benefited from the large project
in the Caspian region that
continues to progress well.
In APAC, revenue was up 2% on
a reported basis but constant
currency revenue was down 8%
due to the continuing very
difficult market conditions faced
by our Singapore and Australia
businesses. The lower revenue
reflects both a reduction in
volumes and a much tighter
pricing environment. As a result,
the APAC Division reported a
£18.0m loss for the year (2015:
profit of £11.7m) with the loss
split broadly equally between
Asia and Australia.
Interest
Underlying net finance costs
increased from £7.7m in 2015 to
£10.2m in 2016. This increase is
mainly attributable to interest
payable on the group’s higher
average net borrowings during
the year. The reasons for the
increase in net debt are outlined
in the cash flow and financing
section below. Statutory net
finance costs increased from
£8.4m in 2015 to £11.3m in 2016.
Underlying operating profit
£95.3m
Non-underlying items
Non-underlying items before
taxation totalled £11.2m in 2016.
These comprise:
Amortisation
£9.7m of amortisation of
acquired intangible assets
(2015: £7.3m)
Exceptional restructuring
charges
A £14.3m restructuring charge
relating to asset write-downs,
redundancy costs and other
reorganisation charges in
markets experiencing
significantly depressed trading
conditions (Singapore, Australia,
Canada and South Africa). This
includes a non-cash charge of
£9.0m relating to the write-down
of surplus equipment not being
relocated to other parts of
the group.
Exceptional contract dispute
A £14.3m credit as a part
reversal of a £54.0m exceptional
charge taken in 2014 for a
contract dispute relating to a
UK project completed in 2008.
The project was in connection
with the construction of a major
warehouse and processing
facility in Avonmouth, near
Bristol. As noted at the time,
the provision was expected to
be reduced by future insurance
recoveries and the group’s final
liability for the dispute would
also be dependent in part on
the value of the property.
As previously announced, the
group acquired the relevant
property in May 2016 pursuant
to the dispute settlement
agreement for £62.0m with a
view to marketing it to third
parties. The marketing process
continues and the group remains
confident of recouping most, if
not all, of the consideration on
sale. The property is shown on
the group year-end balance
sheet as an asset held for sale at
a value of £54.0m. This is based
on a third party valuation and is
£6.0m higher than the amount
at which the property was
included in the 30 June 2016
balance sheet.
Towards the end of 2016, the
group received £7.5m of
insurance proceeds in respect
of this dispute. A further £5.9m
was received in February 2017
which will be included in the 2017
results as an exceptional credit.
The group’s 2016 results
therefore include an exceptional
credit relating to this dispute,
comprising the insurance
proceeds received in the year,
the £6m valuation uplift and
rental income from the property
less operating costs.
Other non-trading items
relating to acquisitions
A net charge of £0.4m (2015:
£0.2m) relating to changes in
estimated contingent
consideration payable in respect
of recent acquisitions and
acquisition costs.
Further details of non-underlying
items are set out in note 7 of the
Annual Report and Accounts.
Operating margin from continuing
operations (%)*
Dividend per share (pence)
Cash �ow history* - pro�ts = cash
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
5.4
6.6
5.8
5.4
3.7
2.5
4.1
7.4
10.0
11.2
* Before non-underlying items.
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
28.5
27.1
25.2
24.0
22.8
22.8
22.8
21.75
20.7
18.0
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
158.6
155.5
141.9
124.2
91.9
71.4
85.0
113.2
144.3
125.8
* From continuing operations and
before non-underlying items.
EBITDA
Group operating cash flow
Keller Group plc
Annual Report and Accounts 2016
17
Financial statementsGovernanceStrategic reportOverview
Finance Director’s
review
continued
Tax
The group’s underlying effective
tax rate was 35.0%, a slight
increase on the 2015 effective
rate of 34.5%. The effective tax
rate is high compared to the UK
statutory rate because of the
geographic mix of profits, with
the majority of the group’s 2015
underlying profit before tax
being earned in the US, where
the underlying combined federal
and state corporate tax rates
total nearly 40%.
A non-underlying tax credit of
£3.9m has been recognised,
representing the net tax impact
of the 2016 non-underlying items.
Earnings and dividends
Underlying earnings per share
(EPS) decreased by 12% to 75.9p
(2015: 86.4p), in line with the
reduction in the group’s
underlying profit after tax.
The Board has recommended
a final dividend of 19.25p per
share (2015: 18.3p per share),
which brings the total dividend
for the year to 28.5p (2015:
27.1p), an increase of 5% for the
year. The 2016 dividend cover
before underlying items was 2.7x
(2015: 3.2x).
Cash flow and financing1,2
The group has always placed a
high priority on cash generation
and the active management
of working capital. In 2016,
underlying cash generated
from operations was £135.7m,
representing 86% (2015: 92%)
of underlying EBITDA. This
continues the group’s excellent
record of converting profits into
cash, with the aggregate of the
last 10 years’ of cash generated
from operations representing
98% of EBITDA.
Net underlying capital
expenditure, excluding the
property acquisition referred
to above, totalled £73.0m,
compared to depreciation and
amortisation of £63.3m. The
group continues to invest in
transferring technologies into
new geographies and to
upgrade the equipment fleet.
At 31 December 2016, net debt
amounted to £305.6m (2015:
£183.0m). The increase in net
debt is explained as follows:
Net debt at
1 January 2016
Free cash flow
Dividends
Foreign exchange
movements
Exceptional items3
Opening swap liability
Acquisitions
Net debt at
31 December 2016
£m
183.0
(25.8)
20.5
31.6
57.1
24.6
14.6
305.6
Based on net assets of £429.6m,
year-end gearing was 71%
(2015: 55%).
The group’s term debt and
committed facilities principally
comprise $165m of US private
placements maturing between
2018 and 2024, a £250m
multi-currency syndicated
revolving credit facility expiring
in September 2019, a $45m
revolving credit facility expiring
in September 2019 and a £48m
term loan expiring in May 2017,
obtained for the purpose of
acquiring the processing and
warehousing facility. At the year
end, the group had undrawn
committed and uncommitted
borrowing facilities totalling
£149.0m.
18
Keller Group plc
Annual Report and Accounts 2016
The most significant covenants
in respect of our main borrowing
facilities relate to the ratio of
net debt to EBITDA, EBITDA
interest cover and the group’s
net worth. The group is
operating well within all of its
covenant limits. The most
critical is net debt to EBITDA
and, at the year end the group’s
net debt to EBITDA ratio,
calculated on a covenant basis,
was 2.1x, well within the limit of
3.0x. The ratio will reduce by
0.4x should the Avonmouth
property be sold.
Impact of Brexit
The UK referendum vote to
leave the European Union is
expected to lead to a period
of prolonged economic and
political uncertainty in the
country. Whilst this is likely to
impact our operations in the UK,
Keller’s UK business represents
less than 4% of group revenue.
Since the Brexit vote, sterling
has weakened considerably
against most currencies.
Virtually all Keller’s earnings and
most of its debt are in foreign
currencies, primarily the US
dollar. As a result, there has
been a beneficial effect on
Keller’s 2016 profits when
translated into sterling.
Conversely, the weakening of
sterling has increased the
reported level of the group’s net
debt, adding over £30m to net
debt since the end of 2015.
Capital structure
and allocation
The group’s capital structure
is kept under constant review,
taking account of the need for
and availability and cost of
various sources of finance.
The group’s objective is to
deliver long-term value to its
shareholders whilst maintaining
a balance sheet structure that
safeguards the group’s financial
position through economic
cycles. In this context, the Board
has established clear priorities
for the use of capital. In order
of priority these are:
(i) To fund profitable organic
growth opportunities
(ii) To finance bolt-on
acquisitions that meet the
group’s investment criteria
(iii) To pay ordinary dividends at
a level which allows dividend
growth through the cycle
(iv) Where the balance sheet
allows, to deploy funds for
the benefit of shareholders
in the most appropriate
manner.
The deployment of funds to
shareholders other than through
ordinary dividends is unlikely to
be considered when the group’s
net debt to EBITDA is above 1.5
times, or where it might result in
net debt exceeding 1.5x
EBITDA, after taking account of
other investment opportunities
and the seasonality of cash flows.
Pensions
The group has defined benefit
pension arrangements in the
UK, Germany and Austria.
The group’s UK defined benefit
scheme has been closed for
future benefit accrual since
2006. The last actuarial
valuation of the UK scheme was
as at 5 April 2014, when the
market value of the scheme’s
assets was £35.8m and the
scheme was 77% funded on
an ongoing basis. Following
the valuation, the level of
contributions increased
marginally to £1.6m a year,
a level which will be reviewed
following the next triennial
actuarial valuation. The 2016
year-end IAS 19 valuation of the
UK scheme showed assets of
£43.4m, liabilities of £58.4m and
a pre-tax deficit of £15.0m.
In Germany and Austria, the
defined benefit arrangements
only apply to certain employees
who joined the group prior to
1991. The IAS 19 valuation of
the defined benefit obligation
totalled £16.4m at 31 December
2016. There are no segregated
funds to cover these defined
benefit obligations and the
respective liabilities are included
on the group balance sheet.
All other pension arrangements
in the group are of a defined
contribution nature.
Management of
financial risks
Currency risk
The group faces currency risk
principally on its net assets,
most of which are in currencies
other than sterling. The group
aims to reduce the impact that
retranslation of these assets
might have on the balance sheet
by matching the currency of its
borrowings, where possible, with
the currency of its other net
assets. A significant portion of
the group’s borrowings are held
in US dollars, Canadian dollars,
euros, Australian dollars,
Singapore dollars and South
African rand, in order to provide
a hedge against these currency
net assets.
The group manages its currency
flows to minimise currency
transaction exchange risk.
Forward contracts and other
derivative financial instruments
are used to hedge significant
individual transactions. The
majority of such currency flows
within the group relate to
repatriation of profits, intra-
group loan repayments and any
foreign currency cash flows
associated with acquisitions.
The group’s foreign exchange
cover is executed primarily in
the UK.
The group does not trade in
financial instruments, nor does
it engage in speculative
derivative transactions.
Interest rate risk
Interest rate risk is managed
by mixing fixed and floating rate
borrowings depending upon
the purpose and term of the
financing. As at 31 December
2016, 90% of the group’s
third-party borrowings bore
interest at floating rates.
Credit risk
The group’s principal financial
assets are trade and other
receivables, bank and cash
balances and a limited number
of investments and derivatives
held to hedge certain of the
group’s liabilities. These
represent the group’s maximum
exposure to credit risk in relation
to financial assets.
The group has stringent
procedures to manage
counterparty risk and the
assessment of customer credit
risk is embedded in the contract
tendering processes. Customer
credit risk is mitigated by the
group’s relatively small average
contract size, its diversity, both
geographically and in terms of
end markets, and by taking out
credit insurance in many of the
countries in which the group
operates. No individual
customer represented more
than 5% of revenue in 2016.
The counterparty risk on bank
and cash balances is managed
by limiting the aggregate
amount of exposure to any one
institution by reference to their
credit rating and by regular
reviews of these ratings.
James Hind
Finance Director
27 February 2017
1
2
3
Before pre-tax non-underlying items
of £11.2m (2015: £39.4m). Details of
the non-underlying items are set out
in note 7 of the consolidated financial
statements.
Before a £4.9m net cash inflow in 2016
relating to the 2014 exceptional
contract provision.
£62.0m acquisition of non-current
asset held for sale less £4.9m net cash
inflow from non-underlying items.
Keller Group plc
Annual Report and Accounts 2016
19
Financial statementsGovernanceStrategic reportOverview Our five
strategic levers
Keller’s goal is to be
the world leader in
geotechnical solutions.
In 2016, we continued
to make progress in
delivering against our
strategy. There are
five levers:
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Growing our product range
and entering new markets,
organically and by acquisition
Description
We have a set of target product
segments based on growth,
profit and strategic
considerations.
We also have a set of target
geographies to either
consolidate market position
or open up new markets.
We maintain a short-list of
potential acquisitions to help
us access target markets,
where required.
Explanation
The acquisition of Tecnogeo
gave us access to broader
markets in Brazil and gave
us strong presence in key
geographies of São Paulo
and Rio de Janeiro.
We have successfully
transferred our diaphragm
walling capability into India
with support from Poland
and Bencor.
Building strong, customer-
focused local businesses
Leveraging the scale and
expertise of the group
Description
Ground engineering is a local
business that demands local
expertise and relationships.
We will continue to focus on
and satisfy the needs of our
customers at local level.
Our businesses evaluate
the quality of their customer
feedback (amongst other
things).
Our businesses offer two
routes to value creation: high
operational efficiency and
utilisation and/or strong
technical differentiation.
Explanation
Business units in over 40
countries provide local
knowledge of both markets
and ground conditions.
Business units with robust
divisional and group controls
framework.
In the past year we have updated
and standardised our Keller
branding to support the local
business message.
Description
Keller has globally leading
expertise and a corporate
structure that allows us to bring
the best of Keller to every
customer engagement.
We will be investing in the tools
and processes to make this
more effective and efficient.
Synergies in operating model
will be selectively implemented
so that we don’t lose local
responsiveness.
Keller’s scale provides security
for customers and employees
through resilience to risk.
Explanation
We have expanded our
procurement capability to
include strong divisional level
leadership and also harmonised
our equipment acquisition
approach.
Group scale has given us the
capacity and customer
credibility to take on larger
projects in the Middle East,
South Africa and Malaysia.
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Keller Group plc
Annual Report and Accounts 2016
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Enhancing our engineering
and operational capabilities
Investing in our people
Description
We are investing in connecting
our global network of engineers
and project managers to share
best practices on project
execution, equipment
management and maintenance
and technology innovation.
Description
We are investing in developing
the talent of our employees
to help deliver world-class
solutions to our customers as
well as creating opportunities
for all to maximise their
potential.
We continue to strive for
leadership in HSEQ.
Explanation
Executive Committee
reinforced.
Talent development programme
rolled out to our senior
management population.
Global Leadership Team
identified and programme of
communications is in train.
Continued strong emphasis
on safety improvement.
Our global supply chain is
optimised to balance equipment
utilisation with efficient
transport.
We aim to be a leader and
investor in new technologies.
Explanation
Engineering and Operations
function established, charged
with building group capability
and expertise, to deliver superior
solutions and productivity.
Global Product Teams
developing minimum operating
standards for the group and
sharing best practice.
We have improved transparency
on our equipment utilisation
and are driving improved
optimisation of fleet.
KPIs (Performance in 2016)
Revenue growth year on year:
year-on-year sales growth, including
acquisitions
13.9%
Return on capital employed:
underlying operating profit as a net
return on capital employed
15.3%
Operating margins:
underlying operating profit expressed
as a percentage of revenue
5.4%
Accident frequency rate:
accident frequency per 100,000 hours;
lost time injuries are calculated as any
incident over one day
0.34
Staff turnover rate:
managerial, professional and technical
staff leaving in the period, other than
through redundancy or normal retirement,
expressed as a percentage of staff in
this category
7.0%
Keller Group plc
Annual Report and Accounts 2016
21
Financial statementsGovernanceStrategic reportOverview
Strategy in action
Diaphragm walls: a first
for Keller India
Strategic levers
1 Growth
2 Customers
4 Engineering and Operations
One advantage that Keller has as
a global company is its ability to
draw on worldwide experience
and expertise to transfer
techniques from one market to
another to achieve growth.
Keller India did just that in 2016
to secure its first ever diaphragm
wall contract as part of the
Lucknow metro project.
Keller Poland also provided a
team of five to work on site and
transfer knowledge to their
Indian colleagues. But, as
building diaphragm walls on a
busy road is very different to a
greenfield site, and the solution
used polymer rather than
bentonite as a drilling fluid, all
the teams developed new skills.
This is one of an estimated 800
metro stations planned globally
for the next decade.
Securing and delivering the
project was a real team effort.
Keller Foundations in Australia
and Keller Poland sent their
diaphragm wall experts to India
to help plan and prepare for the
job. The global product team
for diaphragm walls was also
involved, drawing on experience
from Bencor, which we acquired
in 2015 specifically to expand our
product knowledge in this area.
Because the site was in the
middle of one of Lucknow’s
busiest roads, trucks were only
able to deliver concrete at night.
Reinforcement cages were
prepared at the site but there was
only a road width of 11 metres to
perform the task. Keller India’s
experience of adapting to these
local conditions helped keep
productivity high as per the
contract estimate.
22
Keller Group plc
Annual Report and Accounts 2016
Keller India, Lucknow, India
Global strength
and local focus.
Proving Keller’s capacity
and credentials for
diaphragm walls in India
and Asia, this project will
help secure other similar
projects in the region.
Indeed, we have recently
won our first diaphragm
wall project in Malaysia.
Keller Group plc
Annual Report and Accounts 2016
23
Financial statementsGovernanceStrategic reportOverview Strategy in action
continued
A stronger, more unified
Keller brand
Strategic levers
2 Customers
3 Scale
Keller evolved and unified its
corporate identity this year to
emphasise that all its companies
are connected and ensure that
its brand is recognised around
the world.
Keller has a unique ability to
offer global strength and local
focus. For example, our
knowledge of local markets
and ground conditions make
us ideally placed to understand
and respond to a particular
local engineering challenge.
Our global knowledge base then
allows us to tap into a wealth of
experience, and the best minds
in the industry, to find the
optimum solution. Emphasising
this through our branding and
corporate identity is an
important part of our strategy
to be the world leader in
geotechnical solutions.
More practically, unchanged
for more than 20 years, the
previous Keller logo needed
modernising and didn’t work well
in social media. Multiple logo
styles also all required different
artwork, assets and applications.
Now, all our geotechnical
companies will use the two
diamonds to symbolise global
strength and local focus, and
show that they’re all part of one
Keller family. Non Keller company
names that are well-established
in their local markets remain, but
now all have the words ‘A Keller
Company’ underneath.
24
Keller Group plc
Annual Report and Accounts 2016
Global strength
and local focus.
Most of our clients contract
with us on local and regional
projects, and delivering
these safely, to a high quality
and on time is what builds
our reputation and makes
us the contractor of choice
locally. At the same time
our financial strength, and
the resources that we can
draw on globally, mean that
we can tackle the largest
and most demanding
projects around the world.
Our branding now
emphasises this global
strength and local focus
that makes us unique.
Keller Group plc
Annual Report and Accounts 2016
25
Financial statementsGovernanceStrategic reportOverview Strategy in action
continued
Global product teams
at work
Strategic levers
4 Engineering and Operations
5 People
We work with our in-house
equipment business, for
example, to improve the
efficiency of our jet-grouting
nozzles and monitors.
Reducing the amount of
by-product produced is another
focus area, to improve
sustainability and reduce cost.
The team supports bids and
projects too. Working with,
for example, Keller Canada
Geo-Foundations on the Yonge
Eglinton Station project to
assess and optimise the design.
To enhance our engineering
and operational capabilities,
ten global product teams (GPTs)
were established, covering each
of our major product lines.
They’re starting to make a real
difference on the ground with
successes on bid assistance;
new design methods;
technology transfer; and
equipment development.
The jet grouting global product
team is one example. The team
spent the early part of the year
consolidating Keller’s jet grouting
knowledge and capability and
identifying where our best
practices and opportunities are.
This knowledge has now been
collated into guidance documents
and distributed to all our business
units. To help manage risk, the
team is also introducing a new
safety procedure for protecting
colleagues working below the
rotary drill head.
26
Keller Group plc
Annual Report and Accounts 2016
Global strength
and local focus.
As global product teams
become part of our
knowledge network,
getting information and
access to expertise is
becoming much easier for
everyone at Keller. Now
the team are established,
the main thrust going
forward will be to transfer
knowledge and expertise
to the businesses. We can
then expect to see further
improvements in work
winning, quality and
operational efficiency –
and ultimately profitability.
Keller Group plc
Annual Report and Accounts 2016
27
Financial statementsGovernanceStrategic reportOverview Strategy in action
continued
Partnering for success
Strategic levers
1 Growth
2 Customers
3 Scale
Like other business units in the
Keller family, Hayward Baker and
HJ Foundation are increasingly
collaborating to secure and
deliver contracts that neither
would have won on their own.
Hayward Baker’s expertise in
soil mixing fits perfectly with
HJ Foundation’s expertise in
deep foundations. Using strong
quality control systems and
logistics management, HJ
installs deep foundations with
continuous flight auger piles and
does the excavation, and HBI
executes the deep-soil mixing,
offering a turnkey dry-hole
solution for the client.
In 2016 the team signed
multi-year agreements for
some $72m and executed
projects of around $20m.
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Keller Group plc
Annual Report and Accounts 2016
HJ Foundation, Miami
Global strength
and local focus.
Collaboration across
Keller allows us to optimise
the solution via the design
and selection of the best
combination of
geotechnical products.
Our customer only has to
deal with one company
that offers everything,
rather than three or four
different contractors,
making the coordination
of projects that much
easier. And because Keller
can respond quickly with
expert people and
specialised equipment,
it also means lower costs,
faster schedules and
higher quality.
Keller Group plc
Annual Report and Accounts 2016
29
Financial statementsGovernanceStrategic reportOverview Strategy in action
continued
Remote fixes
maximise productivity
Strategic levers
3 Scale
4 Engineering and Operations
As our machinery becomes
more technologically advanced,
so too do the methods we use
for diagnosing and solving
problems. Keller has a team that
can fault-find, and often fix a
machine almost anywhere in
the world – without leaving
their desks.
The Telediagnostics team in
Renchen, Germany are at the
end of a line – telephone and
email – to help when a piece of
Keller machinery isn’t working
as it should be.
The team is based in our
in-house equipment business
at Renchen in Germany, which
designs and produces the
specialist equipment used by
many of our business units,
including vibrocats and jet
grouting rigs.
More than 400 of these machines
are fitted with sensors that allow
the team to access the various
electronic control units. These
include the programmable logic
controller (the computer that
automates processes),
frequency inverter (which
controls speed and torque),
radar and ultrasonic sensors,
and the M5 system (which
produces production reports).
When they get a call from
someone on-site who has a
problem with their machine,
they evaluate the data on the
systems to determine the
electronic or mechanical problem.
Once a problem is diagnosed,
the team can talk the caller
through steps to remedy the
problem, or give them the part
number so they can order a
replacement to arrive the next
day. About three quarters of
the time the issue can be fixed
there and then.
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Keller Group plc
Annual Report and Accounts 2016
Global strength
and local focus.
In an environment where
delivering on time is
critical, the Telediagnostics
team provides an
indispensable service that
helps keep our machines
up and running – and our
projects on schedule.
Keller Group plc
Annual Report and Accounts 2016
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Financial statementsGovernanceStrategic reportOverview .
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4. Complete solutions:
customers want to reduce their
burden of managing complexity
and are trusting us to take on
more roles for them, this helps
make our work more efficient.
5. Technical complexity:
the equipment sophistication
and products required by the
market are increasing in
complexity. Our rigs are
becoming more digital (including
monitoring and automatic
controls), making us more
efficient and creating barriers
to entry.
Industry trends
1. Urbanisation/large scale
developments:
this holds for almost all
geographies. It is driving growth
and increased complexity in the
market. As urban areas and large
developments are constructed
they require increasingly
sophisticated solutions.
2. Brownfield/marginal land:
typically in developed nations,
means that Keller’s more
sophisticated ground
improvement techniques
come into play.
3. Infrastructure renewal:
creates new demand for us,
typically operationally efficient
given scale.
Our markets
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Keller Complete Solutions
What is a ‘complete solution’?
Defined as a project where Keller
takes on a role beyond the pure
geotechnical contracting and
includes use of sub-contractors.
For example, including
demolition, earth removal and
dewatering in addition to
foundation construction.
Why does Keller offer
‘complete solutions’?
There are circumstances when
our geotechnical work can
happen in parallel with other,
related, site activities. In this
situation Keller can deliver a
complete solution and save the
client the burden of managing
and coordinating multiple
suppliers. It also provides the
economic benefit of having less
overhead on the project.
Where does Keller offer
this service?
Typically these types of projects
happen in urban environments
of highly developed economies
– where time and space are tight
and Keller has a strong history
of project execution. As this
service requires Keller to take on
additional delivery and supplier
responsibility we are very
selective to avoid excessive risk.
32
Keller Group plc
Annual Report and Accounts 2016
Industry overview
$50bn global market:
this is defined at the
geotechnical contracting
market within the construction
industry. It includes China, Japan,
Korea and Russia – markets
where we don’t operate. If
removed, the size drops to
$25bn. It is an estimate based
on data from IHS and other local
sources. Typically geotechnical
contracting is around 1% of the
construction market.
Wide variety of projects:
variety in terms of scale,
location, end use, geotechnical
technique. Scale is from around
£25k up to more than £10m.
Locations are spread all
around the globe. End use
covers the full range including
Infrastructure/Public Buildings,
Power/Industrial, Office/
Commercial and Residential.
Geotechnical technique
includes all our ten product
groups (e.g. bored piling, driven
piles, diaphragm walls, deep-soil
mixing, vibro compaction,
anchors/nails).
Diverse customer base:
typically no single customer
is more than 1-2% of group
revenues in a single year.
We mostly serve as a sub-
contractor working for a
general contractor, however,
also contract directly.
Fragmented competition:
three types of competitor
with a large variation between
geographies. Type one is the
global geotechnical contractors
(three to four of these), not all
present in all markets. Type two
is the general contractor-
owned, national geotechnical
contractor. Type three is the
local, independent geotechnical
contractor (typically family
owned businesses).
A strong position but plenty of room to grow
Global geotechnical
contracting market
Geotechnical contracting
markets where Keller
operates today
$50bn
$25bn
Keller today
$2.5bn
Keller has a 5% global market share
and a 10% share of the markets
where we operate today.
Sources: IHS Global Insight 2014, national
statistics organisations, Keller accounts
A balanced geographic
and customer portfolio
– Good access to all markets
Geographic revenue (%)
North America
EMEA
Asia-Pacific
54
31
15
Customer segment revenues (%)
Infrastructure/Public Buildings
Residential
Power/Industrial
Office/Commercial
36
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Keller is the world’s largest
geotechnical contractor with
over 10,000 employees
– Geotechnical solutions are
a small, niche sub-sector
of construction
– Growing faster than
construction, reflecting:
– More pressure to build on
brownfield and marginal land
– More ambitious
development and
infrastructure projects
Unrivalled geographic coverage,
working in over 80 countries
– Clear market leader in the
US, Canada, Australia and
South Africa
– Prime positions in most
established European
markets
– Strong profile in many other
developing markets
Generally work as a
sub-contractor for main
contractors
Typical contracts are
– Short duration and less
than £500k
– Across the construction
spectrum
Keller Group plc
Annual Report and Accounts 2016
33
Financial statementsGovernanceStrategic reportOverview Our business
model
In providing geotechnical
solutions, Keller operates in the
initial stages of the construction
value chain. Whilst the value
chain and construction process
varies significantly from project
to project, Keller is typically the
first contractor on-site and the
first off-site. Ensuring our work
is done efficiently is critical for
our customers in saving them
money and providing a sound
platform for the remaining
work on a project.
Our projects are often for a
short duration and the majority
have an average value of less
than £500,000. We work across
the construction spectrum.
Very often we will joint venture
with a main contractor on a bid.
Depending on the nature of
a project, Keller may provide
insights into design and other
phases of the construction
process but generally value is
created and captured principally
from our groundwork activities.
Our products and services
are not just about foundations
for construction but are most
commonly geotechnical
solutions to complex
construction projects from
solving for terrain and water
pressure in constructing a
dam to the foundations for
a major stadium.
We are unique given our
market-leading positions
derived from combinations of
technology, scale and customer
relationship leadership.
1 Our key resources
and relationships
2 How we create
and capture value
What we need to make our
business model work:
Knowledge and capability sharing
to build the best solutions:
Our people
– High-quality project
managers, engineers and
operators capable of delivering
world-class solutions
– Strong local relationships with
real trust from our customers
giving us insight into market
developments and allowing us
to drive for high-value solutions
– Highly experienced (low staff
turnover) means we are more
reliable than the competition
– Specialists, flexible to go
to the toughest problems,
ensure the customer gets
the best of Keller
Our technology
– Broad coverage for all
geotechnical solutions giving
us resilience to market
changes and supporting us
to lead on innovation
– Keller unique solutions giving
improved customer results
and Keller profitability
(see below)
– Building Information
Modelling (BIM) capabilities
to support digitisation of
ground engineering
Our market focus
– Targeting markets that value
geotechnical solutions
– Selective investment in
profitable segments
Our financial strength
– Strong balance sheet
34
Keller Group plc
Annual Report and Accounts 2016
Demand Capture
Solution Design
Contracting
Project Execution
Sign‑off and Learning
Local businesses with
relationships (general
contractors, consulting
engineers and developers)
and knowledge to identify
demand.
A global network to support
cross-border collaboration
(major projects typically
involve cross-border
demand identification and
capture).
Design engineers and cost
estimators with local ground
knowledge and capacity to
create optimum solutions.
Keller’s market leading
portfolio of products and
services.
A global network of
professionals on hand to
support any team on solution
development.
Commercial teams trained
in relevant local laws set up
contracts that are fair to
all parties.
Experience of large scale
project contracting and
group scale making Keller a
reliable partner in even the
most demanding
circumstances.
Product-specific operations
teams and equipment with
capacity to deliver efficiently
and effectively (to quality and
schedule) and to respond to
issues arising.
Flexibility to move equipment
and resources between
markets to match local
demand.
Project leadership focused
on achieving client sign-off
and securing payment.
Lessons learnt retained
and transferred into rest of
group (e.g. Engineering and
Operations teams transfer
learning on techniques and
productivity improvements).
The Keller value proposition:
– Engineering
leadership
– Extensive products
and services
Underpinned by functional teams with the capacity
to support the core value creation stream:
– Health & Safety
– Procurement
– Finance
– IT
2 How we create
and capture value
Knowledge and capability sharing
to build the best solutions:
Demand Capture
Solution Design
Contracting
Project Execution
Sign‑off and Learning
3 Who benefits from
that value creation
We create value for a broad
range of stakeholders:
Customers
– Local knowledge with
global scale and resource
– Provision of complex
geotechnical solutions
Local businesses with
relationships (general
contractors, consulting
engineers and developers)
and knowledge to identify
demand.
A global network to support
cross-border collaboration
(major projects typically
involve cross-border
Design engineers and cost
estimators with local ground
knowledge and capacity to
create optimum solutions.
Keller’s market leading
portfolio of products and
services.
A global network of
professionals on hand to
demand identification and
support any team on solution
capture).
development.
Commercial teams trained
in relevant local laws set up
contracts that are fair to
all parties.
Experience of large scale
project contracting and
group scale making Keller a
reliable partner in even the
most demanding
circumstances.
Product-specific operations
teams and equipment with
capacity to deliver efficiently
and effectively (to quality and
schedule) and to respond to
issues arising.
Flexibility to move equipment
and resources between
markets to match local
demand.
Project leadership focused
on achieving client sign-off
and securing payment.
Shareholders
– Dividends
– Capital growth
Lessons learnt retained
and transferred into rest of
group (e.g. Engineering and
Operations teams transfer
learning on techniques and
productivity improvements).
People
– Employment
– Qualifications
– Global and local opportunities
Communities
– Employment
– Construction of facilities
– World-class geotechnical
solutions
– Cost effective
approaches
– Operational
excellence
– Strategy
– Human Resources
– Information Technology
Keller Group plc
Annual Report and Accounts 2016
35
Financial statementsGovernanceStrategic reportOverview
Sustainability
As the largest geotechnical engineering company
in the world, we have always seen our corporate social
responsibilities as an important part of our business model.
During the year, we adopted a refreshed Code of Business
Conduct setting out clear and common standards of
behaviour expected from all our employees along with
those we do business with, and we also agreed a new
Sustainability framework, based on the United Nations
Global Goals for Sustainable Development (SDGs) that will
assist us in developing our business and reporting on our
progress in the right way.
Leadership and oversight
The Board’s role is to provide
effective leadership, establish
overall policy for the group and
monitor the performance of the
operating companies in relation to
our values and ways of working.
The Chief Executive is ultimately
accountable for the group
operating in a way that is accords
with our values and ways of
working. During the year, the
Board approved the group’s
refreshed Code of Business
Conduct and new Sustainability
framework. The Executive
Committee, chaired by the Chief
Executive, has responsibility for the
oversight of their implementation.
Our line managers are charged
with: providing leadership within
their companies, delivering
performance safely and with
integrity; and supporting our
group policies. Our line
managers are supported by
a network of Ethics and
Compliance Officers (ECOs)
who sit in each of the business
units and have an independent
reporting line into the three
Divisional ECOs. The group ECO
has oversight of the network
and an independent reporting
line to the Chairman of the
Audit Committee.
All employees are responsible
for following our group policies
with the support, direction
and commitment of line
management.
36
Keller Group plc
Annual Report and Accounts 2016
Code of Business Conduct
Keller is known and respected
for its high standards of
honesty, fairness and integrity
in our relations with employees,
customers, suppliers, competitors
and the community.
In 2012, we set out our high
standards and guidance on how
we work in a simple Keller Code
of Business Conduct. Since that
time, we have grown from 6,000
employees to over 10,000
employees and, because ethics
and integrity are so important, in
2016 we refreshed the Code and
launched online and face to face
training across our businesses.
Our new Code of Business
Conduct sets out:
– Clear and common standards
of behaviour that make it
clear what’s expected by
everyone who works in and
with Keller
– A framework to guide
decision-making when
situations aren’t clear-cut
– A positive culture that keeps
us successful and ensures we
operate in a way we can all be
proud of
– A public statement of our
commitment to high
standards that tells others
they can rely on our integrity.
To support the Code, we agreed
ten group policies to be used
internally and externally covering:
– Health, Safety and Well-being
– Sustainability
– Human Resources
– Competition Compliance
– Procurement
– Anti-Bribery and Anti-Fraud;
– Share Dealing
– Information Management
– Quality & Continuous
Improvement
– Whistleblowing.
The Code of Business Conduct
and our ten group policies can be
found on our group website at:
www.keller.com/how-we-do-it/
code-of-business-conduct.aspx
Our ways of working
Keeping everyone healthy
and safe
We believe no one should be
harmed as a result of any
work we do – so everyone
stays safe and well.
Supporting employees’
rights and diversity
We value, support and
protect the rights and dignity
of the individual and the
diversity of our people – so
we are all treated with respect.
Maintaining ethical
and honest behaviour
We are always honest, act
with integrity and comply
with the law – so everyone
trusts us.
Staying free from bribery
and corruption
We always make sure we
are free from bribery and
corruption – so people know
our decisions are made for
the right reasons.
Keeping our communications
open and responsible
We communicate openly,
honestly, clearly and
responsibly.
Delivering excellent
customer service and
working with our suppliers
to ensure our standards
are adhered to
We work to meet our
customers’ needs and
exceed their expectations –
so they work with us again
and again. We ensure we build
constructive relationships
with our suppliers and they
understand our ways of
working and the standards
we operate by.
Working within the
community
We act responsibly and
respectfully towards the
communities we work in –
because we are a part
of them.
Protecting our environment
We respect and protect the
environment, and minimise
our impact on it – so we
safeguard the future.
Standing up for what’s right
We always speak up when we
believe our ways of working
are being undermined – so
we uphold our ways of
working together.
Keller supports the United Nations Sustainable
Development Goals (SDGs) and in December 2016,
management put forward a proposal as to how we
would contribute to achieving the SDGs which was
approved by the Health, Safety, Environment and
Quality Committee.
Over time, we will extend our
focus to additional Goals where
we can make a difference.
On the next few pages we set out
why these SDGs are important
for our business and the steps
we are taking to make progress
towards their attainment.
We have chosen to focus on
those SDGs that are of current
material significance to our
operations and will be reporting
annually on our progress against
each of these:
– Good health and well-being
– Quality education
– Gender equality
– Decent work and
economic growth
– Climate change
– Life on land
However, despite our efforts
and progress we had two tragic
events during 2016, the death of
an employee in Texas, USA, and
the death of a sub-contractor in
Slovakia. Those fatalities
continue to be investigated by
the local regulators. We are
committed to reducing fatalities
to zero and we take any loss of
life very seriously. As we await
the formal outcomes of the
investigations, we have taken a
number of measures to ensure
that we learn from those events
and implement any necessary
changes to our procedures as
a result.
Dedicated awareness
campaigns and new engineering
and operations controls have
contributed to a positive
reduction in accidents across
a number of key areas for focus
for our business: the number
of hand injuries amongst our
people reduced in 2016 to 300
(2015: 377); incidents and/or
injuries requiring an employee to
take one or more days off work
reduced to 73 (2015: 82) and
high risk incidents reduced to
three (2015: six).
Benchmarking
During 2016, we benchmarked
our safety performance, using
the most commonly used and
reported metric, ‘lost time
injury’, against our competitors
and our key customers to better
understand our performance in
the market. Our performance as
a group compares favourably
and, as illustrated below, is
around 50% better than that
of the UK construction and
specialist construction sectors.
Good health
and well-being
We are four years into our
five-year strategy, ‘Think Safe’,
to improve the health, safety
and well-being of our people.
We identified those hazards
which were most important
(both in terms of probability of
occurrence and consequence),
assessed the best way to
mitigate those hazards and
set out to change the health
and safety culture of our
organisation. Our goal was to
move from a compliance based
approach to one that was both
motivating and sustainable.
Since its introduction in 2013,
Think Safe has helped to reduce
accidents in our business by
approximately 44% (see below).
Our systematic approach to
behavioural change has improved
our performance in the medium
term and will achieve the cultural
changes we are seeking in the
longer term.
Figure 1
Keller Group AFR by year
per 100,000 hours worked
2016
2015
2014
2013
2012
0 0.25 0.5 0.75 1.0 1.25 1.5 1.75 2.0
Comparative AFR 2015/16
Country
Metric
United Kingdom
UK construction sector
UK specialist construction United Kingdom
US Bureau of Labor
German Construction
Industry
North America
Germany
Comparative
per
100,000 hours
worked
0.86
0.96
0.75
3.53
Keller
0.34
0.34
0.34
0.34
Keller Group plc
Annual Report and Accounts 2016
37
Financial statementsGovernanceStrategic reportOverview Quality education
Keller actively supports the
education of its people in a
variety of ways. In addition
to safety, technical and
competency-based training,
graduate and management
training programmes operate at
a group and at a Divisional level.
All three Divisions are focused
on improving the skills and
competencies of employees
and have developed a number of
bespoke training programmes
for employees: as a group, we
are constantly looking at how
we share these leading best
practices across all of our
businesses. Our goal is to
combine the individual career
aspirations of our employees
with our business needs,
ultimately ensuring knowledge
is transferred and retained in
the business as well as training
our future leaders – our talent
pipeline.
Sustainability
continued
Keller’s lean management
programme
We believe that there is a strong
correlation between good lean
management processes and
improved business safety,
effectiveness and efficiency.
In 2016, we piloted a quality
improvement programme
focused on enabling our people
to create well-ordered sites
and yards.
We will continue to implement
the programme more widely
across the business in 2017
and progress will be overseen
by the Board’s Health, Safety
and Environment Committee,
which has expanded its terms
of reference to monitor
management’s deliver of quality
and continuous improvement
performance.
Case study
2016 Safety Successes: Caspian Sea region
From 2015, we have been installing piles at our major project in the
Caspian Sea region. Each pile requires five separate crane lifts from
its delivery on-site to installation. In 2016, a total of 64,225 crane
lifts were carried out and 12,845 piles installed safely and
successfully, with no lost time incidents. To date, the team has
achieved 500,000 man hours without a lost time incident.
38
Keller Group plc
Annual Report and Accounts 2016
Third-party assurance
statement
Keller Group plc appointed
Carbon Credentials to
provide independent
verification against the ISO
14064-3 standard on the
Scope 1 and Scope 2 GHG
accounts presented above.
Their summary opinion is
provided below (full opinion
and recommendations are
available on request):
“Based on the data and
information provided by
Keller and the processes
and procedures conducted,
Carbon Credentials
concludes with limited
assurance there is no
evidence that the GHG
assertion:
– Is not materially correct;
– Is not a fair representation
of the GHG emissions data
and information; and
– Is not prepared in
accordance with the
agreed verification criteria.
It is our opinion that Keller
has established appropriate
systems for the collection,
aggregation and analysis of
quantitative data for
determination of these GHG
emissions for the stated
period and boundaries.”
Our total footprint for the year
2016 increased by 2% which
is substantially in line with the
like-for-like revenue increase
for the group for the year.
Keller’s carbon intensity value
fell by 10%, which is largely
explained by foreign exchange
movements increasing
revenues on prior year.
Our carbon emissions are linked,
to a degree, to the customer’s
demand and choice of product
and solution.
We are developing, and market,
a number of lower carbon
products for our customers.
We are able to measure the
embodied carbon in our
products through our carbon
calculator, enabling us to
demonstrate to our customers
the true carbon differences
between solutions and giving
them the information to make
informed decisions in their
choice of product.
Using the expertise of our
Global Product Teams and
with an increased drive for
digitisation across our business,
we have been able to minimise
waste materials on our sites
through digitally optimising
mixing parameters in techniques
such as wet soil mixing.
We have also been able to make
use of sustainably sourced and
verified timber as an alternative
material for retaining walls over
traditional steel sheets,
producing a lower carbon
intensive solution.
2016
2015
2014
170,752
10,319
181,071
168,392
9,032
177,424
170,031
9,531
179,562
102
114
112
Climate action
During 2016, the business
undertook a review of our
energy use on a sample of
projects across the world.
Much of our carbon emissions
come from the fuels we use in
our equipment and from the
materials we use in our solutions.
Based on initial findings, we will
set a 2017 carbon reduction
target, aligned to the need to
keep global temperature
increase below 2°C compared
to pre-industrial temperatures.
We have already adopted the
international carbon disclosure
programme (CDP) which is
aligned with the Global Reporting
Initiative (GRI). During the 2015
and 2016 reporting periods, we
improved the robustness of our
data collection system1
internally and procured an
independent external audit
of that data. As a result of the
steps taken, we were able to
clearly demonstrate our
effective management of
climate change-related
business risks and opportunities
and improved our CDP rating
from D (‘Disclosure’) to B
(‘Management’).
During 2016 our carbon
emission intensity reduced.
Global GHG emissions data
Tonnes CO2e
Scope 1
Scope 22
Total
Absolute tonnes equivalent
CO2 per £m revenue:
1 Note that some of the fuel we use in our equipment is purchased by the main
contractor which we are currently unable to report due to the difficulties with
collecting accurate data on it.
Reported under location based methodology. Please refer to Keller’s CDP
submission for Scope 2 emissions under market based methodology.
2
Keller Group plc
Annual Report and Accounts 2016
39
Gender equality
We promote working together
to create an environment where
everyone at Keller has equal
opportunities to achieve their
full potential, diversity can
flourish, everyone is respected,
and talent is recognised and
developed. No employee will be
discriminated against due to
their age, gender, race, religion,
national origin, sexual preference
or gender identity. This is not
only about ‘being fair’, it also
makes sound business sense.
We believe that equal
opportunity means hiring and
retaining the best people,
developing all employees to
their potential and using their
talents and resources to the full.
Diversity of people, skills and
abilities is a strength which will
help us to achieve our best.
However, there is clearly room
for improvement and more for us
to do in this area. During 2017, a
review of our current practices will
assist us in developing a coherent
strategy to attract, develop and
retain under-represented groups
in our workforce.
At the end of the financial year,
the breakdown of male/female
employees was as follows:
Level of organisation
Board of Directors
Executive
Committee
Group
Leadership Team
Senior Managers
Managers
All employees*
Male Female
2
6
9
1
65
74
328
8,970
7
8
50
881
* Excludes contractors
Financial statementsGovernanceStrategic reportOverview Life on Land
During the year Keller has
improved its processes for
capturing and recording
environmental incidents,
including a number of poster
campaigns amongst our
employees to increase their
awareness of potential hazards
and ways in which to reduce our
impact on the environment.
As a consequence, we have
seen an increase in the number
of environmental incidents and
are working with our people on
proactive ways in which to
reduce these, primarily on-site.
Case study
Think Green
Keller India’s Think Green Project assisted the local community
through the contribution and planting of trees to a small village in
Pradesh, where villagers have been able to establish fruit tree
plantations providing both long-term sustainable income and
environment balance.
Sustainability
continued
Communities
Geotechnical community
Our companies take a
leadership role within their
industry by providing
employees, customers,
suppliers and potential
employees with technical
papers, seminars, field trips
and site visits. Staff from
companies throughout the
group maintain close contact
with partner universities in
order to share best practice
and provide examples of their
leading-edge engineering.
Many of our senior managers
play key roles in the geotechnical
construction industry’s
professional associations and
activities around the world,
getting involved in writing
building codes, specifications,
guidelines, and industry-wide
safety initiatives.
Wider community
In terms of engagement with
the wider community in which
we work, we are generally
working for a main contractor,
who is the party responsible for
consulting with any community
affected by the project. Our
work comes at the outset of a
project and we are typically on
and off the project very quickly;
and our job sites are often in
remote locations, where we
have no interface with members
of the public. There are
occasions when we are working
in built-up areas or in proximity
to the public, and on these
projects we strive to reduce
our noise and dust levels and
to conduct our work in a
considerate manner.
Typically, where we have some
community engagement, it is by
supporting our employees when
they get involved with community
groups and local charities.
Decent work and
economic growth
Our people
Keller employs around 10,000
people worldwide, most of
whom are working in front-line
roles meeting with, and
delivering for, our customers.
We are only as good as our
employees, which is why we
want to be known as a
responsible employer which
people are proud to join.
As a group, we believe in treating
all employees with fairness,
encouragement and respect
and we do not tolerate any
behaviour or attitude that
discriminates against anyone,
coerces, intimidates, bullies or
harasses others, or threatens
them with verbal or physical
violence. We support every
individual’s human rights and
refuse the use of child labour
and forced labour under any
circumstances. The group’s
Modern slavery and human
trafficking statement can be
found on our website.
One of the ways in which we
measure how well we are doing
as an employer is to measure
our staff turnover, and this key
performance indicator for each
Division is shown in the
Operating review on pages
10 to 15.
40
Keller Group plc
Annual Report and Accounts 2016
Principal risks
and uncertainties
Risk management
The Board is responsible for
setting the group’s risk appetite
and ensuring that appropriate risk
management systems are in place.
The Board reviews the group’s
principal risks throughout the year
as part of its normal agenda,
adopting an integrated approach
to risk management by regularly
discussing the principal risks as a
part of key agenda items. In
addition, once a year the Board
formally assesses the group’s
principal risks, taking the strength of
the group’s control systems and
our appetite for risk into account.
The Board delegates responsibility
for day-to-day risk management to
the Executive Committee, including
the identification, evaluation and
monitoring of key risks facing the
group and the implementation of
group-wide risk management
processes and controls.
The Audit Committee keeps the
effectiveness of the group’s risk
management systems under review
and reports to the Board on the
results of its review. The occurrence
of any material control issues, serious
accidents or major commercial,
financial or reputational issues, or
the identification of new significant
risks, are reported to the Board
and/or Audit Committee as
appropriate.
Culture
The Board is aware that the
effectiveness of risk management
is dependent on behaviours. In
2016 we launched a refreshed
Code of Business Conduct across
our group to provide a common
and consistent framework for
responsible business practices.
It reinforces the standards that
we expect our people to follow in
their day-to-day activities, no
matter where they work in the
world, and tells others that they
can rely on our integrity. The Code
is just one element of the group’s
wide-reaching Ethics and
Compliance programme, which
aims to ensure compliance with
our ethical standards.
How we identify risk
Our risk management process has
been built to identify, evaluate,
analyse and mitigate significant
risks to the achievement of our
strategy. Our risk identification
processes seek to identify risks
from both a top down strategic
perspective and a bottom up local
operating company perspective.
The Board
The Board has overall responsibility
for risk management, the setting
of risk appetite and the
implementation of the risk
management policy. The Board
reviews and challenges the
group’s principal risks and
uncertainties on an ongoing basis.
The Audit Committee
The Audit Committee ensures
adequate assurance is obtained
over the risks that are identified
as the group’s principal risks.
The Audit Committee is also
responsible for the independent
review and challenge of the
adequacy and effectiveness of
the risk management approach.
Executive Committee
The Executive Committee is
responsible for the identification,
reporting and ongoing
management of risks and for
the stewardship of the risk
management approach. The
Executive Committee reviews
and assesses the key strategic
risks to the group and the
outputs of the assessment are
sent to the Divisional Presidents
for inclusion in their local risk
assessment exercises.
Divisional Presidents
Divisional Presidents are
responsible for the identification,
reporting and ongoing
management of risks in their
respective regions. The outputs
of these assessment exercises
are reviewed and challenged by
the Executive Committee as part
of their assessment of the key
strategic risks facing the group.
A downside sensitivity analysis,
as well as a consideration of any
mitigating actions available to the
group, were applied to the group’s
three-year cash flows forecasted
as part of the business planning
process and presented to the Board
for discussion, further to review by
the Audit Committee. The Board
discussed the process undertaken
by management, and also reviewed
the results of stress testing
performed to provide an illustration
of the reduction in cash flows that
would be required to break the
group’s covenants or exhaust all
available borrowing facilities, to
ensure that the sensitivity analysis
was sufficiently rigorous.
Viability statement
In accordance with provision C.2.2
of the 2016 revision of the Code,
the Directors have assessed the
prospects of the group over a
three-year period.
i) The Board selected the
three-year period as:
a. the group’s business planning
and budget processes are
carried out over a three-year
period which provides the
relevant estimates; and
b. three years is a reasonable
approximation of the
maximum time taken from
procuring a project to
completion and therefore
reflects our current revenue
earning cycle.
ii) The review included cash flows
and other key financial ratios
over the three-year period.
These metrics were subject
to sensitivity analysis which
involves flexing a number of the
main assumptions underlying
the forecast both individually
and in unison. This downside
sensitivity analysis was carried
out to evaluate the potential
impact on the group if both the
effects of the global financial
crisis were to be repeated and
there was a substantial charge
arising from a contract dispute.
The review also made certain
assumptions about the normal
level of capital recycling likely to
occur and considered whether
additional financing facilities
would be required.
The Directors’ assessment has
been made with reference to the
group’s current position and
prospects, the group’s strategy,
the Board’s risk appetite and the
group’s principal risks and how
these are managed, as detailed in
the Strategic report.
Keller Group plc
Annual Report and Accounts 2016
41
Our risk appetite
We use an assessment of the level
of risk and our associated risk
appetite to ensure the appropriate
focus is placed on the correct risks.
Risk identification
and impact
The group’s principal risks are
analysed on a gross (pre-
mitigation) and net (post-
mitigation) basis.
Risk trends
The ongoing review of the group’s
principal risks focuses on how
these risks may evolve. Since the
publication of last year’s Annual
Report, our principal risks have
changed as follows:
Increased risks
Risk 1 Market risk: a rapid
downturn in our markets
With further European elections,
a new US president and the UK’s
negotiated exit from Europe, we
expect more short term volatility
in the markets. We have seen
market conditions in South East
Asia, Australia and Canada become
increasingly more challenging.
Developing the viability
statement
In developing the viability
statement, it was determined
that a three-year period should
be used, consistent with the
period of the group’s business
planning processes and reflecting
a reasonable approximation of
the maximum time taken from
procuring a project to completion.
Management reviewed the
principal risks, and considered
which of these risks might
threaten the group’s viability. It
was determined that none of the
individual risks would in isolation
compromise the group’s viability,
and so a number of different
severe but plausible principal risk
combinations were considered.
Financial statementsGovernanceStrategic reportOverview k
s
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l
i
a
c
n
a
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F
i
To achieve our objective
of being the world’s
leading geotechnical
contractor, we recognise
that we must have a good
understanding of the risks
we face, those inherent
in our strategy and
operations and those
posed by external
conditions. We aim to
continuously monitor
those risks, our risk
management and internal
controls systems and
evolve our management
accordingly.
Movement in risk
Increased
No change
Reduced
Risk
Inability to finance our business
Losing access to the financing facilities necessary
to fund the business.
Potential
impact
Breach of banking covenants or failure to continue
in business or meet our liabilities.
Mitigation
Procedures to monitor the effective management
of cash and debt, including weekly cash reports
and regular cash forecasting.
Case study
Market risk/Financial risk
Our management framework includes standard financial dashboards.
These were developed at the end of 2015 and implemented from 2016.
We monitor a number of financial and non-financial metrics and
narrative sections of the dashboards allow local management to
identify the key risks and opportunities for their business units.
The dashboards are used in monitoring and reviewing Divisional and
Business Unit performance on a monthly basis and in more detailed
quarterly reviews by the Executive Committee. Group performance is
also reported in the same format and monitored monthly by the Board.
This way of reporting is enabling us to calibrate performance
consistently across our three Divisions and 21 business units. We
are able to benchmark our business units and learn from those who
excel in certain areas, such as cash management, and identify more
quickly those business units that are under-performing and take the
necessary mitigating actions.
k
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M
Risk
A rapid downturn in our markets
Inability to maintain a sustainable level of financial
performance throughout the construction industry
market cycle which grows more than many other
industries during periods of economic expansion
and falls harder than many other industries when
the economy contracts.
Potential
impact
Failure to continue in operation or to meet
our liabilities.
Mitigation Diversification of our markets, both in terms
of geography and market segment.
Strong balance sheet.
Leveraging the global scale of our group.
Having strong local businesses to address
geographic markets.
Principal risks
and uncertainties
continued
On the basis of the above and
other matters considered and
reviewed by the Board during the
year, the Board has reasonable
expectations that the group will be
able to continue in operation and
meet its liabilities as they fall due
over the next three years. In doing
so, it is recognised that such
future assessments are subject to
a level of uncertainty that increases
with time and, therefore, future
outcomes cannot be guaranteed
or predicted with certainty.
Going concern
The group’s business activities,
together with the factors likely to
affect its future development,
performance and position are
set out in the Strategic report.
The financial position of the group,
its cash flows and liquidity position
are described in the Finance
Director’s report, with details of
the group’s treasury activities,
long-term funding arrangements
and exposure to financial risk
included in note 24 to the
Consolidated Financial
Statements.
The group has sufficient financial
resources which, together with
internally generated cash flows,
will continue to provide sufficient
sources of liquidity to fund its
current operations, including its
contractual and commercial
commitments and any proposed
dividends. The group is therefore
well placed to manage its
business risks. After making
enquiries, the Directors have
formed the judgement at the
time of approving the financial
statements, that there is a
reasonable expectation that the
group has adequate resources to
continue in operational existence
for the foreseeable future. For this
reason, they continue to adopt the
going concern basis of accounting
in preparing the Consolidated
Financial Statements.
42
Keller Group plc
Annual Report and Accounts 2016
s
k
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a
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S
Risk
Potential
impact
Mitigation
Risk
Potential
impact
Mitigation
Risk
Potential
impact
s
k
s
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l
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p
O
Risk
Potential
impact
Mitigation
Failure to procure new contracts
A failure to continue to win and retain contracts on
satisfactory terms and conditions in our existing
and new target markets if competition increases,
customer requirements change or demand reduces
due to general adverse economic conditions.
Failure to achieve targets for revenue, profit
and earnings.
Continually analysing our existing and target
markets to ensure we understand the opportunities
that they offer.
Risk
Structured bid review processes in operation
throughout the group with well-defined selectivity
criteria that are designed to ensure we take on
contracts only where we understand and can
manage the risks involved.
Losing our market share
Inability to achieve sustainable growth, whether
through acquisition, new products, new
geographies or industry specific solutions.
Potential
impact
Mitigation
Failure to achieve targets for revenue, profits
and earnings.
Risk
Potential
impact
Continually seeking to differentiate our offering
through service quality, value for money and
innovation.
A Business Development function focusing on our
customers’ requirements and understanding our
competitors.
Minimising the risk of acquisitions, including
getting to know a target company in advance,
often working in joint venture, to understand the
operational and cultural differences and potential
synergies, as well as undertaking these through
thorough due diligence and structured and
carefully managed integration plans.
Implementing annual efficiency and improvement
programmes to help us remain competitive.
Non-compliance with our Code of Business Conduct
Not maintaining high standards of ethics and
compliance in conducting our business or failing
to meet legal or regulatory requirements.
Risk
Losing the trust of our customers, suppliers and
other stakeholders with consequent adverse
effects on our ability to deliver against our strategy
and business objectives.
Substantial damage to Keller’s brand and/or large
financial penalties.
Potential
impact
Mitigation
Mitigation Having clear policies and procedures in respect
of ethics, integrity, regulatory requirements and
contract management.
Maintaining training programmes to ensure our
people fully understand these policies and
requirements.
Operating and encouraging the use of a
‘whistleblowing’ facility.
Product and/or solution failure
Failure of our product and/or solution to achieve
the required standard.
Financial loss and consequent damage to our
brand reputation.
Continuing to enhance our technological and
operational capabilities through investment in
our product teams, project managers and our
engineering capabilities.
Ineffective management of our contracts
Failure to manage our contracts to ensure that
they are delivered on time and to budget.
Failure to achieve the margins, profits and cash
flows we expect from contracts.
Ensuring we understand all of our risks through
the bid appraisal process and applying rigorous
policies and processes to manage and monitor
contract performance.
Ensuring we have high-quality people delivering
projects.
Causing a serious injury or fatality to an
employee or member of the public
Failure to maintain high standards of Safety
and Quality.
Damage to employee morale leading to an
increase in employee turnover rates, loss of
customer, supplier and partner confidence and
damage to our brand reputation in an area that
we regard as a top priority.
Visible management commitment with Safety
Tours, Safety Audits and Safety Action groups.
Implementing management systems that
conform to Occupational Health & Safety
Assessment System 18001.
Extensive mandatory employee training
programmes.
Not having the right skills to deliver
Inability to attract and develop excellent people to
create a high-quality, vibrant, diverse and flexible
workforce.
Failure to maintain satisfactory performance
in respect of our current contracts and failure
to deliver our strategy and business targets
for growth.
Continuing to develop and implement leadership,
personal development and employee engagement
programmes that encourage and support all our
people to achieve their full potential.
Keller Group plc
Annual Report and Accounts 2016
43
Mitigation
A Board-led commitment to achieve zero
accidents.
Financial statementsGovernanceStrategic reportOverview
Corporate
governance
report
Board of Directors
1 Peter Hill CBE
Non-executive Chairman
Nationality: British
A Mining Engineer by
background, Peter was
appointed as Non-executive
Chairman and Chairman of
the Nomination Committee
in July 2016.
Peter is also Non-executive
Chairman of Volution Group plc
and of Imagination Technologies
plc, and is a Non-executive
Director of the Royal Air Force.
He was previously Non-
executive Chairman of Alent plc
from 2012 to the end of 2015;
Chief Executive of the
electronics and technology
group Laird PLC from 2002 to
late 2011; a Non-executive
Director on the Boards of
Cookson Group plc, Meggitt plc
and Oxford Instruments plc,
and was a Non-executive
Board member of UK Trade
and Investment.
His early career was spent with
natural resources companies
Anglo American, Rio Tinto and
BP; he was an Executive Director
on the Board of Costain Group
plc, and he has also held
management positions with
BTR plc and Invensys plc.
2 Alain Michaelis
Chief Executive
Nationality: British
See page 46 for biography.
3 James Hind
Finance Director
Nationality: British
See page 46 for biography.
4 Venu Raju
Engineering and Operations
Director
Nationality: Singaporean
See page 46 for biography.
5 Ruth Cairnie
Independent Non-executive
Director
Nationality: British
Appointed to the Board in 2010,
Ruth is a member of the
Nomination, Audit and Health,
Safety, Environment & Quality
Committees and is Chairman of
the Remuneration Committee.
A physicist by background,
Ruth’s strategic and commercial
experience were gained within
Shell, where she held a number
of senior international roles,
most recently as Executive Vice
President Strategy and Planning,
before her retirement in 2014.
Ruth is a Non-executive
Director of Associated British
Foods plc and Rolls-Royce
Holdings plc. Ruth is the
Industry chair of the POWERful
Women Board.
4
3
2
1
44
Keller Group plc
Annual Report and Accounts 2016
6 Paul Withers
Senior Independent Director
Nationality: British
Appointed to the Board in 2012
and a member of the Audit,
Nomination, Remuneration and
Health, Safety, Environment &
Quality Committees, Paul is
also the Senior Independent
Director.
He qualified as a Chartered
Mechanical Engineer and was
Group Managing Director at BPB
plc, the international building
materials business, where he
spent his executive career.
He is a Non-executive Director
of Devro plc.
7 Chris Girling
Independent Non-executive
Director
Nationality: British
Chris was appointed to the
Board in 2011 and is a member
of the Remuneration,
Nomination and Health, Safety,
Environment & Quality
Committees and is Chairman
of the Audit Committee.
A Chartered Accountant by
training, Chris was formerly
Group Finance Director of
Carillion plc and he brings to
Keller his background in a range
of sectors, as well as recent and
relevant financial experience.
He is a Non-executive Director
of Workspace Group PLC and
South East Water Limited and
the independent Chairman
Trustee for Slaughter and May’s
pension fund.
Diversity (%)
Female
Male
Length of tenure (%)
<1 year
1-3 years
4-6 years
7-9 years
10+ years
8 Nancy Tuor Moore
Independent Non-executive
Director
Nationality: American
Nancy was appointed to the
Board in 2014 and is a member
of the Audit, Nomination and
Remuneration Committees and
Chairman of the Health, Safety,
Environment and Quality
Committee.
Nancy’s extensive international
business experience, together
with a proven record in winning
and safely delivering both global
and local contracts, was gained
at CH2M Hill, Inc., where she
held the board position of Group
President and Corporate
Sponsor for Sustainability
before retiring in 2013.
Nancy is a Non-executive Director
of Global Food Exchange and
Terracon, Inc. and a member of
the Board of Governors for
Colorado State University.
9 Kerry Porritt
Company Secretary
Nationality: British
See page 47 for biography.
6
8
Number of Board members with
relevant industry experience
Oil and gas
Technology
Construction
Engineering
Number of Board members with
relevant regional experience
Americas
Europe
Middle East
Africa
Asia-Pacific
25
75
25
25
37.5
0
12.5
3
3
4
6
6
7
4
2
6
5
7
9
Keller Group plc
Annual Report and Accounts 2016
45
Strategic reportOverviewFinancial statementsGovernance Corporate
governance
report
Executive Committee
1 Alain Michaelis
Chief Executive
Nationality: British
Alain was appointed Chief
Executive of Keller in May 2015
and is a member of the Board
of Directors.
He has 12 years’ experience
in the engineering sector and
has extensive financial and
strategic management
experience. He qualified as a
Chartered Accountant with
Coopers & Lybrand.
He was previously Group
Operations Director of
Rolls-Royce plc where he also
served as a major divisional
head. He has held senior
leadership positions at Tenneco,
a Tier 1 automotive supplier
and at Wolseley, the building
products distributor. Alain
began his career at Arup.
Alain has extensive operational
and strategic management
experience within international
businesses across America,
Asia-Pacific and EMEA. Alain has
a BEng (Hons) from Imperial
College and an MBA from
INSEAD. He is a fellow of the
Institute of Mechanical Engineers.
Alain is Chairman of the
Executive Committee.
2 James Hind
Finance Director
Nationality: British
James was appointed Finance
Director in 2003 and is a member
of the Board of Directors.
He was previously Group
Financial Controller at DS Smith
plc. James worked in the New
York office of Coopers &
Lybrand advising on mergers
and acquisitions.
James has an MA (Hons) in
History from Cambridge
University.
Appointed to the Executive
Committee on its formation
in 2012.
3 Venu Raju
Engineering and Operations
Director
Nationality: Singaporean
Venu was appointed
Engineering and Operations
Director on 1 January 2017
and is a member of the Board
of Directors.
Venu began his career with
Keller in Germany in 1994 as a
geotechnical engineer. He has
held the roles of Managing
Director Keller Singapore,
Malaysia and India; Business Unit
Manager, Keller Far East in 2009;
and Managing Director, Asia.
Venu has extensive operational
and strategic management
experience. Born in India, he
studied civil engineering in India
and the USA, has a PhD in
structural engineering from
Duke University and a Doctorate
in geotechnical engineering
from Karlsruhe University.
Venu was appointed to the
Executive Committee on its
formation in 2012.
4 John Rubright
President of North America
Nationality: American
John was appointed as President
of North America in January 2013.
John joined the group in 1986
and was appointed as Senior
Vice-President, Southern
Region, of Hayward Baker in
2005. He became President of
Hayward Baker in 2011 and in
2013, John was appointed
President of Keller North
America. John attended Penn
State University and qualified
as a Civil Engineer.
John was appointed to the
Executive Committee in 2013.
5 Thorsten Holl
President of EMEA
(Europe, Middle East and Africa)
Nationality: German
Thorsten was appointed President
of EMEA in November 2015.
Thorsten was Chief Executive
at the ARVOS-Group (Alstom’s
Steam Auxiliary Components
division as independent
spin-off) which he successfully
developed as a stand-alone
business. He has held a number
of leadership roles with ABB and
the Alstom Group, where he led
several of its international
businesses, including in China,
where he built up a number of
joint ventures.
He qualified as an Industrial
Engineer at the Technical
University of Karlsruhe and has a
Masters of Commerce (Finance
& Accounting) from the
University of Wollongong.
Thorsten was appointed to the
Executive Committee in 2015.
The role of the Committee is to
assist the Chief Executive in:
– Developing and implementing
strategy, operational plans,
budgets, policies and
procedures;
– Monitoring operating and
financial performance;
– Assessing and controlling
risks;
– Prioritising and allocating
resource; and
– Monitoring competitive
forces in each area in which
we operate.
1
2
46
Keller Group plc
Annual Report and Accounts 2016
3
4
5
6
6 Mark Kliner
President of APAC
(Asia-Pacific region)
Nationality: British
Mark was appointed President of
APAC in January 2016, following
the merger of Keller Australia
and Keller Asia.
Between 2009 and 2015, he
was Chief Executive Officer of
Keller Australia, prior to which,
he was Managing Director of
Piling Contractors.
Mark has an extensive career
spanning over 30 years in piling,
diaphragm walling, ground
improvement and marine
construction, commencing in
the UK in 1985. He has over
20 years of international
experience including
Directorships in the UK and
Middle East, MD/CEO Australia
and New Zealand and
President ASEAN.
He is qualified as a Chartered
Professional Engineer and has
a Postgraduate Diploma from
Oxford University.
Mark was appointed to the
Executive Committee on its
formation in 2012.
7 Graeme Cook
Human Resources Director
Nationality: British
Graeme was appointed HR
Director in January 2017.
He joins from EnQuest, a
FTSE oil and gas production
company where he was the
Group HR Director.
Graeme has significant
international experience having
been assigned to management
roles in the UK, Africa and the
Middle East. Graeme has over
25 years’ experience in both
finance and HR leadership roles
in a number of blue-chip
companies. Graeme was Group
Head of Talent and Leadership
for Legal & General, HR Director,
Mediterranean Basin and Africa
region for BG Group, and spent
most of his early career with
Schlumberger in various HR
and financial controller roles.
He received an MA (Hons) in
Accountancy & Economics from
the University of Dundee in 1991.
Graeme joined the Executive
Committee in January 2017.
8 Kerry Porritt
Group Company Secretary
Nationality: British
Kerry was appointed Group
Company Secretary in 2013.
Kerry has over 20 years’
experience of company
secretarial roles within
international listed companies.
She has also provided strategic
advice and business development
consultancy services and acted
as a specialist advisor for IPOs.
In 2015 she was appointed
Group Ethics and Compliance
Officer, with responsibility for
the group’s Ethics and
Compliance programme. She
oversees the group’s risk,
compliance and governance.
She is a Fellow of the Institute
of Chartered Secretaries and
Administrators and holds a
degree in Law from Birmingham
City University. Kerry is an Aspire
Foundation mentor.
Kerry was appointed to the
Executive Committee in 2013.
9 Joseph Hubback
Strategy Director
Nationality: British
Joseph was appointed Strategy
Director in January 2016.
He was previously a Partner at
McKinsey & Company in London
where he worked with clients in
the engineering and high-tech
industries. Prior to McKinsey he
held a variety of roles with ICI
over a 10-year period. Joseph
started in project engineering,
building factories, before
moving into operations and
supply chain management and
managing global client accounts.
Joseph has a MEng from
Oxford University.
Joseph was appointed to the
Executive Committee in
January 2016.
10 Michael Sinclair-Williams
HSEQ Director
Nationality: British
Michael was appointed Health,
Safety and Environment
Director in 2012. In 2016, he also
became responsible for Quality
and Continuous Improvement.
Michael has worked on some of
the world’s most interesting
projects in both an operational
and technical role. He played
instrumental roles in the
transport elements of the
London 2012 Olympic Games
and delivery of a new high speed
line in Europe and has worked
extensively abroad.
Michael holds a PhD in Risk/
Quality Management and is a
graduate of the Saïd Business
School Oxford senior
leadership programme.
Michael joined the Executive
Committee in 2012.
Strategy – strong link
with personal objectives
From 2016, the personal
objectives of the Executive
Committee members have
been linked to our five strategic
levers. Below are a number of
successful projects undertaken
by Committee members during
the year.
Expanding our APAC
product offering
Moving our near-shore marine
capability from Australia to India
Strategic lever
1 Growth
Business Unit strategy
Developing local and global
BU strategies
Strategic lever
2 Customers
Procurement function
Establishing a strong
Procurement function
Strategic lever
3 Scale
Data management systems
Optimising our data
management systems
Strategic lever
4 Engineering and Operations
Project Manager Academy
Development Programme
Investing in our global skills
capabilities
Strategic lever
5 People
7
8
9
10
Keller Group plc
Annual Report and Accounts 2016
47
Strategic reportOverviewFinancial statementsGovernance Corporate governance report continued
Chairman’s introduction
“ I am pleased to be leading a Board with such
independence, experience, diversity and knowledge.”
Dear shareholder
I am pleased to introduce the Corporate Governance Report for
the year ended 31 December 2016, on behalf of the Board.
I believe that a strong, effective and efficient governance framework
is essential in supporting management to deliver the Company’s
strategy and long-term business success. Good governance has
supported the Board and Executive team in progressing Keller’s
newly refreshed long-term strategy over the year and ensured that
the business has remained resilient in delivering shorter-term
performance despite a number of challenging markets.
Over the few months I have been in role as Chairman, I have been
impressed by the time and commitment given by all of my Board
colleagues in supporting and challenging, where required, the
Executive team, whose job it is to manage the Company day to day,
to drive performance and create value for our shareholders and
other stakeholders.
I was delighted to be appointed Chairman of the Board, following the
retirement of Roy Franklin in July 2016. The search and selection
process was led by Paul Withers, the Senior Independent Director.
In December 2016, Dr Wolfgang Sondermann stepped down as
an Executive Director after thirteen years on the Board. As our
Engineering and Operations Director, and with 30 years’ service with
Keller as an employee, Wolfgang provided valuable technical and
operational expertise to the Board discussions. I would like to thank
him personally for his contribution to the Board and for working to
provide a seamless transition for Dr Venu Raju, who was appointed
an Executive Director from 1 January and who continues the role of
Engineering and Operations Director.
Looking ahead, Ruth Cairnie, Non-executive Director, has indicated
to me her intention to retire from the Board after this year’s Annual
General Meeting. After undertaking an external recruitment
process, I am pleased that Eva Lindqvist will join us with effect from
1 June 2017 as a Non-executive Director. Eva is a Swedish national,
and brings a broad, very international management skillset in the
industrial and service sectors to the Board.
a strong commitment to their role. The resulting development
themes that arose from the evaluation are discussed on page 54
and will help shape my priorities as Chairman for the 2017 year.
Further information on the Board’s succession planning, the Board
evaluation and the work of the Nomination Committee in 2016 can
be found on pages 54 and 55 of this report.
The Board believes it is important that it collectively, and its
Non-executive Directors individually, remain in touch with the Company
and its people. In April, the Board visited the Company’s operations
in Poland, and met with local and North-East European regional
management. Individual Non-executive Directors attended the annual
Group Leadership conference, and made visits to operations in
continental Europe, North America, Asia and Australia. Additionally,
executives below Board level made presentations at the Board.
An effective Board must maintain a level of independence and
objectivity and have the correct balance of experience, diversity
and skills. It also needs a good understanding of the operations
of the business and I am pleased to be leading a Board with such
independence, experience, diversity and knowledge.
We continuously review and seek to improve our governance
frameworks and systems. The terms of reference for each of the
Committees were reviewed and adjusted as necessary to improve
their efficiency and reflect changes in legislation and best practice.
During the second half of this year, the Board revised its delegated
authorities to reflect, amongst other matters, the group’s growth,
the increased levels of oversight of strategy and operational matters
provided by the Executive team and the increase in the number of
large jobs that are bid for on a regular basis across the organisation.
The Board adopted a new Code of Business Conduct, designed to
promote our culture of a global Keller – just one element of our wider
Ethics and Compliance programme to further promote honesty,
fairness and integrity in relations between the Company, employees
and their work colleagues, customers, suppliers, competitors and
the communities in which we work.
In the Directors’ Remuneration Report, set out on pages 59 to 78,
we describe the strategic review of executive remuneration that
was undertaken to ensure that Directors’ remuneration remains fit
for purpose and aligned to both long-term shareholders’ interests
and to the achievement of the Company’s refreshed strategy.
Consistent with good governance, an extensive consultation was
conducted with our major shareholders before we arrived at our
policy changes. We hope that you will support the new
Remuneration Policy at the Annual General Meeting this year.
We have complied with the provisions of the UK Corporate
Governance Code 2016 throughout the year (the full text of which
can be found at www.frc.org) and the remainder of this report
contains the narrative reporting variously required by the Code, the
Listing Rules and the Disclosure and Transparency Rules, setting
out in greater detail the framework and processes that Keller has
in place to ensure the highest levels of corporate governance.
Yours faithfully,
As a Board we take our governance responsibilities very seriously.
At the end of 2016, I carried out an externally facilitated Board
evaluation which also involved feedback from the Executive team.
The results of this evaluation confirmed that the Board and each
of its Committees continue to operate effectively and that each
Director continues to make an effective contribution and retains
Peter Hill CBE
Chairman
27 February 2017
48
Keller Group plc
Annual Report and Accounts 2016
The role of the Board and its Committees
The Board is appointed by shareholders, who are the owners of the Company. The Board’s principal responsibility is to act in the best
interests of shareholders as a whole, within the legal framework of the Companies Act 2006 and taking into account the interests of all
stakeholders. Ultimate responsibility for the management and long-term success of Keller rests with the Board of Directors.
Board
Strategy development, growing shareholder value, oversight and corporate governance
– Provide entrepreneurial
leadership of the group,
driving it forward for the
benefit, and having regard to,
the views of its shareholders
and other stakeholders
– Govern the group within a
framework of prudent and
effective controls which
enable risk to be assessed
and managed to an
appropriate level
– Approve the group’s
strategic objectives
– Ensure that sufficient
resources are available to
enable it to meet those
objectives
– It delegates authority to
manage the business to the
Chief Executive Officer and
also delegates other matters
to Board Committees and
management as appropriate
– The Board has formally
adopted a schedule of
matters reserved to it for
its decision
Audit Committee
Oversee the group’s
financial reporting, risk
management and internal
control procedures and the
work of its internal and
external auditors
(page 56)
Health, Safety,
Environment & Quality
Committee
Oversee the Board’s
responsibilities in relation
to health and safety,
sustainability and quality
and continuous
improvement matters,
arising out of the activities
of the Company and its
subsidiaries
(page 53)
Nomination Committee
Review the composition of
the Board and plan for its
progressive refreshing with
regard to balance and
structure as well as
succession planning
(page 54)
Remuneration Committee
Determine the framework,
policy and levels of
remuneration of the CEO,
Executive Directors and
senior executives
(page 59)
Executive Committee
Assists the CEO to develop
and implement strategy,
operational plans, budgets,
policies and procedures,
monitor operating and
financial performance,
assess and control risks,
prioritise and allocate
resource, monitor
competitive forces in each
area of operation
(page 46)
The terms of reference for each of the Board’s key Committees, which are reviewed on an annual basis, can be found on our website.
Key roles
Chairman
Responsibilities
Responsible for leading the Board, its effectiveness and governance.
The Chairman is responsible for the following matters pertaining to the leadership of the Board:
– Being the ultimate custodian of shareholders’ interests
– Ensuring appropriate Board composition and succession;
– Ensuring effective Board processes;
– Setting the Board’s agenda;
– Ensuring that Directors are properly briefed in order to take a full and
Non-executive Directors.
– Ensuring effective communication with shareholders; and
– Ensuring constructive relations between Executive and
Chief Executive
Officer
constructive part in Board and Board Committee discussions;
Responsible for the formulation of strategy and the operational and financial business of the Company.
The Chief Executive is responsible for the following matters:
– Formulating strategy proposals for the Board;
– Formulating annual and medium-term plans charting how this strategy
will be delivered;
– Apprising the Board of all matters which materially affect the group
and its performance, including any significantly underperforming
business activities; and
– Leadership of executive management to enable the group’s businesses
to deliver the requirements of shareholders: ensuring adequate,
well-motivated and incentivised management resources; ensuring
succession planning; and ensuring appropriate business processes.
The roles of the Chairman and the CEO are quite distinct from each other
and are clearly defined in written terms of reference for each role.
Senior Independent
Director
Discusses any concerns with shareholders that cannot be resolved through the normal channels of communication or through the Chairman.
The role of Senior Independent Director provides a point of contact for those shareholders who wish to raise issues with the Board, other than
through the Chairman. The Board has agreed that the Senior Independent Director will act as Chairman of the Board in the event that the Chairman
is unable to do so for any reason.
Company Secretary
Ensures good information flows to the Board and its Committees and between senior management and Non-executive Directors.
All Directors have access to the advice and services of the Company Secretary. The Company Secretary is responsible for ensuring that the Board
operates in accordance with the governance framework it has adopted and that there are effective information flows to the Board and its
Committees and between senior management and the Non-executive Directors.
The appointment and resignation of the Company Secretary is a matter for consideration by the Board as a whole.
Keller Group plc
Annual Report and Accounts 2016
49
Strategic reportOverviewFinancial statementsGovernance Corporate governance report continued
Leadership
Board and Committee meetings and attendance
Director
Ruth Cairnie
Roy Franklin1
Chris Girling
Peter Hill2
James Hind
Alain
Michaelis
Wolfgang
Sondermann
Nancy Tuor
Moore
Paul Withers
Board
6/6
4/4
6/6
4/4
6/6
6/6
6/6
6/6
6/6
Audit
Committee
4/4
–
4/4
HSEQ
Committee
4/4
–
4/4
–
–
–
4/4
4/4
–
–
–
4/4
4/4
Nomination
Committee
2/2
1/1
2/2
1/1
–
Remuneration
Committee
4/4
–
4/4
–
–
–
–
2/2
2/2
–
–
4/4
4/4
1
2
Peter Hill superseded Roy Franklin as Chairman on 26 July 2016.
Peter Hill was appointed to the Board on 24 May 2016 and as Chairman from
26 July 2016.
Board diversity
Keller continues to be supportive of the need for diversity on its
Board to provide the necessary range of background, experience,
values and perspectives to optimise the decision-making process.
We note the recent report by the Parker Review Committee on
ethnic diversity on UK Boards and the Hampton Alexander Review,
focused on senior women below the company board. Ethnicity and
gender are important aspects of diversity to which the Chairman
and the Nomination Committee must pay due regard when deciding
upon the most appropriate composition of the Board and in
considering wider Executive succession planning.
The Board has established a range of backgrounds, capabilities
and experiences that are critical for the overall Board composition
and this forms the key objective and basis for the search and
assessment of candidates for future positions. Within this context,
in the ongoing process of refreshing the Board, the Company
continues to encourage and welcome interest from women, as from
other candidates who will add to the Board’s diversity. Against this
overriding objective, the Company does not currently propose to
set targets for the percentage of women or other aspects of
diversity on its Board in future years.
The Board, as at the date of this Annual Report and Accounts,
comprises 25% women – two women: six men (25% at 29 February
2016 – two women: six men). Within the Keller group, our overall
senior management population comprises 11.4% women, our
engineering/contract manager capability comprises 8% women and
women employees account for 9% of the organisation as a whole.
Professional development
On appointment, Directors are provided with induction training and
information about the group, the role of the Board and the matters
reserved for its decision, the terms of reference and membership of
the Board Committees and the latest financial information about
the group. This is supplemented by meetings with the Company’s
legal and other professional advisers, and, where appropriate, visits
to key locations and meetings with certain senior executives to
develop the Directors’ understanding of the business.
Throughout their period of office, Non-executive Directors are
continually updated on the group’s business, its markets, social
responsibility matters and other changes affecting the group and
the industry in which it operates, including changes to the legal
and governance environment and the obligations on themselves
as Directors.
50
Keller Group plc
Annual Report and Accounts 2016
Chairman’s induction
Peter has spent the past six months familiarising himself
with Keller and its people. His tailored induction programme
has included:
– Spending time with our corporate lawyers, our auditors and
brokers both prior to joining, as part of his due diligence on
Keller, and after appointment, to further his understanding
of our key risks and opportunities.
– A formal induction pack on appointment which included key
information on Keller’s corporate governance framework; its
shareholders, customers and the general contractors we work
with; our financial and operational performance; and, our
products and solutions.
– First hand exposure to our markets, business units and senior
management through visits to our Divisional headquarters in
the US, EMEA and APAC and meetings with the Divisional
senior management teams. Attending a number of sites
globally to see Keller in action on key projects and meet local
management.
– Attended Keller’s first Group Leadership Team Conference in
May 2016 where Peter had the opportunity to meet the group’s
top 70 senior leaders and listen to management presentations
setting out the new group strategy, our new organisational
model and the leadership priorities for the next 18 months.
Marc Woods, Paralympian and motivational speaker (right), at Keller’s Global
Leadership Conference 2016, with Alain Michaelis (left) and Peter Hill (centre).
Directors’ conflicts of interests
Under the Companies Act 2006, a Director must avoid a situation
where they have, or could have, a direct or indirect interest that
conflicts, or possibly may conflict, with Keller’s interests. The Act
allows Directors of public companies to authorise conflicts and
potential conflicts, where appropriate, where the Articles of
Association contain a provision to this effect. The Articles of
Association give the Directors authority to approve such situations
and to include other provisions to allow conflicts of interest to be
dealt with. To address this issue, at the commencement of each
Board meeting, the Board considers its register of interests and
gives, when appropriate, any necessary approvals.
There are safeguards which will apply when Directors decide
whether to authorise a conflict or potential conflict. First, only
Directors who have no interest in the matter being considered will
be able to take the relevant decision, and secondly, in taking the
decision, the Directors must act in a way that they consider, in good
faith, will be most likely to promote Keller’s success. The Directors
are able to impose limits or conditions when giving authorisation if
they think this is appropriate. These procedures on conflict have
been followed throughout the year and the Board considers the
approach to operate effectively.
Effectiveness
Directors and Directors’ independence
The Board currently comprises the Chairman, four other
Non-executive Directors and three Executive Directors. The names
of the Directors at the date of this report, together with their
biographical details, are set out on pages 44 and 45. All of these
Directors served throughout the year with the exception of Roy
Franklin, who served as Non-executive Director and Chairman until
26 July 2016 and Peter Hill who was appointed a Non-executive
Director and Chairman Designate on 24 May 2016.
The Non-executive Directors constructively challenge and help
to develop proposals on strategy and bring strong independent
judgement, knowledge and experience to the Board’s deliberations.
Periodically, the Chairman meets with the Non-executive Directors
without the Executive Directors present. Apart from formal contact at
Board meetings, there is regular informal contact between the Directors.
Ruth Cairnie, Chris Girling, Nancy Tuor Moore and Paul Withers are
all considered to be independent Non-executive Directors. Peter Hill
was independent at the time of his appointment as Chairman on
26 July 2016. Peter’s other professional commitments are as
detailed on page 45.
All Directors are subject to election by shareholders at the first AGM
following their appointment and to annual re-election thereafter,
in accordance with the Code.
In 2016 an external Board evaluation was carried out by Lintstock,
the London-based corporate advisory firm, and facilitated by the
Chairman and the Company Secretary. In addition to members of
the Board participating, input was also sought on the Board’s
performance and interaction with the Executives from the
Executive management team. Further details on the evaluation
and the resulting themes for development can be found in the
Nomination Committee report on page 54.
The Chairman has confirmed that the Directors standing for
election at this year’s AGM continue to perform effectively and
to demonstrate commitment to their roles.
Information and support
The Board and each Committee are satisfied that they receive
sufficient, reliable and timely information in advance of meetings
and are provided with all necessary resources and expertise to
enable them to fulfil their responsibilities and undertake their duties
in an effective manner.
For each Board and Committee meeting, Directors are provided
with a tailored Board pack at least one week prior to the meeting.
To improve the delivery and security of Board papers, the Company
continues to use an electronic system allowing the Board to easily
access information, irrespective of geographic location. Directors
regularly receive additional information from the Company between
Board meetings, including a monthly group performance update.
Should a Director be unable to attend a meeting, they will be
provided with all the papers and information relating to that meeting
and have the opportunity to discuss issues arising directly with the
Chairman and Chief Executive.
Board focus areas in 2016
Strategy
– Reviewed and approved:
– The group’s strategy and strategic levers (see page 21
for further details)
– The acquisition and integration plan of Tecnogeo, a
geotechnical engineering business in Brazil
– Attended a one day Strategy session to review progress
against Strategy and agree objectives for 2017-2020
Finance
– Evaluated and approved:
– The three-year and annual business plan and budget
– The approach and process enabling it to make the viability
statement (see page 41 of the Strategic report for the process
and the statement)
– The approach and process allowing it to make the Going
Concern statement
– The Class 2 transaction which saw Keller acquire a warehouse
in Avonmouth (see page 57 of the Audit Committee report for
further details)
– Reviewed the Company’s forecast net debt levels, facility
headroom and covenants
– Considered and agreed the 2016 interim and final dividends
Operational performance
– Attended an overseas Board visit in Warsaw, where they held
meetings with the members of the Divisional and local
management teams and took part in a site visit
– Received and considered strategic and operational
performance presentations from the Presidents of the US,
APAC and EMEA Divisions
The Board participates in a site visit in Warsaw, Poland in April 2016,
supervised by the local management team.
Risk
– Considered the principal risks and uncertainties which could
impact the group
– Reviewed the risk management framework with particular regard
to its impact on making the viability statement
Governance
– Agreed the terms of Roy Franklin’s retirement as Chairman from
the Company
– Agreed the appointment of Peter Hill as Non-executive Director
and Chairman Designate with effect from 24 May 2016 (for further
details on each of the arrangements please refer to the Directors’
remuneration report on pages 59 to 78)
– Reviewed the outcomes of an external Board evaluation
– Approved revised Board delegated authorities
– Approved a new Code of Business Conduct
– Approved a new Company Share Dealing Policy and procedures
2016 Board meetings – time spent
10%
Risk
10%
Governance
25%
Strategy
5%
Procedural
3%
People
47%
Financial and
operational performance
Keller Group plc
Annual Report and Accounts 2016
51
Strategic reportOverviewFinancial statementsGovernance Corporate governance report continued
Accountability
Internal control
The Board is ultimately responsible for the group’s system of
internal control and for reviewing its effectiveness. However, such
a system is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives, and can provide only
reasonable, not absolute, assurance against material misstatement
or loss.
The Board confirms that there is an ongoing process for identifying,
evaluating and managing the principal risks faced by the group,
which has been in place for the year under review and up to the date
of approval of the Annual Report and Accounts. This process is
regularly reviewed by the Board and accords with the guidance of
the Financial Reporting Council.
Details on the identification and evaluation of risk can be found in
the section headed ‘Principal risks and uncertainties’ on pages 41
to 43.
The principal elements of the internal control framework are as follows:
(a) Board delegated approvals
Documented authorisation procedures provide for an auditable trail
of accountability. These procedures are relevant across group
operations and provide for successive assurances to be given at
increasingly higher levels of management and, finally, to the Board.
In 2016, the Board delegated authorities were revised and rolled out
across the group.
(b) Management of project risk
Project risk is managed throughout the life of a contract from the
bidding stage to completion.
Detailed risk analyses covering technical, operational and financial
issues are performed as part of the bidding process. Authority limits
applicable to the approval of bids relate both to the specific risks
associated with the contract and to the total value being bid by Keller,
or any joint venture to which Keller is a party. Any bids involving an
unusually high degree of technical or commercial risk, for example
those using a new technology or in a territory where we have not
previously worked, must be approved at a senior level within the
operating company.
On average, our contracts have a duration of around six weeks but
larger contracts may extend over several months. The performance
of contracts is monitored and reported by most business units on a
weekly basis. In addition, thorough reviews are carried out by senior
managers on any poorly performing jobs and full cost-to-complete
assessments are routinely carried out on extended duration
contracts.
Further detail on the management of project risk is provided in the
section headed ‘Principal risks and uncertainties’ on pages 41 to 43.
(c) Health and safety
Regular reporting, monitoring and reviews of health and safety
matters are made to the HSEQ Committee and the Board.
(d) Budgeting and forecasting
There is a comprehensive budgeting system with an annual budget
approved by the Board. This budget includes monthly profit and loss
accounts, balance sheets and cash flows. In addition, forecasts are
prepared for the two subsequent years. Forecasts for the full year
are regularly updated during the year.
52
Keller Group plc
Annual Report and Accounts 2016
(e) Financial reporting
Detailed monthly management accounts are prepared which
compare profit and loss accounts, balance sheets, cash flows and
other information with budget and prior year, and significant
variances are investigated.
(f) Cash control
Each business reports its cash position weekly. Regular cash
forecasts are prepared to monitor the group’s short- and medium-
term cash positions and to control immediate borrowing
requirements.
(g) Investments and capital expenditure
All significant investment decisions, including capital expenditure,
are referred to the appropriate divisional or group authority level.
(h) Internal audit
The group has a structured programme of independent, outsourced
audit reviews, covering tendering, operational processes and
internal financial controls. The intention is to conduct an internal
audit of all material business units at least once every four years.
This programme has been carried out by PricewaterhouseCoopers
since 2010. The programme is approved and monitored by the Audit
Committee, which reviews the findings of each such exercise.
(i) Electronic Internal Control Questionnaire (‘EICQ’)
Each year, every principal business unit is required to complete an
electronic questionnaire responding to whether key internal
financial and non-financial controls are in place. The results of these
questionnaires are summarised in a ‘heat map’, which is presented
to and discussed by the Audit Committee. The responses to the
questionnaires are also reviewed by PricewaterhouseCoopers
during each internal audit.
(j) Annual compliance statement
Once a year, managers are asked to confirm the adequacy of the
systems of internal controls for which they are responsible; and their
compliance with group policies, local laws and regulations; and to
report any significant control weaknesses or ‘breakdowns’ identified
in the past year.
(k) Code of Business Conduct
The group’s Code of Business Conduct and ten group policies
set out the standards with regards to conducting business in all
business units worldwide. All business units are required to self-
certify that they are compliant with the group’s Code of Business
Conduct and with the Code is considered as part of the
independent reviews.
During 2016 a revised Code was launched to all employees and
online training rolled out.
(l) Whistleblowing procedures
Employees are encouraged to raise genuine concerns about
malpractice at the earliest possible stage. In 2016 we introduced
a new externally facilitated whistleblowing hotline service for
employees. Any issues raised under our procedures are thoroughly
investigated and reported back to the Audit Committee.
The management of financial risks is described in the Finance
Director’s review on pages 16 to 19.
Health, Safety, Environment & Quality Committee report
Nancy Tuor Moore
Chairman of the Health, Safety, Environment & Quality Committee
“ Management has carried out an intensive review of the
group’s risk assessment processes.”
Composition of the Committee
– Nancy Tuor Moore
– Ruth Cairnie
– Chris Girling
– Paul Withers
For full biographies see pages 44 and 45
Role of the Committee
Assist the Board of Directors in fulfilling its oversight
responsibilities in relation to health, safety, environment, and
other sustainability matters, arising out of the activities of the
Company and its subsidiaries. It is also responsible for monitoring
and reviewing the group’s Health and Safety Framework in line
with applicable laws and regulations. The Committee evaluates
and oversees the quality and integrity of the Company’s
reporting to external stakeholders concerning sustainability
matters.
Highlights of the Committee’s activities in 2016
2016 Health, Safety, Environment & Quality
Committee meetings – time spent
Strategy/HSEQ
Sustainability
Governance
Procedural
Quality
%
54
16
15
7
7
– Approved the Company’s Sustainability framework.
– Approved the integration of quality and continuous
improvement into the health and safety function and the
Committee’s remit.
– Monitored progress against the year’s Safety targets and
reviewed the root cause analyses for serious incidents over
the year.
– Reviewed the terms of reference of the Committee.
– Reviewed the effectiveness of the Committee through the
evaluation process which, for the year under review, was
conducted externally.
Dear stakeholder
It is my pleasure to present the Health, Safety, Environment &
Quality Committee Report for the year ended 31 December 2016.
The Committee is required to meet at least three times a year.
During this financial year the Committee met four times and
attendance at these meetings is shown on page 50. The Committee
was particularly exercised this year by a number of serious incidents
across the group, and focused on management’s understanding of
the root cause analysis reports, together with shared learning and
improvement actions from these events across the business.
As I reported last year, in 2015 two employees died on a site in
Malaysia. Following a thorough internal investigation, validated by
an independent expert and overseen by the local regulator, the
local business accepted liability for the incident, resulting in a fine.
Management has carried out an intensive review of the group’s risk
assessment processes and subsequently rolled out improvements
to every business unit.
Despite management’s resolve to achieve its goal of zero injuries,
this year the Committee received reports on the unfortunate
deaths of an employee on a site in Texas, USA, and of a sub-contractor
on a site in Slovakia. Those fatalities continue to be investigated by
local regulators. We are committed to our zero harm policy and take
any loss of life seriously. As we await the formal outcomes of the
regulatory investigations, management has conducted its own
review and implemented corrective actions in our businesses
across the group.
We did see overall improved performance in safety in 2016 across the
group, and especially from the APAC Division, who have worked hard
as a team, as they reorganise and consolidate the Division, to ensure
that safety receives the appropriate focus in their business units.
Further detail on the Company’s HSEQ performance in 2016 can be
found in our Sustainability report on pages 36 to 40.
Corporate governance
The Committee’s terms of reference, which were reviewed during
the year, are available on the group’s website (www.keller.com) and
on request from the Company Secretary.
The membership of the Committee comprises the Non-executive
Directors of the Company. The Committee may invite members
of the senior management to attend meetings where it is felt
appropriate and the Chairman, Chief Executive and the group
Health, Safety, Environment & Quality Director regularly attend
meetings of the Committee. Divisional Presidents are required to
attend to report to the Committee in the event of a major safety
incident or near-miss occurrence and other members of the
Executive Committee may be invited to attend on occasion.
During the year, an external evaluation was carried out on the
Committee’s performance, facilitated by the Chairman and the
Company Secretary. Further to the review, it was concluded that,
consistent with the Code and its own terms of reference, the HSEQ
Committee is discharging its obligations in an effective manner.
Nancy Tuor Moore
Chairman of the Health, Safety, Environment & Quality Committee
27 February 2017
Keller Group plc
Annual Report and Accounts 2016
53
Strategic reportOverviewFinancial statementsGovernance Succession planning
We have continued to develop and monitor succession plans at the
Board level. The length of tenure for Non-executive Directors is two
terms of three years each, to be followed by annual renewal of up to
three years, allowing for increased flexibility in our succession
planning and timing.
Board effectiveness and skills
As part of its work on the Board’s effectiveness, the Nomination
Committee activities included:
– Consideration of the number of Executive and Non-executive
Directors on the Board and whether the balance is appropriate
to ensure optimum effectiveness.
– Reviewing the balance of industry knowledge, relevant
experience, skills and diversity on the Board.
– Assessment and confirmation that all the Non-executive
Directors remain independent.
This year, the Board conducted an external evaluation of its own
performance. It was conducted by Lintstock, the London-based
corporate advisory firm, and facilitated by myself and the Company
Secretary. In addition to members of the Board participating, input
was also sought on the Board’s performance and interaction with
the Executives from the Executive management team.
The outcomes from this review were discussed as part of the Board
meeting in December 2016. The Board agreed that, overall, the
Board and Committee structures were working well, and a number
of development themes were identified from the evaluation:
– Increased discussion on the new strategic levers, to be addressed
by the Strategy Director’s facilitation of key discussion topics in
the forward agenda;
– Increased access to the Executive management team by the
Board, to be addressed through more regular attendance at Board
meetings going forward; and
– Increased focus on talent development in the Executive
management population, to be addressed by the Chief Executive
and Human Resources Director in 2017.
The Nomination Committee is confident that each Director remains
committed to their role; the Board continues to work well and has an
appropriate and diverse mix of skills and industry knowledge. The
Directors collectively bring a range of expertise and experience of
different business sectors to Board deliberations, which encourage
constructive and challenging debate around the boardroom table.
The Nomination Committee continues to work to balance the skills
and experience of the Board members to meet the changing needs
of the business. The mix of skills keeps us relevant and up-to-date
with the market and further details on the Board’s breadth of skills
can be found on page 45.
Corporate governance report continued
Nomination Committee report
Peter Hill CBE
Chairman of the Nomination Committee
“ The Nomination Committee continues to work to
balance the skills and experience of the Board members
to meet the changing needs of the business.”
Composition of the Committee
– Peter Hill (Chairman from
26 July 2016)
– Roy Franklin (Chairman until
26 July 2016)
– Ruth Cairnie
– Chris Girling
– Nancy Tuor Moore
– Paul Withers
For full biographies see pages 44 and 45
Role of the Committee
Review and recommend the structure, size and composition
of the Board and its Committees. It is also responsible for
succession planning of the Board and Executive management.
The Committee promotes the overall effectiveness of the
Board and its Committees.
Highlights of the Committee’s activities in 2016
2016 Nomination Committee meetings – time spent
Succession planning
Procedural
Governance
%
57
29
14
– Succession planning for the Chairman of the Board.
– Appointment and reappointment of Board members.
– Monitored the length of tenure of the Non-executive Directors.
– Reviewed the terms of reference of the Committee.
Dear shareholder
Welcome to the report of the Nomination Committee for the year
ended 31 December 2016.
The Committee keeps under review the balance of skills on the
Board and the knowledge, experience, length of service and
performance of the Directors. During the year, the Committee met
twice and attendance at these meetings is shown on page 50.
This year, succession planning for the Chairman was a particular
area of focus for the Nomination Committee. Paul Withers, Senior
Independent Director, led the process and his report is set out on
page 55.
Ruth Cairnie completed her second three-year term as at May 2016.
Consequently, the Committee considered her independence prior
to recommending to the Board that her reappointment should be
extended for one year.
54
Keller Group plc
Annual Report and Accounts 2016
Diversity
The Committee continues to encourage and welcome interest
from women, as from other candidates who will add to the Board’s
diversity. The Board’s overriding objective is to continue to provide
effective leadership and, therefore, the Committee continues to
recommend for appointment only the most appropriate candidates
to the Board. There are, therefore, no formal targets set for female
or other aspects of diversity at Board level. For further information
on Boardroom diversity and diversity more generally at Keller, please
refer to page 50.
Non-executive appointments and time commitments
In making recommendations to the Board on Non-executive
Director appointments, the Nomination Committee will consider
the expected time commitment of the proposed Non-executive
Director, and other commitments they already have to ensure that
they have sufficient time available to devote to the Company.
Prior to accepting any additional commitments, Non-executive
Directors will, in the first instance, discuss these with the Chairman
of the Board, or in the case of the Chairman, with the Senior
Independent Director and the Chief Executive. Agreement of the
Board is then required to ensure that any conflicts of interest are
identified and that they will continue to have sufficient time available
to devote to the Company.
Independence and re-election to the Board
The composition of the Board is reviewed annually by the
Nomination Committee to ensure that there is an effective balance
of skills, experience and knowledge.
The Committee conducted a review of the independence of Ruth
Cairnie in the year as her three-year appointment was due to expire
on 7 April 2016. Ruth was not present during the Committee’s
discussion. Having conducted its review, the Committee was
satisfied that it was appropriate to recommend to the Board that
Ruth’s appointment should be extended for a further year.
Corporate governance
The Committee’s terms of reference, which were reviewed during
the year, are available on the group’s website (www.keller.com) and
on request from the Group Company Secretary.
Only the Chairman and Non-executive Directors are members of
the Committee. No one other than a member of the Committee is
entitled to be present at its meetings. The Committee may invite
members of the senior management to attend meetings where it is
felt appropriate and Alain Michaelis, Chief Executive, attended
certain meetings during the year.
During the year, an external evaluation was carried out on the
Committee’s performance, facilitated by the Chairman and the
Company Secretary. Further to the review, it was concluded that,
consistent with the Code and its own terms of reference, the
Nomination Committee is discharging its obligations in an
effective manner.
In accordance with the requirements of the UK Corporate
Governance Code, all members of the Board will seek re-election
at the Annual General Meeting in May 2017, with the exception of
myself, Peter Hill, and Venu Raju who will seek their first election.
Peter Hill CBE
Chairman of the Nomination Committee
27 February 2017
Paul Withers
Senior Independent Director
“ Our objective was to ensure an orderly
succession process.”
Dear Shareholder
Roy Franklin announced his intention to retire as Chairman and
from the Board in 2016. As the Senior Independent Director,
I was asked to lead the search and selection process for a new
Chairman on behalf of the Nomination Committee and the
Board, assisted by the Group Company Secretary.
Our objective was to ensure an orderly succession process.
Below I set out how that process was managed:
– Given Alain’s appointment as the new Chief Executive in 2015,
Roy was keen to achieve an orderly handover during 2016,
allowing Alain sufficient time in role before a further key change
on the Board took place.
– Roy spoke individually to each of the Non-executive Directors,
including me, to see if anybody wished to be a candidate and
came to the conclusion that an external appointment
was required.
– The Committee worked with the Group Company Secretary
to agree the profile and criteria for selection, seeking input
from Roy and the Executive Directors to ensure alignment.
– A number of search firms were approached and The Zygos
Partnership (‘Zygos’) was selected. Based on the profile and
criteria selection, together with individual interviews with the
Board, Zygos determined a long list of candidates for review.
– After discussion in the Committee and with Roy, a shortlist was
put forward to me for which detailed references were sought
by Zygos and soundings taken from our advisers.
– Agreed candidates were invited to meet with the Committee
and with the Chief Executive, and the preferred candidate was
identified as Peter Hill.
– The timing for handover was agreed with Peter and Roy, with a
short but well-ordered transition period.
We were delighted to welcome Peter to the Board in May 2016
and as Chairman from July 2016.
Paul Withers
Senior Independent Director
27 February 2017
Keller Group plc
Annual Report and Accounts 2016
55
Strategic reportOverviewFinancial statementsGovernance
Corporate governance report continued
Audit Committee report
Chris Girling
Chairman of the Audit Committee
“ In the year ahead we will continue to ensure the group’s
risk management and internal controls remain robust.”
Composition of the Committee
– Chris Girling
– Ruth Cairnie
– Nancy Tuor Moore
– Paul Withers
For full biographies see pages 44 and 45
Role of the Committee
The Committee is responsible for overseeing internal risk
management and effective internal controls, financial reporting
and appropriate external audit arrangements.
Highlights of the Committee’s activities in 2016
2016 Audit Committee meetings – time spent
Financial Governance
Procedural
Administrative
%
82
6
11
– Financial reporting.
– Reviewed the group’s risk (including Going Concern and
Viability Statement).
– Reviewed significant judgements and fair, balanced and
understandable assessment.
– Reviewed the independence and effectiveness of the
external auditors.
– Reviewed the group’s whistleblowing policy and procedures.
– Reviewed and agreed the process for refresh of the Code of
Business Conduct.
– Reviewed and approved the group’s tax strategy.
– Reviewed the effectiveness of the Committee. The evaluation
process for the year under review was facilitated by an external
consultant.
– Reviewed the terms of reference of the Audit Committee.
56
Keller Group plc
Annual Report and Accounts 2016
Dear Shareholder
On behalf of the Audit Committee, I am pleased to present our
report for the financial year ended 31 December 2016.
The Audit Committee met four times during the year. Attendance
at these meetings is shown in the table on page 50. To ensure
compliance with the Code, the Committee’s membership is limited
to Independent Non-executive Directors of the Company. The
Chairman, Chief Executive, Finance Director, Group Financial
Controller and the Company’s external auditors KPMG LLP (‘KPMG’)
normally attend, by invitation, all meetings of the Committee.
PricewaterhouseCoopers, in their role as internal auditors, attend at
least two meetings of the Committee each year. On two occasions,
the Committee met privately with KPMG without management
being present and I also met with PricewaterhouseCoopers without
management present.
The Board is satisfied that I have the required level of relevant
financial and accounting experience required by the provisions of
the Code, to perform the role of Chairman, having previously held
Chief Financial Officer positions in public companies. I am also a
Chartered Accountant and I continue to chair the Audit Committee
for another public limited company.
The Audit Committee collectively has the contracting and
international skills and experience required to fully discharge its
duties. The Committee is authorised by the Board to seek any
information necessary to fulfil its duties to obtain independent legal,
accounting or other professional advice, at the Company’s expense,
which might be necessary for the fulfilment of its duties.
Activities of the Committee
During the year under review, the Committee has continued to
review and report to the Board on the group’s financial and narrative
reporting, internal control and risk management processes and the
performance, independence and effectiveness of KPMG. This
report describes the Committee’s main activities since my last
report in 2015.
The Audit Committee ensures the integrity of financial reporting
and audit processes and the maintenance of a sound internal
control and risk management system, details of which are described
on page 41.
The table below summarises the key agenda items covered at the
Committee’s meetings during this period:
– Review a report on the group’s system of internal control and its
effectiveness and receive regular updates on the group’s principal
risks.
– Review a report from management on their process for assessing
the group’s going concern and viability over a three-year period
and report the outcomes of the assessment to the Board.
– Undertake an assessment of the effectiveness of the internal
audit process.
– Approve a rolling four-year programme of internal audit reviews
of aspects of the group’s operations and financial controls and
receive reports on all reviews carried out during the year.
– Review the need for an internal audit function.
– Review and approve KPMG’s engagement letter and audit fee.
– Review KPMG’s reports and the group’s draft financial statements
and recommend them for approval to the Board.
– Review the scope and results of the audit, its cost-effectiveness
and the independence and objectivity of KPMG.
– Review the group’s policy on employment of KPMG for non-audit
services, specifically with regard to the updated UK Corporate
Governance Code and revised Auditing and Ethical Standards.
– Review the group’s policy on the employment of former
employees of KPMG.
– Receive briefings on various technical issues, such as accounting
standards and their practical consequences for Keller.
– Review and approve the group’s tax strategy, approach to the
management of tax risk and tax policy and procedures.
– Review the group’s whistleblowing policy and monitor the
procedures in place for employees to be able to raise matters of
possible impropriety.
– Agree the process for refreshing the group’s Code of Business
Conduct and its programme for implementation.
– Review the Committee’s effectiveness and its terms of reference.
The Audit Committee also reviewed the Company’s processes
for the preparation of the Annual Report and Accounts and the
outcomes of those processes to ensure that it was in a position
to recommend to the Board that the 2016 Annual Report and
Accounts satisfy the requirement of being fair, balanced and
understandable. The following processes are in place to provide
this assurance:
– Co-ordination and review of the Annual Report and Accounts
performed within an exacting time-frame which ran alongside
the formal audit process undertaken by KPMG.
– Guidance issued to contributors at an operational level.
– Internal challenge and verification process dealing with the
factual content of the information within the Annual Report
and Accounts.
– Comprehensive review by senior management and external
advisers to ensure consistency and overall balance.
In the first half of the year, the Audit Committee reviewed
correspondence received from the Financial Reporting Council’s
Corporate Reporting Review team in relation to the Company’s
accounts for the year ended 31 December 2014. The correspondence
requested a number of clarifications that were addressed and concluded
to the satisfaction of the Corporate Reporting Review team.
Significant issues considered by the Committee included those
identified in the Independent Auditor’s Report. They related to the
financial statements focused on the group’s approach to key
estimates and judgements in connection with:
Accounting for construction contracts
The main factors considered when making those estimates and
judgements include the percentage of work completed at the
balance sheet date on longer-term contracts, the costs of the work
required to complete the contract and the outcome of claims and
variations raised against customers and claims raised against the
group by customers or third parties. The Committee reviewed a
report prepared by management on the key estimates and
judgements relating to construction contracts having a material
impact on the group’s result for the year and agreed with the
conclusions of this report.
Carrying value of goodwill
The group tests annually whether goodwill has suffered any
impairment in accordance with the accounting policy set out in note 2
to the financial statements. The group estimates the recoverable
amount based on value-in-use calculations. These calculations
require the use of assumptions, the most important being the
forecast revenues, operating margins and the discount rate applied.
The key assumptions used for the value-in-use calculations are set
out in note 13 to the financial statements. The Committee has
reviewed the key assumptions used for all impairment tests of
material goodwill balances. In particular, this review has focused
on Keller Canada where there is the most uncertainty surrounding
the projections used in the value-in-use calculation.
Valuation of non-current assets held for sale
During the year, following a contract dispute the group acquired
a property which is classified as a non-current asset held for sale.
Further details are set out in note 20 to the financial statements.
The value of the property has been determined using an external
professional valuation performed in accordance with RICS
standards and the full Board received a presentation from the
property’s valuers in December 2016. The significant assumption
underlying the valuation is the rental yield. The Committee reviewed
the results of this valuation and the implied rental yield in comparison
to typical UK commercial property yields. The Committee considers
it a reasonable measure of fair value at the balance sheet date given
the history of the property.
The Committee also examined the disclosure of items which are
described as non-underlying and/or exceptional in the consolidated
income statement. After consideration of compliance with
emerging practice in the area of alternative performance measures
in conjunction with KPMG, the Committee agreed that the revised
presentation of exceptional and other non-underlying items in 2016
is appropriate.
These matters and any audit differences are considered in the
Committee meetings that review the full-year and interim results.
At these meetings, the Committee discusses with KPMG the
reasonableness of the assumptions made by management in
arriving at their estimates and judgements underpinning the
financial statements. In addition, during such meetings, the
Committee meets with KPMG without management being present.
Internal audit
PricewaterhouseCoopers (‘PwC’) continues to provide a structured
programme of independent, outsourced reviews of all material
business units at least once every four years. During 2016, the
Audit Committee received and considered reports from PwC which
detailed the progress against the agreed work programme. This
programme covered reviews of eight business units in five countries,
which together represented approximately 25% of the group’s
revenue for the year. It included assessments of the Bencor and
Austral businesses acquired in 2015; the McKinney and Suncoast
businesses in the US; the Keller Foundations business in Australia;
and Keller Poland. Although there remains scope to improve the
formality of certain controls in certain businesses to ensure they
operate more effectively, there were no findings that PwC
considered of a significant nature. In December, the Committee
formally reviewed the effectiveness of these arrangements and
discussed them and any action plans arising with management,
concluding that the internal audit arrangements were appropriate
and effective.
External audit
The Committee places great importance on ensuring there are high
standards of quality and effectiveness in the external audit process
and complied with the provisions of the Statutory Audit Services for
Large Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities) Order 2014
(the CMA Audit Order) throughout the year.
KPMG, and its predecessor firms, has been the Company’s auditor
since the Company first listed on the London Stock Exchange in
1994. As set out in our 2013 Annual Report and Accounts, KPMG
were reappointed as the Company’s Auditor in 2014 subsequent to
a robust retendering of the external audit process. Following the
introduction of the UK and EU guidance on mandatory auditor
rotation, the Committee anticipates retendering the external audit
again for the 2019 year-end, the year after the Company’s existing
lead audit partner will be required to rotate off the audit of the group.
Keller Group plc
Annual Report and Accounts 2016
57
Strategic reportOverviewFinancial statementsGovernance Corporate Governance
The Committee’s terms of reference, which were reviewed during
the year, are available on the group’s website (www.keller.com) and
on request from the Company Secretary.
A resolution to reappoint KPMG LLP will be put to shareholders at
the Annual General Meeting to be held in May 2017.
As a Committee we are continually looking at opportunities to
improve our effectiveness and better understand the risks and
opportunities of the markets in which the group operates. During
the year, an external evaluation was carried out on the Committee’s
performance, facilitated by the Chairman and the Company
Secretary. Further to the review, it was concluded that, consistent
with the Code and its own terms of reference, the Audit Committee
is discharging its obligations in an effective manner.
I meet regularly with both KPMG and the Finance Director to discuss
key issues relevant to the Committee’s work. Ensuring these lines
of communication are open and working well is vital to the success
of the Committee in carrying out its work.
In the year ahead we will continue to ensure the group’s risk
management and internal controls remain robust.
Chris Girling
Chairman of the Audit Committee
27 February 2017
Corporate governance report continued
Audit Committee report continued
The Committee has undertaken an assessment of the
effectiveness of the external audit process of the 2015 financial
statements. This assessment focused on: the calibre of the audit
firm (including reputation, presence in the industry, size, resources
and geographic spread); its quality control processes; the quality
of the team assigned to the audit; the audit scope, fee and audit
communications; and the governance and independence of the
audit firm.
There are a number of checks and controls in place for safeguarding
the objectivity and independence of KPMG. These include open
lines of communication and reporting between KPMG and the
Committee and, when presenting their ‘independence letter’,
KPMG LLP discuss with the Committee their internal process for
ensuring independence.
A detailed assessment of the amounts and relationship of audit and
non-audit fees and services is carried out each year and the Audit
Committee has developed and implemented a policy regulating the
placing of non-audit services to KPMG, which should prevent any
impairment of independence and ensure compliance with the
updates to the UK Corporate Governance Code and revised Auditing
and Ethical Standards with regards to non-audit fees. Any work
awarded to KPMG, other than audit, with a value in excess of £20,000
requires the specific pre-approval of the Audit Committee Chairman.
In addition, once total approved non-audit services exceeds
£50,000 in any year, every subsequent service, regardless of
amount, requires pre-approval by the Audit Committee Chairman.
Over the last three years, the ratio of non-audit related fees paid
to the Auditor averaged 37% of the total audit fee. The ratio of
non-audit related fees paid to the Auditor in 2016 is 31% of the total
audit fee. These relate predominantly to US tax compliance
services. Going forward, PwC has been engaged as the Company’s
tax advisers.
Also, as part of its annual review of KPMG’s independence, the
Committee reviews the level and nature of entertainment between
KPMG and management.
Risk management and internal control
The Audit Committee has a key role in ensuring appropriate
governance and challenge around risk management. It also sets the
tone and culture within the organisation regarding risk management
and internal control.
Key elements of the group’s system of internal control include:
– A comprehensive system of financial reporting.
– An organisational and management Board structure with clearly
defined levels of authority and division of responsibilities.
The group aims to continuously strengthen its risk management
processes, with the involvement of the Audit Committee to ensure
these processes are embedded throughout the organisation. The
Audit Committee has reviewed the group’s system of controls
including financial, operational, compliance and risk management
during the year with no significant failings or weaknesses identified.
However, any such system can only provide reasonable and not
absolute assurance against any material misstatement or loss.
Further information on the group’s risks is detailed on pages 41 to 43.
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Keller Group plc
Annual Report and Accounts 2016
Directors’ remuneration report
Annual statement from the Chairman of the
Remuneration Committee
Ruth Cairnie
Chairman of the Remuneration Committee
“ In 2016, the Committee consulted extensively with our
largest shareholders and their representative bodies on
the development of our Remuneration Policy.”
Composition of the Committee
– Ruth Cairnie
– Chris Girling
– Nancy Tuor Moore
– Paul Withers
For full biographies see pages 44 and 45
Role of the Committee
Determine and make recommendations to the Board on the
group’s framework and policy for executive remuneration and
its costs; determine individual remuneration packages for the
Executive Directors, and have oversight of the remuneration
packages of senior executives below Board level; exercise the
powers of the Board in relation to the Company’s Performance
Share Plan; set and oversee the selection and appointment
process of remuneration advisers to the Committee; and
report to shareholders on an annual basis on the work of
the Committee.
The Chairman of the Committee reports to the Board on the
Committee’s activities at the Board meeting immediately
following each meeting.
Highlights of the Committee’s activities in 2016
2016 Remuneration Committee meetings – time spent
Governance
Procedural
Administrative
People
%
83
8
6
3
1 Policy and consultation:
– Reviewed the Directors’ Remuneration Policy, developed
recommendations for a new Policy and conducted a full
shareholder consultation.
2 Board changes:
– Set remuneration arrangements for the new Chairman and
outgoing and incoming Engineering and Operations
Executive Directors.
3 2016 implementation and outcomes:
– Determined bonus outcomes for 2016.
– Determined the vesting outcome of the 2013 Performance
Share Plan awards.
– Approved 2016 PSP awards to Executive Directors and
Senior Managers.
4 2017 Remuneration:
– Set base salaries and established Executive Director bonus
arrangements for 2017.
– Reviewed base salaries and bonus arrangements for the
Executive Committee for 2017.
5 Monitored developments in Corporate Governance and
market trends.
6 Reviewed the terms of reference of the Remuneration
Committee.
7 Reviewed the effectiveness of the Committee through the
evaluation process which, for the year under review, was
conducted externally.
Dear shareholder
It is my pleasure to present the Directors’ remuneration report for
the year ended 31 December 2016 on behalf of the Board.
This remuneration report is split into two sections:
– The new Directors’ Remuneration Policy; and
– The Annual Report on Remuneration.
Policy Review
Much of the Committee’s activity in 2016 has focused on reviewing
our Remuneration Policy. The revised Policy will be put to a binding
vote at the Company’s Annual General Meeting in May 2017.
Keller Group plc
Annual Report and Accounts 2016
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Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Annual statement from the Chairman of the
Remuneration Committee continued
Business context
In 2015, our new CEO Alain Michaelis set out his vision for the group, “to be the world’s leading geotechnical solutions provider”, and since
then the Board has completed a Strategy Review, looking at how shareholder value can be maximised over the next five years. The resulting
strategic plan involves five key strategic levers, details of which can be found on page 20 of the Strategic report:
To be the world leader in geotechnical solutions
Growth
Growing our product
range and entering
new markets,
organically and
by acquisition
Customers
Building strong,
customer-focused
local businesses
Scale
Leveraging the scale
and expertise of
the group
Engineering and
Operations
Enhancing our
engineering and
operational
capabilities
People
Investing in our
people
The adoption by Keller of this new strategy, with clear actions and a multi-year implementation plan, sets the context for our proposed
revisions to remuneration:
– It increases the importance of weighting our incentives to the longer term, linking reward to performance arising from the delivery of the plan.
– It provides a stronger opportunity to build alignment between executive and shareholder interests, for example by encouraging and
facilitating the building of significant shareholding by the Executives.
– It requires reward in Keller to be competitive, to enable recruitment of new talent bringing in additional experience in driving change and
strengthening functional capabilities. This talent is needed at different levels in the Keller organisation but competitiveness must start
with senior roles and a coherent framework for reward across the group as a whole.
Our review also provided an opportunity to simplify some aspects of the Policy.
Proposed changes
We considered whether our remuneration structure of base salary, benefits, annual bonus and long term incentive (PSP) remains
appropriate or whether alternative structures, for example restricted stock, should be considered. We concluded that pay should continue
to be strongly linked to performance, specifically the delivery of the strategic plan.
We proposed a number of wording changes in the policy for the Annual Bonus Plan to make its implementation simpler and less prescriptive.
Specific changes proposed were:
– To remove the restriction in our policy wording that any bonus in excess of 100% of salary is only payable for genuinely exceptional
performance, an anomaly which, although well-intentioned, has in practice hampered effective implementation. The change is not
intended to weaken our commitment for any above-target payout to require very strong performance.
– To remove the prescriptive rules for adjustment of bonus outcomes (for example, related to safety or financial underperformance), and
replace these with a more general discretion for the Committee to make adjustments. Again, the intention is not to weaken the role of the
Committee in applying discretion, rather the opposite, but with the ability to respond to specific situations.
In addition, we proposed that deferral of any bonus in excess of 100% of salary be into shares rather than cash. This strengthens the
alignment between Executives and our shareholders. No changes were proposed to the maximum bonus opportunity.
For the PSP, we concluded that EPS growth and relative TSR continue to be currently well aligned with strategic delivery. We did not propose
moving away from these measures although in the policy we proposed to ensure that the Committee has flexibility to adopt different
measures in the future if there are good reasons to do so. For EPS we proposed to have the flexibility to adopt EPS targets based on
cumulative EPS over the three-year performance period rather than pre-defined growth rates: this will enable us to set targets appropriate
to where we are in the construction cycle.
We also considered whether there should be scope for the introduction of a third performance measure or as an underpin. We proposed to
include flexibility for a third measure in the Remuneration Policy but not to introduce a third measure for the 2017 cycle. We have committed
to any third measure in the future being a financial measure, but will consider further the alternatives, weightings and targets as part of our
implementation, and will ensure that we consult with shareholders when we have arrived at a conclusion.
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Keller Group plc
Annual Report and Accounts 2016
Finally, we developed a package of changes to the PSP designed to strengthen our position to attract and retain talent with the
right experience including from other sectors; to shift the overall balance of our incentives towards the longer term; and to
strengthen the alignment between executives and shareholders via increased shareholding. The proposed changes were:
– An increase in the maximum operational award from 100% of salary for the Executive Directors.
– Introduction of a two-year holding period in addition to the three-year vesting period.
– An increase in the shareholding requirement for Executive Directors from 100% of base salary to 200% of base salary.
Based on the shareholder feedback we received (see below), we have decided not to introduce this last package of changes at this
time to the PSP in this policy revision.
Shareholder engagement
In 2016, the Committee consulted extensively with our largest shareholders and their representative bodies on the development
of our Remuneration Policy.
We were pleased by the level and quality of engagement and welcomed the constructive feedback provided through the
consultation process and this has been taken on board in our final proposals.
We received widespread support for the adjustments proposed to the Annual Bonus Plan and for the flexibility to introduce
cumulative EPS targets for the PSP. As we had anticipated, several shareholders emphasised the importance of targets being
sufficiently stretching.
There was significant interest in our thinking about a possible third measure in the PSP, and interest from several shareholders in
including a returns measure.
On the package of other proposed changes to the PSP policy (increase in level of opportunity, introduction of a two-year holding
period, increase in shareholding requirement), the majority of shareholders were again supportive. They recognised the need for
Keller reward to be competitive and the gap that has developed in the nine years since incentive levels were last increased, the
benefits of a holding period and the rationale for a shift in the balance of our reward to the longer term. They also recognised the
importance of senior executives having the requirement and opportunity to build significant shareholdings provided performance
targets are achieved.
However, a significant minority expressed concern about making any increases to opportunities at this time. While recognising the
validity of the proposed levels, they would prefer for any increases in opportunity to be delayed until our progress in implementing
the new strategy is more established.
Keller Group plc
Annual Report and Accounts 2016
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Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Annual statement from the Chairman of the
Remuneration Committee continued
Our response and proposed way forward
The Remuneration Committee has considered all of the feedback, and continues to believe that the full set of changes originally proposed
will be needed in the future to underpin Keller’s future success with a well-balanced and competitive reward structure aligned to the
strategic direction.
However, we take the views and concerns of our shareholders very seriously and are mindful of the heightened political attention at the
moment on executive pay. We are therefore planning a measured, two-step approach:
– In our 2017 policy we are including the changes to the operation of the annual bonus described above. We are also adjusting the PSP
policy to provide the potential to adopt cumulative EPS targets, and the flexibility to introduce a third financial LTIP measure, as supported
in our consultation.
– The other changes to PSP are seen as a package balancing executive and shareholder expectations. We will revisit these over the course
of the next year, with a likely further consultation and change in policy after one or two years when the timing is right in terms of progress
in delivery of the strategic plan.
Incentive outcomes for 2016
Underlying group profit before tax declined by 11% and underlying earnings per share by 12%. Group net debt was £305.6m. Overall, annual
performance was disappointing and the 2016 annual bonus outcomes reflect this performance, with the Committee determining that 2%
of the maximum annual bonus opportunity in relation to financial targets should pay out for the Executive Directors. Progress against
personal objectives, which are aligned to the Company’s five strategic levers, was encouraging. These would have paid out at between 18%
and 20% of salary, but were capped at 15% of salary as the profit performance thresholds had not been met.
The Performance Share Plan did not vest in respect of the performance period ending in 2016. The next Performance Share Plan due to
vest will be based on performance ending in 2017.
Board changes
Peter Hill joined the Board as a Non-executive Director and Chairman Designate on 24 May 2016. He was appointed Chairman on 26 July
2016, following Roy Franklin’s retirement from the Board and as Non-executive Chairman. Wolfgang Sondermann stepped down from the
Board on 31 December 2016. Venu Raju was appointed to the Board as an Executive Director with effect from 1 January 2017. Their
remuneration was treated in line with policy and further details are set out in the Annual Report on Remuneration.
2017 Salary review
Alain Michaelis and James Hind have chosen not to receive an increase in base salary for 2017.
2017 Annual General Meeting
I very much hope that you will support our proposed Remuneration Policy along with our 2016 Annual Report on Remuneration at our
forthcoming Annual General Meeting in May. I will be available at the meeting to answer any questions about the work of the Committee.
Ruth Cairnie
Chairman of the Remuneration Committee
27 February 2017
62
Keller Group plc
Annual Report and Accounts 2016
Remuneration Policy report
The Remuneration Policy is set out in this section.
As described in the Chairman’s letter, the Committee engaged with its major shareholders in 2016 and 2017 as part of its review of the
executive remuneration policy. We wrote to 20 of our largest shareholders and the major shareholder representative bodies in November
2016 to consult on the development of our executive remuneration and, having considered the feedback, we wrote again in January 2017 to
explain the outcome of the review, the changes proposed and associated rationale. Shareholders were offered the opportunity to discuss
the proposals with the Remuneration Committee Chairman on both occasions and overall we were encouraged by the numbers of
shareholders who took the trouble to respond and engage and are satisfied that, having taken into account both supporting views and key
concerns, we have developed an appropriate way forward.
This policy will be put to shareholders for approval at the AGM to be held on 11 May 2017. The policy is intended to apply, subject to
shareholder approval, for three years from 1 January 2017. Where a material change to this policy is considered, the Company will consult
with major shareholders prior to submitting to all shareholders for approval. The Remuneration Policy will be displayed on the Company’s
website (www.keller.com) following the 2017 AGM.
Remuneration principles
Our remuneration principles underpinning Directors’ remuneration and our policy are:
Support
delivery of Keller’s strategy
Align
Executive Directors’ interests with
those of our shareholders
Attract, Retain and Motivate
high-calibre Executives to manage the
business and ensuring the long-term
success of the Company
Directors’ Remuneration Policy table
There are five main elements of the remuneration package for Executive Directors: base salary, benefits, pension, performance-related
annual bonus, and performance share plan. The table below summarises these elements, how they link to strategy and discourage
excessive risk-taking and their operation and performance measures. The group aims to balance the need to attract, retain and motivate
Executive Directors and other senior executives of an appropriate calibre with the need to be cost effective, whilst at the same time
rewarding exceptional performance. The Remuneration Policy is designed to balance these factors, taking account of prevailing best
practice, investor expectations and the level of remuneration and pay made generally to employees of the group.
Keller Group plc
Annual Report and Accounts 2016
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Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Remuneration policy report continued
Fixed remuneration – base salary, benefits and pension
Base salary
Purpose and link
to strategy
Operation
Reflects the individual’s role, experience and contribution to the Company.
Set at sufficiently competitive levels to attract and retain high-calibre individuals needed to execute and deliver on the
group’s strategic objectives.
Paid in cash. Salaries are normally set in the home currency of the Executive Director and reviewed annually. In making
salary decisions the Committee takes account of:
– Changes in the scope or responsibility of the role
– Company and individual performance
– Periodically, salary levels for comparable roles at relevant international comparators; and
– General increases across the group.
Performance
Both the group and the individual’s performance are considered when determining salary increases.
Opportunity
Benefits
Positioned broadly at the median of relevant roles in similar size international companies.
Increases are not expected to exceed average increases for the wider workforce taking into account
relevant geography.
In circumstances where there is a significant increase in the complexity, scope or responsibility of the role
the Committee has discretion to award a higher level of increase.
Purpose and link
to strategy
To be market competitive for the purpose of attracting and retaining high-calibre individuals needed to execute
and deliver the strategic objectives.
Operation
Benefits typically include:
– A company car or a car allowance,
– Private health care,
– Life assurance, and long-term disability insurance.
Other benefits may be provided from time to time if considered reasonable and appropriate by the Committee.
Where applicable, relocation costs may be provided, which may include but which are not limited to: removal costs,
accommodation assistance, a cost of living allowance, school fees and tax equalisation.
Executive Directors would also be able to participate in any all-employee share plans on the same basis as other
eligible employees, should such plans be implemented by the Company.
Performance
None
Opportunity
There is no formal maximum as the cost of benefit provision can fluctuate depending on changes in provider cost,
location and individual circumstances.
Pension
Purpose and link
to strategy
Operation
To provide a market competitive level of retirement benefit.
Executive Directors participate in the Company pension schemes that apply in their home country. Current UK
Directors can elect to receive either a contribution to a UK defined contribution (‘DC’) scheme or a salary cash
supplement in lieu of pension benefits.
Performance
None
Opportunity
The maximum annual pension contribution/cash supplement is 18% of base salary unless the contribution rates are
determined by the rules of a specific country pension plan.
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Keller Group plc
Annual Report and Accounts 2016
Short-term variable remuneration
Annual Bonus Plan
Purpose and link
to strategy
Operation
Performance
Rewards achievement of the short-term financial and strategic targets of the Company.
At the start of each financial year, performance measures and weightings are determined and annual financial targets
and personal strategic objectives are set by the Committee. Bonus outcomes are determined based on performance
against those targets.
Any bonus above 100% of salary is deferred into Company shares for three years.
Deferred bonus shares are eligible for dividend equivalents over the period from the date the deferred award is granted,
to the date of its vesting.
Malus and clawback may operate in respect of the Annual Bonus Plan (including deferred bonuses). The Committee
may apply judgement and shall have discretion to make appropriate adjustments to an individual’s annual bonus payout
(including, if appropriate, reduction to nil) or to recover the relevant value. Clawback will apply to the cash bonus and
deferred bonus for a period of three years. These provisions could take effect in the event of financial misstatement,
serious reputational damage, or material misconduct in individual cases.
The annual bonus is predominantly based on delivering financial performance (at least 80%) and may include financial
measures such as profit before tax (‘PBT’) and working capital management.
The Committee agrees targets annually for threshold and maximum payouts, ensuring targets are achievable but
stretching. The award opportunity at threshold performance is 0%, with around 50% of maximum bonus normally payable
for target. Payouts between threshold and target, and target and maximum are determined broadly on a straight-line basis.
Around 20% of the bonus is based on personal strategic objectives which are linked to Keller’s strategy.
The measures are reviewed by the Committee each year and will be explained in the annual report on remuneration.
The Committee retains full discretion to adjust the performance measures/targets/weightings on an annual basis for
future years to reflect the prevailing strategic objectives of the business.
The Committee also has discretion to adjust the bonus outcomes if it determines this is needed to achieve an
appropriate outcome. This could take into account factors such as a material deterioration in safety performance,
events impacting the reputation of the Company, or failure to achieve a minimum level of financial performance
impacting the scope for payout under personal strategic objectives.
Opportunity
The maximum annual bonus potential for Executive Directors is up to 150% of base salary.
Long-term variable remuneration
Performance Share Plan (‘PSP’)
Purpose and link
to strategy
Focuses on delivering value creation for shareholders and sustainable financial performance for the Company over
the long term.
Operation
Awards are normally granted every year.
Award levels are determined annually by the Committee and set within the policy maximum.
Subject to a three-year performance period and stretching performance conditions.
The performance measures and targets are determined at the start of each performance period in line with the
Company’s financial and strategic objectives.
Dividend equivalents are accrued over the three years and payable in respect of the shares that vest.
Malus and clawback may operate in respect of the Performance Share Plan. These provisions provide the Committee
discretion to reduce (including, if appropriate, to nil) the payout or to recover the relevant value following vesting of an
award. Clawback will apply to the PSP awards for a period of two years following vesting. These provisions could take
effect in the event of financial misstatement, serious reputational damage, or material misconduct in individual cases.
Performance
Vesting of PSP awards is subject to continued service and performance against relevant financial performance
measures as determined by the Committee. At least two-thirds of the award will be based on:
– Earnings per Share (EPS) measured over the three-year performance period, and
– Total Shareholder Return (TSR) measured over the three-year performance period against an appropriate peer
group(s) selected by the Committee.
Opportunity
The Committee retains discretion to include an additional financial performance measures or an underpin and/or
adjust the weightings to reflect the prevailing strategic objectives of the Company.
The maximum award limit in each financial year is 100% of base salary.
In exceptional circumstances (for example recruitment or retention) the Committee may make awards of up to 200%
of base salary.
For threshold performance, 25% of the award will vest. For maximum performance, 100% will vest. Vesting will operate
on a straight-line basis.
Keller Group plc
Annual Report and Accounts 2016
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Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Remuneration policy report continued
Shareholding Guidelines
Purpose: aligns interests of Executive Directors with those of shareholders.
Executive Directors are expected to retain 50% net of tax of shares following the vesting of share awards until the guideline is attained.
The Committee encourages the Directors to buy shares on the market.
Minimum shareholding guideline for Executive Directors is 100% of (pre-tax) base salary.
Notes to the Policy Table:
Annual Bonus and Deferred Bonus Plans
– Profit-related measures are chosen by the Committee as they support the strategic objectives of profitable growth and leveraging
Keller’s technical expertise globally; good management of working capital emphasises the Company’s focus on efficiency of operations;
personal strategic objectives allow Executive Directors to focus on strategic initiatives which support delivery of the annual business plan
in any relevant year as well as laying foundations for delivery of the longer-term group strategy.
To reinforce alignment with shareholder interests, any bonus payable above 100% of salary will be deferred into the Deferred Bonus Plan
(‘DBP’). There are no further performance conditions applicable to the deferred bonus and it is released in the form of shares after a deferral
period of three years along with dividend shares accrued over the deferral period.
Timeline for Deferred Bonus Plan
Performance
period for
annual bonus
Deferral period
Award
Year 2
Year 1
Release
Year 3
Year 4
Year 5
Performance Share Plan
– The Committee believes that EPS and TSR performance measures continue to be well aligned with strategic delivery. The Committee
also has flexibility to adopt different measures if there are good reasons to do so or to introduce a third financial measure.
– TSR reflects the wealth creation for shareholders and provides strong alignment with shareholder interests. TSR is currently measured as
a three-year TSR outperformance of the FTSE 250 Index (excluding investment trusts). The Committee retains discretion to adjust this
measurement methodology for future awards should circumstances change.
– EPS is considered as an important indicator of the revenue growth and profitability and is highly visible internally. Targets are set by the
Committee taking into account internal forecasts of performance, any guidance provided to the market and market expectations, as well
as historical performance.
Timeline for Performance Share Plan
Performance period
Award
Year 1
Release
Year 2
Year 3
Year 4
Awards under previous remuneration policies
Any awards or remuneration-related commitments made to Directors under previous remuneration policies will continue to be honoured.
Committee’s discretion
– If an event occurs which causes the Committee to consider that an outstanding PSP Award or bonus would not achieve its original
purpose without alteration, the Committee has discretion to amend the targets, provided the new conditions are not materially less
challenging than the original conditions.
– Such discretion could be used to adjust appropriately for the impact of material acquisitions or disposals, or for exceptional and
unforeseen events outside the control of the management team. The application of any such discretion would have regard to the
Committee’s practice of ensuring the stability of measures and targets throughout the business cycle.
Pay for performance scenarios
The charts provide an illustration of the potential future reward opportunities for the Executive Directors, and the potential split between
the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’. Illustrations
are intended to provide further information to shareholders regarding the pay for performance relationship.
Potential reward opportunities are based on Keller’s Remuneration Policy, applied to base salaries from 1 January 2017. Note that the PSP
Awards granted in a year do not normally vest until the third anniversary of the date of grant, and the projected values exclude the impact
of any share price movement and dividend accrual.
66
Keller Group plc
Annual Report and Accounts 2016
The ‘minimum’ scenario reflects base salary, pension and benefits (i.e. fixed remuneration). Benefit levels are assumed to be the same
as the last financial year. No annual bonus payable and threshold performance under PSP is not achieved.
The ‘on-target’ scenario reflects fixed remuneration as above, plus bonus payout of 50% of maximum and PSP vesting at 50% of normal
maximum award.
The ‘maximum’ scenario reflects fixed remuneration, plus full payout of all incentives.
Alain Michaelis (£000)
Chief Executive
Minimum
100%
On target
Maximum
49%
33%
624
30%
40%
20%
1,268
27%
1,912
Salary, pension and bene�ts
Annual bonus
PSP
James Hind (£000)
Finance Director
Minimum
100%
427
On target
Maximum
49%
33%
30%
40%
20%
865
1,303
0.000000 217.166667 434.333333 651.500000 868.666667 1085.8333331303.000000
27%
Salary, pension and bene�ts
Annual bonus
PSP
Venu Raju (£000)
Engineering and Operations Director
Minimum
100%
344
On target
Maximum
58%
35%
18%
589
24%
43%
974
0.000000 162.333333 324.666667 487.000000 649.333333 811.666667 974.000000
22%
Salary, pension and bene�ts
Annual bonus
PSP
Approach to recruitment remuneration
The Committee’s approach to remuneration for newly appointed Directors (both internal and external) is consistent with that for existing
Directors. However, where the Company is considering an internal promotion to the Board, the Remuneration Committee may, at its
discretion, decide that any remuneration commitment agreed or entered into prior to the promotion will continue to be honoured even
though that commitment may not be consistent with the prevailing policy.
In determining appropriate remuneration, the Remuneration Committee will take into consideration all relevant factors to ensure that
arrangements are in the best interests of both Keller and its shareholders and will seek not to pay more than is necessary for this purpose.
The table below summarises Committee’s approach on recruitment/promotion:
Component
Base salary
Benefits
Pension
Annual bonus
Approach
Maximum
The base salaries of new appointees will be determined by
reference to relevant market data, experience and skills of the
individual, internal relativities and their current base salary. Where
new appointees have initial basic salaries set below market,
phased increases may be awarded over a period of two to three
years subject to the individual’s development in the role.
New appointees may be eligible to receive benefits in line with
the policy.
New appointees may be eligible to receive pension contributions
or an equivalent cash supplement in lieu of pension in line with
the policy.
The structure described in the policy table will apply to new
appointees with the relevant maximum being pro-rated to reflect
the proportion of employment over the year. Targets for the
individual element will be tailored to each Executive.
150% of salary
Performance Share Plan
New appointees may be granted awards under the PSP on the
same terms as other Executives, as described in the policy table.
200% of salary
(exceptional maximum)
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Annual Report and Accounts 2016
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Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Remuneration policy report continued
In addition, the Committee may offer a ‘buy out’ payment where the Committee considers it reasonable to do so in order to recruit a
particular individual. The Committee may offer compensation on a like-for-like basis, for any amounts of variable remuneration being
forfeited on leaving a previous employer. In doing so, the Committee will consider relevant factors such as expected values, any performance
conditions attached to these awards and the likelihood of those conditions being met, time horizons, delivery mechanism and the terms
of the forfeited remuneration.
To facilitate such compensation, the Committee may also rely on exemptions, procedures or provisions contained in the Listing Rules that
permit awards to be granted in exceptional circumstances. To ensure alignment from the outset with shareholders, malus and clawback
provisions may also apply where appropriate and the Committee may require new Directors to acquire Company shares up to a pre-agreed
level. Shareholders will be informed of any buyout arrangements at the time of appointment.
The Committee may offer to pay reasonable relocation expenses for the new Executive Director in line with the policies described in this report.
Service contracts
Executive Directors’ contracts are for an indefinite term with a one year’s notice. Service contracts between the Company (or other
companies in the group) and current Executive Directors are summarised below. Executive Directors’ service contracts are available to
view at the Company’s registered office.
Director
Date of service contract
Notice period
Termination payment
Alain Michaelis
14 May 2015
James Hind
Venu Raju1
16 May 2003
1 June 2011 (modified by letter of
variation dated 16 December 2016)
1 Venu Raju’s service contract is with Keller Foundations (SE Asia) Pte Ltd.
12 months’ notice by either the
Company or the Director
Maximum of basic annual salary
plus pension and benefits for
the unexpired portion of the
notice period, subject to
mitigation.
Payment for loss of office
When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders
and participants.
In a departure event, the Committee will typically consider:
– Whether any element of annual bonus should be paid for the financial year. Any bonus paid will be limited to the period served during the
financial year in which the departure occurs.
The default position is that a deferred bonus awarded in prior years will be preserved in full, unless the Committee, in its discretion,
chooses to apply malus or clawback.
– Whether any awards under the PSP should be preserved either in full or in part.
The default position is that an unvested PSP award or entitlement lapses on cessation of employment, unless the Committee applies
discretion to preserve some or all of the awards. This provides the Committee with the maximum flexibility to review the facts and
circumstances of each case, allowing differentiation between good and bad leavers and avoiding ‘payment for failure’.
The Committee maintains a discretionary approach to the treatment of leavers, on the basis that the facts and circumstances of each case
are unique. In an exit situation, the Committee will consider: the individual circumstances; any mitigating factors that might be relevant; the
appropriate statutory and contractual position; the position under the relevant plan documentation; and the requirements of the business
for speed of change.
Change of control
In the event of a change of control, the default position is for unvested PSP awards to be prorated for both the proportion of the
performance period worked and the achievement of performance conditions at the relevant date. As above, the Committee retains
discretion to treat awards differently, taking into account the relevant circumstances at the time.
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Annual Report and Accounts 2016
A departing Executive Director may have a legal entitlement (under statute or otherwise) to additional amounts, which would need to be
met. The Committee retains discretion to settle any other amounts reasonably due to a departing Executive Director, for example legal
fees incurred by an Executive Director in connection with the termination of employment.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including (but
not limited to) settlement or consultancy arrangements. These will be used sparingly and only entered into where the Committee believes
that it is in the best interests of the Company and its shareholders to do so.
External appointments
The Board may allow Executive Directors to accept external appointments and retain the fees; however, in accordance with the Code,
the Board will not agree to a full-time executive taking on more than one Non-executive Directorship, or the chairmanship of any company.
None of the Executive Directors held external appointments during 2016.
Remuneration policy for other employees
Keller’s approach to remuneration is broadly consistent across the group. Consideration is given to the experience, performance and
responsibilities of individuals. Senior managers are eligible to participate in the annual bonus scheme with similar performance measures to
those used for the Executive Directors. Maximum opportunities vary by seniority, with business-specific measures applied where appropriate.
Senior managers (currently approximately 70 individuals) are also eligible to participate in the PSP with the same performance conditions
as Executive Directors. The award sizes vary according to seniority. Pensions and benefits provision follows local country practice.
Considerations of conditions elsewhere in the group
When reviewing and setting executive remuneration, the Remuneration Committee takes into account the relevant pay and employment
conditions elsewhere in the group. Specifically, the level of salary increases across the group are reviewed annually.
All senior managers are set annual objectives at the beginning of each year which support the execution of our strategic levers through
delivering specific objectives relevant to their business unit. Annual bonuses payable to senior managers across the group depend on the
satisfactory completion of these objectives as well as performance against local business unit financial targets.
It should be noted that the workforce employed across the group’s geographically diverse businesses is not a homogenous group and pay
and conditions are designed to be competitive in, and appropriate to, the local employment market. The Committee does not currently
seek the views of employees on its remuneration policy.
Keller Group plc
Annual Report and Accounts 2016
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Directors’ remuneration report continued
Remuneration policy report continued
Non-executive Director Remuneration
Details of the policy on fees paid to Non-executive Directors are set out in the table below:
All Non-executive Directors have specific terms of engagement, the dates of which are set out below. All appointments are for an initial
three-year period, and thereafter are subject to review by the Nomination Committee, unless terminated by either party on three months’
notice. There are no provisions for compensation payable in the event of early termination.
Non-executive Director Appointment date, renewal date, renewal due
Fees
Peter Hill
Paul Withers
Chris Girling
Ruth Cairnie
Nancy Tuor Moore
24 May 2016
(and 26 July 2016 as Chairman)
Renewal due: 24 May 2019
17 December 2012
(renewed on 17 December 2015)
Renewal due: 17 December 2018
28 February 2011
(renewed on 28 February 2017)
Renewal due: 28 February 2018
1 June 2010
(renewed on 24 May 2016)
Renewal due: n/a
26 June 2014
Renewal due: 26 June 2017
£180,000 p.a. (to be reviewed in 2020)
£47,940 p.a.
Plus £7,500 p.a. (Senior Independent Director)
£47,940 p.a.
Plus £7,500 p.a. (Chairman of Audit Committee)
£47,940 p.a.
Plus £7,500 p.a. (Chairman of Remuneration Committee)
£47,940 p.a.
Plus £7,500 p.a. (Chairman of HSEQ Committee)
In recruiting a new Non-executive Director, the Remuneration Committee will utilise the policy as set out in the table on page 67.
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Annual Report and Accounts 2016
Annual remuneration report
The following section provides details of how Keller’s remuneration policy was implemented during the financial year ended 31 December 2016.
Single total figure of remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Director for the financial years ended 31 December
2015 and 2016:
Salary
Taxable benefits3
Pension benefits4
Annual Bonus5
PSP6
Total
Alain Michaelis
James Hind
Wolfgang Sondermann1
2016
£000
515
16
93
91
–
715
20152
£000
315
10
57
270
–
652
2016
£000
351
13
63
62
–
489
2015
£000
340
13
61
292
236
942
2016
£000
372
7
67
65
–
511
2015
£000
313
5
50
269
235
872
1
2
3
4
5
6
Wolfgang Sondermann’s salary is paid locally in euros. The 2015 and 2016 numbers are calculated in GBP using the average currency conversion rate applicable to those years.
Prorated for time in the office in 2015 (14 May 2015 to 31 December 2015).
Taxable benefits consist primarily of a car and payment of its operating expenses or car allowance of £15,000 for Alain Michaelis and £12,000 and £5,490 for James Hind and
Wolfgang Sondermann respectively; private health care; life assurance; and long-term disability insurance.
Represents cash in lieu of pension for Alain Michaelis and James Hind and for Wolfgang Sondermann for Defined Benefits pension – the annual increase net of inflation
multiplied by 20, as prescribed by UK regulations, as well as Company’s contribution into Defined Contribution plan.
Represents cash bonus paid for 2016 performance year, no deferral.
Represents vesting of shares following the end of the relevant performance period. Includes reinvested dividends on shares vested. The 2014 awards have lapsed.
Retirement of Engineering and Operations Director
Dr Wolfgang Sondermann stepped down as a Director of the Company with effect from 31 December 2016.
Payments and benefits
Wolfgang will remain an employee of Keller Holding GmbH until 30 April 2017 when he will retire. Until 30 April 2017, he will continue to receive
his contractual salary, benefits in kind and pension contributions. Wolfgang will use all his outstanding leave days before his employment
contract’s termination.
Following his retirement from Keller Holding GmbH, Wolfgang will serve in an advisory capacity for two days per month representing Keller
Holding GmbH as Chairman of the Board of the German Geotechnical Society. He will be paid €1,000 per day of service by Keller Holding GmbH.
Wolfgang will be treated as a ‘Good Leaver’ under the group’s Performance Share Plan. His 2016 award under the PSP will vest based to the
extent the applicable performance conditions have been achieved over the full performance period and the proportion of the performance
period worked. More details regarding his 2016 award are on page 74.
No further payments will be made to Wolfgang in connection with his loss of office.
Total pension entitlements (audited)
Wolfgang Sondermann participates in the defined benefit (DB) pension arrangements operated by Keller Grundbau GmbH. In 2016,
Wolfgang’s accrued pension increased, net of inflation, by £289. This is reflected in the single figure table by multiplying it by a factor of 20,
in accordance with the requirements of the UK regulations (giving £5,780). The normal retirement age under the scheme for Wolfgang
Sondermann is 65. He also participated in the Defined Contribution Plan and received contributions in 2016 totalling 17% of salary.
Alain Michaelis and James Hind receive cash supplement of 18% of salary, which has been included in the single figure table.
Payments to past Directors
No payments were made to past Directors during the year.
Exit payments made in the year
The termination arrangements for Wolfgang Sondermann have been described above. The Company paid no other exit payments to
Directors during the year.
Recruitment of Chairman
As announced on 29 April 2016, Peter Hill joined the Board as a Non-executive Director and Chairman Designate with effect from the close
of the Company’s Annual General Meeting on 24 May 2016 and, following the retirement of Roy Franklin from the Board after its meeting on
26 July 2016, Peter became Chairman of the Board. Following an external benchmarking exercise, Peter’s fee was fixed at £180,000 per
annum until 1 January 2020 by the Committee. The fee meets the criteria set out in the Company’s approved Remuneration Policy.
Keller Group plc
Annual Report and Accounts 2016
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Annual remuneration report continued
2016 Annual Bonus outcomes
Overall, annual performance was disappointing with underlying profit before tax declining by 11% and earnings per share by 12%. The 2016
annual bonus outcomes reflect this performance, with the Committee determining that 2% of the maximum annual bonus opportunity in
relation to financial targets should pay out for the Executive Directors.
Progress against personal objectives, which are aligned to the Company’s five strategic levers was encouraging for all Executive Directors.
Further details of the personal strategic objective and the outcomes are provided in the table below.
Taking into account financial performance in 2016, the outcomes for personal strategic objectives was capped at 50% of maximum payout,
in line with the current policy. The Committee also considered the two fatalities that occurred during the year, and what impact this should
have on the outcome for personal strategic objectives; given the capping at 50% of maximum payout, no further discretion was applied.
The financial targets and personal strategic objectives, together with the actual performance achieved against each target and resulting
bonuses, are set out below.
2016 Annual Bonus
Measures
2016 Measurement ranges and outcome
Bonus as % of salary
Group PBT, £m
Group EPS, pence
Group Average Net Debt, £m
Total group measures
Threshold
90
80
228
Target
100
89
213
Maximum
120
107
198
Outcome2
76.0
67.7
224.5
Personal strategic objectives
Personal strategic objectives
adjusted3
Total Bonus
Base salary
Bonus awarded3
Alain Michaelis
James Hind
Wolfgang Sondermann1
Max
50%
50%
20%
120%
Outcome
0%
0%
2.6%
2.6%
Max
50%
50%
20%
120%
Outcome
0%
0%
2.6%
2.6%
Max
50%
50%
20%
120%
Outcome
0%
0%
2.6%
2.6%
30%
20%
30%
20%
30%
18%
150%
15%
17.6%
150%
15%
17.6%
150%
15%
17.6%
£515,000
£90,640
£350,500
£61,688
£371,736
£65,480
1 Wolfgang Sondermann salary in euro is €453,900, and bonus awarded for 2016 is €79,886. The values in the table were converted using the applicable exchange rate for 2016.
2 At 2016 budget exchange rates before non-underlying items.
3 Adjusted in line with the current policy cap on personal strategic objectives if PBT or EPS are not triggered.
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Annual Report and Accounts 2016
Personal Strategic objectives
Personal strategic objectives are measurable deliverables that are specific to the individual and are focused on supporting the delivery
of Keller’s key strategic levers.
To be the world leader in geotechnical solutions
Growth
Growing our product
range and entering
new markets,
organically and
by acquisition
Customers
Building strong,
customer-focused
local businesses
Scale
Leveraging the scale
and expertise of
the group
Engineering and
Operations
Enhancing our
engineering and
operational
capabilities
People
Investing in our
people
Performance measures
Actual performance
Target/maximum
Outcome
Alain Michaelis
Objectives focused on delivering
business improvement measures
including aligning strategy,
implementing the revised Company
operating model, and continuing to
develop the Keller leadership team.
James Hind
Objectives included continuing to
improve the financial management
processes and business monitoring and
reporting; revamping of the group’s IT
strategy, and launch of the group’s
Code of Conduct enhancement.
Wolfgang Sondermann
Strategy has been rolled out and
actions are well underway. The
operating model was implemented in
early 2016 and continues to mature.
The Keller leadership team is working
well and there has been a significant
influx of new talent working in
combination with experienced
Keller leaders.
A new structure for business
performance reporting was rolled out
for all business units; the IT multi-year
approach has been developed and
communicated, while the Code of
Conduct training was rolled out to all
key employees.
Objectives included further
development of the group’s research,
development and design processes,
enhancing the group’s global
equipment planning, usage and
management, and developing and
supporting Wolfgang’s successor.
Good progress was made on research
and development design processes,
review of evaluation standards, and
assessment of capabilities for future
design projects; comprehensive
management transition to Wolfgang’s
successor Venu Raju was completed.
15%/30%
20%
Adjusted to 15% in
line with the policy
15%/30%
20%
Adjusted to 15% in
line with the policy
15%/30%
18%
Adjusted to 15% in
line with the policy
2013 Annual Bonus deferral
The 2013 deferred annual bonuses, representing cash bonus payments of over 100% of salary made to the Executive Directors and
deferred in cash for a period of three years, vested in December 2016. The deferred bonuses accumulated notional dividends over the
three-year deferral period. Payout is linked to share price performance of the Company, starting from the average market value of the
shares over the last quarter of 2013 in comparison with the average market value of the shares over the last quarter of 2016. The resulting
value of the deferral has reflected the drop in the share price. Details are provided in the table below.
Executive Director
James Hind
Wolfgang Sondermann
Total amount
deferred
£96,561
£43,2714
Share
equivalent1
at grant
9,233
4,138
Notional
dividends
accumulated2
887
397
Total amount
vested3
£80,385
£36,022
1 Using the average market value over the last quarter of 2013 of 1045.77p.
2 Dividends are not reinvested.
3 Using the average market value over the last quarter of 2016 of 794.32p.
4 Wolfgang Sondermann deferred €51,925, which was converted to sterling using applicable exchange rates.
The full annual bonus amounts, including the deferred portion, were disclosed in the Annual Report and Accounts 2013, therefore these
amounts are not included in the Single Figure table for 2016 to avoid double counting.
Keller Group plc
Annual Report and Accounts 2016
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Directors’ remuneration report continued
Annual remuneration report continued
2014-2016 Performance Share Plan (‘PSP’) outcomes
Based on EPS and TSR performance over the three years ended 31 December 2016, the Performance Share Plan Awards made in 2014 will
not vest. Details are provided in the table below:
Vesting schedule and outcome
% of award that will vest
0%
25%
5%
100%
15%
Outcome
EPS annualised
growth rate was below 5%
Below 0%
0%
10%
TSR outperformance
p.a. was below 0%
Vesting %
0%
0%
0%
Three-year Earnings per share (EPS) CAGR1
Below 5%
2014-2016 Performance Share Plan
Measures
50% weight
50% weight
Keller’s TSR outperformance vs FTSE2502
Index over three years
Total vesting
1 EPS is before non-underlying items.
2 Excluding investment trusts.
As a result, the 2014 awards have lapsed.
Executive Director
James Hind
Wolfgang Sondermann
Former Director Justin Atkinson
Interests held
28,232
30,453
39,977
Vesting %
0%
0%
0%
Value lapsed1
(£000)
£224
£242
£318
1 The market price used to calculate the value is average price for last quarter of 2016 of 794.32p.
Scheme interests awarded in 2016 (audited information)
2016-2018 Performance Share Plan (‘PSP’)
The three-year performance period over which performance will be measured began on 1 January 2016 and will end on 31 December 2018.
Awards will vest in March 2019, subject to meeting performance conditions. Awards were made as follows:
Executive Director
Alain Michaelis
James Hind
Wolfgang Sondermann
Date of grant
4 March 16
4 March 16
4 March 16
Shares over
which awards
granted
63,190
43,006
34,438
Market price at
date of award, p
815.00
815.00
815.00
Face value
(£000)
£515
£350
£281
Vesting of the 2016-2018 PSP Awards is subject to achieving the following performance conditions:
2016-2018 Performance Share Plan
Measures
50% weight
Three-year Earnings per share (EPS) CAGR1
50% weight
Keller’s TSR outperformance vs FTSE2502 Index over three years
1 EPS is before non-underlying items.
2 Excluding investment trusts.
Vesting schedule
% of award that will vest
0%
Below 5%
25%
5%
100%
15%
Below 0%
0%
10%
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Keller Group plc
Annual Report and Accounts 2016
Directors’ interests (audited information)
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at 31 December 2016
is set out below.
None of the Directors has a beneficial interest in the shares of any other group company. Since 31 December 2016, there have been no
changes in the Directors’ interests in shares.
Director
Alain Michaelis
James Hind
Wolfgang Sondermann
Ruth Cairnie
Roy Franklin1
Chris Girling
Peter Hill
Paul Withers
Nancy Tuor Moore
Ordinary
shares at
31 December
2016
23,508
158,685
195,000
6,000
–
3,000
16,000
20,000
–
Ordinary
shares at
31 December
2015
10,008
132,166
180,000
6,000
6,000
3,000
–
20,000
–
1 Roy Franklin retired as Chairman and from the Board on 26 July 2016.
Executive Directors’ shareholding guideline (audited information)
The table below shows the shareholding of each Executive Director against their respective shareholding guideline as at 31 December 2016.
Alain Michaelis
James Hind
Wolfgang Sondermann
1 Reflects closing price on 31 December 2016 of 844p.
Shares held
Options held
Owned outright
or vested
23,508
158,685
195,000
Unvested and
subject to
performance
conditions
161,293
137,195
64,891
Vested but not
exercised
–
–
–
Shareholding
guideline %
salary/fee
100%
100%
100%
Current
shareholding %1
salary/fee
39%
382%
443%
Guidelines
met?
No
Yes
Yes
Directors’ interests in options under long-term incentives (audited information)
Details of Directors’ PSP Awards are set out in the table below:
Alain Michaelis
20 May 2015
4 March 2016
James Hind
20 June 2013
7 March 2014
6 March 2015
4 March 2016
Wolfgang Sondermann
20 June 2013
7 March 2014
4 March 2016
Awards
held at
1 January
2016
98,103
–
39,426
28,232
65,957
–
39,271
30,453
–
Awards
granted
during
the year
–
63,190
–
–
–
43,006
–
–
34,438
Awards
exercised
during
the year
–
–
26,534
–
–
–
26,429
–
–
Awards
lapsed
during
the year
Awards
held at
31 December
2016
Exercise
price
(per exercise)
Date from
which
exercisable
Expiry date
–
–
12,892
–
–
–
12,842
–
–
98,103
63,190
–
28,232
65,957
43,006
–
30,453
34,438
100.0p
100.0p
100.0p
100.0p
100.0p
100.0p
100.0p
100.0p
100.0p
20/05/18
04/03/19
19/11/18
03/09/19
20/06/16
07/03/17
06/03/18
04/03/19
20/06/16
07/03/17
04/03/19
19/12/16
06/09/17
05/09/18
03/09/19
19/12/16
06/09/17
03/09/19
The performance conditions for Awards made in 2013 were: 50% based on EPS (0% vesting below RPI+4% p.a.; 30% vesting for RPI+4% p.a.;
100% vesting for RPI+9% p.a. or more) and 50% based on TSR relative to the constituents of the FTSE All-Share Index (0% vesting below
median; 30% vesting for median; (50th centile) performance; 100% vesting for upper quintile).
The performance conditions for Awards made in 2014, 2015 and 2016 are the same and are provided on page 74.
Keller Group plc
Annual Report and Accounts 2016
75
Strategic reportOverviewFinancial statementsGovernance Directors’ remuneration report continued
Annual remuneration report continued
CEO pay for performance comparison
The graph below shows the Company’s performance, measured by TSR, compared with the performance of the FTSE250 Index (excluding
investment trusts) and the FTSE All-Share Index. These indices have been selected for consistency with the comparator groups used to
measure TSR performance for outstanding as well as 2017 PSP awards.
This graph shows the growth in value of a hypothetical £100 holding in Keller Group plc. ordinary shares over nine years, relative to a
hypothetical £100 holding in the FTSE 250 and FTSE All-Share Indices.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the nine years to 31 December 2016 (£)
400
350
300
250
200
150
100
50
0
Dec 2008
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Keller TSR index
FTSE250 (excluding investment trusts)
FTSE All-Share
The table below details the CEO ‘single figure’ remuneration over the same period.
CEO single figure of remuneration (£000)
Annual bonus as a % of maximum opportunity
PSP vesting as a % of maximum opportunity
2009
891
42%
31%
20101
550
0%
0%
20111
562
0%
0%
2012
951
57%
0%
2013
1,870
84%
100%
2014
1,630
22%
100%
20152
1,420
85%
67.3%
2016
715
12%
0%
1
2
The CEO waived any entitlement to a bonus in 2010 and 2011.
The CEO single figure of remuneration has been calculated using Justin Atkinson’s emoluments for the period from 1 January 2015 to 14 May 2015 and Alain Michaelis’
emoluments for the period 14 May 2015 to 31 December 2015.
Percentage change in CEO remuneration
Comparing 2016 to 2015
% change in CEO remuneration1
% change in comparator group remuneration2
Salary
3%
8.5%
Benefits
1%
3%
Bonus
-79%
-14%
1
2
Calculated using Alain Michaelis 2015 salary set on appointment, annualised bonus for 2015 and full-year benefits entitlement.
The comparator group comprises population of Keller employees in the UK being professional/managerial employees based in the UK and employed on more readily
comparable terms.
Relative importance of spend on pay
The table below shows shareholder distributions (i.e. dividends) and total employee pay expenditure for the financial years ended
31 December 2015 and 31 December 2016, along with the percentage changes.
Distribution to shareholders1
Remuneration paid to all employees2
1
2
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2016 of 28.5p per ordinary share.
Total remuneration reflects overall employee costs. See financial statements – note 6 for further information.
2016
£m
20.5
469.9
2015
£m
19.1
402.2
%
change
7%
17%
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Keller Group plc
Annual Report and Accounts 2016
Summary of implementation of the remuneration policy for 2017
Appointment of Venu Raju, Engineering and Operations Director
As announced on 14 December 2016, Dr Venu Raju was appointed to the Board as Engineering and Operations Director with effect from
1 January 2017. In accordance with the approved remuneration policy, the Committee agreed a remuneration package that was in line with
current practice at the Executive Committee level in terms of the mix of fixed and variable remuneration and also appropriately positioned
against the external market.
Venu will continue to be based in Singapore during 2017 employed by his current employer, Keller Foundations (SE Asia) PTE Ltd and is
expected to relocate to Europe during 2018.
Payments and benefits
– Salary: £280,000 per annum (£20,000 of which will be received as fees from Keller Group plc in recognition of his role as an Executive
Director of the Company).
– Pension: 18% of salary per annum. While based in Singapore, Venu will remain in the Central Provident Fund (CPF), which is the statutory
authority that administers Singapore’s public pension system.
– Benefits: Venu will receive a car allowance of £12,000, private health care, life assurance and long-term disability insurance.
Performance related pay
– Annual Bonus: up to 150% salary (max).
– Performance Share Plan: normal maximum annual awards of 75% of base salary per annum.
Details of the specific payments will be disclosed in the Single Figure table for the relevant reporting year.
2017 Base Salary
Alain Michaelis and James Hind have chosen not to receive an increase in base salary for 2017. Venu Raju’s base salary was set on
appointment as £280,000 per annum.
2017 Annual Bonus
For 2017, 80% of Executive Directors’ bonus will be based on group financial results and 20% will continue to be based on personal strategic
objectives. The Committee has decided to simplify the performance measures by removing Earnings per Share (EPS), which is largely
duplicative of Profit Before Tax (PBT) and adjusting the weightings accordingly. PBT continues to be an important indicator of the Company’s
operating performance. The average net debt is replaced with working capital ratio as a percentage of revenue which is a more operational
measure well used throughout the organisation and which avoids impacts of, for example, acquisitions that influence net debt. Targets for
each measure are challenging but realistic and have been set in the context of the business plan and current environment. Targets will be
disclosed retrospectively in the 2017 Annual Remuneration report to the extent that they are no longer considered commercially sensitive.
Any bonus in excess of 100% of salary will be deferred for three years in shares, subject to approval of the Remuneration Policy at the 2017 AGM.
2017-2019 Performance Share Plan
Shares will be awarded in March 2017 to the normal maximum of 100% of salary for Alain Michaelis and James Hind and 75% of salary
for Venu Raju. The 2017-2019 PSP performance conditions will be assessed over three years based on the following measures: Total
Shareholder Return (TSR) and cumulative Earnings per Share (EPS), equally weighted. These measures continue to be aligned with Keller’s
strategic priorities. For 2017, EPS will be measured on a cumulative basis rather than as point-to-point annual growth (subject to the
approval of the Remuneration Policy at the 2017 AGM). This enables target-setting that better reflects business plans, market consensus
and the position in the construction cycle. The TSR outperformance requirement for maximum payout will remain as 10% per annum which,
following a review of market practice and historical achievability, the Committee believes continues to reflect at least an upper quartile level
of difficulty for Keller. The targets below have been carefully assessed and the Committee considers them to be appropriately stretching
given the business plans, opportunity set and investor expectations.
The Committee agreed the following targets for the 2017-2019 PSP awards:
2017-2019 Performance Share Plan
Measures
50% weight
Cumulative Earnings per share (EPS)1 over three years
50% weight
Keller’s TSR outperformance vs FTSE2502 Index over three years
1 EPS is before non-underlying items.
2 Excluding investment trusts.
Vesting schedule
% of award that will vest
0%
Below 250p
25%
250p
100%
290p
Below 0%
0%
10%
Chairman and Non-executive Director fees
With effect from 1 January 2017, the basic fee payable to each Non-executive Director was increased by 2% to £47,940 per annum. An additional
payment of £7,500 is made to those Non-executive Directors who additionally act as Chairman of a Committee and the Senior Independent Director.
The additional fee remains unchanged from 2016. The Chairman’s fee is set at £180,000 per annum with no fee review due until 1 January 2020.
Keller Group plc
Annual Report and Accounts 2016
77
Strategic reportOverviewFinancial statementsGovernance
Directors’ remuneration report continued
Annual remuneration report continued
Single total figure of remuneration for Non-executive Directors (audited information)
The table below sets out a single figure for the total remuneration received by each Non-executive Director for the year ended
31 December 2016 and the prior year:
Non-executive Director
Ruth Cairnie
Roy Franklin1
Chris Girling
Peter Hill2
Nancy Tuor Moore
Paul Withers
Total fees
2016
£
54,500
97,883
54,500
109,153
54,500
54,500
£425,036
2015
£
53,200
162,900
53,200
–
53,200
53,200
£375,700
1 Roy Franklin retired as Chairman and from the Board on 26 July 2016.
2 Peter Hill was appointed a Non-executive Director and Chairman Designate on 24 May 2016, and Chairman on 26 July 2016.
Corporate governance
The Committee’s terms of reference, which were reviewed during the year, are available on the group’s website (www.keller.com) and on
request from the Company Secretary.
During the year, an external evaluation was carried out on the Committee’s performance, facilitated by the Chairman and the Company
Secretary. Further to the review, it was concluded that, consistent with the Code and its own terms of reference, the Remuneration
Committee is discharging its obligations in an effective manner.
Statement of shareholder voting
The following table sets out the results of the vote on the Remuneration report at the 2016 AGM and the Remuneration policy at the 2014 AGM:
Remuneration report 2016
Remuneration policy 2014
Votes for
Votes against
Number
53,507,344
47,818,830
%
96.51
97.87
Number
1,935,912
1,042,595
%
3.49
2.13
Votes cast
Number
55,443,256
48,861,425
Votes withheld
Number
1,062,953
575,571
Consideration by the Directors of matters relating to Directors’ remuneration
The following Directors were members of the Remuneration Committee when matters relating to the Directors’ remuneration for the year
were being considered:
– Ruth Cairnie
– Chris Girling
– Nancy Tuor Moore
– Paul Withers
During the year, the Committee received assistance from Kerry Porritt (Company Secretary) and Irina Kapustina (Head of Reward, Performance
and Effectiveness) on salary increases, bonus awards, share plan awards and vesting and policy and governance matters. In determining the
Executive Directors’ remuneration for 2016 and 2017, the Committee has consulted the Chairman and the Chief Executive about its proposals,
except (in the case of each) in relation to their own remuneration. No Director is involved in determining their own remuneration.
No member of the Committee has any personal financial interest (other than as a shareholder), conflict of interest arising from cross-
directorships or day-to-day involvement in running the business. Given their diverse backgrounds, the Board believes that the members of
the Committee are able to offer an informed and balanced view on executive remuneration issues.
External advisers
During the year, the Committee continued to receive advice from Kepler, a brand of Mercer (‘Kepler’), an independent firm of remuneration
consultants appointed by the Committee after consultation with the Board. In 2016, Kepler provided independent advice on remuneration
policy and the external remuneration environment and benchmarking data.
Kepler reports directly to the Chairman of the Remuneration Committee and does not advise the Company on any other issues. Kepler’s
total fees for the provision of remuneration services in 2016 were £67,826 on the basis of time spent. Kepler is a founding member and
signatory of the Code of Conduct for Remuneration Consultants, details of which can be found at www.remunerationconsultantsgroup.com.
The Committee is satisfied that the advice they have received has been objective and independent.
Ruth Cairnie
Chairman of the Remuneration Committee
27 February 2017
78
Keller Group plc
Annual Report and Accounts 2016
Directors’ report
The Directors present their report together with the audited
consolidated financial statements for the year ended
31 December 2016.
No Director had a material interest in any significant contract, other
than a service contract or a contract for services, with the Company
or any of its operating companies during the year.
This report is required to be produced by law. The Disclosure and
Transparency Rules and Listing Rules also require us to make
certain disclosures.
The Corporate governance statement, including the Audit
Committee report, form part of this Directors’ report and is
incorporated by reference. Disclosures elsewhere in the Annual
Report and Accounts are cross-referenced where appropriate.
Taken together, the Strategic report on pages 4 to 43 and this
Directors’ report fulfil the requirement of Disclosure and
Transparency Rule 4.1.5R to provide a Management report.
Results and dividends
The results for the year, showing an underlying profit before
taxation* of £85.1m (2015: £95.7m), are set out on pages 88 to 124.
Statutory profit before tax was £73.9m (2015: £56.3m). The Directors
recommend a final dividend of 19.25p per share to be paid on
9 June 2017, to members on the register at the close of business
on 19 May 2017. An interim dividend of 9.25p per share was paid
on 30 September 2016. The total dividend for the year of 28.5p
(2015: 27.1p) will amount to £20.5m (2015: £19.4m).
Going concern and Viability statement
Information relating to the going concern and viability statements
is set out on pages 41 and 42 of the Strategic report and is
incorporated by reference into this report.
Financial instruments
Full details can be found in note 24 to the financial statements and
in the Finance Director’s review.
Post balance sheet events
A further £5.9m of insurance proceeds relating to the contract
dispute settled in 2014 was received in February 2017. This will be
recognised as exceptional other operating income in 2017 as the
receipt of these insurance proceeds was not considered virtually
certain as at 31 December 2016.
Change of control
The group’s main banking facilities contain provisions that, upon
15 days’ notice being given to the group, lenders may exercise their
discretion to require immediate repayment of the loans on a change
of control and cancel all commitments under the agreement.
Certain other commercial agreements, entered into in the normal
course of business, include change of control provisions. There are
no agreements providing for compensation for the Directors or
employees on a change of control.
Transactions with related parties
Apart from transactions between the Company, its subsidiaries
and joint operations, which are related parties, there have been
no related party transactions during the year.
Directors and their interests
The names of all persons who, at any time during the year, were
Directors of the Company can be found on page 50. The interests
of the Directors holding office at the end of the year in the issued
Ordinary Share capital of the Company and any interests in its
performance share plan are given in the Directors’ remuneration
report on pages 59 and 78.
The Company’s Articles of Association indemnify the Directors out
of the assets of the Company in the event that they suffer any loss
or liability in the execution of their duties as Directors, subject to the
provisions of the Companies Act 2006. The Company maintains
insurance for Directors and Officers in respect of liabilities which
could arise on the discharge of their duties.
Powers of the Directors
The business of the Company is managed by the Board who may
exercise all the powers of the Company subject to the provisions of
the Company’s Articles of Association, the Companies Act 2006
and any ordinary resolution of the Company. Specific treatment of
Directors’ powers regarding allotment and repurchase of shares is
provided under separate headings below.
Amendment of the Company’s Articles of Association
Any amendments to the Company’s Articles of Association may be
made in accordance with the provisions of the Companies Act 2006
by way of special resolution.
Appointment and replacement of Directors
Directors shall be no less than two and no more than 12 in number.
Subject to applicable law, a Director may be appointed by an ordinary
resolution of shareholders in general meeting following nomination
by the Board or a member (or members) entitled to vote at such a
meeting, or following retirement by rotation if the Director chooses
to seek re-election at a general meeting. In addition, the Directors
may appoint a Director to fill a vacancy or as an additional Director,
provided that the individual retires at the next AGM. A Director may
be removed by the Company as provided for by applicable law, in
certain circumstances set out in the Company’s Articles of
Association (for example bankruptcy, or resignation), or by a special
resolution of the Company. All Directors stand for re-election on an
annual basis, in line with the recommendations of the Code.
Employees
The group employed approximately 10,000 people at the end of
the year.
Employment policy
The group gives full and fair consideration to applications for
employment made by disabled persons, having regard for their
respective aptitudes and abilities. The policy includes, where
practicable, the continued employment of those who become
disabled during their employment and the provision of training
and career development and promotion, where appropriate.
Information on the group’s approach to employee involvement,
equal opportunities and health, safety and the environment can
be found in the Sustainability report on pages 36 and 40.
Political donations
No political donations were made during the year. Keller has an
established policy of not making donations to any political party,
representative or candidate in any part of the world.
Greenhouse gas emissions
Information relating to the greenhouse gas emissions of the
Company is set out on page 39 and is incorporated by reference
into this report.
The Directors present their report together with the audited
consolidated financial statements for the year ended
31 December 2016.
* Before non-underlying items.
Keller Group plc
Annual Report and Accounts 2016
79
Strategic reportOverviewFinancial statementsGovernance Directors’ report continued
Research and development
The group continues to have in-house design, development and
manufacturing facilities, where staff work closely with site engineers
to develop new and more effective methods of solving problems of
ground conditions and behaviour. Most of the specialised ground
improvement equipment used in the business is designed and built
in-house and, where applicable, the development costs are included
in the cost of the equipment
Ordinary Shares
Standard Life Investments (Holdings) Limited
Old Mutual Plc
Schroders plc
Aberforth Partners LLP
Franklin Templeton Institutional, LLC
Norges Bank
Number of
Company’s
total
8,973,708
4,242,670
3,632,097
3,589,696
3,557,757
2,871,741
Percentage
of the
voting
rights
12.47%
5.96%
5.07%
5.00%
4.96%
3.99%
Share capital
Details of the share capital, together with details of the movements
in the Company’s issued share capital during the year, are shown in
note 25: Share capital and reserves. The Company has one class of
Ordinary Shares which is listed on the London Stock Exchange
(‘Ordinary Shares’). Ordinary Shares carry no right to a fixed income;
and each Ordinary Share carries the right to one vote at general
meetings of the Company.
There are no specific restrictions on the size of a shareholding, nor
on the transfer of shares, which are both governed by the Articles
of Association and the prevailing law. The Directors are not aware
of any agreements between shareholders that may result in
restrictions on voting rights and the transfer of securities. No
person has any special rights of control over the Company’s share
capital and all issued shares are fully paid.
Details of employee share schemes are set out in note 29: Share-
based payments. Shares held by the Keller Group plc Employee
Benefit Trust are not voted.
Repurchase of shares
The Company obtained shareholder authority at the last AGM
(24 May 2016) to buy back up to 7,309,974 Ordinary Shares. The
authority remains outstanding until the conclusion of the 2016 AGM
but could be varied or withdrawn by agreement of shareholders at
an intervening General Meeting. The minimum price which must be
paid for each Ordinary Share is its nominal value and the maximum
price is the higher of an amount equal to not more than 5% above
the average of the middle market quotations for an Ordinary Share
as derived from the London Stock Exchange Daily Official List for
the five business days immediately before the purchase is made and
an amount equal to the higher of the price of the last independent
trade of an Ordinary Share and the highest current independent bid
for an Ordinary Share on the trading venue where the purchase is
carried out.
The Directors have not used, and have no current plans to use,
this authority.
Allotment of shares and pre-emption disapplication
Shareholder authority was also given at the last AGM for the
Directors to allot new shares up to a nominal amount of £2,392,493,
equivalent to approximately one-third of the Company’s issued
share capital (excluding treasury shares) as at 29 February 2016 and
to disapply pre-emption rights up to an aggregate nominal amount
of £358,874, representing approximately 5% of the Company’s
issued share capital as at 29 February 2016.
The Directors have not used, and have no current plans to use,
these authorities.
Substantial shareholdings
At 27 February 2017, the Company had been notified in accordance
with chapter 5 of the Disclosure and Transparency Rules of the
Financial Conduct Authority of the following voting rights of
shareholders in the Company:
80
Keller Group plc
Annual Report and Accounts 2016
Auditors
The Board has decided that KPMG LLP will be proposed as the group’s
auditors for the year ending 31 December 2017 and a resolution to
appoint KPMG LLP will be put to shareholders at the 2017 AGM.
Annual General Meeting
The 2016 AGM of the Company will take place at the offices of DLA
Piper UK LLP, 3 Noble Street, London, EC2V 7EE at 11.00am on
Thursday 11 May 2017. The full wording of the resolutions to be
tabled at the meeting is set out in the Notice of AGM.
Disclaimer
The purpose of this Annual Report and Accounts is to provide
information to the members of the Company, as a body, and no
other persons.
The Company, its Directors and employees, agents or advisers do
not accept or assume responsibility to any other person to whom
this document is shown or into whose hands it may come and any
such responsibility or liability is expressly disclaimed.
The Annual Report and Accounts contain certain forward-looking
statements with respect to the operations, performance and
financial condition of the group. By their nature, these statements
involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge
and information available at the date of preparation of this Annual
Report and Accounts and the Company undertakes no obligation to
update these forward-looking statements. Nothing in this Annual
Report and Accounts should be construed as a profit forecast.
Information included in the Directors’ report
Certain information that fulfils the requirements of the Corporate
governance statement can be found in the Directors’ report in the
sections headed ‘Substantial shareholdings’, ‘Repurchase of shares’,
‘Amendment of the Company’s Articles of Association’, ‘Appointment
and replacement of Directors’ and ‘Powers of the Directors’ and is
incorporated into this Corporate governance section by reference.
Other information
The Directors who held office at the date of approval of this
Directors’ report confirm that, in accordance with the provisions
of section 418 of the Companies Act 2006, so far as they are each
aware, there is no relevant audit information of which the Company’s
Auditors are unaware; and each Director has taken all the steps that
he or she ought to have taken as a Director to make him or herself
aware of any relevant audit information and to establish that the
Company’s Auditors are aware of that information.
Kerry Porritt
Group Company Secretary
27 February 2017
Registered Office:
5th floor, 1 Sheldon Square
London W2 6TT
Registered in England No. 2442580
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect
of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and
the group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare group and
Company financial statements for each financial year. Under that
law they are required to prepare the group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union (EU) and applicable law and they
have elected to prepare the Company financial statements in
accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and Company and of their
profit or loss for that period. In preparing each of the group and
Company financial statements, the Directors are required to:
Responsibility statement of the Directors in respect
of the Annual Report and the financial statements
We confirm that to the best of our knowledge:
– The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation as
a whole; and
– The Strategic report and Directors’ report, including content
contained by reference, includes a fair review of the development
and performance of the business and the position and performance
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks
and uncertainties that they face.
The Board confirms that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the performance,
strategy and business model of the Company.
The Strategic report (pages 4 to 43) and the Directors’ report
(pages 79 to 80) have been approved and are signed by order of
the Board by:
Kerry Porritt
Group Company Secretary
27 February 2017
Registered Office:
5th floor, 1 Sheldon Square
London W2 6TT
Registered in England No. 2442580
– Select suitable accounting policies and then apply them
consistently;
– Make judgements and estimates that are reasonable and prudent;
– For the group financial statements, state whether they have been
prepared in accordance with IFRSs, as adopted by the EU;
– For the Company financial statements, state whether the
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the
Company financial statements; and
– Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and Company
will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that its
financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report, Directors’ report,
Directors’ remuneration report and Corporate governance
statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Keller Group plc
Annual Report and Accounts 2016
81
Strategic reportOverviewFinancial statementsGovernance Independent Auditor’s report
to the members of Keller Group plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Keller Group plc for the year ended 31 December 2016 set out on pages 88 to 124. In our opinion:
– The financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2016
and of the group’s profit for the year then ended;
– The group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
– The parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework; and
– The financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group
financial statements, Article 4 of the IAS Regulation.
Overview
Materiality: group financial
statements as a whole
£4.2m (2015:£4.5m)
Coverage
89% (2015: 94%) of group profit and loss before non-underlying items and tax
4.9% (2015: 4.7%) of group profit before non-underlying items and tax
Risks of material misstatement
vs 2015
Recurring risks
Accounting for construction contracts
Event driven
New: Valuation of non-current assets held for sale
Carrying value of goodwill
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our
audit, in decreasing order of audit significance, were as follows:
The risk
Our response
Subjective estimate:
Our procedures included:
Contract accounting is
considered to be an ongoing
significant audit risk as it
requires a high degree of
estimation and judgement of
matters such as: the calculation
of stage of completion based on
the proportion of contract costs
incurred for the work performed
to the balance sheet date,
relative to the estimated total
forecast costs of the contract at
completion; and the outcome of
claims and variations raised
against customers and claims
raised against the group by
customers or third parties. Error
in any of these estimates and
judgements could result in a
material variance in the amount
of profit or loss recognised to
date and therefore also in the
current period.
– Control design and reperformance: Testing the design and
operating effectiveness of controls over contract revenue and
related expenditure;
– Our sector experience: Assessing the accounting
judgements applied to a selection of contracts with the
greatest impact on the group’s financial results, including
those considered to be high risk due to such factors as known
issues on the contract or the nature of work being undertaken;
– Historical comparisons: For a selection of those contracts in
progress at the balance sheet date, we challenged the group’s
assumptions on costs to complete the contract through agreeing
cost estimates to internal forecasts and to sub-contracts. We
assessed the reliability of the group’s forecast costs to complete
by considering historical accuracy on completed contracts;
– Test of details: For contracts completed by the year end, we
assessed subsequent settlement of revenue recognised. In
respect of claims and variations raised against customers, we
checked that these were recognised only once agreed with the
customer. In respect of those claims raised against the group
by customers or third parties, on a selection of contracts we:
challenged the group’s assumptions over the progress on the
claims and corroborated explanations provided; considered
prior experience on settlement of claims; inspected
correspondence with the counterparty and with the group’s
legal advisers or insurers where applicable; and
– Disclosures: We considered the adequacy of the group’s
disclosures in respect of contract accounting and the
accounting estimates.
Accounting for construction
contracts:
(£1,574.3 million;
2015: £1,397.4 million)
Refer to page 57 (Audit
Committee Report) and page 95
(accounting policy).
82
Keller Group plc
Annual Report and Accounts 2016
Carrying value of goodwill:
Forecast-based valuation:
Our procedures included:
The risk
Our response
(£166.5 million; 2015:
£134.0 million)
Refer to page 57 (Audit
Committee Report), page 95
(accounting policy) and pages 103
and 104 (financial disclosures).
Valuation of non-current
assets held for sale:
(£54.0 million; 2015: £nil)
Refer to page 57 (Audit
Committee Report), page 95
(accounting policy) and page 106
(financial disclosures).
There is a risk of impairment of
the group’s significant goodwill
balances due to prolonged
downturn or structural change
in the relevant construction
market. In particular there is
increased risk on the balance of
£34.1 million related to Keller
Canada where the business is
currently experiencing a
downturn and the carrying
amount of goodwill was
impaired to its recoverable
amount at 31 December 2015.
The group estimates
recoverable amount based on
value in use which includes
significant estimation and
judgement in the selection of
key inputs for the future cash
flows, specifically forecast
revenue and operating margin
along with discount rates.
– Historical comparisons: Assessing the reasonableness of
the group’s assumptions by reference to past performance;
– Benchmarking assumptions: Assessing the reasonableness
of the group’s assumptions by reference to externally derived
data, forecasts for economic factors and current order book;
– Our sector experience: Our valuation specialists assisted
in evaluating the reasonableness of assumptions and
methodologies underlying the discount rates adopted by
the group;
– Sensitivity analysis: We considered the sensitivity of the
level of headroom available in the calculations to reasonably
possible changes in assumptions to identify inputs on which
to focus our testing; and
– Disclosures: We assessed whether the group’s disclosures
about the sensitivity of the outcome of the impairment
assessment to changes in key assumptions reflected the
risks inherent in the valuation of goodwill.
Subjective valuation:
Our procedures included:
– Assessing the valuers’ credentials: We have read the
valuation report for the property and confirmed that the
valuation methodology was in accordance with RICS standards
and suitable for determining the fair value in the financial
statements. We assessed the valuers’ qualifications and
expertise. We considered their terms of engagement and fee
arrangements to determine whether there were any
indications that their objectivity may be impaired. We also
agreed 100% of the rental data provided to the valuers by
the group to the underlying lease;
– Benchmarking: The audit team, including our valuation
specialists, held a telephone conference with the valuer at
which the valuation and the key assumptions therein were
discussed. We compared the investment yields used by the
valuers with an estimated range of expected yields,
determined via reference to published benchmarks; and
– Disclosures: We assessed whether the group’s disclosures
about the sensitivity of the valuation of the property reflected
the risks inherent in the valuation.
During the year the group
acquired a property which is
classified as a non-current asset
held for sale. The valuation of
the property is inherently
subjective due to, among other
factors, the individual nature of
the property and its location.
In determining a property’s
valuation the valuers take into
account property-specific
information such as the current
tenancy agreement and rental
income. They apply assumptions
for yields which are influenced
by prevailing market yields and
comparable market transactions,
to arrive at the final valuation.
The significance of the estimates
and judgements involved could
result in a material misstatement
and therefore the valuation of
non-current assets held for
sale is considered a significant
audit risk.
Keller Group plc
Annual Report and Accounts 2016
83
Strategic reportOverviewFinancial statementsGovernance Independent Auditor’s report continued
3. Our application of materiality and an overview of
the scope of our audit
Normalised pro�t before tax
£85.1m (2015: £95.7m)
Materiality
£4.2m (2015: £4.5m)
£4.2m
Whole �nancial
statements materiality
(2015: £4.5m)
£3.6m
Range of materiality
at components
(£0.6m to £3.6m)
(2015: £0.4m to £3.25m)
£0.2m
Misstatements reported
to the Audit Committee
(2015: £0.2m)
Normalised PBT
Group materiality
The materiality for the group financial statements as a whole was
set at £4.2m (2015: £4.5m) determined with reference to a
benchmark of group profit before taxation, normalised to exclude
this year’s non-underlying items as disclosed on the face of the
income statement, of £11.2m (2015: £39.4m), of which it represents
4.9% (2015: 4.7%).
We report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.2m (2015: £0.2m), in
addition to other identified misstatements that warranted
reporting on qualitative grounds.
Audits for group reporting purposes were performed by component
auditors at the key reporting components, including North America,
EMEA and APAC. We performed specific audit procedures in Brazil
which while not individually significant was included in the scope of
our group reporting work in order to provide further coverage of the
group’s results.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 12% of total group revenue, 10% of group profit and
loss before tax and 17% of total group assets is represented by
reporting components, none of which individually represented more
than 2% of any of total group revenue, group profit and loss before
tax or total group assets.
For these residual components, we performed analysis at an
aggregated group level to re-examine our assessment that there
were no significant risks of material misstatement within these.
The group audit team instructed component auditors as to the
significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The group audit
team approved the divisional component materialities, which
ranged from £2.8m to £3.6m, having regard to the mix of size and
risk profile of the group across the components.
Aside from the audit of the parent company that was performed
by the group audit team, the work on all of the components was
performed by the component auditors.
The group audit team visited the three (2015: two largest) divisional
component locations in each of North America, EMEA and APAC.
Telephone conference meetings were also held with these
component auditors. At these visits and meetings, the findings
reported to the group audit team were discussed in more detail,
and any further work required by the group audit team was then
performed by the component auditor.
84
Keller Group plc
Annual Report and Accounts 2016
Group revenue
Group pro�t and loss before tax
88
88
88%(2015: 88%)
90
95
90%(2015: 95%)
Group total assets
Group pro�t and loss before non-underlying items and taxation
83
80
83%(2015: 80%)
89
94
89%(2015: 94%)
Full scope for group audit purposes 2016
Full scope for group audit purposes 2015
Residual components
4. Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
5. We have nothing to report on the disclosures
of principal risks
In our opinion:
– The part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
– The information given in the Strategic report and the Directors’
Report for the financial year is consistent with the financial
statements.
Based solely on the work required to be undertaken in the course of
the audit of the financial statements and from reading the Strategic
report and the Directors’ Report:
– We have not identified material misstatements in those reports; and
– In our opinion, those reports have been prepared in accordance
with the Companies Act 2006.
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
– The directors’ viability statement on pages 41 and 42, concerning
the principal risks, their management, and, based on that, the
directors’ assessment and expectations of the group’s continuing
in operation over the three years to 31 December 2019; or
– The disclosures in note 1 of the financial statements concerning
the use of the going concern basis of accounting.
Keller Group plc
Annual Report and Accounts 2016
85
Strategic reportOverviewFinancial statementsGovernance Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 81, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate. This report is made solely
to the Company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities, published
on our website at www.kpmg.com/uk/auditscopeukco2014a, which
are incorporated into this report as if set out in full and should be
read to provide an understanding of the purpose of this report, the
work we have undertaken and the basis of our opinions.
William Meredith (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
27 February 2017
Independent Auditor’s report continued
6. We have nothing to report in respect of the matters
on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
– We have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the group’s position and performance, business model
and strategy; or
– The Corporate Governance report does not appropriately
address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
– Adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
– The parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
– Certain disclosures of directors’ remuneration specified by law
are not made; or
– We have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
– The Directors’ statements, set out on pages 41 and 42, in relation
to going concern and longer-term viability; and
– The part of the Corporate Governance Statement on page 48
relating to the company’s compliance with the eleven provisions of
the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
86
Keller Group plc
Annual Report and Accounts 2016
106 Trade and other receivables
106 Construction contracts
106 Cash and cash equivalents
106 Non-current assets held
for sale
107 Trade and other payables
107 Provisions
107 Other non-current liabilities
107 Financial instruments
111 Share capital and reserves
111 Related party transactions
111 Commitments
112 Contingent liabilities
112 Share-based payments
113 Retirement benefit liabilities
115 Post balance sheet events
116 Financial statements
of the parent company
125 Adjusted performance
measures
127 Financial record
Principal statements
88 Consolidated income
statement
88 Consolidated statement
of comprehensive income
89 Consolidated balance sheet
90 Consolidated statement of
changes in equity
91 Consolidated cash flow
statement
Notes to the financial
statements
92 General information
92 Principal accounting
policies
96 Segmental analysis
97 Acquisitions
99 Operating costs
99 Employees
100 Non-underlying items
100 Finance income
100 Finance costs
101 Taxation
102 Dividends payable to equity
holders of the parent
103 Earnings per share
103 Intangible assets
105 Property, plant and
equipment
105 Other non-current assets
105 Inventories
Keller Group plc
Annual Report and Accounts 2016
87
Financial statementsGovernanceStrategic reportOverview
Consolidated income statement
For the year ended 31 December 2016
Revenue
Operating costs
Amortisation of acquired intangible assets
Other operating income
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
Basic
Diluted
Before
non-
underlying
items
£m
1,780.0
(1,684.7)
–
–
95.3
1.6
(11.8)
85.1
(29.8)
55.3
2016
Non-
underlying
items
(note 7)
£m
–
(18.9)
(9.7)
18.5
(10.1)
–
(1.1)
(11.2)
3.9
(7.3)
Note
3
5
3
8
9
10
Statutory
£m
1,780.0
(1,703.6)
(9.7)
18.5
85.2
1.6
(12.9)
73.9
(25.9)
48.0
Before
non-
underlying
items
£m
1,562.4
(1,459.0)
–
–
103.4
0.8
(8.5)
95.7
(33.0)
62.7
2015
Non-
underlying
items
(note 7)
£m
–
(32.3)
(7.3)
0.9
(38.7)
–
(0.7)
(39.4)
3.0
(36.4)
54.5
0.8
55.3
(7.3)
–
(7.3)
47.2
0.8
48.0
61.9
0.8
62.7
(36.4)
–
(36.4)
12
12
75.9p
74.8p
65.7p
64.7p
86.4p
85.4p
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Profit for the period
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Net investment hedge (losses)/gains
Cash flow hedge gains/(losses) taken to equity
Cash flow hedge transfers to income statement
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension schemes
Tax on remeasurements of defined benefit pension schemes
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
88
Keller Group plc
Annual Report and Accounts 2016
Note
24
24
24
30
10
2016
£m
48.0
77.0
(3.8)
1.9
(1.9)
(7.4)
1.3
67.1
115.1
113.7
1.4
115.1
Statutory
£m
1,562.4
(1,491.3)
(7.3)
0.9
64.7
0.8
(9.2)
56.3
(30.0)
26.3
25.5
0.8
26.3
35.5p
35.1p
2015
£m
26.3
(22.9)
1.7
(4.2)
4.1
0.3
(0.3)
(21.3)
5.0
4.3
0.7
5.0
Consolidated balance sheet
As at 31 December 2016
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Other assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Non-current assets held for sale
Total assets
Liabilities
Current liabilities
Loans and borrowings
Current tax liabilities
Trade and other payables
Provisions
Non-current liabilities
Loans and borrowings
Retirement benefit liabilities
Deferred tax liabilities
Provisions
Other liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Translation reserve
Other reserve
Hedging reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
2016
£m
2015
£m
13
14
10
15
16
17
19
20
3
24
21
22
24
30
10
22
23
3
3
25
25
25
188.0
405.6
21.6
30.2
645.4
59.4
528.5
18.2
84.4
690.5
54.0
1,389.9
(54.0)
(16.4)
(435.4)
(9.9)
(515.7)
(336.0)
(31.4)
(33.5)
(14.7)
(29.0)
(444.6)
(960.3)
429.6
7.3
38.1
7.6
59.8
56.9
(0.1)
255.8
425.4
4.2
429.6
160.1
331.8
13.4
22.9
528.2
47.3
423.2
12.6
63.1
546.2
–
1,074.4
(3.5)
(6.7)
(373.4)
(34.7)
(418.3)
(242.6)
(23.1)
(26.7)
(7.1)
(22.6)
(322.1)
(740.4)
334.0
7.3
38.1
7.6
(12.8)
56.9
(0.1)
233.5
330.5
3.5
334.0
These financial statements were approved by the Board of Directors and authorised for issue on 27 February 2017.
They were signed on its behalf by:
Alain Michaelis
Chief Executive Officer
James Hind
Finance Director
Keller Group plc
Annual Report and Accounts 2016
89
Financial statementsGovernanceStrategic reportOverview Consolidated statement of changes in equity
For the year ended 31 December 2016
Share
capital
£m
7.3
–
Share
premium
account
£m
38.1
–
Capital
redemption
reserve
£m
7.6
–
Translation
reserve
£m
8.3
–
Other
reserve
£m
56.9
–
Hedging
reserve
£m
–
–
Retained
earnings
£m
224.5
25.5
Attributable
to equity
holders of
the parent
£m
342.7
25.5
Non-
controlling
Total
interests
equity
£m
£m
3.6 346.3
0.8
26.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22.8)
1.7
–
–
–
–
(21.1)
(21.1)
–
–
–
–
–
–
–
–
–
–
–
–
7.3
–
38.1
–
7.6
–
(12.8)
–
56.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.3
–
–
–
38.1
–
–
–
–
–
–
–
–
–
–
7.6
76.4
(3.8)
–
–
–
–
72.6
72.6
–
–
59.8
–
–
(4.2)
4.1
–
–
(0.1)
(0.1)
–
–
(0.1)
–
–
–
1.9
(1.9)
–
–
–
–
–
–
–
0.3
(22.8)
1.7
(4.2)
4.1
0.3
(0.3)
(0.3)
(0.1)
–
–
(22.9)
1.7
(4.2)
–
–
–
4.1
0.3
(0.3)
–
(21.2)
(0.1)
(21.3)
25.5
(18.3)
1.8
4.3
(18.3)
1.8
0.7
(0.8)
–
5.0
(19.1)
1.8
233.5
47.2
330.5
47.2
3.5 334.0
0.8
48.0
–
–
–
–
(7.4)
1.3
76.4
(3.8)
1.9
(1.9)
(7.4)
1.3
0.6
–
–
–
–
–
77.0
(3.8)
1.9
(1.9)
(7.4)
1.3
(6.1)
66.5
0.6
67.1
–
–
–
56.9
–
–
–
(0.1)
41.1
(19.8)
1.0
255.8
113.7
(19.8)
1.0
425.4
1.4 115.1
(0.7)
(20.5)
–
1.0
4.2 429.6
At 1 January 2015
Profit for the period
Other comprehensive income
Exchange differences on translation
of foreign operations
Net investment hedge gains
Cash flow hedge losses taken to equity
Cash flow hedge transfers to income
statement
Remeasurements of defined benefit
pension schemes
Tax on remeasurements of defined
benefit pension schemes
Other comprehensive income/(loss)
for the period, net of tax
Total comprehensive income/(loss)
for the period
Dividends
Share-based payments
At 31 December 2015 and
1 January 2016
Profit for the period
Other comprehensive income
Exchange differences on translation
of foreign operations
Net investment hedge losses
Cash flow hedge gains taken to equity
Cash flow hedge transfers to income
statement
Remeasurements of defined benefit
pension schemes
Tax on remeasurements of defined
benefit pension schemes
Other comprehensive income/(loss)
for the period, net of tax
Total comprehensive income
for the period
Dividends
Share-based payments
At 31 December 2016
90
Keller Group plc
Annual Report and Accounts 2016
Consolidated cash flow statement
For the year ended 31 December 2016
Cash flows from operating activities
Operating profit before non-underlying items
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss/(profit) on sale of property, plant and equipment
Other non-cash movements
Foreign exchange losses
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Change in provisions, retirement benefit and other non-current liabilities
Cash generated from operations before non-underlying items
Cash inflows from non-underlying items
Cash outflows from non-underlying items
Cash generated from operations
Interest paid
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Acquisition of non-current assets held for sale
Acquisition of intangible assets
Net cash outflow from investing activities
Cash flows from financing activities
New borrowings
Repayment of borrowings
Cash flows from derivative instruments
Payment of finance lease liabilities
Dividends paid
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations
Cash and cash equivalents at end of period
Note
20
24
19
2016
£m
95.3
62.0
1.3
2.3
(5.2)
0.3
156.0
(3.1)
(7.4)
(2.7)
(7.1)
135.7
9.0
(4.1)
140.6
(12.3)
(25.3)
103.0
0.7
5.8
(14.6)
(78.2)
(62.0)
(0.6)
(148.9)
103.1
(4.2)
(28.0)
(2.9)
(20.5)
47.5
1.6
62.9
19.5
84.0
2015
£m
103.4
50.9
1.2
(0.3)
6.4
0.1
161.7
0.5
(11.1)
(1.4)
(7.4)
142.3
–
(27.5)
114.8
(6.6)
(44.3)
63.9
0.5
5.1
(52.5)
(74.2)
–
(0.8)
(121.9)
71.2
(9.3)
–
(1.4)
(19.1)
41.4
(16.6)
85.6
(6.1)
62.9
Keller Group plc
Annual Report and Accounts 2016
91
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements
1 General information
Keller Group plc (‘the parent’ or ‘the Company’) is a company
incorporated in the United Kingdom. The consolidated financial
statements are presented in pounds sterling (rounded to the
nearest hundred thousand), the functional currency of the parent.
Foreign operations are included in accordance with the policies set
out in note 2.
2 Principal accounting policies
Statement of compliance
The consolidated financial statements have been prepared and
approved by the Directors in accordance with International Financial
Reporting Standards (IFRS), as adopted by the EU.
The Company prepares its parent company financial statements in
accordance with FRS 101; these are presented on pages 116 to 124.
Basis of preparation
The financial statements are prepared on the historical cost basis
except that derivative financial instruments are stated at their fair
value. The carrying value of hedged items are, where relevant,
re-measured to fair value in respect of the hedged risk. Except as
noted below, these accounting policies have been applied
consistently to all periods presented in these consolidated financial
statements and have been applied consistently by subsidiaries.
The consolidated financial statements are prepared on a going
concern basis as set out on page 42.
Changes in accounting policies and disclosures
There is no significant financial impact on the group financial
statements of the following new standards, amendments and
interpretations that are in issue for the financial year ending
31 December 2016:
– Amendments to IAS 1, ‘Disclosure Initiative’
– Amendments to IAS 16 and 38, ‘Clarification of Acceptable
Methods of Depreciation and Amortisation’
– Amendments to IAS 27, ‘Equity Method in Separate Financial
Statements’
– Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment
Entities – Applying the Consolidation Exception’
– Amendments to IFRS 11, ‘Accounting for Acquisitions of Interests
in Joint Operations’
– Annual Improvements to IFRSs 2012-2014 Cycle
IFRS 15, ‘Revenue from contracts with customers’ has been
adopted by the EU with an effective date of 1 January 2018.
This standard modifies the determination of how much revenue
to recognise, and when, and provides a single, principles based
five-step model to be applied to all contracts with customers.
It replaces the separate models for goods, services and
construction contracts under current IFRS.
The group is in the early stages of assessing the impact of the
standard but based on a preliminary review, does not expect the
standard to have a significant impact on the group’s results. It is
likely that the group will adopt a prospective transition approach
to the standard.
The standard is only expected to impact those contracts that
are ongoing at the end of a reporting period and have multiple
performance obligations and/or contract modifications. With a
typical contract size of less than £500k with short duration, for the
vast majority of contracts revenue will continue to be recognised in
year. It is not possible to quantify the expected financial impact on
the 2017 results at this point in time as the application of the
standard is dependent on the specific details of contracts ongoing
at 31 December 2017. For the limited number of contracts that will
be ongoing at the end of a reporting period and have multiple
performance obligations and/or contract modifications, these will
need to be considered on a contract by contract basis. Given that
the group’s largest contract only contributed 2% of revenue in 2016,
any impact of the standard on the group’s reported revenue for any
given year is likely to be limited. We will continue to progress our
assessment of the impact of this standard.
IFRS 9, ‘Financial Instruments’ was adopted by the EU in November
2016 with an effective date of 1 January 2018. In addition, IFRS 16,
‘Leases’ has been issued during 2016 but not yet adopted by the EU.
The IASB effective date of IFRS 16 is 1 January 2019. The group is in
the early stages of assessing the impact of these accounting
standards on the group’s results.
Basis of consolidation
The consolidated financial statements consolidate the accounts of
the parent and its subsidiary undertakings (collectively ‘the group’)
made up to 31 December each year. Subsidiaries are entities
controlled by the Company. Control exists when the Company
has power over an entity, exposure to variable returns from its
involvement with an entity and the ability to use its power over the
entity to affect its returns. Where subsidiary undertakings were
acquired or sold during the year, the accounts include the results
for the part of the year for which they were subsidiary undertakings
using the acquisition method of accounting. Intra-group balances,
and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial
statements.
Joint operations
From time to time the group undertakes contracts jointly with
other parties. These fall under the category of joint operations as
defined by IFRS 11. In accordance with IFRS 11, the group accounts
for its own share of assets, liabilities, revenues and expenses
measured according to the terms of the agreements covering
the joint operations.
Revenue recognition
Revenue represents the fair value of work done on construction
contracts performed during the year on behalf of customers or the
value of goods or services delivered to customers. In accordance
with IAS 11, contract revenue and expenses are recognised in
proportion to the stage of completion of the contract as soon as the
outcome of a construction contract can be estimated reliably.
The fair value of work done is calculated using the expected final
contract value, based on contracted values adjusted for the impact
of any known variations, and the stage of completion, calculated as
costs to date as a proportion of total expected contract costs. Bid
costs are expensed as incurred.
In the nature of the group’s business, the results for the year include
adjustments to the outcome of construction contracts, including
joint operations, completed in prior years arising from claims from
customers or third parties and claims on customers or third parties
for variations to the original contract.
Provision against claims from customers or third parties is made in
the year in which the group becomes aware that a claim may arise.
Income from variations and claims on customers or third parties is
only recognised once agreed.
Where it is probable that a loss will arise on a contract, full provision
for this loss is made when the group becomes aware that a loss
may arise.
Revenue in respect of goods and services is recognised as the
goods and services are delivered.
92
Keller Group plc
Annual Report and Accounts 2016
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
Property, plant and equipment acquired under finance leases are
capitalised in the balance sheet at the lower of fair value or present
value of minimum lease payments and depreciated in accordance
with the group’s accounting policy. The capital element of the
leasing commitment is included as obligations under finance leases.
The rentals payable are apportioned between interest, which is
charged to the income statement, and capital, which reduces the
outstanding obligation.
Amounts payable under operating leases are charged to contract
work in progress or operating costs on a straight-line basis over the
lease term.
Foreign currencies
Balance sheet items in foreign currencies are translated into sterling
at closing rates of exchange at the balance sheet date. Income
statements and cash flows of overseas subsidiary undertakings are
translated into sterling at average rates of exchange for the year.
Exchange differences arising from the retranslation of opening
net assets and income statements at closing and average rates
of exchange respectively are dealt with in other comprehensive
income, along with changes in fair values of associated net
investment hedges. All other exchange differences are charged
to the income statement.
The exchange rates used in respect of principal currencies are:
Taxation
The tax expense represents the sum of the tax currently payable
and the deferred tax charge.
Provision is made for current tax on taxable profits for the year.
Taxable profit differs from profit before taxation as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The group’s liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit,
and is accounted for using the balance sheet liability method.
Full provision is made for deferred tax on temporary differences in
line with IAS 12, ‘Income Taxes’. Deferred tax assets are recognised
when it is considered likely that they will be utilised against future
taxable profits.
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited to the income statement, except
when it relates to items charged or credited directly to equity or to
other comprehensive income, in which case the related deferred tax
is also dealt with in equity or in other comprehensive income.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment.
US dollar: average for period
US dollar: period end
Canadian dollar: average for period
Canadian dollar: period end
Euro: average for period
Euro: period end
Singapore dollar: average for period
Singapore dollar: period end
Australian dollar: average for period
Australian dollar: period end
2016
1.36
1.23
1.80
1.66
1.22
1.17
1.87
1.78
1.82
1.71
2015
1.53
1.48
1.95
2.05
1.38
1.36
2.10
2.09
2.03
2.03
Interest income and expense
All interest income and expense is recognised in the income
statement in the period in which it is incurred using the effective
interest method.
Employee benefit costs
The group operates a number of defined benefit pension
arrangements, and also makes payments into defined contribution
schemes for employees.
The liability in respect of defined benefit schemes is the present
value of the defined benefit obligations at the balance sheet date,
calculated using the projected unit credit method, less the fair value
of the schemes’ assets. As allowed by IAS 19, the group recognises
the current service cost and interest on scheme net liabilities in the
income statement, and remeasurements of defined benefit plans in
other comprehensive income in full in the period in which they occur.
Payments to defined contribution schemes are accounted for on
an accruals basis.
Depreciation
Depreciation is not provided on freehold land.
Depreciation is provided to write off the cost less the estimated
residual value of property, plant and equipment by reference to their
estimated useful lives using the straight-line method.
The rates of depreciation used are:
Buildings
Long-life plant and equipment
Short-life plant and equipment
Motor vehicles
Computers
2%
8%
12%
25%
33%
The cost of leased properties is depreciated by equal instalments
over the period of the lease or 50 years, whichever is the shorter.
Non-current assets held for sale
The group classifies a non-current asset as held for sale when the
asset is available for immediate sale and management is committed
to selling the asset, an active programme to locate a buyer has been
initiated and the sale is highly probable within 12 months of
classification as held for sale.
At the time of classification as held for sale the non-current asset is
measured at the lower of the carrying amount and the fair value less
costs to sell. Any subsequent impairment losses are recognised in
the income statement. Any subsequent increase in the fair value is
recognised in the income statement to the extent that it is not in
excess of any previous impairment.
Keller Group plc
Annual Report and Accounts 2016
93
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
2 Principal accounting policies continued
Business combinations
The group accounts for business combinations in accordance
with IFRS 3, ‘Business Combinations (2008)’ using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the group.
Costs related to the acquisition are expensed as incurred. Any
contingent consideration payable is recognised at fair value at the
acquisition date with subsequent changes to the fair value being
recognised in profit or loss, unless the change was as a result of new
information about facts or circumstances existing at the acquisition
date being obtained during the measurement period, in which case
the change is recognised in the balance sheet as an adjustment
to goodwill.
Goodwill and other intangible assets
Goodwill
Goodwill arising on consolidation, representing the difference
between the fair value of the purchase consideration and the fair
value of the identifiable net assets of the subsidiary undertaking at
the date of acquisition, is capitalised as an intangible asset.
The fair value of identifiable net assets in excess of the fair value of
purchase consideration is credited to the income statement in the
year of acquisition.
Subsequent to initial recognition, goodwill is measured at cost
less accumulated impairment losses. Goodwill is reviewed for
impairment annually and whenever there is an indication that the
goodwill may be impaired in accordance with IAS 36, with any
impairment losses being recognised immediately in the income
statement. Goodwill arising prior to 1 January 1998 was taken
directly to equity in the year in which it arose. Such goodwill has
not been reinstated on the balance sheet.
Other intangible assets
Intangible assets, other than goodwill, include purchased licences,
software, patents, customer contracts, non-compete undertakings,
customer relationships, trademarks and trade names. Intangible
assets are capitalised at cost and amortised on a straight-line basis
over their useful economic lives from the date that they are available
for use and are stated at cost less accumulated amortisation and
impairment losses. Useful economic lives do not exceed seven years.
Intangible assets acquired in a business combination are accounted
for initially at fair value.
Impairment of assets excluding goodwill
At each balance sheet date the group reviews the carrying amounts
of its assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any.
Capital work in progress
Capital work in progress represents expenditure on property, plant
and equipment in the course of construction. Transfers are made to
other property, plant and equipment categories when the assets are
available for use.
Inventories
Inventories are measured at the lower of cost and estimated net
realisable value with due allowance being made for obsolete or
slow-moving items.
Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the
inventories to their present location and condition.
Financial instruments
Financial assets and financial liabilities are recognised on the group’s
balance sheet when the group becomes party to the contractual
provisions of the instrument.
Derivative financial instruments are accounted for in accordance
with IAS 39 and recognised initially at fair value.
The group uses currency and interest rate swaps to manage
financial risk. Interest charges and financial liabilities are stated after
taking account of these swaps.
The group uses these swaps and other hedges to mitigate
exposures to both foreign currency and interest rates.
Hedges are accounted for as follows:
Cash flow hedges: The effective part of any gain or loss on the
hedging instrument is recognised directly in the hedging reserve.
Any ineffective portion of the hedge is recognised immediately in
the income statement. The associated cumulative gain or loss is
removed from equity and recognised in the income statement in
the same period or periods during which the hedged forecast
transaction affects profit or loss.
Fair value hedges: Changes in the fair value of the derivative are
recognised immediately in the income statement. The carrying
value of the hedged item is adjusted by the change in fair value that
is attributable to the risk being hedged and any gains or losses on
remeasurement are recognised immediately in the income statement.
Net investment hedges: The effective portion of the change in
fair value of the hedging instrument is recognised directly in the
translation reserve. Any ineffectiveness is recognised immediately
in the income statement.
Trade receivables
Trade receivables do not carry any interest, are initially recognised
at fair value and are carried at amortised cost as reduced by
appropriate allowances for estimated irrecoverable amounts.
Trade payables
Trade payables are not interest bearing, are initially recognised at fair
value and are carried at amortised cost.
Borrowings
Borrowings are recognised initially at fair value less attributable issue
costs. Subject to initial recognition, borrowings are stated at
amortised cost.
Provisions
A provision is recognised in the balance sheet when the group has
a present legal or constructive obligation as a result of a past event
and where it is probable that an outflow will be required to settle
the obligation.
94
Keller Group plc
Annual Report and Accounts 2016
Financial guarantees
Where group companies enter into financial guarantee contracts
to guarantee the indebtedness or obligations of other companies
within the group, these are considered to be insurance
arrangements, and accounted for as such. In this respect, the
guarantee contract is treated as a contingent liability until such
time as it becomes probable that the guarantor will be required
to make a payment under the guarantee.
Share-based payment
Charges for employee services received in exchange for share-
based payment have been made in accordance with IFRS 2.
Options granted under the group’s employee share schemes are
equity settled. The fair value of such options has been calculated
using a stochastic model, based upon publicly available market data,
and is charged to the income statement over the performance
period with a corresponding increase in equity.
At the end of each reporting period, the group revises its estimate
of the number of options that are expected to vest based on the
service and non-market vesting conditions. It recognises the impact
of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the group that are regularly
reviewed by the Chief Operating Decision Maker to allocate
resources to the segments and to assess their performance.
The group determines the Chief Operating Decision Maker to be the
Board of Directors.
An operating segment is a component of the group that engages
in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate
to transactions with any of the group’s other components.
Segmental results are presented as operating profit before
exceptional items. Segment assets are defined as property, plant
and equipment, intangible assets, inventories and trade and other
receivables. Segment liabilities are defined as trade and other
payables, retirement benefit liabilities, provisions and other liabilities.
The accounting policies of the operating segments are the same
as the group’s accounting policies.
Dividends
Interim dividends are recorded in the group’s consolidated financial
statements when paid. Final dividends are recorded in the group’s
consolidated financial statements in the period in which they receive
shareholder approval.
Non-underlying items
Non-underlying items are disclosed separately in the financial
statements where it is necessary to do so to provide further
understanding of the financial performance of the group. They are
items which are exceptional by their size or are non-trading in
nature, including those relating to acquisitions.
Accounting estimates and judgements
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to
be reasonable under the circumstances, the results of which form
the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only
that and prior periods, or in the period of the revision and future
periods if the revision affects both current and future periods.
The key estimates and judgements in drawing up the group’s
consolidated financial statements are in connection with accounting
for construction contracts, the carrying value of goodwill and the
valuation of non-current assets held for sale.
Construction contracts: The group’s approach to key estimates
and judgements relating to construction contracts is set out in the
revenue recognition policy above. The main factors considered
when making those estimates and judgements include the costs of
the work required to complete the contract in order to estimate the
percentage completion, and the outcome of claims raised against
the group by customers or third parties.
Carrying value of goodwill: The group tests annually whether
goodwill has suffered any impairment in accordance with the
accounting policy set out above. The group estimates the
recoverable amount based on value-in-use calculations. These
calculations require the use of assumptions, the most important
being the forecast revenues and operating margins and the
discount rates applied.
Valuation of non-current assets held for sale: During the year the
group acquired a property which is classified as a non-current asset
held for sale. Further details are set out in note 20. The value of the
property has been determined using an external professional
valuation, with the rental yield being the significant assumption
underlying the valuation. Assuming constant annual rent, a 1%
increase in the rental yield would decrease the valuation by £6m.
A 1% reduction in the rental yield would increase the valuation by £8m.
The group also uses estimates in assessing the amount of any
contingent consideration payable and the recoverability of deferred
tax assets. Significant assumptions used in these calculations are
forecast revenue growth and forecast margins and for the
assessment of the recoverability of deferred tax assets, forecast
taxable profits.
Keller Group plc
Annual Report and Accounts 2016
95
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
3 Segmental analysis
With effect from 1 January 2016, the group has implemented a new organisation structure, comprising three geographical divisions which
have only one major product or service: specialist ground engineering services. Australia and Asia have been combined to form the new
geographical division, APAC. North America and EMEA continue to be managed as separate geographical divisions. This is reflected in the
group’s management structure and in the segment information reviewed by the Chief Operating Decision Maker. Comparative information
has been restated to reflect the new geographic structure.
North America
EMEA1
APAC2
Central items and eliminations
Before non-underlying items
Non-underlying items (note 7)
North America
EMEA1
APAC2
Central items and eliminations3
North America
EMEA1
APAC2
Central items and eliminations3
1 Europe, Middle East and Africa.
2 Asia-Pacific.
3 Central items include net debt and tax balances.
Segment
assets
£m
612.1
413.7
229.3
1,255.1
134.8
1,389.9
Segment
assets
£m
508.7
269.9
199.3
977.9
96.5
1,074.4
Segment
liabilities
£m
(206.1)
(213.3)
(85.2)
(504.6)
(455.7)
(960.3)
Segment
liabilities
£m
(165.5)
(183.2)
(71.1)
(419.8)
(320.6)
(740.4)
Revenue and non-current non-financial assets are analysed by country below:
United States
Australia
Canada
Germany
United Kingdom (country of domicile)
Other
2016
2015
Revenue
£m
952.9
552.6
274.5
1,780.0
–
1,780.0
–
1,780.0
2016
Capital
employed
£m
406.0
200.4
144.1
750.5
(320.9)
429.6
2015
Capital
employed
£m
343.2
86.7
128.2
558.1
(224.1)
334.0
Operating
profit
£m
86.9
30.2
(18.0)
99.1
(3.8)
95.3
(10.1)
85.2
Capital
additions
£m
33.3
33.0
12.3
78.6
0.2
78.8
Capital
additions
£m
30.5
31.4
12.5
74.4
0.6
75.0
Revenue
£m
851.2
441.5
269.7
1,562.4
–
1,562.4
–
1,562.4
Depreciation
and
amortisation
£m
24.7
20.7
17.8
63.2
0.1
63.3
Depreciation
and
amortisation
£m
19.8
17.4
14.8
52.0
0.1
52.1
Operating
profit
£m
76.4
21.3
11.7
109.4
(6.0)
103.4
(38.7)
64.7
Tangible and
intangible
assets
£m
294.8
174.6
123.6
593.0
0.6
593.6
Tangible and
intangible
assets
£m
245.6
130.9
114.8
491.3
0.6
491.9
Revenue
Non-current
non-financial assets4
2016
£m
870.3
171.0
80.1
82.7
64.7
511.2
1,780.0
2015
£m
773.4
161.5
77.7
62.1
61.8
425.9
1,562.4
2016
£m
245.8
73.5
69.3
42.7
23.7
158.9
613.9
2015
£m
196.7
69.6
64.9
34.7
19.2
122.8
507.9
4 Non-current non-financial assets comprise intangible assets, property, plant and equipment and other non-current non-financial assets.
96
Keller Group plc
Annual Report and Accounts 2016
4 Acquisitions
2016 acquisitions
Net assets acquired
Intangible assets
Property, plant and equipment
Cash and cash equivalents
Receivables
Other assets
Loans and borrowings
Deferred tax
Other liabilities
Goodwill
Total consideration
Satisfied by
Initial cash consideration
Contingent consideration (note 24)
Carrying
amount
£m
Tecnogeo
Fair value
adjustment
£m
Fair value
£m
–
6.8
1.2
4.2
0.3
(1.8)
–
(1.5)
9.2
0.8
–
–
(0.7)
–
–
(0.3)
(2.2)
(2.4)
0.8
6.8
1.2
3.5
0.3
(1.8)
(0.3)
(3.7)
6.8
6.6
13.4
12.8
0.6
13.4
On 29 February 2016, the group acquired 100% of the share capital of the Tecnogeo group of companies, a business based in São Paulo,
Brazil, for an initial cash consideration of £12.8m (BRL 60.8m). The fair value of the intangible assets acquired represents the fair value of
customer contracts at the date of acquisition and the trade name. Goodwill arising on acquisition is attributable to the knowledge and
expertise of the assembled workforce, the expectation of future contracts and customer relationships and the operating synergies that
arise from the group’s strengthened market position. Contingent consideration of up to £13.2m (BRL 53.0m) is payable based on total
earnings before interest, tax, depreciation and amortisation in the two-year period following acquisition.
The fair value of the total trade receivables is not materially different from the gross contractual amounts receivable and is expected to be
recovered in full. In the period to 31 December 2016, Tecnogeo contributed £13.4m to revenue and a net loss of £0.8m. Had the acquisition
taken place on 1 January 2016, total group turnover would have been £1,782.7m and total net profit before non-underlying items would have
been £55.3m.
On 4 April 2016, the group acquired assets and certain liabilities of Smithbridge Group Pty Limited, a business based in Brisbane, Australia,
for an initial cash consideration of £1.8m (A$3.4m). The purchase price reflects the fair value of the assets and liabilities acquired.
The adjustments made in respect of acquisitions in the period to 31 December 2016 are provisional and will be finalised within 12 months
of the acquisition date.
Keller Group plc
Annual Report and Accounts 2016
97
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
4 Acquisitions continued
2015 acquisitions
Net assets acquired
Intangible assets
Property, plant and
equipment
Cash and cash equivalents
Receivables
Other assets
Loans and borrowings
Deferred tax
Other liabilities
Goodwill
Total consideration
Satisfied by
Initial cash consideration
Contingent consideration
Carrying
amount
£m
Bencor
Fair value
adjustment
£m
Fair
value
£m
Carrying
amount
£m
Austral
Fair value
adjustment
£m
Ellington Cross
Fair
value
£m
Carrying
amount
£m
Fair value
adjustment
£m
Fair
value
£m
Carrying
amount
£m
Total
Fair value
adjustment
£m
Fair
value
£m
–
3.8
3.8
–
8.7
8.7
–
0.4
0.4
–
12.9
12.9
16.7
–
10.0
0.1
–
–
(4.8)
22.0
–
–
–
–
–
–
–
3.8
16.7
–
10.0
0.1
–
–
(4.8)
25.8
3.2
29.0
29.0
–
29.0
9.6
1.1
3.9
1.6
(1.0)
0.3
(5.9)
9.6
1.5
–
–
–
–
–
–
10.2
11.1
1.1
3.9
1.6
(1.0)
0.3
(5.9)
19.8
6.7
26.5
19.9
6.6
26.5
0.6
–
1.2
–
–
–
(0.5)
1.3
–
–
–
–
–
–
–
0.4
0.6
–
1.2
–
–
–
(0.5)
1.7
0.2
1.9
1.9
–
1.9
26.9
1.1
15.1
1.7
(1.0)
0.3
(11.2)
32.9
1.5
–
–
–
–
–
–
14.4
28.4
1.1
15.1
1.7
(1.0)
0.3
(11.2)
47.3
10.1
57.4
50.8
6.6
57.4
On 17 August 2015, the group acquired the trade and selected assets of the GeoConstruction group (‘Bencor’) of Layne Christensen
Company, a business based in Dallas, USA. The fair value of the intangible assets acquired represents the fair value of customer contracts at
the date of acquisition and the trade name. Goodwill arising on acquisition is attributable to the knowledge and expertise of the assembled
workforce, the expectation of future contracts and customer relationships and the opportunity to expand Bencor’s diaphragm wall
technology around the group.
On 2 July 2015, the group acquired 100% of the share capital of Austral Construction Pty Limited (‘Austral’), a business based in Melbourne,
Australia. The fair value of the intangible assets acquired represents the fair value of customer relationships and customer contracts at the
date of acquisition. Goodwill arising on acquisition is attributable to the knowledge and expertise of the assembled workforce, the
expectation of future contracts and customer relationships and the operating synergies that arise from the group’s strengthened market
position. Contingent consideration of up to £11.7m (A$20.0m) is payable based on total earnings before interest, tax, depreciation and
amortisation in the three-year period following acquisition.
On 17 August 2015, the group acquired the trade and selected assets of Ellington Cross, LLC (‘Ellington Cross’), a business based in
Charleston, USA.
98
Keller Group plc
Annual Report and Accounts 2016
2015
£m
450.3
402.2
493.4
1.2
9.6
51.4
50.5
0.4
1,459.0
32.3
1,491.3
4.4
0.1
1.0
0.2
0.1
0.1
2015
£m
350.0
40.4
10.0
1.8
402.2
20151
£m
4.9
0.4
–
1.4
6.7
5 Operating costs
Raw materials and consumables
Staff costs
Other operating charges
Amortisation of intangible assets
Operating lease and short-term rental expense:
Land and buildings
Plant, machinery and vehicles
Depreciation:
Owned property, plant and equipment
Property, plant and equipment held under finance leases
Operating costs before non-underlying
Non-underlying items
Other operating charges include:
Redundancy and other reorganisation costs
Fees payable to the Company’s auditor for the audit of the Company’s Annual Accounts
Fees payable to the Company’s auditor for other services:
The audit of the Company’s subsidiaries, pursuant to legislation
Tax compliance services
Tax advisory services
Other assurance services
6 Employees
The aggregate staff costs of the group were:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Note
6
13
7
2016
£m
537.0
469.9
542.6
1.3
15.4
56.5
61.4
0.6
1,684.7
18.9
1,703.6
0.6
0.2
1.1
0.1
0.3
–
2016
£m
409.1
48.9
10.9
1.0
469.9
These costs include Directors’ remuneration. The remuneration of the Board and Executive Committee, who are the key management
personnel, comprised:
Short-term employee benefits
Post-employment benefits
Termination payments
Share-based payments
2016
£m
5.1
0.4
0.4
0.5
6.4
1 Re-presented to include all members of the Board and Executive Committee. Only Board members were included in the prior year financial statements.
The average number of persons, including Directors, employed by the group during the year was:
North America
EMEA
APAC
2016
Number
3,820
4,531
1,886
10,237
2015
Number
3,841
3,917
2,023
9,781
Keller Group plc
Annual Report and Accounts 2016
99
Financial statementsGovernanceStrategic reportOverview
Notes to the consolidated financial statements continued
7 Non-underlying items
Non-underlying items include items which are exceptional by their size or are non-trading in nature and comprise the following:
Amortisation of acquired intangible assets
Restructuring costs
Contingent consideration: additional amounts provided
Acquisition costs
Goodwill impairment
Non-underlying items in operating costs
Contract dispute
Contingent consideration: provision released
Non-underlying items in other operating income
Total non-underlying items in operating profit
Non-underlying finance costs
Total non-underlying items
2016
£m
(9.7)
(14.3)
(3.9)
(0.7)
–
(18.9)
14.3
4.2
18.5
(10.1)
(1.1)
(11.2)
2015
£m
(7.3)
–
(0.9)
(0.2)
(31.2)
(32.3)
–
0.9
0.9
(38.7)
(0.7)
(39.4)
Amortisation of acquired intangible assets primarily relate to Keller Canada, Franki Africa and the acquisitions set out in note 4.
The £14.3m exceptional restructuring charge relates to asset write downs, redundancy costs and other reorganisation charges in markets
experiencing significantly depressed trading conditions (Singapore, Australia, Canada and South Africa). This includes the write-down of
surplus equipment to current market values where it is not being relocated to more active parts of the group.
Additional contingent consideration provided relates to the Bencor and Ellington Cross acquisitions.
The goodwill impairment in 2015 relates to Keller Canada. The results for Keller Canada have been below those expected at the time of the
acquisition, primarily due to a severe slowdown in investment in the Canadian oil sands following the very significant reduction in the oil price
since the time of acquisition. Further details are set out in note 13.
£14.3m of exceptional credits relate to the contract dispute settled in 2014. These credits are attributable to insurance proceeds received
after an initial settlement with insurers, rental income less operating costs from the acquired processing and warehousing facility (note 20)
and the release of the portion of the contract dispute provision that was dependent on the valuation of the property.
Contingent consideration released relates to adjustments to estimated amounts payable for the Austral, Franki Africa and
Geo-Foundations acquisitions.
8 Finance income
Bank and other interest receivable
Other finance income
9 Finance costs
Interest payable on bank loans and overdrafts
Interest payable on other loans
Interest payable on finance leases
Net pension interest cost
Other finance costs
Finance costs before non-underlying items
Non-underlying finance costs (note 7)
100 Keller Group plc
Annual Report and Accounts 2016
2016
£m
0.6
1.0
1.6
2016
£m
4.6
3.8
0.5
0.6
2.3
11.8
1.1
12.9
2015
£m
0.6
0.2
0.8
2015
£m
3.0
2.9
0.1
0.6
1.9
8.5
0.7
9.2
2015
£m
27.2
0.2
27.4
4.5
(1.9)
2.6
30.0
£m
56.3
11.4
13.2
5.1
–
2.0
10 Taxation
Current tax expense
Current year
Prior years
Total current tax
Deferred tax expense
Current year
Prior years
Total deferred tax
2016
£m
33.7
(5.1)
28.6
(4.6)
1.9
(2.7)
25.9
UK corporation tax is calculated at 20% (2015: 20.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
The effective tax rate can be reconciled to the UK corporation tax rate of 20% (2015: 20.25%) as follows:
2016
Before
non-underlying
items
£m
85.1
Non-underlying
items
(note 7)
£m
(11.2)
Before
non-underlying
items
£m
95.7
2015
Non-underlying
items
(note 7)
£m
(39.4)
Profit before tax
UK corporation tax charge/(credit) at 20%
(2015: 20.25%)
Tax charged at rates other than 20% (2015: 20.25%)
Tax losses and other deductible temporary differences
not recognised
Utilisation of tax losses and other deductible temporary
differences previously unrecognised
Non-deductible expenses and non-taxable income
Adjustments to tax charge in respect
of previous periods
Tax charge/(credit)
Effective tax rate
17.0
13.6
3.7
(5.5)
4.2
(3.2)
29.8
35.0%
£m
73.9
14.8
12.0
(2.2)
(1.6)
–
3.7
–
(0.1)
(5.5)
4.1
–
(3.9)
(3.2)
25.9
34.8% 35.0%
19.4
15.0
0.5
–
(0.2)
(1.7)
33.0
34.5%
(8.0)
(1.8)
4.6
–
2.2
–
(3.0)
7.6%
(1.7)
30.0
53.3%
The additional tax charged at other rates of tax relates primarily to tax arising on profits from operations in North America where rates are
significantly higher than in the UK.
Keller Group plc
Annual Report and Accounts 2016
101
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
10 Taxation continued
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior
reporting periods:
At 1 January 2015
(Credit)/charge to the income
statement
Charge to other comprehensive
income
Acquired with subsidiary
Exchange differences
At 31 December 2015 and
1 January 2016
(Credit)/charge to the income
statement
Credit to other comprehensive
income
Acquired with subsidiary
Exchange differences
At 31 December 2016
Unused
tax
losses
£m
(7.2)
Accelerated
capital
allowances
£m
33.7
Retirement
benefit
obligations
£m
(3.1)
(6.9)
–
–
0.7
(13.4)
(6.1)
–
–
(2.7)
(22.2)
4.0
–
–
0.2
37.9
(0.5)
–
–
7.8
45.2
0.2
0.3
–
0.1
(2.5)
(0.4)
(1.3)
–
(0.2)
(4.4)
Other
employee
related
liabilities
£m
(10.2)
0.1
–
–
(0.3)
(10.4)
–
–
–
(2.2)
(12.6)
Bad
debts
£m
(6.9)
2.1
–
–
(0.1)
(4.9)
0.8
–
–
(0.9)
(5.0)
Other
temporary
differences
£m
3.4
3.1
–
(0.3)
0.4
6.6
3.5
–
0.3
0.5
10.9
Deferred tax assets include amounts of £11.5m (2015: £9.2m) where recovery is based on forecasts of future taxable profits that are
expected to be available to offset the reversal of the associated temporary differences.
The following is the analysis of the deferred tax balances:
Deferred tax liabilities
Deferred tax assets
2016
£m
33.5
(21.6)
11.9
Total
£m
9.7
2.6
0.3
(0.3)
1.0
13.3
(2.7)
(1.3)
0.3
2.3
11.9
2015
£m
26.7
(13.4)
13.3
At the balance sheet date, the group had unused tax losses of £80.4m (2015: £71.9m), mainly arising in the UK and Canada, available for
offset against future profits, on which no deferred tax asset has been recognised. Of these losses, £55.9m (2015: £46.6m) may be carried
forward indefinitely.
At the balance sheet date the aggregate of other deductible temporary differences for which no deferred tax asset has been recognised
was £16.0m (2015: £67.7m).
At the balance sheet date the aggregate of temporary differences associated with investments in subsidiaries, branches and joint ventures
for which no deferred tax liability has been recognised is £86.6m (2015: £93.7m). The unprovided deferred tax liability in respect of these
timing differences is £3.6m (2015: £4.2m).
11 Dividends payable to equity holders of the parent
Ordinary dividends on equity shares:
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2015 of 18.3p (2014: 16.8p) per share
Interim dividend for the year ended 31 December 2016 of 9.25p (2015: 8.8p) per share
2016
£m
13.1
6.7
19.8
2015
£m
12.0
6.3
18.3
The Board has recommended a final dividend for the year ended 31 December 2016 of £13.8m, representing 19.25p (2015: 18.3p) per share.
The proposed dividend is subject to approval by shareholders at the AGM on 11 May 2017 and has not been included as a liability in
these financial statements.
102 Keller Group plc
Annual Report and Accounts 2016
12 Earnings per share
Basic and diluted earnings per share are calculated as follows:
Basic and diluted earnings (£m)
Weighted average number of shares (million)
Basic number of ordinary shares outstanding
Effect of dilutive potential ordinary shares:
Share options and awards
Diluted number of ordinary shares outstanding
Earnings per share
Basic earnings per share (pence)
Diluted earnings per share (pence)
13 Intangible assets
Cost
At 1 January 2015
Additions
Exchange differences
At 31 December 2015 and 1 January 2016
Additions
Exchange differences
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2015
Impairment charge for the year
Amortisation charge for the year
Exchange differences
At 31 December 2015 and 1 January 2016
Amortisation charge for the year
Exchange differences
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015 and 1 January 2016
At 1 January 2015
Earnings attributable to equity
holders of the parent before
non-underlying items
2015
61.9
2016
54.5
Earnings attributable to equity
holders of the parent
2015
25.5
2016
47.2
71.8
1.1
72.9
75.9
74.8
71.7
0.8
72.5
86.4
85.4
Goodwill
£m
Arising on
acquisition
£m
184.4
10.1
(6.7)
187.8
6.6
37.4
231.8
23.9
31.2
–
(1.3)
53.8
–
11.5
65.3
166.5
134.0
160.5
32.7
12.9
(4.2)
41.4
0.8
9.8
52.0
12.6
–
7.3
(2.1)
17.8
9.7
5.1
32.6
19.4
23.6
20.1
71.8
1.1
72.9
65.7
64.7
Other
£m
17.7
0.8
0.1
18.6
0.6
3.1
22.3
14.8
–
1.2
0.1
16.1
1.3
2.8
20.2
2.1
2.5
2.9
71.7
0.8
72.5
35.5
35.1
Total
£m
234.8
23.8
(10.8)
247.8
8.0
50.3
306.1
51.3
31.2
8.5
(3.3)
87.7
11.0
19.4
118.1
188.0
160.1
183.5
The goodwill impairment in 2015 relates to Keller Canada.
Intangible assets arising on acquisition represent customer relationships, customer contracts at the date of acquisition, patents and trade names.
Keller Group plc
Annual Report and Accounts 2016
103
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
13 Intangible assets continued
In 2016, for impairment testing purposes goodwill has been allocated to 18 separate cash-generating units (‘CGUs’). Of these, the carrying
amount of goodwill allocated to the eight CGUs with the largest goodwill balances is significant in comparison to the total carrying amount
of goodwill and comprises 86% of the total. The relevant CGUs and the carrying amount of the goodwill allocated to each are as set out
below, together with the pre-tax discount rate and medium-term growth rate used in their value-in-use calculations:
Geographical segment
Cash-generating unit
North America
Suncoast
North America
Keller Canada
North America
HJ Foundation
Keller Limited
EMEA
ASEAN Heavy Foundations APAC
Hayward Baker
Waterway
Austral
Other
North America
APAC
APAC
Various
2016
Pre-tax
discount rate
%
12.0
11.0
13.9
10.7
12.6
12.4
13.6
13.6
Forecast
growth rate
%
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
Carrying
value
£m
35.0
34.1
22.5
12.1
12.0
11.6
8.2
7.9
23.1
166.5
20151
Pre-tax
discount rate
%
12.7
11.9
14.9
11.9
13.0
13.4
14.6
14.6
Forecast
growth rate
%
2.0
2.0
2.0
2.0
2.0
2.0
1.0
2.0
Carrying
value
£m
29.1
27.6
18.7
12.1
10.3
9.7
6.9
6.7
12.9
134.0
1
Re-presented to align 2015’s carrying amount of goodwill to 2016’s CGU allocation as a result of changes in management structure. The goodwill in the previous CGUs of
Resource Piling and Ansah have been aggregated along with the Malaysia heavy foundations business to form the ASEAN Heavy Foundations CGU.
The recoverable amount of the goodwill allocated to each CGU has been determined based on a value-in-use calculation. The calculations
all use cash flow projections based on financial budgets and forecasts approved by management covering a three-year period.
The group’s businesses operate in cyclical markets, some of which are expected to continue to face uncertain conditions over the next
couple of years. The most important factors in the value-in-use calculations, however, are the forecast revenues and operating margins
during the forecast period and the discount rates applied to future cash flows. The key assumptions underlying the cash flow forecasts are
therefore the revenue and operating margins assumed throughout the forecast period. The discount rates used in the value-in-use
calculations are based on the weighted average cost of capital of companies comparable to the relevant CGUs, adjusted as necessary to
reflect the risk associated with the asset being tested.
Management considers all the forecast revenues, margins and profits to be reasonably achievable given recent performance and the
historic trading results of the relevant CGUs. Cash flows beyond 2019 have been extrapolated using a steady growth rate of 2%, which does
not exceed the long-term average growth rates for the markets in which the relevant CGUs operate.
Management believes that, with the exception of Keller Canada, any reasonably possible change in the key assumptions on which the
recoverable amounts of the CGUs identified above are based would not cause any of their carrying amounts to exceed their recoverable
amounts.
In 2015, the carrying value of the Keller Canada goodwill was impaired by £31.2m (C$60.9m) due to the results of Keller Canada being
below those expected at the time of the acquisition, primarily due to a severe slowdown in investment in the Canadian oil sands following
the very significant reduction in the oil price since the time of acquisition. Keller Canada continues to operate in a very difficult market. The
assumptions underlying the forecasts used in the value-in-use calculation at 31 December 2016 are for a gradual recovery in the Canadian
market in the medium term, albeit to a level lower than that expected at the time of acquisition, such that the compound annual revenue
growth rate is 5% over the period under review and operating margins gradually recover to 9%. Based on the value in use calculation, the
recoverable amount of Keller Canada exceeds the carrying amount by £23.7m (C$39.4m). In order for the recoverable amount to equal the
carrying amount, forecast revenue growth in each year, at the assumed operating margins, would have to decrease by 5.8%, which would
result in a 2.3% compound annual growth rate over the period from 2017 to 2021. Alternatively, assumed operating margins in each year
would have to decrease by 1.7% or the discount rate would have to increase by 2.2%.
104 Keller Group plc
Annual Report and Accounts 2016
14 Property, plant and equipment
Cost
At 1 January 2015
Additions
Disposals
Acquired with subsidiaries
Reclassification
Exchange differences
At 31 December 2015 and 1 January 2016
Additions
Disposals
Acquired with subsidiaries
Reclassification
Exchange differences
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for the year
Disposals
Exchange differences
At 31 December 2015 and 1 January 2016
Charge for the year
Impairment
Disposals
Exchange differences
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015 and 1 January 2016
At 1 January 2015
Land and
buildings
£m
Plant, machinery
and vehicles
£m
Capital work
in progress
£m
46.6
1.4
(0.4)
2.1
0.2
(1.3)
48.6
2.1
(2.2)
0.4
2.7
8.1
59.7
11.1
1.2
(0.1)
(0.2)
12.0
1.7
–
(0.6)
1.9
15.0
44.7
36.6
35.5
595.9
64.9
(18.3)
26.3
0.3
(14.2)
654.9
73.6
(30.6)
12.3
2.3
121.6
834.1
337.6
49.7
(13.8)
(5.9)
367.6
60.3
9.0
(23.2)
66.5
480.2
353.9
287.3
258.3
1.8
7.9
–
–
(0.5)
(1.3)
7.9
2.5
–
–
(5.0)
1.6
7.0
–
–
–
–
–
–
–
–
–
–
7.0
7.9
1.8
The net book value of plant, machinery and vehicles includes £2.6m (2015: £4.0m) in respect of assets held under finance leases.
The group had contractual commitments for the acquisition of property, plant and equipment of £0.9m (2015: £1.9m) at the balance
sheet date. These amounts were not included in the balance sheet at the year end.
15 Other non-current assets
Fair value of derivative financial instruments
Other assets
16 Inventories
Raw materials and consumables
Work in progress
Finished goods
2016
£m
9.4
20.8
30.2
2016
£m
39.3
1.9
18.2
59.4
Total
£m
644.3
74.2
(18.7)
28.4
–
(16.8)
711.4
78.2
(32.8)
12.7
–
131.3
900.8
348.7
50.9
(13.9)
(6.1)
379.6
62.0
9.0
(23.8)
68.4
495.2
405.6
331.8
295.6
2015
£m
6.5
16.4
22.9
2015
£m
32.7
1.0
13.6
47.3
Keller Group plc
Annual Report and Accounts 2016
105
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
17 Trade and other receivables
Trade receivables
Construction work in progress
Other receivables
Prepayments
Fair value of derivative financial instruments
Trade receivables are shown net of an allowance for doubtful debts.
The movement in the provision for bad and doubtful debt is as follows:
At 1 January
Used during the period
Additional provisions
Unused amounts reversed
Exchange differences
At 31 December
The ageing of trade receivables that were past due but not impaired was as follows:
Overdue by less than 30 days
Overdue by between 31 and 90 days
Overdue by more than 90 days
18 Construction contracts
Construction contracts in progress at balance sheet date:
Aggregate amount of costs incurred and recognised profits (less recognised losses) to date
Retentions withheld by customers
Advances received
2016
£m
414.1
84.2
15.9
14.1
0.2
528.5
2016
£m
28.5
(3.7)
12.8
(7.9)
5.0
34.7
2016
£m
78.2
40.2
42.8
161.2
2016
£m
1,093.9
36.1
10.9
Construction contract revenue recognised in the year in accordance with IAS 11 totalled £1,574.3m (2015: £1,397.4m).
19 Cash and cash equivalents
Bank balances
Short-term deposits
Cash and cash equivalents in the balance sheet
Bank overdrafts
Cash and cash equivalents in the cash flow statement
2016
£m
82.8
1.6
84.4
(0.4)
84.0
2015
£m
341.6
60.3
12.4
8.9
–
423.2
2015
£m
36.5
(10.9)
12.6
(9.5)
(0.2)
28.5
2015
£m
62.7
31.3
33.7
127.7
2015
£m
883.5
29.3
2.5
2015
£m
56.3
6.8
63.1
(0.2)
62.9
20 Non-current assets held for sale
On 12 May 2016, the group acquired the freehold of a processing and warehousing facility at Avonmouth, near Bristol, for a consideration
of £62m. As set out in the 2015 Annual Report and Accounts, the group’s final liability with regards to the historic contract dispute involving
the property is in part dependent on the value of the property. In order to maximise this value, the group decided to acquire the property
with a view to marketing it to third parties.
In accordance with IFRS 5, the property is being held at the lower of carrying amount and fair value less costs to sell. At 30 June 2016, the fair
value of the property was £48m, based on an external valuation. The property was impaired by £14m at 30 June 2016, however the group
previously held a £14m provision for the diminution in value of the property as part of the overall contract dispute provision, and therefore no
additional impairment charge was recognised.
At 31 December 2016, the fair value of the property based on an external valuation was £54m. The £6m reversal of impairment has been
recognised as exceptional other operating income (note 7).
Rental income less operating costs for the period has been included within exceptional other operating income (note 7).
106 Keller Group plc
Annual Report and Accounts 2016
21 Trade and other payables
Trade payables
Other taxes and social security payable
Other payables
Accruals
Fair value of derivative financial instruments
Other payables include contract accruals, advance billings and contingent consideration of £1.3m (2015: £0.5m).
22 Provisions
At 1 January 2016
Charge for the year
Used during the period
Unused amounts reversed
Exchange differences
At 31 December 2016
To be settled within one year
To be settled after one year
At 31 December 2016
Employee
provisions
£m
11.2
5.2
(4.7)
–
2.2
13.9
Restructuring
provisions
£m
3.1
0.7
(0.1)
(3.4)
0.4
0.7
3.8
10.1
13.9
0.7
–
0.7
2016
£m
234.6
11.1
135.9
53.8
–
435.4
Other
provisions
£m
27.5
0.1
(18.2)
–
0.6
10.0
5.4
4.6
10.0
2015
£m
174.6
8.8
128.3
37.1
24.6
373.4
Total
£m
41.8
6.0
(23.0)
(3.4)
3.2
24.6
9.9
14.7
24.6
Employee provisions comprise obligations to employees other than retirement benefit obligations. Other provisions are in respect of
legal and other disputes in various group companies, including the provision for the contract dispute outlined in note 7. The majority of the
provision used during the period relates to the impairment of the processing and warehousing facility acquired during the year (note 20) and
the cost of remedial actions incurred. The remaining provision for this contract dispute primarily relates to the remaining remedial actions
to be undertaken as part of the settlement agreement. The provision does not take into account any future insurance recoveries.
23 Other non-current liabilities
Fair value of derivative financial instruments
Other liabilities
2016
£m
2.5
26.5
29.0
2015
£m
–
22.6
22.6
Other liabilities include contingent consideration of £9.9m (2015: £9.1m) and deferred remuneration payable to US employees.
24 Financial instruments
Exposure to credit, interest rate and currency risks arise in the normal course of the group’s business. Derivative financial instruments are
used to hedge exposure to fluctuations in foreign exchange and interest rates.
The group does not trade in financial instruments nor does it engage in speculative derivative transactions.
Currency risk
The group faces currency risk principally on its net assets, most of which are in currencies other than sterling. The group aims to reduce
the impact that retranslation of these net assets might have on the consolidated balance sheet, by matching the currency of its borrowings,
where possible, with the currency of its assets. The majority of the group’s borrowings are held in sterling, US dollars, Canadian dollars,
euros, Australian dollars, Singapore dollars and South African rand, in order to provide a hedge against these currency net assets.
The group manages its currency flows to minimise currency transaction exchange risk. Forward contracts and other derivative financial
instruments are used to hedge significant individual transactions. The majority of such currency flows within the group relate to repatriation
of profits, intra-group loan repayments and any foreign currency cash flows associated with acquisitions. The group’s foreign exchange
cover is executed primarily in the UK.
At 31 December 2016, the fair value of foreign exchange forward contracts outstanding was £0.2m, included in current assets (2015: £0.4m,
included in current liabilities).
Interest rate risk
Interest rate risk is managed by mixing fixed and floating rate borrowings depending upon the purpose and term of the financing.
Keller Group plc
Annual Report and Accounts 2016
107
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
24 Financial instruments continued
Credit risk
The group’s principal financial assets are trade and other receivables, bank and cash balances and a limited number of investments and
derivatives held to hedge certain of the group’s liabilities. These represent the group’s maximum exposure to credit risk in relation to
financial assets.
The group has stringent procedures to manage counterparty risk and the assessment of customer credit risk is embedded in the contract
tendering processes. Customer credit risk is mitigated by the group’s relatively small average contract size, its diversity, both geographically
and in terms of end markets, and by taking out credit insurance in many of the countries in which the group operates. No individual customer
represented more than 5% of revenue in 2016. The counterparty risk on bank and cash balances is managed by limiting the aggregate
amount of exposure to any one institution by reference to their credit rating and by regular review of these ratings. The ageing of trade
receivables that were past due but not impaired is shown in note 17.
Liquidity risk and capital management
The group’s capital structure is kept under constant review, taking account of the need for, availability and cost of various sources of finance.
The capital structure of the group consists of net debt, as shown on page 109, and equity attributable to equity holders of the parent as
shown in the consolidated balance sheet. The group maintains a balance between certainty of funding and a flexible, cost-effective
financing structure with all main borrowings being from committed facilities. The group’s policy continues to be to ensure that its capital
structure is appropriate to support this balance and the group’s operations.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt. The group’s debt and committed facilities mainly comprise a $40m private
placement repayable in 2018, a $50m private placement repayable in 2021, a $75m private placement repayable in 2024, a $45m revolving
credit facility expiring in 2019, a £48m term facility expiring in May 2017 and a £250m syndicated revolving credit facility expiring in 2019.
These facilities are subject to certain covenants linked to the group’s financing structure, specifically regarding the ratios of debt and
interest to profit. The group has complied with these covenants throughout the period.
At the year end, the group also had other committed and uncommitted borrowing facilities totalling £69.2m (2015: £51.4m) to support
local requirements.
Private placements
In August 2012, $40m was raised through a private placement with US institutions. The proceeds of the issue of $40m 5.0% notes due 2018
were used to repay existing debt. In October and December 2014, a further $50m and $75m respectively were raised through a private
placement with US institutions. The proceeds of the issue of $50m 3.81% Series A notes due 2021 and $75m 4.17% Series B notes due 2024
were used to refinance maturing private placements.
The US private placement loans are accounted for on an amortised cost basis, adjusted for the impact of hedge accounting (as described
below), and retranslated at the spot exchange rate at each period end. The carrying value of the private placement liabilities at 31 December
2016 was £136.3m (2015: £114.7m).
Hedging
In June 2006, $185m of floating rate intra-group debt was swapped into sterling floating rates by means of dollar sterling cross-currency
interest rate swaps (‘the 2006 swaps’). The 2006 swaps, which matured June 2016, had the same maturity as the intra-group debt and were
designated as cash flow hedges of the Company’s exposure to the variability of cash flows on the intra-group debt resulting from changes in
foreign exchange rates.
The effective portion of changes in the fair value of the 2006 swaps, a loss of £3.8m (2015: £5.6m), has been taken to the hedging reserve
and fully recycled through the income statement during the year. £28.0m was paid to settle the 2006 swap liability on its maturity in June 2016.
The 2012 $40m fixed rate private placement liabilities were swapped into sterling by means of dollar sterling cross-currency fixed interest
rate swaps. Also, on the same date, £25.5m of sterling was swapped into euros by means of sterling euro cross-currency fixed interest rate
swaps. These interest rate swaps (‘the 2012 swaps’) have the same maturity as the private placement liability. The dollar sterling swaps have
been designated as cash flow hedges of the Company’s exposure to the variability of cash flows on the private placement resulting from
changes in foreign exchange rates and the sterling euro swaps have been designated as net investment hedges of the group’s euro-
denominated net assets.
The fair value of the 2012 swaps at 31 December 2016 represented an asset of £6.9m (2015: £2.8m) included in other non-current assets
and a liability of £2.5m (2015: £nil) included in other non-current liabilities. The effective portion of the changes in the fair value of the dollar
sterling swaps, a gain of £5.5m (2015: £1.5m), has been taken to the hedging reserve and fully recycled through the income statement
during the year. The effective portion of the changes in the fair value of the sterling euro swaps, a loss of £3.8m (2015: gain of £1.7m), has
been taken to the translation reserve through other comprehensive income along with the foreign exchange gains and losses arising on
retranslation of the euro-denominated assets they hedge.
The 2014 $50m and $75m fixed rate private placement liabilities were swapped into floating rate by means of US dollar interest rate swaps
(‘the 2014 swaps’). The 2014 swaps have the same maturity as the private placement liabilities and have been designated as fair
value hedges of the group’s exposure to changes in the fair value of the US private placement loans and related interest cash flows due
to changes in US dollar interest rates.
108 Keller Group plc
Annual Report and Accounts 2016
The fair value of the 2014 swaps at 31 December 2016 represented an asset of £2.5m (2015: £3.5m) which is included in other non-current
assets. The effective portion of the changes in the fair value of the 2014 swaps, a loss of £1.2m (2015: gain of £0.8m), has been taken to the
income statement along with equal and opposite movement in fair value of the corresponding hedged items.
All hedges are tested for effectiveness every six months using the cumulative dollar offset method. All hedging relationships remained
effective during the year. The ineffective portion of the movement in the fair value of the hedging instruments was a gain of £0.2m
(2015: £0.2m).
Effective interest rates and maturity analysis
In respect of interest-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest
rates at the balance sheet date and the periods in which they mature.
Bank overdrafts
Bank loans*
Other loans*
Obligations under finance leases*
Total loans and borrowings
Bank balances*
Short-term deposits*
Net debt
Derivative financial instruments
Bank overdrafts
Bank loans*
Other loans*
Obligations under finance leases*
Total loans and borrowings
Bank balances*
Short-term deposits*
Net debt
Derivative financial instruments
Effective
interest rate
%
4.0
2.3
3.1
11.1
1.4
3.3
Effective
interest rate
%
5.0
2.4
2.2
8.8
1.0
3.0
Due within
1-2 years
£m
–
(0.4)
(32.5)
(0.7)
(33.6)
–
–
(33.6)
4.4
Due within
1-2 years
£m
–
–
–
(0.8)
(0.8)
–
–
(0.8)
–
Due within
2-5 years
£m
–
(195.0)
(41.1)
(0.3)
(236.4)
–
–
(236.4)
0.6
Due within
2-5 years
£m
–
(123.6)
(27.0)
(0.6)
(151.2)
–
–
(151.2)
2.8
2016
Due after
more than
5 years
£m
–
(3.3)
(62.7)
–
(66.0)
–
–
(66.0)
1.9
2015
Due after
more than
5 years
£m
–
(2.9)
(87.7)
–
(90.6)
–
–
(90.6)
3.7
Total
non-current
£m
–
(198.7)
(136.3)
(1.0)
(336.0)
–
–
(336.0)
6.9
Total
non-current
£m
–
(126.5)
(114.7)
(1.4)
(242.6)
–
–
(242.6)
6.5
* These include assets/liabilities bearing interest at a fixed rate.
Loans and borrowings consist of the following:
$75m private placement (due December 2024)
$50m private placement (due October 2021)
£250m syndicated revolving credit facility (expiring September 2019)
$45m revolving credit facility (expiring September 2019)
$40m private placement (due August 2018)
£48m term loan (expiring May 2017)
Bank overdrafts
Obligations under finance leases
Other loans and borrowings
Total loans and borrowings
Due within
1 year
£m
(0.4)
(51.0)
(0.7)
(1.9)
(54.0)
82.8
1.6
30.4
0.2
Due within
1 year
£m
(0.2)
(1.2)
(0.3)
(1.8)
(3.5)
56.3
6.8
59.6
(24.6)
2016
£m
62.7
41.1
164.8
29.8
32.5
48.0
0.4
2.9
7.8
390.0
Total
£m
(0.4)
(249.7)
(137.0)
(2.9)
(390.0)
82.8
1.6
(305.6)
7.1
Total
£m
(0.2)
(127.7)
(115.0)
(3.2)
(246.1)
56.3
6.8
(183.0)
(18.1)
2015
£m
53.1
34.6
123.1
–
27.0
–
0.2
3.2
4.9
246.1
In addition, there were non-interest-bearing financial liabilities comprising trade and other payables of £381.6m (2015: £311.7m) which
were payable within one year. £1.3m (2015: £0.5m) of contingent consideration in respect of acquisitions is payable within one year, £4.8m
(2015: £1.0m) is payable between one and two years and £5.1m (2015: £8.1m) is payable between two and five years.
Keller Group plc
Annual Report and Accounts 2016
109
Financial statementsGovernanceStrategic reportOverview
Notes to the consolidated financial statements continued
24 Financial instruments continued
The group had unutilised committed banking facilities of £108.3m at 31 December 2016 (2015: £127.6m). This mainly comprised the
unutilised portion of the group’s £250m facility which expires on 4 September 2019. In addition, the group had unutilised uncommitted
borrowing facilities totalling £40.7m at 31 December 2016 (2015: £25.9m). All of these borrowing facilities are unsecured. Future obligations
under finance leases totalled £3.2m (2015: £3.5m), including interest of £0.3m (2015: £0.3m).
Fair values
The fair values of the group’s financial assets and liabilities are not materially different from their carrying values. The following summarises
the major methods and assumptions used in estimating the fair values of financial instruments:
Derivatives
The fair value of interest rate and cross-currency swaps is calculated based on expected future principal and interest cash flows discounted
using market rates prevailing at the balance sheet date. In 2016 and in 2015, the valuation methods of all of the group’s derivative financial
instruments carried at fair value are categorised as Level 2. Level 2 is defined as inputs, other than quoted prices (unadjusted) in active markets
for identical assets or liabilities, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Interest-bearing loans and borrowings
Fair value is calculated based on expected future principal and interest cash flows discounted using market rates prevailing at the balance
sheet date.
Contingent consideration
Fair value is calculated based on the amounts expected to be paid, determined by reference to forecasts of future performance of the acquired
businesses discounted using market rates prevailing at the balance sheet date and the probability of contingent events and targets being achieved.
In 2016 and in 2015, the valuation methods of all of the group’s contingent consideration carried at fair value are categorised as Level 3.
Level 3 inputs are unobservable inputs for the asset or liability.
The significant unobservable inputs used in the fair value measurement of the group’s contingent consideration are forecast revenue
growth rates (2016: 2%-31%), forecast EBITDA margins (2016: 2%-15%) and pre-tax discount rates (2016: 15%-32%).
The following table shows a reconciliation from the opening to closing balances for Level 3 fair values:
At 1 January 2016
Provision released (note 7)
Additional amounts provided (note 7)
Paid during the year
Assumed within business combinations (note 4)
Unwind of discounted contingent consideration (note 7)
Exchange differences1
At 31 December 2016
1
Included in other comprehensive income.
Contingent
consideration
£m
9.6
(4.2)
3.9
(1.0)
0.6
0.3
2.0
11.2
The fair value measurement of the contingent consideration could be affected if the forecast revenue growth rates or forecast EBITDA
margins are different to those stated above. A higher forecast revenue growth rate or higher EBITDA margin may increase the value of the
contingent consideration payable.
Trade and other payables and receivables and construction work in progress
For payables and receivables with a remaining life of one year or less, the carrying amount is deemed to reflect the fair value. All other
payables and receivables are discounted using market rates prevailing at the balance sheet date.
Interest rate and currency profile
The profile of the group’s financial assets and financial liabilities after taking account of swaps was as follows:
Weighted average fixed debt interest rate
Weighted average fixed debt period (years)
Fixed rate financial liabilities
Floating rate financial liabilities
Financial assets
Net debt
110 Keller Group plc
Annual Report and Accounts 2016
Sterling
–
–
£m
–
(153.0)
6.4
(146.6)
USD
–
–
£m
–
(103.8)
30.3
(73.5)
2016
Euro
4.3%
2.3
£m
(36.7)
(24.1)
8.4
(52.4)
CAD
7.5%
1.1
£m
(0.1)
(42.3)
10.0
(32.4)
Other1
16.1%
1.2
£m
(1.3)
(28.7)
29.3
(0.7)
Total
n/a
n/a
£m
(38.1)
(351.9)
84.4
(305.6)
Weighted average fixed debt interest rate
Weighted average fixed debt period (years)
Fixed rate financial liabilities
Floating rate financial liabilities
Financial assets
Net debt
Sterling
–
–
£m
–
–
2.8
2.8
USD
–
–
£m
–
(87.7)
11.4
(76.3)
2015
Euro
3.9%
3.3
£m
(29.8)
(23.7)
10.4
(43.1)
CAD
12.6%
1.1
£m
(1.1)
(67.7)
2.2
(66.6)
Other1
–
–
£m
–
(36.1)
36.3
0.2
Total
n/a
n/a
£m
(30.9)
(215.2)
63.1
(183.0)
1
Included within other floating rate financial liabilities are AUD revolver loans of £6.4m (2015: £19.5m), ZAR revolver loans of £5.9m (2015: £3.4m) and SGD revolver loans of
£12.1m (2015: £9.9m). Included within other financial assets are AUD cash balances of £4.3m (2015: £5.3m), ZAR cash balances of £1.5m (2015: £3.4m) and SGD cash balances
of £2.4m (2015: £2.3m).
Sensitivity analysis
At 31 December 2016, it is estimated that a general increase of one percentage point in interest rates would decrease the group’s profit
before taxation by approximately £2.8m. The estimated impact of a one percentage point decrease in interest rates is to increase the
group’s profit before taxation by approximately £2.8m. The impact of interest rate swaps has been included in this calculation.
It is estimated that a general increase of 10 percentage points in the value of sterling against other principal foreign currencies would have
decreased the group’s profit before taxation and non-underlying items by approximately £7.2m for the year ended 31 December 2016, with
the estimated impact of a 10 percentage points decrease in the value of sterling being an increase of £8.9m in the group’s profit before
taxation and non-underlying items. This sensitivity relates to the impact of retranslation of foreign earnings only. The impact on the group’s
earnings of currency transaction exchange risk is not significant.
These sensitivities assume all other factors remain constant.
25 Share capital and reserves
Allotted, called up and fully paid
Equity share capital:
73,099,735 ordinary shares of 10p each (2015: 73,099,735)
2016
£m
2015
£m
7.3
7.3
The Company has one class of ordinary shares, which carries no rights to fixed income. There are no restrictions on the transfer of these shares.
The capital redemption reserve is a non-distributable reserve created when the Company’s shares were redeemed or purchased other than
from the proceeds of a fresh issue of shares.
The other reserve is a non-distributable reserve created when merger relief was applied to an issue of shares under section 612 of the
Companies Act 2006 to part fund the acquisition of Keller Canada. The reserve becomes distributable should Keller Canada be disposed of.
The total number of shares held in Treasury was 1.1m (2015: 1.3m).
26 Related party transactions
Transactions between the parent, its subsidiaries and joint operations, which are related parties, have been eliminated on consolidation.
The remuneration of the Board and Executive Committee, who are the key management personnel and related parties of the group, is set
out in note 6.
27 Commitments
(a) Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred was £0.9m (2015: £1.9m) and relates to property,
plant and equipment purchases.
(b) Operating lease commitments
At the balance sheet date, the group’s total commitments for future minimum lease payments under non-cancellable operating leases
were as follows:
2016
2015
Payable within one year
Payable between one and five years inclusive
Payable in over s
Land and
buildings
£m
13.2
32.5
9.7
55.4
Plant,
machinery
and vehicles
£m
5.6
7.1
–
12.7
Land and
buildings
£m
9.2
20.6
9.7
39.5
Plant,
machinery
and vehicles
£m
4.3
4.8
0.1
9.2
Total
£m
18.8
39.6
9.7
68.1
Total
£m
13.5
25.4
9.8
48.7
Keller Group plc
Annual Report and Accounts 2016
111
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
28 Contingent liabilities
Claims against the group arise in the normal course of trading. Some of these claims involve or may involve litigation and, in a few instances,
the total amounts claimed against the group may be significant in relation to the size of the related contract. However, the amounts agreed,
if any, are generally less than the total amount claimed, in many cases significantly so, and are normally covered by the group’s insurance
arrangements.
The group has entered into bonds in the normal course of business relating to contract tenders, advance payments, contract performance,
the release of retentions and the group’s insurance arrangements. The estimated financial effect of these bonds, apart from the fees paid,
is £nil (2015: £nil).
The Company and certain of its subsidiary undertakings have entered into a number of guarantees in the ordinary course of business,
the effects of which are to guarantee or cross-guarantee certain bank borrowings and other liabilities of other group companies.
At 31 December 2016, the group had standby letters of credit outstanding totalling £15.0m (2015: £15.2m).
As set out in note 9 of the Company financial statements, the Company has provided a guarantee of certain subsidiaries’ liabilities to take
the exemption from having to prepare individual accounts under section 394A and section 394C of the Companies Act 2006 and exemption
from having their financial statements audited under sections 479A to 479C of the Companies Act 2006.
29 Share-based payments
The group has a share option plan, the Performance Share Plan.
Details of the terms and conditions of the Performance Share Plan are set out in the Directors’ remuneration report on pages 59 to 78.
Under the Performance Share Plan, all awards have an exercise price of £1 per exercise. Options outstanding are as follows:
Outstanding at 1 January 2015
Granted during 2015
Lapsed during 2015
Exercised during 2015
Outstanding at 31 December 2015 and 1 January 2016
Granted during 2016
Lapsed during 2016
Exercised during 2016
Outstanding at 31 December 2016
Exercisable at 1 January 2015
Exercisable at 31 December 2015 and 1 January 2016
Exercisable at 31 December 2016
Performance
Share Plan
options
996,741
295,283
(6,289)
(512,475)
773,260
484,219
(90,971)
(187,229)
979,279
–
–
–
Exercises occurred throughout the year. The average share price during the year was 853.9p.
Under IFRS 2, the fair value of services received in return for share options granted is measured by reference to the fair value of share
options granted. The estimate of the fair value of share options granted is measured based on a stochastic model. The contractual life of
the option is used as an input into this model, with expectations of early exercise being incorporated into the model.
The inputs into the stochastic model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
2016
815p
0.0p
31.0%
3 years
0.45%
3.1%
2015
1,028p
0.0p
31.0%
3 years
0.87%
2.40%
Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous three years,
adjusted for any expected changes to future volatility due to publicly available information.
The group recognised total expenses (included in operating costs) of £1.0m (2015: £1.8m) related to equity-settled, share-based
payment transactions.
The weighted average fair value of options granted in the year was 599.0p (2015: 748.1p).
112 Keller Group plc
Annual Report and Accounts 2016
30 Retirement benefit liabilities
The group operates pension schemes in the UK and overseas.
In the UK, the group operates the Keller Group Pension Scheme (‘the Scheme’), a defined benefit scheme, which has been closed to new
members since 1999 and was closed to all future benefit accrual with effect from 31 March 2006. Under the Scheme, employees are
normally entitled to retirement benefits on attainment of a retirement age of 65. The Scheme is subject to UK pensions legislation which,
inter alia, provides for the regulation of work-based pension schemes by the Pensions Regulator. The Trustees are aware of and adhere to
the Codes of Practice issued by the Pensions Regulator. The Scheme Trustees currently comprise one member-nominated Trustee and
one employer-nominated Trustee. The employer-nominated Trustee is also the Chair of the Trustees. The Scheme exposes the group to
actuarial risks, such as longevity risk, interest rate risk and market (investment) risk, which are managed through the investment strategy to
acceptable levels. The Scheme can invest in a wide range of asset classes including equities, bonds, cash, property, alternatives (including
private equity, commodities, hedge funds, infrastructure, currency, high yield debt and derivatives) and annuity policies. Any investment in
derivative instruments is only made to contribute to a reduction in the overall level of risk in the portfolio or for the purposes of efficient
portfolio management. With effect from the most recent actuarial valuation date (5 April 2014), the group has agreed to pay annual
contributions of £1.6m until the next actuarial review in 2017.
The group has two UK defined contribution retirement benefit schemes. There were no contributions outstanding in respect of these
schemes at 31 December 2016 (2015: £nil). The total UK defined contribution pension charge for the year was £0.9m (2015: £1.3m).
The group also has defined benefit retirement obligations in Germany and Austria. Under these schemes, employees are entitled to
retirement benefits on attainment of a retirement age of 65, provided they have 15 years of employment with the group. The amount
of benefit payable depends on the grade of employee and the number of years of service, up to a maximum of 40 years. Benefits under
these schemes only apply to employees who joined the group prior to 1991. These defined benefit retirement obligations are funded on
the group’s balance sheet and obligations are met as and when required by the group.
The group operates a defined contribution scheme for employees in North America, where the group is required to match employee
contributions up to a certain level in accordance with the scheme rules. The total North America pension charge for the year was
£5.0m (2015: £3.6m).
In Australia, there is a defined contribution scheme where the group is required to ensure that a prescribed level of superannuation support
of an employee’s notional base earnings is made. This prescribed level of support is currently 9.5% (2015: 9.5%). The total Australian pension
charge for the year was £3.6m (2015: £3.0m).
Details of the group’s defined benefit schemes are as follows:
Present value of the scheme liabilities
Present value of assets
Deficit in the scheme
The Keller
Group Pension
Scheme (UK)
2016
£m
(58.4)
43.4
(15.0)
The Keller
Group Pension
Scheme (UK)
2015
£m
(48.5)
38.2
(10.3)
German and
Austrian
Schemes
2016
£m
(16.4)
–
(16.4)
German and
Austrian
Schemes
2015
£m
(12.8)
–
(12.8)
The value of the scheme liabilities has been determined by the actuary using the following assumptions:
Discount rate
Interest on assets
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
Rate of inflation
2016
%
2.7
2.7
3.5
2.5
3.5
2015
%
3.9
3.9
3.4
2.2
3.2
2016
%
1.2
n/a
2.0
2.0
2.0
2015
%
1.9
n/a
2.0
2.0
2.0
The mortality rate assumptions are based on published statistics. The average remaining life expectancy, in years, of a pensioner retiring at
the age of 65 at the balance sheet date is:
Male currently aged 65
Female currently aged 65
The Keller
Group Pension
Scheme (UK)
2016
21.5
23.5
The Keller
Group Pension
Scheme (UK)
2015
21.7
23.6
German and
Austrian
Schemes
2016
19.0
23.1
German and
Austrian
Schemes
2015
19.0
23.1
Keller Group plc
Annual Report and Accounts 2016
113
Financial statementsGovernanceStrategic reportOverview Notes to the consolidated financial statements continued
30 Retirement benefit liabilities continued
The assets of the schemes were as follows:
Equities
Gilts
Bonds
Cash
Target return funds
Changes in scheme liabilities
Opening balance
Current service cost
Interest cost
Benefits paid
Exchange differences
Experience gain/(loss) on defined benefit obligation
Changes to demographic assumptions
Changes to financial assumptions
Closing balance
Changes in scheme assets
Opening balance
Interest on assets
Employer contributions
Benefits paid
Return on plan assets less interest
Closing balance
Actual return on scheme assets
Statement of comprehensive income (SOCI)
Return on plan assets less interest
Experience gain/(loss) on defined benefit obligation
Changes to demographic assumptions
Changes to financial assumptions
Remeasurements of defined benefit plans
Cumulative remeasurements of defined benefit plans
Expense recognised in the income statement
Current service cost
Operating costs
Net pension interest cost
Expense recognised in the income statement
Movements in the balance sheet liability
Net liability at start of year
Expense recognised in the income statement
Employer contributions
Benefits paid
Exchange differences
Remeasurements of defined benefit plans
Net liability at end of year
114 Keller Group plc
Annual Report and Accounts 2016
The Keller
Group Pension
Scheme (UK)
2016
£m
13.4
9.5
8.7
0.4
11.4
43.4
The Keller
Group Pension
Scheme (UK)
2015
£m
23.1
7.6
7.5
–
–
38.2
The Keller
Group Pension
Scheme (UK)
2016
£m
The Keller
Group Pension
Scheme (UK)
2015
£m
German and
Austrian
Schemes
2016
£m
n/a
n/a
n/a
n/a
n/a
n/a
German and
Austrian
Schemes
2016
£m
German and
Austrian
Schemes
2015
£m
n/a
n/a
n/a
n/a
n/a
n/a
German and
Austrian
Schemes
2015
£m
(48.5)
(0.1)
(1.9)
1.8
–
1.1
0.8
(11.6)
(58.4)
38.2
1.5
1.6
(1.8)
3.9
43.4
5.4
3.9
1.1
0.8
(11.6)
(5.8)
(25.7)
0.1
0.1
0.4
0.5
10.3
0.5
(1.6)
–
–
5.8
15.0
(49.8)
(0.2)
(1.8)
1.7
–
–
–
1.6
(48.5)
38.2
1.4
1.6
(1.7)
(1.3)
38.2
0.1
(1.3)
–
–
1.6
0.3
(19.9)
0.2
0.2
0.4
0.6
11.6
0.6
(1.6)
–
–
(0.3)
10.3
(12.8)
(0.3)
(0.2)
0.7
(2.2)
(0.6)
–
(1.0)
(16.4)
–
–
–
–
–
–
–
–
(0.6)
–
(1.0)
(1.6)
(7.1)
0.3
0.3
0.2
0.5
12.8
0.5
–
(0.7)
2.2
1.6
16.4
(13.8)
(0.2)
(0.2)
0.6
0.8
0.1
–
(0.1)
(12.8)
–
–
–
–
–
–
–
–
0.1
–
(0.1)
–
(5.5)
0.2
0.2
0.2
0.4
13.8
0.4
–
(0.6)
(0.8)
–
12.8
A reduction in the discount rate of 0.1% would increase the deficit in the schemes by £1.2m, whilst a reduction in the inflation assumption
of 0.1%, including its impact on the revaluation in deferment and pension increases in payment, would decrease the deficit by £0.8m.
An increase in the mortality rate by one year would increase the deficit in the schemes by £3.3m.
The weighted average duration of the defined benefit obligation is approximately 17 years for the UK scheme and 12 years for the German
and Austrian schemes.
The history of experience adjustments on scheme assets and liabilities for all the group’s defined benefit pension schemes are as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the schemes
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
2016
£m
(74.8)
43.4
(31.4)
(11.3)
3.9
2015
£m
(61.3)
38.2
(23.1)
1.6
(1.3)
2014
£m
(63.6)
38.2
(25.4)
(5.7)
1.6
2013
£m
(58.1)
35.0
(23.1)
(5.1)
(0.6)
2012
£m
(52.6)
34.4
(18.2)
(3.5)
0.7
31. Post balance sheet events
A further £5.9m of insurance proceeds relating to the contract dispute settled in 2014 was received in February 2017. This will be recognised
as exceptional other operating income in 2017 as the receipt of these insurance proceeds was not considered virtually certain as at
31 December 2016.
Keller Group plc
Annual Report and Accounts 2016
115
Financial statementsGovernanceStrategic reportOverview Company balance sheet
As at 31 December 2016
Assets
Intangible assets
Tangible fixed assets
Investments
Other assets
Fixed assets
Amounts owed by subsidiary undertakings:
– Amounts falling due within one year
– Amounts falling due after one year
Trade and other debtors
Cash and bank balances
Current assets
Bank and other loans
Trade and other creditors
Amounts owed to subsidiary undertakings
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Bank and other loans
Amounts owed to subsidiary undertakings
Other creditors
Pension liabilities
Creditors: Amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserve
Profit and loss account
Shareholders’ funds
Note
2
3
4
5
6
8
2016
£m
0.2
0.5
366.1
9.4
376.2
1.6
474.0
0.9
5.4
481.9
(48.0)
(3.9)
(0.3)
(52.2)
429.7
805.9
(265.3)
(67.7)
(5.0)
(2.3)
(340.3)
465.6
7.3
38.1
7.6
56.9
355.7
465.6
2015
£m
–
0.6
99.1
6.5
106.2
126.3
297.0
0.4
2.1
425.8
–
(29.1)
(0.3)
(29.4)
396.4
502.6
(136.7)
(29.5)
(2.5)
(1.6)
(170.3)
332.3
7.3
38.1
7.6
56.9
222.4
332.3
These financial statements were approved by the Board of Directors and authorised for issue on 27 February 2017.
They were signed on its behalf by:
Alain Michaelis
Chief Executive Officer
James Hind
Finance Director
116 Keller Group plc
Annual Report and Accounts 2016
Company statement of changes in equity
For the year ended 31 December 2016
At 1 January 2015
Profit for the period
Other comprehensive income
Cash flow hedge losses taken
to equity
Cash flow hedge transfers
to income statement
Total comprehensive income
Dividends
Share-based payments
At 1 January 2016
Profit for the period
Cash flow hedge gains taken
to equity
Cash flow hedge transfers
to income statement
Remeasurement of defined
benefit pension schemes
Total comprehensive income
Dividends
Share-based payments
At 31 December 2016
Share capital
£m
7.3
–
–
Share premium
account
£m
38.1
–
–
Capital
redemption
reserve
£m
7.6
–
–
–
–
–
–
–
7.3
–
–
–
–
–
–
–
7.3
–
–
–
–
–
38.1
–
–
–
–
–
–
–
38.1
–
–
–
–
–
7.6
–
–
–
–
–
–
–
7.6
Other
reserve
£m
56.9
–
–
Hedging
reserve
£m
–
–
–
Retained
earnings
£m
226.3
12.1
0.5
Total
equity
£m
336.2
12.1
0.5
–
(4.2)
–
(4.2)
–
–
–
–
56.9
–
–
–
–
–
–
–
56.9
4.2
–
–
–
–
–
1.9
(1.9)
–
–
–
–
–
–
12.6
(18.3)
1.8
222.4
153.0
–
–
(0.9)
152.1
(19.8)
1.0
355.7
4.2
12.6
(18.3)
1.8
332.3
153.0
1.9
(1.9)
(0.9)
152.1
(19.8)
1.0
465.6
Details of the capital redemption reserve and the other reserve are included in note 25 of the consolidated financial statements.
Of the retained earnings, an amount of £100.8m attributable to profits arising on an intra-group reorganisation is not distributable.
Keller Group plc
Annual Report and Accounts 2016
117
Financial statementsGovernanceStrategic reportOverview Notes to the Company financial statements
1 Principal accounting policies
Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). The Company meets
the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council and reports
under FRS 101.
Except as noted below, the Company’s accounting policies are consistent with those described in the consolidated financial statements
of Keller Group plc. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard
in relation to share-based payments, financial instruments, capital management, presentation of a cash flow statement, related party
transactions and comparative information. Where required, equivalent disclosures are given in the consolidated financial statements.
In addition, disclosures in relation to share capital (note 25) and dividends (note 11) have not been repeated here as there are no differences
to those provided in the consolidated financial statements.
These financial statements have been prepared on the going concern basis and under the historical cost convention. The financial
statements are presented in pounds sterling, which is the Company’s functional currency, and unless otherwise stated have been rounded
to the nearest £0.1m.
Profit of the parent company
The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensive income (including the
profit and loss account) of the parent company is not presented as part of these accounts. The profit of the parent company for the financial
year amounted to £153.0m (2015: £12.1m).
Amounts owed by subsidiary undertakings
The Company holds inter-company loans with subsidiary undertakings with repayment dates being a mixture of repayable on demand or
repayable on a fixed contractual date. These inter-company loans are disclosed on the face of the balance sheet. None are past due nor
impaired. The carrying value of these loans approximates their fair value.
Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Audit fees
The Company has taken the exemption granted under SI 2008/489 not to disclose non-audit fees paid to its auditors as it is disclosed in the
consolidated financial statements.
Employees
The Company has no employees other than the Directors. Directors’ remuneration and details of their share-based payments are disclosed
in note 6 to the consolidated financial statements.
2 Investments
Shares at cost
At 1 January
Additions
At 31 December
The additions during the year relate to capital injections into group companies.
The Company’s investments are included in the disclosures in note 9.
2016
£m
99.1
267.0
366.1
2015
£m
94.1
5.0
99.1
118 Keller Group plc
Annual Report and Accounts 2016
3 Other assets
Fair value of derivative financial instruments
4 Trade and other debtors
Other receivables
Prepayments
Fair value of derivative financial instruments
5 Trade and other creditors
Other creditors
Accruals
Fair value of derivative financial instruments
6 Other creditors
Other creditors
Fair value of derivative financial instruments
2016
£m
9.4
9.4
2016
£m
0.4
0.3
0.2
0.9
2016
£m
3.1
0.8
–
3.9
2016
£m
2.5
2.5
5.0
2015
£m
6.5
6.5
2015
£m
0.3
0.1
–
0.4
2015
£m
4.1
0.8
24.2
29.1
2015
£m
2.5
–
2.5
7 Contingent liabilities
The Company and certain of its subsidiary undertakings have entered into a number of guarantees in the ordinary course of business,
the effects of which are to guarantee or cross-guarantee certain bank borrowings and other liabilities of other group companies.
At 31 December 2016, the Company’s liability in respect of the guarantees against bank borrowings amounted to £74.3m (2015: £107.2m).
In addition, standby letters of credit outstanding totalled £15.0m (2015: £15.2m). No amounts were paid or liabilities incurred relating to
these guarantees during 2016 (2015: £nil).
In addition, as set out in note 9, the Company has provided a guarantee of certain subsidiaries’ liabilities to take the exemption from having
to prepare individual accounts under Section 394A and Section 394C of the Companies Act 2006 and exemption from having their financial
statements audited under Sections 479A to 479C of the Companies Act 2006.
8 Pension liabilities
In the UK, the Company participates in the Keller Group Pension Scheme, a defined benefit scheme, details of which are given in note 30
to the consolidated financial statements. The Company’s share of the present value of the assets of the scheme at the date of the last
actuarial valuation on 5 April 2014 was £5.6m and the actuarial valuation showed a funding level of 77%.
Details of the actuarial methods and assumptions, as well as steps taken to address the deficit in the scheme, are given in note 30 to the
consolidated financial statements. The policy for determining the allocation of each participating company’s pension liability is based on
where each scheme member was employed.
There were no contributions outstanding in respect of the defined contribution schemes at 31 December 2016 (2015: £nil).
Keller Group plc
Annual Report and Accounts 2016
119
Financial statementsGovernanceStrategic reportOverview Notes to the Company financial statements continued
8 Pension liabilities continued
Details of the Company’s share of the Keller group defined benefit scheme are as follows:
Present value of the scheme liabilities
Present value of assets
Deficit in the scheme
The assets of the scheme were as follows:
Equities
Gilts
Bonds
Changes in scheme liabilities
Opening balance
Interest cost
Benefits paid
Experience gain on defined benefit obligation
Changes to demographic assumptions
Changes to financial assumptions
Closing balance
Changes in scheme assets
Opening balance
Interest on assets
Employer contributions
Benefits paid
Return on plan assets less interest
Closing balance
Actual return on scheme assets
Statement of comprehensive income (SOCI)
Return on plan assets less interest
Experience gain on defined benefit obligation
Changes to demographic assumptions
Changes to financial assumptions
Remeasurements of defined benefit plans
Cumulative remeasurements of defined benefit plans
Expense recognised in the income statement
Operating costs
Net pension interest costs
Expense recognised in the income statement
Movements in the balance sheet liability
Net liability at start of year
Expense recognised in the income statement
Employer contributions
Remeasurements of defined benefit plans
Net liability at end of year
The contributions expected to be paid during 2017 are £0.3m.
120 Keller Group plc
Annual Report and Accounts 2016
2016
£m
(8.8)
6.5
(2.3)
2016
£m
3.9
1.3
1.3
6.5
2016
£m
(7.6)
(0.3)
0.3
0.6
0.1
(1.9)
(8.8)
6.0
0.2
0.3
(0.3)
0.3
6.5
0.5
0.3
0.6
0.1
(1.9)
(0.9)
(3.5)
–
0.1
0.1
1.6
0.1
(0.3)
0.9
2.3
2015
£m
(7.6)
6.0
(1.6)
2015
£m
3.6
1.2
1.2
6.0
2015
£m
(7.8)
(0.3)
0.3
–
–
0.2
(7.6)
6.0
0.2
0.3
(0.3)
(0.2)
6.0
–
(0.2)
–
–
0.2
–
(2.6)
–
0.1
0.1
1.8
0.1
(0.3)
–
1.6
The history of experience adjustments on scheme assets and liabilities is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
2016
£m
(8.8)
6.5
(2.3)
(1.2)
0.3
2015
£m
(7.6)
6.0
(1.6)
0.2
(0.2)
2014
£m
(7.8)
6.0
(1.8)
(0.4)
–
2013
£m
(7.3)
5.7
(1.6)
(0.2)
(0.4)
2012
£m
(7.1)
5.9
(1.2)
(0.5)
0.1
9 Group companies
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries and joint ventures as at 31 December 2016 is
disclosed below. Unless otherwise stated, each of the subsidiary undertakings is wholly owned through ordinary shares by intermediate
subsidiary undertakings.
All of the subsidiary undertakings are included within the consolidated financial statements.
All trading companies are engaged in the principal activities of the group, as defined in the Director’s report.
Subsidiary undertaking
Accrete Industrial Flooring Limited
Accrete Limited
Anderson Drilling Inc.
Anderson Manufacturing, Inc.
Ansah Asia Sdn Bhd
Austral Construction Pty Limited
Austral Group Holdings PTY Limited
Austral Investors PTY Limited
Austral Plant Services PTY Limited
Bencor Global, Inc.
Bobian Limitedi
Capital Insurance Limitedi
Case Atlantic Company
Case Foundation Company
Cyntech Construction Ltd.
Cyntech U.S. Inc.
EB Construction Company
EB Keller Holding Company
Fondedile Foundations UK Ltd
Franki Geotechnical (Pty) Limitedii
Franki Pacific Holdings Pty Ltd
Key
01
01
02
02
03
04
04
04
04
05
06
07
08
08
09
10
11
11
06
12
13
Subsidiary undertaking
Frankipile (Mauritius) International Limited
Frankipile Australia Pty Ltd
Frankipile Botswana (Pty) Limited
Frankipile D.R.C. SARL.iii
Frankipile Ghana Limited
Frankipile International Projects Limited
Frankipile Lesotho (Pty) Limited
Frankipile Mauritius International (Seychelles) Limited
Frankipile Mocambique Limitada
Frankipile Namibia (Pty) Limited
Frankipile Swaziland (Pty) Limited
Geochemical Corporation
Geotechnical Engineering Contractors Limitedi
GeTec Ingenieurgesellschaft fur Informations- und
Planungstechnologie mbH
Getec North America Inc.
Hayward Baker Cimentaciones Sociedad Anonima
Hayward Baker, Inc.
HB Puerto Rico, L.P.
HJ Foundation Company
HJ Keller Holding Company
Key
14
13
15
16
17
18
19
20
21
22
23
24
25
26
08
27
05
28
11
11
Keller Group plc
Annual Report and Accounts 2016
121
Financial statementsGovernanceStrategic reportOverview Notes to the Company financial statements continued
Subsidiary undertaking
Keller Geotehnica Srl
Keller Ground Engineering Bangladesh Limited
Keller Ground Engineering India Private Limited
Keller Ground Engineering LLCvi
Keller Ground Engineering Pty Ltd
Keller Grundbau Ges.m.bH
Keller Grundbau GmbH
Keller Grundlaggning AB
Keller Hellas S.A.
Keller Holding GmbH
Keller Holdings Limitedi
Keller Holdings, Inc.
Keller Investments LLP
Keller Limitedi
Keller National Plant Pty Limited
Keller New Zealand Limited
Keller Polska Sp. z o.o.
Keller Pty Limited
Keller Qatar L.L.C.vii
Keller Resources Limited
Keller Russia LLC
Keller speciálne zakladani spol. s r.o.
Keller specialne zakladanie spol.s.r.o.
Keller Turki Company Limitedviii
Keller Ukraine LLC
Keller West Africa S.A.
Keller Zemin Mühendisligi Limited Sirketi
Keller-MTS AG
KFS Finland Oyix
KGS Keller Gerate & Service GmbH
Makers Holdings Limitedi
Makers Management Services Limitedi
Makers Services Limited
Key
51
52
53
54
13
55
56
57
58
56
01
05
01
06
59
60
61
13
62
01
63
64
65
66
67
68
69
70
71
56
01
01
01
9 Group companies continued
Subsidiary undertaking
Intermesh Limited
Keller (M) Sdn Bhd
Keller Angola Limited
Keller Angola Properties Limited
Keller AsiaPacific Ltd.
Keller Australia Pty Limitediv
Keller Canada Holdings Ltd.
Keller Canada Services Ltd
Keller Central Asia TOO
Keller Cimentaciones Chile, SpA
Keller Cimentaciones de Latinoamerica SA de CV
Keller Cimentaciones S.A.
Keller Cimentaciones SAC
Keller Cimentaciones, S.L.U.
Keller Colcrete Limited
Keller Egypt LLC
Keller EMEA Limited
Keller Engenharia Geotecnica Ltda
Keller Finance Australia Limited
Keller Finance Ireland Limited
Keller Finance Limited
Keller Financing
Keller Fondations Speciales SAS
Keller Fondations Spéciales Spav
Keller Fondazioni S.r.l
Keller Foundations (S E Asia) Pte Ltd
Keller Foundations Ltd.
Keller Foundations Vietnam Co., Limited
Keller Foundations, LLC
Keller Funderingstechnieken B.V.
Keller Funderingsteknik Danmark ApS
Keller Geo-Fundações, Sociedade Unipessoal, Lda
Key
29
30
01
01
31
32
33
33
34
35
36
37
38
39
06
40
01
41
01
42
01
01
43
44
45
46
33
47
05
48
49
50
122 Keller Group plc
Annual Report and Accounts 2016
Subsidiary undertaking
Makers UK Limited
Mckinney Drilling Company, LLC
McKinney Woodstock LLC
Nesur Tecnologia Servicios S.A.
North American Foundation Engineering Inc.
PHI Group Limitedi
Pile Test International Pty Limited
Piling Contractors New Zealand Limited
Piling Contractors Pty Limited
PT. Frankipile Indonesiax
Resource Piling (M) Sdn. Bhd.
Resource Piling Pte Ltd
Seaboard Foundations, Inc.
Speceng Engenharia E Fundações Especiais Ltda
Stabtecno Serviços de Engenharia de Estabilização
de Solos Moles Ltda.
Suncoast Post-Tension, Ltd.
Systems Geotechnique Limited
Tecnogeo Engenharia e Fundações Ltda.
Terratest-Keller J.V. SAPI de CVxi
The Concrete Doctor, Inc.
Vibro-Pile (Aust.) Pty Limited
Vremya LLP
Wannenwetsch GmbH Hochdruckwassertechnik
Waterway Constructions (Vic) Pty Limited
Waterway Constructions Group Pty Limited
Waterway Constructions Pty Limited
Key
01
10
10
72
33
06
73
74
75
76
77
78
10
79
80
81
06
82
83
84
73
85
86
87
87
87
Key to registered office addresses
01 5th Floor, 1 Sheldon Square, London, W2 6TT, United Kingdom
02 CT Corporation System, 818 West Seventh Street, Suite 930, Los Angeles, CA,
90017, United States
03 No.5, Lrg Kubang Buaya 49, Kuantan, 25250, Malaysia
04 112-126 Hallam Valley Road, Dandenong, VIC, 3175, Australia
05 The Corporation Trust Company, 1209 Orange Street, Wilmington, DE, 19801,
United States
17 C205/21 Didebaa link, Abelemkpe, Accra, Ghana
18 C/O DTOS Ltd, 10th floor, Raffles Tower, 19 Cybercity, Ebene, Mauritius
19 Maseru Book Centre Building, Maseru, Lesotho
20 Maison La Rosiere, Palm Street, Victoria, Mahe, Seychelles
21 Bairro da Matola D, Avenida Samora Machel nr. 393, Matola, Mozambique
22 2nd floor, LA Chambers, Ausspann Plaza, Dr Agostinho Neto Road, Windhoek,
Namibia
23 Umkhiwa House, 195 Kal Grant Street, Mbabane, Swaziland
24 162 Spencer Place, Ridgewood, NJ, United States
25 462 El Horreya Avenue, Roushdy, Alexandria, Egypt
26 Mausegatt 45, 44866 Bochum, Germany
27 5 Avenida 15-45, Zona 10, Edificio Centro Empresarial, Torre II, Oficina 1103-04,
Guatemala
28 1875 Mayfield Road, Odenton, MD, 21113, United States
29 Kevan Whitehouse, Keller Limited, Oxford Road, Ryton on Dunsmore, Coventry,
CV8 3EG, United Kingdom
30 Lot 6.05, Level 6, KPMG Tower, 8, First Avenue, Bandar Utama, Petaling Jaya,
Selangor, 47800, Malaysia
31 72 Anson Road #11-03, Anson House, Singapore, 079911
32 607, 2-8 Brookhollow Avenue, Baulkham Hills, NSW 2153, Australia
33 Suite 2600, Three Bentall Centre, P.O. Box 49314, 595 Burrard Street, Vancouver
BC, V7X 1 L3, Canada
34 Almalinsky Rayon, Kurmangazi Str. 84, 050022 Almaty, Kazakhstan
35 C/Huerfanos 1160 – Of.604., Comuna de Santiago, Region Metropolitana, Chile
36 Avenida del Presidente Masaryk, 62. Colonia Bosques de Chapultepec, Distrito
Federal, Mexico
37 Oceania Business Plaza, Torre 1000, piso 49, Of.A10, Calle 56 D Este, Punta
Pacifica, Panama
38 Avenida Javier Prado Oeste, 203. Urbanizacion San Isidro, Departamento San
Isidro, Lima, Peru
39 Calle de la Argentina, 15, 28806 Alcala de Henares, Madrid, Spain
40 2 Diplomats Street, Diplomats Towers, Maadi Corniche, Cairo, Egypt
41 Av Embaixador Abelardo Bueno, 01, BI 1, Salas 702 a 708, 22.775-040 Barra,
Rio de Janeiro, Brazil
42 12 Merrion Square, Dublin 2, Ireland
43 2 rue Denis Papin, 67120, Duttlenheim, France
44 No. 35, Route de Khmiss El Khechna, Sbâat, 16012 Rouiba, w. Alger, Algeria
45 Via della Siderurgia 10, Verona, I-37139, Italy
46 18 Boon Lay Way, #04-104, Tradehub 21, 609966, Singapore
47 24 Dang Thai Mai Street, Ward 7, Phu Nhuan District, Ho Chi Minh City, Vietnam
48 Europalaan 16, 2408 BG, Alphen aan den Rijn, Netherlands
49 Gammel Kongevej 1, 1610 Kobenhavn V, 1050, Kopenhaven K, Denmark
50 Estrada do Porto da Areia 2600-675, Fregguesia da Castanheira, Conchelcho
de Vilafranca de Xira, Portugal
51 Bucuresti Sectorul 1, Str., Uruguay, Nr. 27, Etaj 1, Ap. 2, Romania
52 BDBL Bhaban (Level-13), 12 Kawran Bazar Commercial Area, Dhaka-1215,
Bangladesh
53 7th Floor, Eastern Wing, Centennial Square 6A, Dr Ambedkar Road,
Kodambakkam, Chennai, 600024, India
54 Flat 107, Building 79 Al Maya Supermarket Building, Al Khuwair 33, P.O. Box 1618,
Ruwi, Muscat, 112, Oman
55 Mariahilfer Strasse 127a, 1150 Wien, Austria
56 Kaiserleistraße 8, Offenbach am Main, 63067, Germany
57 Östra Lindomev 50, 437 34, Lindome, Sweden
58 Keller Hellas S.A. Antheon 102, GR-57019 N. Epivates-Thessaloniki, Greece
59 Level 4, 56 Station Road, Parramatta, NSW, Australia
60 C/-GazeBurt, 1 Nelson Street, Auckland, 1010, New Zealand
61 ul. Poznanska172, Ozarow Mazowiecki, PL-05805, Poland
62 Building No: 5, Floor No: 8, Room No: 801-A, Al Diwan Street, Beside Musherib
Hotel, Doha, Qatar
63 Shchipok St 2, Office 110, Moscow, 115093, Russian Federation
64 Na Pankraci 30, 14000 Praha 4, Czech Republic
65 Hranica 18 – AB 6, 82105 Bratislava, Slovakia
66 PO Box 718, Dammam, 31421, Saudi Arabia
67 30, Vasylkivska Street, Kiev, 03022, Ukraine
68 Abidjan-Marcory, Zone 4C – Rue Clement Ader, 01 BP 1238, Abidjan 01, Ivory Coast
69 Harbiye Mah. Teşvikiye Caddesi No:17, D:13 İkbal Ticaret Merkezi, 34365 Şişli,
Istanbul, Turkey
70 Sonnenberstrasse 51, Ennetbaden, 5408, Switzerland
71 Haarakaari 42, TUUSULA, 04360, Finland
72 Union Mercantil LA, Num.33, Portal 1, Planta 5, Puerta C, 29004 Malaga, Spain
73 Building 4, Level 2, 530 Springvale Road, Glen Waverley, VIC 3150, Australia
74 Gaze Burt, One Nelson Street, Auckland City, 1110, New Zealand
75 5 Jacque Court, Lawnton, QLD 4501, Australia
76 Pusat Perkantoran Graha Kencana Blok EK, Jakarta Jl. Raya Perjuangan No. 88,
Kebon Jeruk, Jakarta Barat 11530, Indonesia
77 8A, Jalan Vivekananda, Off Jalan Tun Sambanthan, Brickfields, Kuala Lumpur,
50470, Malaysia
06 Oxford Road, Ryton-on-Dunsmore, Coventry, West Midlands, CV8 3EG,
78 No.1, Upper Aljunied Link (Blk A), #07-06, Joo Seng Warehouse, Singapore,
United Kingdom
07 1st Floor, Rose House, 51-59 Circular Road, Douglas, IM1 1RE, Isle of Man
08 The Corporation Trust Incorporated, 351 West Camden Street, Baltimore, MD,
21201, United States
09 4529, Melrose Street, Port Alberni, BC, V9Y 1K7, Canada
10 CT Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX, 75201,
United States
367901, Singapore
79 City of Cotia, Avenida Vasco Massafeli, 1.444 - cj. 01, Caiapiá, Cotia, São Paulo,
CEP 06703-600, Brazil
80 Avenida Vasco Massafeli, 1.444 – cj. 02, Caiapiá, Cotia, São Paulo, CEP 06703-600, Brazil
81 509N. Sam Houston Parkeway E, Ste 300, Houston, 77060, Texas, United States
82 Av. Eliseu de Almeida, 1415, Butantã, São Paulo, CEP 05533-000, Brazil
83 Presidente Masarik 62, Oficina 110, Bosques de Chapultepec, Distrito Federal,
11 CT Corporation System, 1200 South Pine Island Road, Plantation, FL, 33324,
11580, Mexico
United States
12 674 Pretoria Main Road, Wynberg, 2090, Sandton, Gauteng, South Africa
13 Level 1, 2-4 Burbank Place, Baulkham Hills, NSW, Australia
14 Geoffrey Road, Bambous, Mauritius
15 First floor, Plot 64518, Fairgrounds Office Park, Gaborone, Botswana
16 C/O PriceWaterhouse Coopers, BCDC Building, 1st floor, No.285 Mwepu Street,
Lubumbashi, Katanga, Congo
84 CT Corporation System, 208 SO LaSalle St, Suite 814, Chicago, IL, 60604,
United States
85 Microrayan Ardager, Passage 2, Building 34, Atyrau, 060006, Kazakhstan
86 Wolfsgrube 7, 98617 Meiningen, Germany
87 Level 1, 104-108 Victoria Road, Rozelle, NSW, 2039, Australia
Keller Group plc
Annual Report and Accounts 2016
123
Financial statementsGovernanceStrategic reportOverview Notes to the Company financial statements continued
9 Group companies continued
i Owned directly by the Company.
ii
Share capital consists of 75.1% Ordinary shares, 10% Ordinary A shares and 14.9%
Ordinary B shares. Keller Holdings Limited owns 100% of the Ordinary shares.
iii 99% owned by Frankipile International Projects Limited.
iv Ownership consists of 15% Ordinary A shares, 10% Ordinary B shares and 75%
Ordinary C shares.
v 51% owned by Keller Fondations Speciales SAS and other Keller companies.
vi 70% owned by Keller Holdings Limited.
vii 49% owned by Keller Holdings Limited.
viii 65% owned by Keller Grundbau GmbH.
ix
Joint venture 50% owned by Keller Grundlaggning AB, based in Tuusula, Finland.
The company is managed jointly by an equal number of directors from each of the
two shareholder companies.
x 67% owned by Keller Foundations (SE Asia) Pte Limited.
xi
Joint venture 50% owned by Keller Cimentaciones de Latinoamerica SA de CV
Mexico, based in Mexico DF. No longer trading and due to be dissolved.
Keller Group plc has guaranteed the liabilities of the following
subsidiaries in order that they qualify for the exemption from having
to prepare individual accounts under Section 394A and Section
394C of the Companies Act 2006 in respect of the year ended
31 December 2016:
Company
Keller Financing
Keller EMEA Ltd
Keller Angola Limited
Keller Angola Properties Limited
Registered number
04592933
02427060
09267942
09267936
Keller Group plc has guaranteed the liabilities of the following
subsidiaries in order that they qualify for the exemption from audit
under Sections 479A to 479C of the Companies Act 2006 in respect
of the year ended 31 December 2016:
Company
Keller Holdings Limited
Keller Resources Limited
Keller Finance Australia Limited
Keller Finance Limited
Keller Investments LLP
Keller Resources Limited
Registered number
02499601
04592974
06768174
02922459
OC412294
04592974
124 Keller Group plc
Annual Report and Accounts 2016
Adjusted performance measures
The group’s results as reported under International Financial Reporting Standards (IFRS) and presented in the financial statements
(the ‘statutory results’) are significantly impacted by movements in exchange rates relative to sterling, as well as by exceptional items
and non-trading amounts relating to acquisitions.
As a result, adjusted performance measures have been used throughout the Annual Report and Accounts to describe the group’s
underlying performance. The Board and Executive Committee use these adjusted measures to assess the performance of the
business because they consider them more representative of the underlying ongoing trading result and allow more meaningful
comparison to prior year.
Underlying measures
The term ‘underlying’ excludes the impact of exceptional items, amortisation of acquired intangible assets and other non-trading
amounts relating to acquisitions (collectively ‘non-underlying items’), net of any associated tax. Underlying measures allow management
and investors to compare performance without the potentially distorting effects of one-off items or non-trading items. Non-underlying
items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial
performance of the group. They are items which are exceptional by their size or are non-trading in nature, including those relating
to acquisitions.
Constant currency measures
The constant currency basis (‘constant currency’) adjusts the comparative to exclude the impact of movements in exchange rates relative
to sterling. This is achieved by retranslating the 2015 results of overseas operations into sterling at the 2016 average exchange rates.
A reconciliation between the underlying results and the reported statutory results is shown on the face of the consolidated income
statement, with non-underlying items detailed in note 7. A reconciliation between the 2015 underlying result and the 2015 constant
currency result is shown below and compared to the underlying 2016 performance:
Revenue by segment
North America
EMEA
APAC
Group
Underlying operating profit by segment
North America
EMEA
APAC
Central items and eliminations
Group
2016
Statutory
£m
952.9
552.6
274.5
1,780.0
2016
Underlying
£m
86.9
30.2
(18.0)
(3.8)
95.3
2015
Impact of
exchange
movements
£m
103.2
36.8
28.2
168.2
2015
Impact of
exchange
movements
£m
9.2
2.0
1.1
–
12.3
Statutory
£m
851.2
441.5
269.7
1,562.4
Underlying
£m
76.4
21.3
11.7
(6.0)
103.4
Constant
currency
£m
954.4
478.3
297.9
1,730.6
Constant
currency
£m
85.6
23.3
12.8
(6.0)
115.7
Statutory
change
%
+12%
+25%
+2%
+14%
Underlying
change
%
+14%
+42%
-254%
+37%
-8%
Constant
currency
change
%
–
+16%
-8%
+3%
Constant
currency
change
%
+2%
+30%
-241%
+37%
-18%
Underlying operating margin
Underlying operating margin is underlying operating profit as a percentage of revenue.
Keller Group plc
Annual Report and Accounts 2016
125
Adjusted performance measures continued
Other adjusted measures
Where not presented and reconciled on the face of the consolidated income statement, consolidated balance sheet or consolidated cash
flow statement, the adjusted measures are reconciled to the IFRS statutory numbers below:
2016
£m
95.3
62.0
1.3
158.6
(18.9)
18.5
158.2
2016
£m
(1.6)
11.8
10.2
1.1
11.3
2016
£m
78.2
0.6
(5.8)
73.0
2016
£m
54.0
336.0
(84.4)
305.6
2015
£m
103.4
50.9
1.2
155.5
(1.1)
0.9
155.3
2015
£m
(0.8)
8.5
7.7
0.7
8.4
2015
£m
74.2
0.8
(5.1)
69.9
2015
£m
3.5
242.6
(63.1)
183.0
EBITDA
Operating profit before non-underlying items
Depreciation
Amortisation
Underlying EBITDA
Non-underlying items in operating costs
Non-underlying items in other operating income
EBITDA
Net finance costs
Finance income
Finance costs before non-underlying items
Underlying net finance costs
Non-underlying finance costs
Net finance costs
Net capital expenditure
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of property, plant and equipment
Net capital expenditure
Net debt
Current loans and borrowings
Non-current loans and borrowings
Cash and cash equivalents
Net debt
126 Keller Group plc
Annual Report and Accounts 2016
Financial record
Consolidated income statement
Continuing operations
Revenue
EBITDA1
Operating profit1
Net finance costs1
Profit before taxation1
Taxation1
Profit for the period before non-underlying items
Non-underlying items2
Profit/(loss) for the period
Consolidated balance sheet
Working capital
Property, plant and equipment
Intangible and other non-current assets
Net debt
Other net assets/liabilities
Net assets
Key performance indicators
Basic earnings per share from continuing
operations (pence)1
Dividend per share (pence)
Operating margin1
Return on capital employed1,3
Net debt: EBITDA1
2007
£m
2008
£m
2009
£m
2010
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
955.1 1,196.6 1,037.9 1,068.9 1,154.3 1,317.5 1,438.2 1,599.7 1,562.4 1,780.0
125.8
158.6
107.4
95.3
(4.2)
(10.2)
103.2
85.1
(35.9)
(29.8)
67.3
55.3
–
(7.3)
67.3
48.0
155.5
103.4
(7.7)
95.7
(33.0)
62.7
(36.4)
26.3
144.3
119.4
(6.2)
113.2
(35.9)
77.3
–
77.3
124.2
77.8
(3.7)
74.1
(23.8)
50.3
(20.2)
30.1
113.2
77.3
(2.6)
74.7
(22.6)
52.1
–
52.1
141.9
92.0
(6.9)
85.1
(29.7)
55.4
(56.6)
(1.2)
91.9
48.3
(4.8)
43.5
(13.5)
30.0
–
30.0
85.0
43.3
(3.7)
39.6
(11.0)
28.6
(17.1)
11.5
71.4
28.9
(7.0)
21.9
(5.5)
16.4
–
16.4
55.7
155.8
94.5
(54.5)
(40.0)
211.5
92.2
254.7
124.3
(84.6)
(84.0)
302.6
85.0
264.4
131.8
(78.8)
(79.1)
323.3
106.7
275.0
122.9
(94.0)
(79.8)
330.8
119.8
266.1
116.4
(102.5)
(73.0)
326.8
97.6
248.5
112.1
(51.2)
(71.3)
335.7
124.1
281.9
202.8
(143.7)
(92.5)
372.6
104.1
295.6
203.4
(102.2)
(154.6)
346.3
97.1
331.8
183.0
(183.0)
(94.9)
334.0
152.5
405.6
218.2
(305.6)
(41.1)
429.6
97.6
18.0
78.8
21.8
7.4%
111.1
75.9
20.7
28.5
11.2% 10.0%
5.4%
44.6% 36.2% 19.3% 10.2% 6.6% 11.6% 16.7% 18.3% 20.5% 15.3%
1.9x
86.4
44.0
22.8
27.1
4.1% 2.5% 3.7% 5.4% 5.8% 6.6%
75.3
25.2
24.8
22.8
45.9
22.8
73.0
24.0
1.2x
1.2x
0.6x
0.6x
0.4x
1.4x
0.7x
0.7x
1.1x
1 Before non-underlying items.
2
Non-underlying items consist of costs and income related to a contract dispute, restructuring charges, non-recurring tax credits, goodwill impairment charges and other
non-trading items relating to acquisitions which are required to be expensed under IFRS.
Calculated as operating profit expressed as a percentage of average capital employed. ‘Capital employed’ is net assets before non-controlling interests plus net debt and net
defined benefit pension liabilities.
3
Keller Group plc
Annual Report and Accounts 2016
127
Our offices
Secretary and advisers
Head office
Keller Group plc
5th floor
1 Sheldon Square
London W2 6TT
Telephone: +44 20 7616 7575
www.keller.com
North American Division
Keller Foundations, LLC
7550 Teague Road
Suite 300
Hanover
Maryland 21076
Telephone: +1 410 551 8200
www.kellerfoundations.com
EMEA Division
Keller Holding GmbH
Kaiserleistrasse 8
63067 Offenbach
Germany
Telephone: +49 69 80510
www.kellerholding.com
APAC Division
Keller AsiaPacific Limited
72 Anson Road #11-03
Anson House
Singapore 079911
Telephone: +65 6444 6730
www.keller.com.au
Cautionary statement
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’, ‘will’, ‘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.
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.
Company secretary
K A A Porritt FCIS
Registered office
5th floor
1 Sheldon Square
London W2 6TT
Registered number
2442580
Joint brokers
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Investec Investment Banking
2 Gresham Street
London EC2V 7QP
Auditors
KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
Principal bankers
Lloyds Bank plc
25 Gresham Street
London EC2V 7HN
Legal advisers
DLA Piper UK LLP
3 Noble Street
London EC2V 7EE
Financial public relations advisers
Finsbury
Tenter House
45 Moorfields
London EC2 9AE
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
128 Keller Group plc
Annual Report and Accounts 2016
Designed and produced by Gather
www.gather.london
The paper used in this Report is derived
from sustainable sources.
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Keller Group plc
5th floor
1 Sheldon Square
London W2 6TT
+44 (0)20 7616 7575
info@keller.co.uk
www.keller.com