# Keller Group operating profit to be materially ahead of previous expectations

- Link: https://www.directorstalkinterviews.com/keller-group-operating-profit-to-be-materially-ahead-of-previous-expectations/4121123283
- Published: 2023-07-05T07:21:23+01:00
- Author: Emily Johnson

**Keller Group plc** (LON:KLR), the world’s largest geotechnical specialist contractor,
has issued a trading update ahead of the announcement of its interim results for
the half year ended 30 June 2023 scheduled for 1 August 2023.

Trading in the first half has remained strong and we anticipate a record performance
in the period. Given our trading performance to date, together with our continuing
robust orderbook, we expect full year underlying operating profit to be materially
ahead of previous market expectations, with the increase in earnings moderated by
the impact of recent interest rate increases. Given the timing and phasing of certain
contracts, we now expect profit to be more evenly weighted between the first and
second half of 2023.

In North America, the operational improvements in the foundations business we outlined
in November 2022 have continued to be effective and have resulted in a strong recovery
in the operating margin in line with our plans. At Suncoast, whilst production volume
has decreased, we have actively managed margins to deliver an improved overall performance
year-on-year. This benefit is expected to moderate in the second half.  

In Europe, whilst cost inflation has stabilised and supply chain issues have eased,
the recessionary backdrop has presented some challenges, particularly in North East
Europe, leading to some margin erosion and some project delays. Several large projects
in the prior period, including HS2 in the UK, provide a challenging comparator for
H1 2023.

In Asia-Pacific, Middle East and Africa (AMEA), the new management team at Austral
have substantially addressed the remaining issues in the near-shore marine business.
At NEOM, we are in advanced discussions with the client in respect of the award 
of a second works order which is expected to be at least twice the size of the first
works order that was completed in February 2023 (c£40m). As previously indicated,
the precise phasing of this material project remains subject to variation and will
require measured investment in equipment and working capital as it accelerates.

**Cash and Financing**

The Group’s cash performance in the period is ahead of the prior year and better
than our expectations. Given the timing of payments relating to tax, dividends and
interest, we continue to expect the first half net debt/EBITDA leverage ratio to
be at the upper end of our 0.5x – 1.5x range and the year-end leverage ratio to 
be lower than at the prior year end.

On 21 June 2023, we signed a note purchase and guarantee agreement regarding the
proposed private placement of US$300m of loan notes. Subject to the fulfilment of
certain conditions precedent, proceeds will be used to refinance existing debt of
the Group and for general corporate purposes.

**Dividend increase**

Keller has an unbroken record of dividend payments, and has consistently and materially
grown its dividend in the 29 years since listing, clearly demonstrating the Group’s
ability to continue to prosper through economic downturns, including both the global
financial crisis and the pandemic. Given the increase in full year expectations,
and in keeping with the Group’s progressive dividend policy, the Board will be announcing
a 5% increase in the interim dividend to 13.9p (2022: 13.2p) as part of the Group’s
interim results.

> **Commenting, Michael Speakman, CEO of Keller Group plc, said:**
> _“The actions we have taken to improve operational execution have resulted in 
> an increased operating margin and a record performance in the first half of the
> year. This significant progress, together with the increased momentum and our 
> robust order book, gives us the confidence to increase our expectations for the
> year. The underlying strength of the Group’s performance provides confidence in
> our longer-term prospects and is reflected in the Board’s decision to increase
> the interim dividend by 5% for the first half”._

Keller Group is the world’s largest geotechnical specialist contractor providing
a wide portfolio of advanced foundation and ground improvement techniques used across
the entire construction sector. With around 10,000 staff and operations across five
continents, Keller tackles an unrivalled 6,000 projects every year, generating annual
revenue of c£3bn.

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