Keller Group plc (KLR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome. Some housekeeping points to begin with. First of all, there are no fire alarms program today in terms of test. So if something does go off, it is for real. I'd ask you to go down the stairs you would have come down -- up over here. And the muster point is in Telegraph Street by Costa. So it's just straight out down the door, left and left again. I'd also ask you to switch off your mobile phones. From my point of view, I'm very, very excited to be here in front of you today to present the results for Keller's year in 2019. And I'm also very pleased to be joined with -- by Mark Hooper, who will be presenting the financials. I've worked with Mark for many years, a very, very solid character, and it's good to have him alongside me, assisting me today. We have other members of the Keller team with us. And I'm sure a lot of you already know them, but I'd encourage you after we've done the presentation to mix some more, afterwards we'll join at coffee and have any further questions. We will be following the normal format this morning. I'll start with a brief summary of the results. Mark will then go through the details of the financials. And then it will be back to me for some updates in terms of business, strategy and outlook. And then finally, we'll finish with some Q&As towards the end. I would start by saying, in common with a lot of companies this year, we are in the process of transitioning from IAS 17 to IFRS 16. And as a starting point, I would say that all of the comparatives, the year-on-year comparatives today will be presented IAS 17 to IAS 17 year-on-year. So in terms of summary, first thing to note is the banner line. The results were in line with expectations. This is going to be one of our primary objectives whenever we're up at a podium like this is to make sure that we are hitting our numbers. And that is something which you can say is something the whole corporation is focused upon for each and every one of our announcements. As expected, the second half was very strong, and it's that which enabled us to really fulfill the full year expectations. Revenue at GBP 2.3 billion was slightly higher than 2018. North America, EMEA and some foreign exchange benefits all adding to it and offsetting the reduction from the planned restructuring in ASEAN and Waterway. In terms of underlying profit, that was also up, driven primarily by the return to profit of APAC, which has come along nicely and it made a profit for the whole of the year. Strong cash performance, particularly pleasing, and indeed, it outperformed even our own expectations, and Mark will give you a little bit more color on that a little bit later on. And another very, very important improvement came in terms of our safety performance, with improvements on pretty much every measure that we use. The revision of our strategy will provide a platform as we go forward for a more focused, a higher quality business and the full year dividend, including the supplementary dividend, an increase of 11% year-on-year. And then finally, the outlook. I think it's fair to say there's a lot of choppy waters out there at the moment. From our point of view, and I will cover our views, if you will, our considerations with respect to COVID-19 a little bit later on. But when standing in front of you right now, we're quietly optimistic for the year aside from that. There's certainly some changes in terms of macroeconomic uncertainties in the second half, but we've started the year well, and we've got a very strong order book. And so far, so good. With that, I'll hand you over to Mark for the details of the financials.

Thank you, Mike. Good morning, everybody. I am delighted to have the opportunity to present the 2019 financial highlights to you this morning. I have used the same format of slides that you'll have seen previously, so whilst my face may not be familiar, I'm hoping that the presentation deck will be. I'll provide initially some comment on the income statement running through underlying results, the impact of IFRS 16, which Mike touched on, and then talk about non-underlying items. I have the usual causal that identifies key building blocks in the generation of profit year-on-year. I'll talk about cash flow, net debt, highlights on the balance sheet and then some modeling lookaheads based on what's happened for 2019. Let me start with the income statement. This is a direct lift from the announcement that we published this morning. The -- we have a normal 3 column format for the income statement, which shows underlying, non-underlying and then the statutory being the sum of the 2. As Mike mentioned, IFRS 16 transitioned in through 2019. So for this year, we have 5 columns, which are the shaded columns to the left of the chart, breaking out our underlying performance between IAS 17, which was the previous standard and IFRS 16. I will walk through the income statement rather than providing comment here on each of those key summaries. This first chart -- again, it's the same chart, but we're calling out the IAS 17 performance. This is the comparison back to 2018 on a like-for-like basis. Year-on-year, revenue has grown by GBP 76 million or 3%. Half of this, approximately GBP 37 million is attributable to foreign exchange movements, favorable movements in the U.S. dollar, primarily. The annualization effect of the Moretrench acquisition, which we acquired in the first quarter of 2018 adds GBP 32 million. Organic growth was GBP 7 million, where we saw growth through North America and EMEA, offset by our controlled reduction through the restructuring of the ASEAN heavy foundations business and Waterway through 2019. Underlying operating profit is GBP 101.8 million, an increase of 5% year-on-year. And as at the revenue line, the growth is split half foreign exchange and half through the Moretrench acquisition. There is a small deterioration in organic operating profit on a constant currency basis, and I'll cover the key building blocks in the next slide. Net finance costs have increased from GBP 16.1 million to just over GBP 18 million. Part of this is attributable to an increase in the underlying borrowing rate, part of this is a result of foreign exchange and part of this is an increase in the gross debt. Whilst we'll see later on, the net debt is down, gross debt was not as efficiently managed as I would have liked through the year. Taxation, GBP 23 million, is at 28%. That's the same rate we experienced through 2018. And we see a full year proposed dividend of 40p per share, growth of 11% year-on-year. Part of that is our normal 5% growth rate. We also are proposing a 2.3p supplementary nonrecurring dividend. With EPS at 83.5p, this gives us dividend cover of 2.1x. Let me move on to the next slide, which is our causal or our operating profit bridge. This chart bridges from the 2018 underlying operating of GBP 96.6 million, which is in the yellow graph -- the yellow bar on the left-hand side of the chart, through to the equivalent IAS 17 2019 profit with the yellow EUR 101.8 million, which is third from the right through to the underlying IFRS 16 profit of GBP 103.8 million. As noted previously, we saw some favorability through foreign exchange to that first chart -- the first bar, the GBP 3.3 million is the impact of foreign exchange on the underlying operating profit. The next 3 blocks show the generation or the key drivers of operating profit in North America, EMEA and in APAC. North America operating profit was down GBP 4.5 million year-on-year on a constant currency basis. We see some upside through Moretrench, again, the annualization through that Q1 2018 acquisition of GBP 3 million. Suncoast, people that will remember the presentation last year, saw a deterioration in margin, driven by steel price tariffs that were not passed on to clients, they have mostly been recovered through 2019. The data center adverse GBP 13 million. We -- through 2018, we had some very high-margin data center work, which has not been repeated through the current year. And then we see a net GBP 0.6 million negative of emergency work, again, high-margin work, which is not repeated and all other items. EMEA, profit is down GBP 12 million. The largest driver there is the fall-off of 2 large contracts through Caspian and the Middle East that were not repeated through 2019. Franki Africa has been troubled, has been challenged during the year with difficult market conditions, and that is down GBP 4.4 million year-on-year. Outside of those 2 items, EMEA operating profit is up by GBP 1.1 million, mixed performance. We've seen strength through Central Europe and Southeast Europe. But some of the other units have gone backwards during the year. Moving on to APAC. APAC, as Mike touched on, is the key driver in terms of the increase in group profits, up GBP 21 million year-on-year. The largest chart on -- largest bar on this chart is the GBP 24 million increase in profits through the ASEAN. Offset that is a small adverse, which is partly the Waterway losses, which we reported through the half year, offset by the other 2 Australian businesses and India. The ASEAN, it's probably worth making some -- taking just a second to talk about that. We had a very difficult year through 2018. The management team put together an action plan. There were some large restructuring costs recorded through 2018. The action plan was established, has been executed through 2019, and that return to profit for ASEAN and for the APAC region is very, very well received and very well-deserved by the team in APAC. Moving across, central costs, increase of GBP 2.6 million. Some central revenue investments there to bring us to the GBP 101.8 million. We see the benefit of IFRS 16, which I'll comment to in a second, give us the GBP 103.8 million for the full underlying operating profit. Briefly, IFRS 16 impact, for those people that will remember the chart from the half year, the numbers are roughly, roughly double what we saw through the half year. Operating profit increased by GBP 2 million. That is a result of the depreciation on the right-of-use assets that were brought on to the balance sheet, GBP 26 million being GBP 2 million less than the operating lease charge that would have been recorded under IAS 17. We see a net finance liability, a finance charge at GBP 4.3 million. This is effectively the imputed interest charge on the lease liability that were bought on to the balance sheet. The net of those 2 gives us a reduction in profit before tax of GBP 2.3 million. GBP 0.7 million is the taxation charge at the 28% effective tax rate, giving a profit or loss for the period impact of GBP 1.6 million, approximately 2.2p per share. The box at the bottom right-hand side of the chart just calls out the balance sheet items. At year-end, in the balance sheet, we had GBP 74 million worth of right-of-use assets and GBP 77 million worth of IFRS 16 lease liabilities. Moving on. Again, this is the fourth column of the income statement, focusing on non-underlying items. The largest item through that is the non-underlying operating costs, broken out in that top right-hand box. Two items of note there, GBP 7.2 million is in respect of restructuring charges for Waterway, ASEAN and Franki Africa. And we also see GBP 20 million impairment charge, which I'll come to in a second. The restructuring charges comprise GBP 9.2 million for Waterway, which was a second phase of restructuring which we launched at the half year. That has been largely executed. And in fact, the charge that we see through the year-end is slightly less than that which we recorded at the half year. GBP 2.3 million for Franki Africa is in respect to the second phase of Franki Africa restructuring launched during the second half of the year, which is well underway. The people will probably have picked up from the announcement that we have launched a strategic review of the Franki Africa business, which is ongoing and will be completed by the half year. ASEAN, we see a credit of GBP 4.3 million. This is a reflection of the efficiency in which the guys in ASEAN work through their restructuring. The costs -- the ultimate cost being less than those that were provided through the end of 2018. The -- moving on to the amortization, the goodwill impairment charge, I should say, GBP 20 million. This is in respect of Canada, which has underperformed during 2019, which triggered a more in-depth review of the ongoing business. There has been a change in the local management. And whilst we do believe that there's a profitable and sustainable business in Canada, the returns were not sufficient to cover the carrying value of the assets, giving rise to that impairment of GBP 20 million. The residual Canadian goodwill is GBP 13 million on the balance sheet. For all other areas of goodwill, we are comfortable we have sufficient headroom. The next box calls out the GBP 4.3 million worth of impairment -- sorry, amortization of intangibles. This is our routine ongoing write-off of intangibles on a recurring basis. Other operating income is GBP 3.3 million. This is in respect of a contract dispute settlement going back to 2014, where we received the money during the early part of the year. I'll touch on the tax charge, the non-underlying tax charge of GBP 7.5 million. Two large items in there. One is the write-off of deferred tax assets in Australia as a result of the Waterway restructuring and the second is the net impact of everything else on the above items. The net non-underlying profit is -- loss is GBP 37.2 million. Final call out is just that GBP 21.7 million profit or loss for the period, after all columns and all rows, a significant increase on the GBP 13.8 million loss that we posted last year. Next chart just covers off the cash flow. This is the CFO cash flow, which I find more interesting than statutory cash flow. The key takeout, I think, is the -- I'll work my way from the bottom up. Net debt at the end of the year was GBP 213 million, a net improvement of GBP 73 million year-on-year. The leverage at the end of the year is 1.2x. People will remember, we targeted a 1 to 1.5x range, and we are well within that range at the end of the year, I'm pleased to say. If you move up the chart, we see the free cash flow of GBP 94 million, significantly above the GBP 58 million that we recorded last year. And with dividends paid to shareholders of GBP 26.3 million that gives us a 3.6x dividend cover. Just jumping back up to the underlying EBITDA, we see GBP 170 million, made up of GBP 100 million plus GBP 70 million of depreciation, not that inconsistent with what we recorded through 2018. The improvement in free cash flow is, therefore, driven by tighter balance sheet management. So 3 items just to pull out there. The net CapEx that we see is GBP 52 million. This is a gross CapEx of about GBP 63 million less proceeds of GBP 11 million, significantly less than the GBP 77 million we recorded through last year. Working capital, we show a net outflow of GBP 2 million. Two items at play there. One is the volume improvement -- sorry, the volume increase through Q4, which would effectively led to a GBP 39 million outflow. Against that, we have worked very hard on our working capital performance and driven a GBP 53 million roughly cash inflow. I would just mention on that cash performance, we had a couple of -- we had a number of one-off timing benefits that we're expecting to get through 2020 that came in 2019. We've estimated the impact of those at GBP 40 million, roughly 50-50 between receivables and payables, and our expectation is half of that will unwind through 2020. The other item just to call out is the cash tax paid GBP 12.3 million, significantly less than prior year and significantly less than what we expect going forward. During 2019, we benefited from a large inflow from recovery of U.S. prepaid taxes from prior years. That's the cash flow. Moving quickly on to the balance sheet. It is reasonably unspectacular. We'd call out 1, 2, 3 items there. The first is the movement on the intangibles, down from GBP 153 million down to GBP 124 million, a decrease of GBP 29 million. The bulk of that is the goodwill impairment charge that I touched on for Canada. Tangible fixed assets, whilst they have increased by GBP 38 million, I'll just reference, this is an IFRS 16 balance sheet. So GBP 74 million of that increase is in respect of the take on of the IFRS 16 right-of-use assets. Offset of that, we saw a very low CapEx, less than depreciation, and we've also had some adverse foreign exchange. So net-net, GBP 38 million, GBP 74 million for the leases less those other reductions. The final call-out box is the net debt, which we'll have seen on the previous slide, was GBP 213 million on an IAS 17 basis, GBP 286 million (sic) [ GBP 289.8 million ] here, including the IFRS 16 leases of GBP 77 million. On the subject of net debt, this is a chart I know has been appreciated when it's been presented before. This is the monthly profile of net debt. What are the call-outs here, roughly or broadly that the trend has been similar, reflecting the cyclical nature of the business, net debt increasing throughout the year and then declining through to the year-end. I'll just mention that -- sorry, the yellow bars are 2018, the blue bars are 2019. The -- typically, we have run at a lower net debt number in '19 compared to '18. The 2 exceptions are January and February. And if will people remember back to 2018, it was in March that we drew about GBP 70 million for the Moretrench acquisition. We have committed facilities of $125 million worth of U.S. private placements. We also have our GBP 375 million revolving credit facility, which was extended by 1 year from 2023 through to 2024 during 2019. We have operated throughout the year with significant headroom on the facilities and well within the covenants. I would say, we do have a very supportive banking group behind the RCF, and I would like to take this opportunity to thank them for their support during the year, not least the ease and efficiency in which we worked through that 1 year extension. Final, just a repeat of the accelerated cash flow. So the GBP 213 million is benefits from favorability of advance timing, part of which is expected to reverse through 2020. The next slide is my last, but one, again, I know this is well received by some of the team in the room is the modeling considerations where I've just tried to reference, look ahead based on what we saw through 2019. The Suncoast margin, we've seen a recovery of 2018 tariffs through the year. We expect margins to be normalized going forward, pending any tariff action, and who knows what Mr. Trump will do in the current year. Large projects, we've seen the falloff of the 2 larger projects through EMEA, one large call out is the Cape Lambert project in Austral, work in Rio Tinto that will be a 12-month project delivered through 2020, which will significantly impact their results through the year. APAC recovery, we've seen strong performance through APAC. They delivered a strong profit through H2, which triggered that full year profit. Looking ahead, we expect profits during H1 and H2. Operating profit, we've seen progress, and we expect to see continued progress. The growth -- the small growth in the margin, we expect to see continued improvement through 2020. Operating profit phasing. I've got a slide on that, my final slide, which I'll come to. But during 2019, we saw a return to our normal H2 bias, and we expect the same through 2020, pending any macroeconomic impact through the year. Interest, GBP 23 million charged on an IFRS 16 basis. I expect that to reduce with a lower rate on the lower debt balances that we carry through 2020. Tax was 28%, we expect it to be plus or minus at 28%. I just listed in here the foreign exchange rates, the average rates that we've used and the budget rates that we've used through our 2020 modeling. For the cash and the net debt, I think a lookahead is that we will not ought to have such a positive year through 2020 because of the unwind of the working capital because of an increase in CapEx and an increase in the cash tax paid. So don't expect that significant cash inflow through 2020 that we saw through 2019. On a leverage basis, on the leverage targets, we remain targeting in the 1 to 1.5x, albeit at the lower end of that range. One final slide for me before I hand back to Mike. It's just people may or may not remember this slide from the half year, from the interim, where we talked about the phasing of profits. So the 2 charts, the chart on the left shows revenue and the chart on the right shows operating profit. It shows 10-year performance going back to 2009, the yellow shows H2 performance and the blue graph -- chart -- blue bar shows 2000 -- sorry, H1 performance. What we see there is an update to the chart from the half year with 63% of the profit for the year delivered through the second half of the year. This is consistent with the 10-year average, and this is what we expect to see going forward. With that rattle through, that's me done. So I'll hand back to Mike, who will talk about the business update. Thank you.

Thank you, Mark. Thank you. I'm going to start or restart with safety. And this is something which I invest a lot of time in and I'm tremendously passionate about. We've made some good progress in 2019. There's been no fatalities. There's been a reduction in the accident frequency rate for the seventh year in a row. And interestingly enough, there's been a good, significant reduction in terms of the number of rig overturns. That number has reduced from 8 down to 3. And indeed, of the 3, there was only 1 of them that was actually due to a rig platform issue. The other 2 were hydraulic failures. The reason why that's important is because we did put a particular focus on rig overturns this year, led by Venu, who is our Engineering Director, and he put a lot of time and effort into establishing a thing called a platform standard. And that establishes the ground in which you're prepared to work on and what it's going to look like and the condition it's got to be in. And it just goes to show that if you're actually focused on something, we can actually move the dial. And that in terms of safety, in particular, I think is a particularly important thing. Our focus for 2020 is going to be our major injuries, which, unfortunately, ticked up from about 15, 2018, to 17 last year. So that's an area where when we go into this year, which is going to attract the whole management team attention. Safety is something, which we'll constantly trying to improve. There's no way we could ever be complacent about it. And I'm pleased to say that John Raine, who is our Head of Health and Safety, has got a number of really good initiatives this year, which he's getting the whole management team behind. We've got a new safety incident system, which has just been launched, and that will give us far more accurate data. And it will actually point us in the right direction, the areas which we've got to focus on, and it's got both leading and lagging indicators, which for us is a great step forward. It also reinforces our focus on our top 6 groups of risk, which is what we call our Work Safe 6, which again, thematically helps people focus in a common way across the whole organization. And one of the examples of this, I'm just going to go to it in a moment, which is Insite. This is an absolutely great thing. This is actually sponsored at an executive level by Eric Drooff, who is our Chief Operating Officer in North America. And as soon as he saw the potential for this, he was very, very supportive and pushed it through the organization very quickly indeed, which is great to see. This essentially -- what looks after what's called the job hazard analysis. And it's basically something, which everybody does on-site every single day. And if you're not careful, it can turn into a very monotonous, very tick box exercise and it loses its meaning and it loses its edge. What this particular app does is that by selecting who's on-site and what task you're facing and what conditions you are, it tailors the subsequent screens to fit that solution. And it forces you to be interactive with it and therefore, keeps it fresh. And it also brings to you the examples of best practice, which we've recently encountered. So it's a really big step forward in terms of making sure everybody is on point on what is tremendously important for us in terms of our safety. The team behind this working through it in terms of Stefan Colhoun, with the support of [indiscernible] from IT. The whole project has actually been an exemplar of how we need to be both relevant to the end users, pick up best practice and get the thing out there really, really quickly, which for an organization of our size, sometimes is a little bit difficult on the IT front. So this, I think, has worked really, really well. It is going to roll out in North America first. But it will be -- the plan is, and this is part of the strategy you'll see later on, we're going to leverage our scale and basically introduce this to the whole organization over the course of the rest of this year and the beginning of next. Moving on to a broader part of -- broadening out into the whole of the ESG agenda. I think like many companies, we've got to put a bit more energy and effort and focus into this overall. There are lots and lots of things going on within the company across the ESG arena. And they're all genuine projects, but they tend to be in isolation. What we need to do is actually make some more coherency about it. And I'm not going to go through all of these points because they are detailed very well in the annual report and accounts, but one area I will talk about is that of workforce engagement. Keller's distinct culture is one of the things which actually separates us and gives us a cutting-edge in terms of our competition. And it's an area of -- something, which we need to nurture and nourish. And the Board appointed Baroness Kate Rock to lead the Workforce Engagement Committee. And it's really, really interesting because it's been a natural accelerator to a lot of things, which we're trying to do on the whole workforce front and actually make sure that there are more connections and more feedthroughs up and down and sideways throughout the whole organization, and that we actually get proper response from the people who work for us. From my point of view, certainly, it's one of those examples where an agenda like ESG is actually a benefit rather than a burden. Oftentimes, when you see these sorts of things, especially when you're doing it in the air, right, it just becomes a jewel. It's not, if we do it in the right way, this is actually really good. Talking about good things. Our order book, I'm not going to dwell too long on this slide because we'll go through the divisional splits in a moment. But what I wanted to get across here is the fact that as we leave this year and move into next year, we are maintaining an order book of more or less around GBP 1 billion, which is -- sets us up well as we enter the new year. Moving on to North America. You'll see here that there has been some progress in the year in terms of revenue. And in terms of order book, we've got more or less 6 months' worth of coverage. The -- there's been a slight decrease in the margin, which has been slightly disappointing. Much of that has been explained by Mark earlier on in terms of the causal analysis, the nonrepeated data center work and the scarcity of some of the emergency work, and similarly, some challenging projects and weather earlier in the year. On the positive side, Suncoast has returned to normal margins. And Moretrench Industrial has moved forward very well indeed. We've also settled the long-standing Bencor long-term contract scope adjustment, and that's finally been settled with our federal clients. And the reorganization into one Keller, which I'll comment to in a moment, has gone very well indeed. And in terms of change management process, that's gone much better than I think any of us actually anticipated. In terms of outlook, we're somewhat cautious, but I think we see -- we expect to see a small increment forward in terms of both revenue and margin as we go into 2020. In terms of the reorganization, and this is something, which you all would have seen before. I'd start by reminding you, this is very much a revenue-based project, it's something, which is there to grow the company in the future rather than a cost-based one. We have reorganized the old product-focused entities into geographic regions that will eventually deliver all of the services, which we offer into each of those regions. The concept essentially is to fill the white spaces, to make sure that we get the maximum in terms of both product and geographic coverage. Short term, there's been costs, which we incurred in terms of the change process. We incurred costs in '19 and there will be some more in '20, and that will just be absorbed into the ordinary running cost of the business. In '21, I think we'll start to see some of the cost and efficiencies coming through. And in 2022, that's when we'll start to see, I think, more material amount of the revenue synergies coming through. So it will be a slow build. And that I think is important because as you introduce some of our products into newer areas, it's very important people get the right training, we get the -- identify the right opportunities, they're properly resourced, we get the right equipments, and therefore, we actually execute them well. What you don't want to be doing is to be giving yourself up to fail in terms of executing things too quickly and not being prepared to do it appropriately. This is, for me, is a big deal, albeit that's a long-term burn. Moving on to EMEA. The biggest effect here year-on-year has been the non-repeat of the large profitable contracts in 2018, as Mark mentioned earlier on. There have been some excellent performances in EMEA this year, specifically Central Europe and Southeastern Europe, have been particularly strong and particularly successful. And they've been across the board. It hasn't been isolated to 1 or 2 particular events, they've actually driven the businesses hard and well. There's also been some disappointments. Franki Africa hasn't been as strong as we would like. And indeed, the U.K. for market reasons, I think, has actually been a difficult market to make headway in. As we move forward, I expect 2020 to be a year of refocusing in Europe, EMEA and consolidation. And we've already talked about meetings with South America. And similarly, the strategic review in Franki Africa. There is some thinking to be done about this region and how we get to make the most of it. Once these are complete, I think we will move on to a more focused and more -- a business with higher quality and returns. Talking to one of the stars, if you like, in terms of contracts and specifically with HS2. Our activities here are led by a chap called Jim De Waele who is very commercially orientated and actually gets in amongst the complexities of all the different parties involved with HS2 very effectively indeed. We're at the moment actually really active in 3 major sections. S1 and S2, we've already secured some work on, and that's indeed started just before Christmas and guys were working over the Christmas period simply because the lines were available and free of trains, they could work on them, but that involves an instrumentation and monitoring package, which will go on for at least 5 years, and there may be small increments to that over time. C1, we've already started doing some early works, in terms of enabling works, and that's around GBP 10 million. And similarly, there's some early works with respect to C2 and C3. And on both of those contracts, in the case of C1, we're negotiating a contract, which I expect to come to fruition sometime around April, May time. And similarly C2, C3, that will probably be the middle of the year, maybe quarter 3. And collectively, there's some work to be had here. But in terms of the 2020 impact, given all of the other things, which are going on in this particular contract from a political point of view, I'm not betting on too much this year. It's one of those things, which is out with our control. We just need to manage our cost base and make sure we're resourced when we need to be, but not before. Moving on to APAC. The first thing I'd say about this division, it's the one I worry about the least. The guys have actually got on top of this particular problem. The restructuring have taken place in ASEAN and Waterway, they've done some pretty difficult tasks. They haven't fledged from them. They've done them very professionally. And in many cases, some of the people who've done them have actually worked their way out of a job, but they've been tremendously professional in the way they've done it. And in doing so, we've consciously reduced our revenue year-on-year. Something, which we haven't talked about is the divisional overheads reduction. Without being prompted, the divisional guys realized they had a simpler business. It was more manageable. They didn't need all of the overhead they previously had and they just set about managing and reducing that. And that just reflects the professionalism with which they're now conducting themselves. It's a very simpler business. It's well resourced and well managed. Trading, going forward, ASEAN has returned to a solid profit, and together with India, they've got a good stream of business coming through. It's steady, it's quality and it's within the realms of what they know how to do and they're managing it well. Waterway is now all but ceased operations. Keller Australia, difficult markets in Australia from time to time, but they're making headway. And it's pleasing that they've gone through 2 years' worth of restructuring themselves quietly, but they're now turning a very good profit. And then you've got Austral, Austral has had a very slow start to 2019, strong finish and has carried some of that momentum into the current year. And they've been very successful in projects that I'm just about to talk about, which is Cape Lambert. This is a really good example as of things which we should be flagging to you. It is a lumpy project. So alert number one. This is going to be delivered in 2020 substantially. So we need a long call for the next year. And it is something which we need to make sure we clearly get these sorts of characteristics over to you. But from my perspective, I had the privilege of sitting in and chairing the big tender review of this project in its final stages. And it's a really good example of one of the best ones of those processes I've been with since I've been in Keller. When we talked about it -- and the call lasted about an hour. We spent virtually no time talking about the technical solution. The guys had already figured that out. They'd gone through it all and figured out what the best solution for the client was and they'd gone through that with the client. Most of the discussion was focused on the client themselves, our competition, and what we have to do to position ourselves to win at a price where we get the returns we wanted. And that's what these tender review board should really be about. How do we get the best returns? And how do we position ourselves to win? It was a really, really good call. And the local team, Aaron, Grem, Patrick, it was really interesting because I had one view when going to start call, and they had another, and they just argued very authoritatively, very detailed, very informed and you suddenly realized -- very quickly realized actually, they knew what they were doing, they were all over it, and they were right, and I was wrong. And they've got it absolutely spot on, and it's a good win, it's a very good win. We should have more of those. Moving on to strategic developments. This for me is very exciting. We've got roughly 10,000 people across 3 divisions, 23 business units, 200-plus locations. Our responsibility, the executive's responsibility is to get all of those people working to the same agenda. And that's what this is really all about. We start with our vision to be the leader of specialist geotechnical solutions. And then we work that into a broader description, what we call our strategy. And there's some really important things here because the technical piece is being a geotechnical provider. The next thing up is to be a specialist contractor. That's how we get our commercial leverage. We're not a general contractor and taking on some of the characteristics of that sort of relationship. We are a specialist. But it is a contracting regime. We look for sustainable markets. I think some of the places we've been in historically, they've been interesting, they haven't been sustainable. And from that point of view, we need to be more selective about where we stay to make sure that the market has the characteristics, which will pay us returns over time. Large geographies like APAC and parts of Europe, Africa, in particular, are very challenging if you spread yourself too thinly. We just have to be more conscious of that. That doesn't mean to say that we won't go after attractive projects on a discrete basis. If we can go into a territory, complete a project and come out again, leaving no fixed cost behind, those are also sorts of things, which we should pursue. In terms of leverage, the group -- one of its unique features is our scale and capability globally, and we need to maximize that. And Insite, frankly, is a good case in point. There are lots of other Insite projects around the place. We just need to get quicker and slicker at completing them. In terms of engineering solutions, we've got some pretty clever guys who can actually design cost out of clients' designs and in doing so, save them cost and create us value. We need more of that. But where we haven't got the opportunity to do that, we need through operational excellence, just to be more effective on the ground in terms of completing whatever task we undertake. And that is a mindset thing. This -- you've got to get more of the automotive pedigree into the company in some respects in that particular characteristic. And then finally, market share. This is something which is quite interesting. As you go around the business, where we have higher market share in a local market, good things happen. We have high utility of people. We have high utility of assets. We have a bigger sweating of our fixed cost base. We typically have bigger margins. And typically, the local people understand their market a lot more and are lot more responsive to it. So consciously, one of the things which we must strive for is an awareness of what our market share is in a specific locality, and to actually focus on -- rather than being spread everywhere, concentrate in a few places, but occupy that space fully. In terms of carrying this down to objectives, we have 4 major objectives, and I won't go through all of these. I'll just talk to the headlines, but we have to balance the portfolio to make sure that we've got the benefit of diversity, but at the same time, the benefit of being concentrated. We do need to strengthen our engineering solutions. We do need to actually increase our capability there. And similarly, operational excellence, we are good, we are better than a lot of the opposition in certain product ranges, but we need to be better at all of them. And finally, expertise and scale. We do need to actually consciously upskill certain parts of our workforce in terms of our leadership training, in terms of our project management and constantly keep improving. And we do need to consciously leverage our capabilities. In terms of actions, this slide has got a mixture of some specific actions, disposing of Brazil and exiting Chile, Peru, and indeed, completing the Franki Africa review, they're all pretty well known. And then there's a whole raft of -- at the moment, pretty generic ones, which, over the next month or so, we will be beginning to distill into a whole raft of specific actions, which we will work on. I'm very pleased that in the short time we've set about this project, which is kind of since late November, December, there's been a lot of progress very, very quickly in terms of the way the team collectively has coalesced and pushed behind it. And I think it gives us a very good framework for all working to the same agenda and the same focus. In terms of -- moving on to the summary and outlook, it would be -- it wouldn't be appropriate if we went on the outlook without talking about the virus, first of all, and the potential considerations, which certainly we've been thinking about, and I think it's only fair you get some insight into as well. And I think overall, I would say that compared to a lot of companies, Keller is actually structurally reasonably well positioned. We have a very diverse revenue stream in terms of geography, in terms of customers and products. And therefore, our sources of income are actually, I'd say, pretty resilient in that respect. Our raw materials, we haven't got a very long supply chain. It's not very narrow, very focused and very specific. They're generally local, a lot of them are commodity, and we have multiple sources. So we're not committed in that way either. Our workforce, they're very diverse, dispersed, they're fit and they're pretty flexible in terms of the skills they can turn their hands to. So we can move them around pretty well. And it's similarly with equipment, it's eminently replaceable in most instances. And we do carry a reasonable amount of spares. We do, fortunately, operate in economies and countries which are probably going to be more resilient to this. And from the management point of view, we've been working this for a good couple of months now. Singapore, in particular, has been ahead of the curve, simply because of the proximity to China. And that's kind of informed the development of what we've gone over time. And indeed, Graeme who is sitting at the back there, actually coordinates our efforts on this front between himself and the 3 divisional presidents to actually make sure that we are alert to it as we move forward and everything that crops up, they quickly share amongst themselves, so they can actually just be proportionate in our response overall. And then finally, financially, I mean, the fact we've got strong balance sheet, we've got positive working capital characteristics and strong cash flow as just demonstrated by this year, it can make a bit of a ding, we will be all right. The thing we can't predict is the last 2. In terms of macroeconomic effect, who knows? Bizarrely, that could be positive and negative. If governments start putting in financial measures to kickstart economies and start spending on infrastructure, that might be a benefit. It's somewhat pyrrhic one though and it's there to be had. So it's not all necessarily negative. Against that backdrop, we've had a good start to the year. The market fundamentals overall, I think, remain healthy. We've got a good order book to go out, and clearly, there are the indirect effects of COVID-19. I would say that, to this point this year, we have seen no impact at all anywhere. And we've just done, as of last night, a call around all the operations to complete a post balance sheet event call, as you do as part of the year-end process. And we specifically asked them, have you seen anything with respect to this? And all of them said, nothing, nothing in terms of activity, nothing in terms of bidding or revenue out the door. That doesn't mean to say it won't change next month. It's just so far, so good. Key drivers, I think this is quite useful, from our point of view, at least, to actually give us some focus for the year. Margin improvement in North America is going to be an area which we will work on. EMEA needs to land a few contracts, some specific contracts which they need to do just to fill up their backlog. And in the case of APAC, they've got it in their hand, they just need to execute it. And I think that's important for them because another good year for them will actually give them the confidence to really move forward. In terms of overall expectations, revenue we expect to be broadly flat. We will see a gradual improvement in terms of the profit, as Mark said, it will have this normal feature of being H2 loaded. And we will have another strong year of cash generation, albeit it is tempted by the start point adjustment for this year. In summary, 2019 I think has actually been quite a significant year for us for a variety of different reasons. Importantly, we have delivered on our expectations, and we have revised our strategy. As we move into 2020 year, there's a cautious optimism around the group. We are progressively going to implement this strategy. It's not going to be a big bang. It is something which we're just going to consciously, methodically and at a fairly low risk way, work our way through. And we do expect this year to be another year of continued progress. And as we go through next year and beyond, we do seek to actually improve the quality of the business and make sure we get returns for what we're doing. So with that, I will hand over to questions and answers. Between Mark and I, we will set about answering as many of them as we possibly can.

James Allen from Liberum. Just a couple, if I may. What should we be forecasting in terms of P&L exceptionals in FY '20? And how much of those should we expect to be cash? And the second one, are you expecting more large lumpy projects such as Cape Lambert going forward? And do you expect average contract size to increase?

I'll deal with the second one, and then I'll leave the first one to Mark. In terms of overall large contracts, our average contract size this year was around 300, 325 per contract. And I think, overall, for the whole group, we probably won't see too much of a movement in that, given there's a huge swathe of that bulk is in North America, and it tends to be Asia Pacific, which has the bigger contract sizes, in fact. And that's not surprising when you consider -- typically in Asia-Pacific, we deal with international clients or more established entities in industrial sites. And therefore, they tend to be bigger, long-term projects. I think we will see more of the likes of Cape Lambert in Asia Pacific. We may see 1 or 2 significant projects in Europe of that sort of size or smaller in the sort of the SMS2 type of size, but probably not in North America.

Exceptionals, the ongoing amortization of intangibles will carry through. So we will see a repeat of that through 2020, noncash, obviously. The other large exceptionals that we saw through current year were the restructuring charge. The Waterway and ASEAN restructuring is substantially complete now. The 2 portfolio actions that we touched on were the South America, a phased withdrawal where there are a number of discussions ongoing in the 3 primary markets, Brazil, Chile and Peru. We are not at the point where we can conclude that because there are number of moving parts on that. The second part, which is in even more early-stage, is the Franki Africa strategic review, which we have completed the first phase, and that's very much a deep dive into the business to understand the good, the bad and the ugly. In terms of the plan coming out of that, that's a -- is work in progress and will be put together probably by the half year. So difficult to put a number against those 2 items. The goodwill impairment. As I said, we had a deep dive on goodwill impairment, significant headroom on all items now having taken that GBP 20 million charge through the current year for Canada.

Canada is an interesting case in point because I -- I mean, I've recently visited there, and it's -- I did not appreciate it that Canada is, in fact, for us, essentially 4 different markets. And the original acquisition really related to the Prairie area in a deal sense and it's that where the goodwill has been impaired. And it's that, which at the moment, the market is very -- is flat. Whereas if you go to Vancouver, which we've got a start-up there or our traditional base in Toronto, both of those are doing reasonably well. And we haven't got anything in Quebec at the moment, and that's -- Quebec and Montreal, and frankly, the economy there is even stronger. So in terms of the impairment, it's a very discrete area of kind of parts are going to do very well.

Saravana from Jefferies. So a few questions for me, please. What are your expectations for the contribution from U.S. data centers this year? My next one is on the GBP 3 million implementation costs through 2019 and 2020 in North America, how much have we incurred in 2019? And then finally, on leverage, at what point would you feel comfortable to start making small acquisitions again?

I'll deal with the last point, first of all, I'll let Mark talk about the GBP 3 million. And the -- in terms of acquisitions, from my point of view, acquisitions are something which should be used to accelerate an existing strategy or derisk it. It shouldn't be a strategy in and of itself. We need to define what our corporate strategy is. And ordinarily, you'd go up through an organic route because it's normally the least risky. But if you find something which culturally fits that makes sense that you can accelerate and derisk that particular activity, then sure, we will look at. But I'd rather do that and have a list of acquisitions which are purely driven out of financial accumulation because, over time, they tend to dissipate value. Right now, frankly, we feel -- I would feel comfortable beginning to think about doing acquisitions. But I do want to make sure that we're pointed and everybody's pointed in the right direction first. But I don't feel inhibited about doing that, but those are the uses of capital, frankly. And let's talk about the...

The data centers, as you picked up, highly profitable through 2018. They're part of the bridge item between '18 and '19. There are known projects out there, but nothing baked into our 2020 numbers with respect to the data centers. With respect to the implementation cost of GBP 3 million, slightly weighted towards 2019, into 2020. So if -- a broad split, I would say, GBP 2 million and GBP 1 million between the 2 years.

Well, excellent. Clearly, the presentation did its job. Well, thank you very much, everybody, for coming this morning. I do appreciate that there's a lot going on today. And there's a lot of people have announced their results and it's a very, very busy period. So thank you very much for your attendance today. And there's -- if there's any further questions afterwards, then we'll be pleased to have a chat.

Thanks very much. Thank you.