Keller profits take a hit from restructuring costs, APAC difficulties

In the year to the end of December 2018, underlying pre-tax profit fell 18% to £80.5m while revenue rose 7% to £2.22bn. Revenue saw a 5% benefit from the acquisition of US geotechnical contractor Moretrench last year and a 6% benefit from organic growth.

Underlying operating profit declined by 11% to £96.m, underlying diluted earnings per share fell 22% to 79.1p and the total dividend per share was lifted by 5% to 35.9p.

The company said its Asia Pacific division was severely impacted by the previously announced challenges in its ASEAN and Waterway businesses.

Keller incurred an exceptional group restructuring charge of £61.4m, in line with its previous guidance, as it took actions to address underperforming units. As a result, the statutory loss for the period was £13.8m versus a profit of £87.5m in 2017.

Net debt was a bright spot in the results, coming at £286.2m and beating expectations by around £17m thanks to tighter working capital control and asset sales.

Chief executive officer Alain Michaelis said: "2018 results were deeply unsatisfactory with an 11% profit decline, as a result of which we have acted firmly in restructuring four of our business units. In addition we have continued to build the capability of the group, with the successful acquisition and integration of Moretrench in the US a notable highlight.

"The internal improvement measures, coupled with a stable market outlook, a healthy order book and Keller's leading position in the industry, give us confidence in the outlook for 2019."

At 0950 GMT, the shares were up 13.3% to 628.85p

Peel Hunt said: "While 2019 is inevitably set to be mixed in terms of end markets, our overall forecasts are unlikely to change. The group has continued to make progress on harmonising operations, sharing best practices as well as centralising some functions.

"2019 we should see an improvement in the US results (slightly better mix, less one-off cost impacts and more integration benefits from the Moretrench acquisition). EMEA, which had a decent 2018, will probably see a slight drop in profits as the big contracts fully drop out. APAC is expected to move back into the black in H2 as the operational changes take effect and loss-making contracts complete. The group has also pointed to a tighter focus on debt, which should see leverage drop into a 1-1.5x band for the end of 2019.

"The shares have risen 12% year-to-date after a 49% drop in 2018. On current forecasts they are trading on a price-to-earnings of circa 6x with an EV/EBITDA of 3.5x and a free cash flow yield of circa 15%. While concerns remain, we think these ratings are too low and see the shares bouncing a bit today on the back of these more reassuring figures."