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Results
The segmental analysis of the results is shown in Notes
to the accounts. Following the acquisition
of Suncoast, an addition to our specialist services business, we
have for the first time analysed
our results by class of business in addition to geographic origin.
In total, turnover increased by
more than £100m to £422.2m, a rise of 35% in the year.
The rise is substantially attributable to very strong volumes in
our North American subsidiaries full
annual contributions from the bolt-on acquisitions made in 2000
and some £20.2m as a result of the Suncoast acquisition made
in the last quarter of the year. The volume growth in the second
half of the year was more than 40% compared to less than 30% in
the first half of the year.
Operating profit before goodwill amortisation was £25.4m,
representing an increase of 44% on the operating profit before goodwill
amortisation and restructuring costs of £17.7m in 2000. 68%
of this operating profit arose in the US and in total over 90% of
the Group’s operating profit originated outside of the UK.
The average US Dollar and Euro exchange rates against Sterling strengthened
by 5% and 2% respectively year on year, leading to a favourable
impact on profits of £0.6m. The Suncoast acquisition contributed
£1m to profits in the three months of ownership. Suncoast
is a seasonal business and earns the majority of its profits in
the spring and summer months.
Operating margins vary widely across the Group reflecting the differing
economic and competitive environments in which our subsidiaries
operate. It is pleasing to note that Group operating margins increased
by 0.3% to 6.0% in the year. The best operating margins continue
to be returned by our US businesses although our European and overseas
business maintained its operating margin above 5%.
Acquisitions
The Group made two acquisitions in the year both in the US. On 1
October, the net assets and business of Suncoast were purchased
for a total cash consideration of £65.7m, including capitalised
acquisition costs of £3.5m and the directors’ estimate
of deferred purchase consideration of £0.7m. The deferred
purchase consideration is dependent upon the profits earned by Suncoast
in the financial years to December 2003. The resultant goodwill
arising on the acquisition of £49.5m is to be amortised over
20 years for accounting purposes. Catoh was acquired by the Group
on 20 November for a total cash consideration of £1.9m and
in addition the Group discharged debt on completion of £1.2m.
The goodwill arising on this acquisition was only £0.1m. There
has been no adjustment in the year to the goodwill arising on the
acquisitions made in 2000.
Accounting standards
Three new accounting standards are applicable to the Group this
year. Full compliance with FRS 17 on Retirement Benefits will not
be mandatory for the Group until 2003, and only certain disclosure
items are required in the notes to these financial statements. The
adoption of FRS 18 on Accounting Policies has not had any impact
on the Group. FRS 19 on Deferred Tax now requires full provision
to be made for deferred tax. This represents a change in accounting
policy and has therefore resulted in a prior year adjustment. As
indicated in
our Interim Statement, the charge to reserves brought forward at
1 January 2001 was £1.1m
(1 January 2000: £0.8m) and the comparatives for 2000 have
been adjusted accordingly. The Group has not adopted a policy of
discounting deferred tax assets or liabilities.
Capital and reserves
The Group increased its total net assets by some £15.6m in
the year to £73.3m. Of this, £7.9m was attributable
to retained earnings, and £0.3m was due to the increase in
minority interests. The effect
of retranslating assets denominated in currencies other than Sterling
at year end rates was adverse
by £0.5m. In addition, in December 2001, a placing of 2,840,750
ordinary shares, being 5% of the share capital, was undertaken at
a share price of £2.85 per share, which increased the capital
base of Keller by £7.9m net of expenses. With the exception
of shares under option, this was the first issue of shares since
the Group’s flotation in 1994 and the proceeds were used to
partly repay debt in the UK and provide the resources for further
bolt-on acquisitions. To this end, in January 2002, a 49% investment
of £1.3m was made in Wannenwetsch, a German concrete repair
business.
As a result of increased debt levels taken on at low interest rates
the weighted average cost of capital of the Group has been reduced.
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Taxation
The effective tax rate for the year was 38.8%, an increase of 1.3%
on the restated effective rate for 2000. The reason for this increase
is the greater proportion of profits being earned in the US where
the combined federal and state effective tax rates averaged some
39.5%.
Cash flow and net debt
Operating cash flows in 2001 improved strongly over 2000 at £32.2m
compared to £19.6m. The increase in profit was the main reason
for this 64% improvement. Management of working capital, particularly
in the last quarter of the year, was very good resulting in no change
year on year even though there was an increase in annual sales of
£109m. Both debtor and creditor levels increased in line with
activity. In order to support the large increase in sales, the Group
has continued to invest in specialised equipment with capital expenditure
of £11.5m, which was 1.6 times depreciation compared to a
ratio of 1.5 times in 2000 on capital spend of £9.8m.
Net debt at the end of 2001 was £63.2m compared to £9.6m
at the end of 2000. This large increase was due to the financing
of the Suncoast acquisition which was funded entirely by debt. Although
this gives rise to a year end gearing level of 86% compared to 17%
last year, the Group’s central banking agreement does not contain
a gearing covenant. The vast majority of year end debt is denominated
in US Dollars which matches the profile of the Group’s profit
streams. Interest rates across the Group fell in 2001, most noticeably
in the US, to give interest rates which are at historically very
low levels. However, in order to give a degree of certainty going
forward, interest rate swaps have been entered into for three years
at 3.89% on $43.6m of US Dollar denominated debt and at 5.15% on
£8m of Sterling denominated debt, excluding bank margin. On
a full year pro forma basis, assuming Suncoast had been owned and
financed for the whole of 2001, the Group’s net interest cover
based on EBITDA was 7.8 times, comfortably within the banking covenant
which has been set.
In order to finance the Suncoast acquisition, a new central banking
facility was entered into which provided a five year amortising
term loan of $70m and a five year revolving credit facility of £40m,
of which £23.9m was undrawn at the year end. In addition to
this central facility, there is a £12.5m 364-day working capital
facility and a number of other bilateral facilities between our
subsidiaries and local financial institutions around the world.
The Group’s management of financial risks is described in Directors
report.
Earnings and dividends
As a result of good performances from all of our subsidiaries which
have a minority shareholder, the total minority interest charge
increased by £0.4m in the year.The weighted average number
of ordinary shares increased by 111,000 over last year as result
of the exercise of share options and the effect of the placing in
December. The basic earnings per share of 23.6p was 36% ahead of
last year whilst the earnings per share before goodwill amortisation
of 25.8p, which the Group believes is a better indication of true
performance, was 44% ahead of last year. The total dividend for
the year of 9.2p is 2.6 times covered by basic earnings per share
and 2.8 times covered by adjusted earnings per share.
J R Atkinson Finance director
6 March 2002
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