Annual Report and Accounts 2017 Every day, people around the We have the financial strength, world live, work and play on know-how, capacity and the ground prepared by Keller. global reach to tackle some of the largest and most Used alone or in combination, demanding projects around our techniques solve a wide the world. range of geotechnical challenges across the entire Whatever the size of the construction spectrum. project, we have the people, expertise, experience and We are the world’s largest financial stability to respond geotechnical solutions quickly with the optimum specialist. Our projects are solution, execute safely typically for a single, local and see it through to site, perhaps for a building, a successful conclusion. a basement or a bridge. Overview Governance Consolidated financial statements 1 Why invest in Keller? 42 Corporate governance 2 Keller at a glance report 88 Consolidated income 4 Market demand trends 42 – Board of Directors statement 44 – Executive Committee 88 Consolidated statement Strategic report 46 – Chairman’s introduction of comprehensive income 51 – Health, Safety, 89 Consolidated balance 12 Chairman’s statement Environment & Quality sheet 14 Chief Executive Officer’s Committee report 90 Consolidated statement review 52 – Nomination Committee of changes in equity 18 Operating review report 91 Consolidated cash flow 18 – North America 54 – Audit Committee report statement 20 – Europe, Middle East 57 Relations with 92 Notes to the financial and Africa shareholders statements 22 – Asia‑Pacific 58 Directors’ remuneration 24 Finance Director’s review report 116 Financial statements 28 Our business model 58 – Annual statement from of the parent company 30 Our five strategic levers the Chairman of the 125 Adjusted performance 32 Sustainability Remuneration measures 39 Principal risks and Committee 127 Financial record uncertainties 61 – Remuneration Policy report Other information 69 – Annual remuneration 128 Our offices report 128 Secretary and advisers 77 Directors’ report 79 Statement of Directors’ responsibilities 80 Independent Auditor’s report Front cover image: Tacheles project Berlin Germany. Why invest in Keller? Overview We operate in the large and growing global construction report Strategic and infrastructure market. Governance The specialist geotechnical contracting sub-sector has higher margins and favourable market trends. statements Financial We are the number one business worldwide given our size, profitability and capabilities (wide product portfolio, branch network, equipment fleet, technical leadership and operational track record). We still have many areas for improvement and a strategy to deliver the benefits. We have a stable business model with a long-term track record of growth and value creation. Revenue Underlying Underlying Underlying Order Dividend operating margin earnings per share operating profit book £2,070.6m 5.2% 102.2p £108.7m £1.0bn 34.2p 16% 35% 14% 2% YOY 20% 2016: £1,780.0m 2016: 5.4% 2016: 75.9p 2016: £95.3m 2016: £1.1bn 2016: 28.5p Financial Highlights: Underlying Statutory 2017 2016 2017 2016 Operating margin (%) 5.2 5.4 5.9 4.8 Cash generated from operations (£m) 136.1 135.7 146.7 140.6 Operating profit (£m) 108.7 95.3 121.3 85.2 Earnings per share (pence) 102.2 75.9 121.0 65.7 Return on capital employed (%) 15.1 15.3 16.3 13.1 Keller Group plc 1 Annual Report and Accounts 2017 Keller at a glance Global strength and local focus Our purpose Established To help create 1860 infrastructure Employees that improves 10,000 the world’s communities Acquisitions since 2000 Our vision 20+ To be the world leader in geotechnical solutions What we do We provide solutions to a wide range of geotechnical challenges Ground improvement Grouting across the entire construction spectrum Deep foundations Earth retention Marine Post-tension systems Instrumentation and monitoring 2 Keller Group plc Annual Report and Accounts 2017 Countries of operation Contracts executed annually Overview 40+ 6,300 Continents of operation Typical project range report Strategic 6 £25k to £10m Business units Average project value 21 £300,000 Governance Financial statements Financial 1 Group Keller 3 Divisions North America Europe, Middle East Asia-Pacific (APAC) and Africa (EMEA) 21 Business units – Bencor – Central Europe – ASEAN – Case Foundation – North-East Europe – India – Hayward Baker – North-West Europe – Keller Australia – HJ Foundation – South-East Europe – Waterway Constructions – Keller Canada – Franki – Austral – McKinney Drilling – French speaking territories – Suncoast – Middle East – Iberia and Latin America – Brazil 180 Branches Divisional revenue (%) Sector revenue (%) A strong position but plenty of room to grow North America 47 Infrastructure/Public Buildings 35 Global geotechnical contracting market $52bn EMEA 35 Residential 24 APAC 18 Power/Industrial 23 Office/Commercial 18 Geotechnical contracting market $27bn where Keller operates today Keller today $2.7bn Keller has a 5% global market share Sources: IHS Global Insight 2017, and a 10% share of the markets national statistics organisations, where we have operations Keller accounts Keller Group plc 3 Annual Report and Accounts 2017 Meeting market demands Industry overview $52bn global market: Diverse customer base: This is defined as the geotechnical contracting market within the Typically no single customer is more than 5% of group revenues construction industry. It includes China, Japan, Korea and Russia in a single year. We mostly serve as a sub-contractor working – markets where we don’t operate. If removed, the size drops to for a general contractor, however, we also contract directly. $25bn. It is an estimate based on data from IHS and other local sources. Typically geotechnical contracting is around 1% of the Fragmented competition: construction market. Three types of competitor with a large variation between geographies. Type one is the global geotechnical contractors Wide variety of projects: (three of these), not all present in all markets. Type two is the Variety in terms of scale, location, end use, geotechnical technique. general contractor-owned, national geotechnical contractor. Scale is from around £25k up to more than £10m but typically Type three is the local, independent geotechnical contractor short duration and around £300,000. Locations are spread (typically family‑owned businesses). all around the globe. End use covers the full range including Infrastructure/Public Buildings, Power/Industrial, Office/ Niche sub-sector: Commercial and Residential. Geotechnical techniques includes all Geotechnical solutions are a small, niche sub-sector of our ten product groups (eg bored piling, driven piles, diaphragm construction. Growing faster than construction, reflecting: walls, deep-soil mixing, vibro compaction, anchors/nails). – More pressure to build on brownfield and marginal land. – More ambitious development and infrastructure projects. 4 Keller Group plc Annual Report and Accounts 2017 Market demand trends Global market trends offer Our group strategy is Overview positive opportunities for designed to capitalise on Keller because we excel in these trends and our KPIs report Strategic sophisticated geotechnical measure our progress in solutions. doing so. Governance Our regional business units adapt to local market conditions in pursuit of the statements Financial group strategy. Brenner Base Tunnel, Austria Keller Group plc 5 Annual Report and Accounts 2017 Market demand trends continued 1. Urbanisation and more large- 4. Increasing demand from scale development projects customers for complete solutions This holds for almost all geographies. It is driving growth and Customers want to reduce their burden of managing complexity increased complexity in the market. As urban areas and large and are trusting us to take on more roles for them. This helps developments are constructed they require increasingly make our work more efficient. sophisticated solutions. More detail on the trend More detail on the trend As projects are executed in more complex environments and to As our cities grow we demand larger structures capable of a greater scale the geotechnical solutions required are also more housing more, creating new working environments, retail complex – typically requiring multiple products in one solution, experiences and large-scale leisure facilities. plus a number of additional services alongside (eg site clearing, excavation works, groundwater management). A large urban Why this is good for Keller project may require load-bearing capacity, earth retention and Keller has both the operational and financial scale to take on water sealing capabilities. larger jobs and the largest branch network of any geotechnical contractor putting us in nearly all the major metropolitan areas Why this is good for Keller around the world. This breadth of market exposure also allows Keller’s broad product portfolio means our engineers have more us to share new techniques for working in urban areas. options to design an effective and efficient solution for our clients, plus our project management capabilities mean we can integrate other sub-contractors to reduce the management 2. Increasing land shortage, burden on our clients. driving a need to use more brownfield and marginal land 5. Increasing technical complexity Typically in developed nations, means that Keller’s more The equipment and products required by the market are sophisticated ground improvement techniques come into play. increasing in sophistication