Directors' report

The directors present their annual report, together with the audited accounts for the year ended 31 December 2001.

Principal activities
Keller Group plc is a holding company. Its principal subsidiary undertakings are engaged in specialised ground engineering, structural renovation and post-tension systems, providing the construction industry around the world with an extensive range of problem solving techniques and services.

Business review
A review of the Group’s progress and prospects may be found in Operating review.

Results and dividends
The results for the year, showing a profit before taxation of £22,393,000 (2000: £15,447,000), are set out in Consolidated profit and loss account. The directors recommend a final dividend of 6.05p per share to be paid on 31 May 2002, to members on the register at the close of business on 3 May 2002. An interim dividend
of 3.15p per share was paid on 31 October 2001. The total dividend for the year of 9.2p (2000: 8.5p) will amount to £5,401,000 (2000: £4,829,000).

Post balance sheet event
Since the year end, the Group has announced the acquisition of 49% of Wannenwetsch GmbH Hochdruckwassertechnik – Germany’s leading supplier of robotic hydrodemolition services for use in concrete refurbishment – for a total cash consideration of £1.3m.

Directors
The names and biographical details of the directors who hold office at the date of this report are given in Board of directors. All served throughout the year, with the exception of Mr E G F Brown and Mr R T Scholes, who were appointed as non-executive directors on 13 December 2001 and 7 February 2002 respectively. In addition to the current directors, Mr M W C Martin served as a director throughout the year, retiring on 31 December 2001.

Retirement and re-election
Dr H Peipers and Dr K Bond retire by rotation at the
Annual General Meeting and will not stand for re-election. Mr E G F Brown and Mr R T Scholes, who were appointed since the last Annual General Meeting, retire in accordance with the Articles of Association and, being eligible, offer themselves for election.

Details of the directors’ service contracts are contained in the remuneration report, together with details of their remuneration and benefits and their interests in the shares of the Company.

Substantial shareholdings
At 6 March 2002, the Company had been informed of the following interests in the Company’s issued ordinary share capital:

Apart from the above interests, the Company has not been notified, and is not aware, of any other person who is directly or indirectly materially interested in 3% or more, or who has a non-material interest in 10% or more, of the issued ordinary share capital of the Company.

Research and development
Keller has a reputation for engineering excellence and innovation. The Group has in-house design, development and manufacturing facilities where staff work closely with site engineers continually to develop new and more effective methods of solving problems of ground behaviour. Most of the specialised equipment we use is designed and built by Keller.

Management of financial risks
Currency risk
The Group faces currency risk principally on its net assets, of which a large proportion are in currencies other than Sterling. In order to reduce the impact that retranslation of these assets might have on the balance sheet, the Group manages its borrowings, to the extent possible, to hedge its foreign currency assets. Where possible, hedging is carried out by borrowing in the same currency as the assets being hedged.

The Group manages its currency flows to minimise currency transaction exchange risk and forward contracts are used to hedge significant individual transactions. The majority of such currency flows within the Group relate to repatriation of profits and intra Group loan repayments. The Group’s foreign exchange cover is executed primarily in the UK
and at 31 December 2001 the principal value of forward exchange contracts amounted to £1,700,000 (2000: £3,000,000).

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 of the financing. All drawdowns against the Group’s central borrowing facility are reviewed and the interest rate adopted depends upon the interest rate outlook for the subsequent six months. The facility affords the Group the ability to choose from one, three or six month interest rates for its drawdowns.

In addition, fixed interest rates are achieved on approximately two-thirds of central banking facility borrowings by the use of swaps.

Credit risk
Amounts deposited with banks and other financial institutions give rise to credit risk. This risk is managed by limiting the aggregate amount of exposure to any such institution by reference to their credit rating and by regular review of these ratings. The possibility of material loss in this way is considered unlikely.

Corporate governance
This is the subject of a separate report in Corporate governance which details the Company’s compliance with the Combined Code on Corporate Governance, now incorporated into the Financial Services Authority’s Listing Rules. The Remuneration report is set out in Remuneration report.

Going concern
The accounts have been prepared on the going concern basis as the directors, having made appropriate enquiries, consider that the Group has adequate resources to continue in operational existence for the foreseeable future.

Payments to suppliers
The Group’s policy, in relation to all of its suppliers, is to settle the terms of payment when agreeing the terms of the transaction and to abide by those terms, providing that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any code or statement on payment practice.

At 31 December 2001 the Group had 69 days’ (2000:81 days’) purchases outstanding.

Political and charitable contributions
No contributions were made to any political party during the year. Donations made by the Group in the UK for charitable purposes were £2,000 (2000: £3,000).

Social responsibility
The Group’s approach to employee involvement, disabled persons, health and safety and the environment are discussed in the social responsibility report in Social responsibility.

Special business at the Annual General Meeting
The full wording of the resolutions to be tabled at the forthcoming Annual General Meeting is set out in the
Notice of Annual General Meeting.

Resolution number 7 – Scrip dividends
Article 162 of the Company’s Articles of Association permits the directors, subject to the authority of the Company in general meeting, to offer to shareholders the right to elect to receive ordinary shares, credited as fully paid, instead of cash in respect of dividends declared by the Company or by the directors. The board recommends that by an ordinary resolution it be given authority to make such offers until the conclusion of the next Annual General Meeting.

Resolutions numbered 8 and 9 – Authority to allot shares
Under the Companies Act 1985 (the “Act”), the directors of the Company may only allot unissued shares if authorised to do so under Section 80 of the Act. Section 89 of the Act also prevents allotments for cash, other than to existing shareholders in proportion to their existing holdings, unless the directors are specifically authorised. This gives existing shareholders what are known as “pre-emption rights”. The Articles of Association give a general authority to the directors to allot unissued shares and disapply these pre-emption rights. Passing resolutions 8 and 9 will extend the directors’ flexibility to act in the best interests of shareholders, when opportunities arise, to issue new shares.

The directors will be able to issue new shares up to a nominal value of £1,989,365, which is equal to approximately 33.3% of the issued ordinary share capital at 6 March 2002.

The directors will also be able either to issue shares for cash, other than to existing shareholders in proportion to their existing holdings, up to a maximum nominal amount of £298,405, representing about 5% of the issued ordinary share capital at 6 March 2002 or, other than for cash, in a rights issue.

These arrangements are intended to ensure that the interests of existing shareholders are protected so that, for example, in the event of a share issue which is not a rights issue, the proportionate interests of existing shareholders could not, without their agreement, be reduced by more than 5% by the issue of new shares for cash to new shareholders.

The board has no current plans to allot ordinary shares except in connection with the executive share option arrangements.

The authority sought by resolutions 8 and 9 will expire at the conclusion of the next Annual General Meeting but could be varied or withdrawn by agreement of shareholders at an intervening general meeting.

Resolution number 10 – Purchase of the Company’s own shares
This resolution grants a limited authority to the Company to purchase through the market up to 10% of the issued ordinary share capital. The resolution specifies the maximum and minimum prices at which the shares may be bought at the date of the notice. The authority sought will expire at the conclusion of the next Annual General Meeting. The directors have no immediate intention of exercising the proposed authority when it becomes effective. Any purchases will only be made when, in the opinion of the directors, an improvement in earnings per share of the remaining shares is anticipated and it is in the best interests of shareholders generally. Any shares so purchased will be cancelled and the number of shares in issue will be reduced accordingly.

Auditors
In accordance with Section 384 of the Companies Act 1985, a resolution for the reappointment of KPMG Audit Plc as auditors to the Company is to be proposed at the forthcoming Annual General Meeting.

On behalf of the board

J F Holman Secretary
6 March 2002