Keller Group plc (“Keller” or “the Group”), the international ground engineering specialist, issues its Interim Management Statement covering the period 1 January to 12 May 2010.
The general economic indicators in most of our geographic regions are at last starting to turn more positive, although this has not yet been reflected in a meaningful upturn in many of our construction markets, which continue to suffer from the most severe downturn in decades. Whilst demand in Australia and most of our developing markets is strong, our mature European markets have remained sluggish and, overall, the US construction market, which accounts for about 40% of the Group’s revenue, continues to decline.
This continued deterioration in the US construction market has led to a further reduction in volumes in our US businesses. More importantly, the resulting more intense competitive environment has led to increased pressure on margins, which is likely to continue for the remainder of 2010. This, combined with the impact of the adverse weather conditions in the first quarter, means that the Board expects the result from the Group’s US businesses in the first half of 2010 to be around breakeven and the full year US result to be well below our expectations at the time of announcing the Group’s 2009 preliminary results. Consequently, the Board now believes that the Group’s results for the full year will be significantly below market expectations.
We are, however, beginning to see signs of the Group returning to revenue growth, although it will be some time before this is reflected in stronger operating margins. Like-for-like order intake up to the end of April 2010 was 9% ahead of the same period in 2009 and the order book has increased each month since December 2009. At the end of April, the order book was 7% below the level at this time last year, compared with 14% below at the end of January 2010.
In the US, expenditure in the office, commercial and leisure sector has continued to contract and other market sectors have not grown sufficiently to take up the slack. Whilst there has been some benefit from the federal stimulus package, public construction spend taken as a whole is not growing and private investment in power and manufacturing has levelled off. Residential construction is growing only marginally.
As a result of this further decline in the total US construction market, coupled with the impact of the adverse weather conditions in the first quarter, our US revenue was significantly down in the first four months of 2010 against the same period in 2009. We expect higher activity levels in the remainder of the year, although margins are not expected to improve until there is confidence in a sustained recovery in US construction.
Continental Europe, Middle East & Asia (CEMEA)
Across our diverse markets within the CEMEA division, performance has been mixed. In our developing markets, whilst the Group’s Middle Eastern businesses have been reasonably quiet, demand has remained strong in Poland. Our business in Asia has performed well, with the benefit of a good contribution from Resource Piling, our October 2009 acquisition based in Singapore. Elsewhere, market conditions are more challenging.
For the division as a whole, the results in the first half will be adversely impacted by the severe weather in Northern Europe in the first quarter. However, the second quarter’s result will be much improved which bodes well for a good second half.
Australia and UK
Our Australian business has continued to perform well in the year to date, in a market which remains very buoyant. There are a large number of significant opportunities in the pipeline in Australia and we are confident of winning our share.
Although it is operating in one of the most difficult trading environments, our UK business is profitable and continues to increase its exposure to major projects.
The Group’s financial position remains strong. Other than the normal seasonal increase in working capital and the payment of the second 2009 interim dividend in April, there has been no significant change to our financial position since the last year end. The Group’s £65m revolving credit facility which expires in July 2010 has been extended to March 2011 to allow a single refinancing of the Group’s two central banking facilities later this year.
Notice of Interim Results
Keller intends to announce its interim results on Monday, 2 August 2010.