Keller Group plc (KLR) Earnings Call Transcript & Summary

Good morning, all, and welcome to the Keller Group plc Full Year Results 2020 Call. My name is Adam, and I'll be the operator for this call. [Operator Instructions] I will now hand you over to Michael Speakman to begin. Sir Michael, please go ahead.

Good morning, everyone. For those of you who do not know me, my name is Michael Speakman. I'm the Chief Executive Officer of Keller plc. Welcome to this virtual presentation of the 2020 preliminary results for the group. My co-presenter today is David Burke, who joined us in the autumn from J. Murphy & Sons, a specialist engineering and construction company, where he was Chief Financial Officer for 4 years. He has a great construction and project pedigree, and he's hit the ground running as he joined the group. The first thing I should draw your attention to in our presentation today is our new updated corporate purpose that is highlighted on the introductory slide: building the foundations for a sustainable future. I think this purpose is great. It can be read and accurately interpreted on several different levels. It is consciously and deliberately setting an environmental ambition for the group. And it also signpost the journey the group itself must undergo, signposting that we must do some groundwork in order to underpin a sustainable future for all of our stakeholders. Today, we will follow our normal agenda. I will introduce the results by way of a summary, and then David will take you through some of the details of the financials. I will then follow up with an update on operational performance and the strategic update. And then we'll conclude with an outlook and a summary before we move to questions and answers. For summary. Despite the pandemic, we have had a strong performance in 2020: operationally, financially and indeed strategically. Profit, margin, EPS and cash are all ahead of last year and ahead of expectations. As expected, revenue shrank, reflecting the impact of COVID-19 and the effect of rationalizing the portfolio. In unambiguous contrast, profit increased, reflecting the benefit of actions taken to improve the quality of the business and the active cost management in response to the pandemic. Active management also drove a material improvement in working capital, and hence, cash generation and the reduction of debt for the group. In terms of leverage, the group is now in a materially better place than we were 2 years ago, reflecting the strong cash generation during that time. We had a good COVID and operational safety performance in the year and more detail of that later. Despite severe limitations on travel, we've made some really good progress in implementing our strategic plan, and the full year dividend is being maintained at 35.9p per share. In contrast to last year, we left 2020 with a softening trading momentum. And whilst we have a full order book, we do think 2021 will be a much more challenging year. I anticipate a late-cycle pandemic effect on volume compounded by a competitive contraction in margin. That said, Keller is competitively very well placed for whatever the future holds, and I'm very optimistic for our longer-term prospects. The Keller team has shown tremendous resilience in a challenging year. Their actions and commitment are evidenced by the strength of the group's operational and financial performance. I will now hand you over to David, who will take you through the details of the financial results.

Thanks for that introduction, Mike. And just to add my own welcome to you all on what is the first occasion that I present the results for the Keller Group. As I start, it is indeed comforting to note that my pre-joining diligence didn't let me down given the quality of the results we're about to go through. I will first provide some comments on the income statement for the year, looking at both underlying results and nonunderlying items. I will also provide a waterfall analysis that identifies the key bridging items between underlying operating profit of 2019 and 2020. I will then talk through the cash flow, some balance sheet highlights, including net debt, and then highlight some look-ahead modeling considerations for '21. Let me start with the income statement. This slide shows the summary income statement for 2020. Shaded columns to the left; and 2019, the unshaded columns to the right. This is taken from the income statement that was included in the announcement this morning. The 3-column income statement format shows underlying results, nonunderlying items, and the third column being the sum, the statutory results. Before we go on to the analysis, it is worth highlighting what team Keller has achieved in an extraordinary year. Underlying operating profit is up 5.5% despite a 10% drop in revenue. The operating margin rate has increased by 80 basis points. Net finance costs are down 43%. EPS has increased by 18%. By anyone's standard, a great set of results. Let's move on to discuss underlying performance first. Year-on-year revenue in 2020 declined by GBP 238 million or approximately 10%. Volume was down in all divisions given COVID-19, but our portfolio rationalization also contributed GBP 50 million to this decrease. On a constant currency basis, North America decreased by 7.9%, EMEA by 9.5% and APAC by 19%. As reported at the half year, 2020 started really well with a much lower-than-usual weather impact, and our Q1 was very strong. Then with the onset of COVID-19, Q2 was heavily impacted as governments, customers and ourselves reacted to the pandemic. The second half was less frenetic as sites across the globe opened back up with COVID challenging us more from an operational and logistics perspective. However, what we did see was a general slowing of volume as customers reacted tentatively to the macro environment with our order intake slowing. This has resulted in the year-on-year reductions. Despite this revenue performance, underlying operating profit for 2020 increased by 5.5% on an organic and constant currency basis. In the next slide, I will bridge that operating profit performance. Net finance costs have decreased from GBP 22.5 million in 2019 to GBP 13.2 million in 2020 driven by lower average borrowing and lower interest rates. Taxation, at GBP 28.3 million, is at an effective tax rate of 29%. This rate is up 1% on the prior year. There are no fundamental drivers for the increase other than the geographic mix of profits and the local rates applied. The earnings per share has increased by 18% to 96.3p driven by the improved profitability and the lower finance costs. The Board are recommending a final dividend of 23.3p to the May AGM. That will bring the 2020 dividend to 35.9p, which is consistent with 2019. We now move on to the operating profit bridge slide. This seeks to bring to life the movement year-on-year. This should be a format you are familiar with from previous presentations. Moving from left to right, starting with last year's profit and FX, we come to the North America division, which is up GBP 4.6 million year-on-year. As mentioned earlier, there was a volume impact across all divisions predominantly as a result of COVID-19 and North America was no exception. As the year progressed into H2, there was a slowdown with order intake below the revenue burden rate. This is undoubtedly linked to the macro impact of COVID. For the U.S., we estimate that the impact to be GBP 25.8 million, as shown on the waterfall. This was mitigated by the financial impact of the North America reorganization, where revenue and cost synergy delivered GBP 11.3 million of benefit. This is a great success story on the back of a strategic decision taken in 2019. We now have new products in existing and new locations, a more joined-up approach on complex projects and a more efficient operating model. The Suncoast business had a great year, generating GBP 5.9 million improvement year-on-year driven by greater volume. The team managed to recover through pricing the increased cost of steel throughout the year. Canada has been restructured, and with the new management team, has delivered incremental profit of GBP 5.2 million. Furthermore, we have entered the Québec market in November, acquiring assets and people from Trevi and expect increased volume in future years. There was a further GBP 8 million of profit improvement driven by the increase of data center and distribution center work and management of the cost base given the slower market as well as other costs such as training, travel, et cetera, which will return in future years. Now turning to EMEA, which was down GBP 8.3 million. Yes, there was volume and COVID impact in this business as well with COVID being a mixture of work stopping and the macro aspect of the slowdown. Also with EMEA, we saw a drop-off in the number of large projects contributing to the absolute profit number. There were also some settlements in 2019 that didn't repeat in 2020. This works out at a net of GBP 6.7 million. Finally, for EMEA, there is the impact of the portfolio rationalization, which was -- which has improved profitability. For APAC, up GBP 9.9 million. Again, there is volume/COVID impact on profitability of GBP 7.9 million. Some parts of the region were hit quite hard by lockdowns. This was balanced out by the performance of the Austral business benefiting from the Cape Lambert project and seeing its profitability improve by GBP 7 million. The Waterway item relates to losses in 2019 not repeating. The final block of GBP 6.9 million relates to better margin performance and some bigger contracts and the team securing settlements in some old disputes. Moving to the next slide, I will cover off non-underlying items. Again, you see the same income statement but this time focusing on the middle column, nonunderlying items. Nonunderlying operating costs during the year were GBP 29.6 million. You will remember from the half year the disposal in Brazil, which accounts for GBP 9.2 million of the loss outlined in the table. The other disposal losses are in small noncore businesses, Wannenwetsch in Germany and Colcrete Eurodrill in the U.K. North America restructuring relates to branch closures and office rationalizations. The EMEA restructuring relates to rationalizations of Franki Africa, French-speaking countries, Latin America and a provision for divisional restructuring. About GBP 13 million of nonunderlying operating costs of GBP 29.6 million is cash related with GBP 11 million spent in 2020 and the remaining GBP 2 million coming through in 2021. The GBP 4.2 million charge for amortization of acquired intangibles is the routine charge analyzed between Moretrench and Austral. And other operating income of GBP 0.7 million is in respect of a claim received on a historic contract dispute. The recognition of this income as nonunderlying is consistent with the recognition of the original contract loss. The tax credit of GBP 5.6 million reflects the tax benefit of the above items at the appropriate rate. The sum of all items across underlying and nonunderlying performance gives a post-tax statutory profit of GBP 41.1 million. I will now move on to the cash flow. This page shows the summary cash flow from operating profit down to net debt. In the bottom box on the right, we highlight the net debt on a lender covenant basis of GBP 120.9 million, a reduction of GBP 92.2 million from 2019. Leverage on a lender covenant basis at the year-end was 0.7x, improved from 1.2x at the end of last year. More on net debt later. The biggest driver of increase in free cash flow was the working capital performance with an improvement of GBP 38.2 million. What is even more remarkable is that this was achieved without a big dive for the line on payables at year-end. And most impact was on the reduction of receivables of GBP 111.1 million, reflecting the focus on working capital management throughout the year. The other call-outs in the statement are our CapEx and depreciation continued to align, the lower finance cost due to lower average borrowing and interest rates and tax cash payments returning to normality after the benefit of a tax repayment in the U.S. in 2019. You can also see the GBP 11 million of outflow on nonunderlying, as noted earlier. The remaining GBP 2 million will occur in '21. We shall now move on to look at the summary balance sheet. This slide shows the summary balance sheet at December 2020 compared with amounts at December 2019. The movement on intangible and tangible assets is set out in the tables. Nothing too significant to call out other than the alignment of depreciation and CapEx for both fixed assets and right-of-use assets, separately shown in the box. The reductions on debtors and payable lines again highlight the focus on working capital management. The next slide provides some more detail on the net debt profile during the year. They say a picture paints a thousand words. Looking at the graph, you can see the steady nature of cash performance throughout the 2020 year. You can see the contrast between the 2019 dive for the line and the 2020 glide to the line, GBP 105 million versus GBP 19 million of a cash push in the respective Decembers. As mentioned previously, this variance is driven predominantly by the lack of payables push at year-end. We did have the benefit of -- in 2020 of aged dispute settlements particularly in North America division, some of which came through in December. Our DSO hasn't changed dramatically throughout this period, so this profile is partly reflective of activity slowing with receipts greater than outgoings reducing the need for working capital, a trend we are continuing to see into the early part of '21 but which we do expect to reverse should activity pick up in the second half of the year. We have operated well within our covenants throughout the year with leverage at 0.7x at year-end against a limit of 3x and interest cover at 21.7x against a minimum of 4x. At year-end, we have GBP 672.6 million undrawn borrowing facilities, including the GBP 300 million Covid Corporate Financing Facility, which will lapse later this month. Of the remaining GBP 372.6 million, GBP 313.2 million is committed. Our facilities comprise a GBP 375 million multicurrency RCF expiring in 2025 and the USD 125 million private placement with $75 million expiring in 2024 and $50 million expiring in October '21. The next slide shows some look-ahead modeling considerations. This slide is intended to provide some insight into how some of the drivers of actual reported financial performance should be thought about as we tackle 2021. Suncoast steel tariff, similar to 2020 with active management of steel price movement. Large projects, HS2 with C1, C2, C3, we expect to ramp in 2021 along with SMS2 in Europe, Cape Lambert in Western Australia, an LNG project in Mozambique will impact 2021 along with Hampton Roads in the U.S. Portfolio action, we will always be looking at the portfolio. However, we have no major plans for 2021. Operating profit, good margin levels achieved in 2020. We expect these to tighten in '21 with lower volume and opening up of discretionary spend if growth happens in H2. Operating profit phasing, H2 bias more steep in '21 as activity levels increase in H2. Interest, we expect similar levels of cost in 2021. Tax rate, dependent on the action of governments. If no impact, then we don't see this deviate too much from the current effective rate. FX rates, macro dependent but the strong pound/U.S. dollar will impact earnings. Restructure, EMEA becomes Europe. And APAC becomes AMEA, Asia Pacific, Middle East and Africa. The revised numbers for 2019 and 2020 are included at the back of the pack. On the cash/debt, once the ramp-up starts, we do expect that working capital will come under pressure, but with continued debtor management, we do expect to remain in the lower end of the 0.5x to 1.5x target. That's it for me. Thank you for your attention. And I will now pass you back to Mike, who will take you through the business performance update.

Thank you, David. I will now take you through some of the detail of the business performance in the period. Starting with safety. I'm really pleased with the progress we've made with our safety program. Our focus area for this year has been critical injuries, and we've successfully reduced that by 35%. AFR has come down by 20%; and TRIR, which we began monitoring in 2015, has come down by a further 10%. The Group Head of Health and Safety, John Raine, and his team have done some great work working with operations to tenaciously address the culture and process issues that underpin a good safety program. Indeed, our program is multifaceted, be it the leadership element through the Safety Leadership Committee led by myself; be it culture and our recently introduced Just Culture program or setting standards, the minimum standards, which are acceptable across key activities across the whole group; or having access to all of these things via systems which are agile and open to everybody; be it in terms of communication or reporting. All of these things have been worked upon across the year. Whilst 2020 has been a good year for safety, unfortunately, we've begun 2021 with a tragic fatality on a site in Austria. A thorough investigation is currently underway, and it would be inappropriate for me to comment further until the Incident Review Board has been held and come to its conclusion. COVID-19 safety performance. Our primary focus when COVID-19 hit was the safety and security of our people. As we were looking after our people, our people were looking after our business. The global crisis team that was set up and led and coordinated by Graeme Cook, our HR Director, has been tremendously effective in sharing experience and resources very quickly across the whole group. Asia was hit first and passed the benefit of their experience to Europe and North America before the pandemic really took hold there. Be it PPE and physical health or social isolation and mental health, the local management has supported their teams well during the pandemic. Feedback from our employees who generally aren't shy in voicing their opinions has been generally very good. As far as a vaccine policy is concerned, our policy must reflect the legal reality of everywhere we work. Our group stance is to follow the WHO and U.K. government guidelines and support vaccination wherever possible. Moving on to the order book. The order book is very interesting. It has robustly stayed above the GBP 1 billion mark, and that's without the benefit of anything material from HS2. But what is not immediately obvious is the drawdown on the order book in terms of revenue has slowed considerably, as has the replenishment of it in terms of order intake. There have been very few cancellations, which is good, but there's been a considerable slowing down in both the order intake and the revenue cycle. Moving on to North America. Overall, the North American division, led by James Hind, has had a very good year. The division had a very strong start to the year with a particularly strong first quarter. The impact of the pandemic was felt much later than Asia and EMEA and manifest itself as a general, gradual reduction in activity in the second half rather than a binary stop/start of site closures that we've seen elsewhere. The success of the reorganization of the foundations business, strong demand at Suncoast and a turnaround of the Canadian business were all primary drivers of a good year-on-year improvement. I know Canada has caused some scar tissue with many of our shareholders, and it makes me especially pleased to highlight the great work of Curtis Cook and his team who have done a great job in turning this business around in the year. The order book remained strong, but momentum as we exited 2020 and entered 2021 has been slowing. And the impact of this slowness has been compounded by recent bad weather. This slide shows the successful North American reorganization and the transformation, a plan that has been very well executed. I've talked before about this reorganization many times. This is effectively a transformation of a slightly dysfunctional product-based business into a more focused geographic-based one. I have been very, very surprised, pleasantly surprised that the speed of success in securing the revenue synergies were the prime driver for this change and also the cost synergies, which have been secured a year earlier than expected. Indeed, we've secured more than GBP 80 million worth of orders and GBP 36 million worth of revenue in 2020, including the Westshore Marina project detailed on the slide. This project could not have been delivered under the old structure. Moving on to EMEA. EMEA has had a very tough year. A good improvement in safety performance in 2020 has been marred by the recent fatal accident I mentioned earlier. Whilst there have been some small pockets of success, most notably, Northeast Europe, led by [ Alta Guzowsky ] and [ Marga Sholter Banafska ], this division has severely been impacted by the pandemic in terms of site access, logistics, and later on in the year, trading volume. There has, however, been very good progress in executing the strategy with the exiting of South America, the rationalization and integration of Franki Africa and the disposal of 2 noncore businesses. The outlook for 2021 is mixed. Generally, markets are suppressed, but we have some very good projects in the form of SMS2 and HS2 to keep us busy. The margin, which has been subdued in 2020, won't recover much in 2021 but expecting growth to recover and move north of 5% thereafter. This next slide shows a very good example of innovation within the EMEA region. It's a great example because it's a win, win, win. This is environmentally much better than alternatives using less CO2 and is pH neutral. It costs less for the client, and it performs excellently against its specification. It's a technique that we've invented, that we have the trademark for and we've got patents pending for. Whilst the application itself is pretty focused, we cannot get very good value for it. Moving on to the APAC division. The APAC division under Peter Wyton and his team have performed brilliantly against a very stiff market headwind. The pandemic hit APAC early, and it hit it very hard. India and ASEAN suffered the largest volume impacts and yet both managed to improve their margins. Despite the challenges of interstate travel restrictions, Austral, led by Aaron Turner, performed well. And Cape Lambert has proven to be the great project we thought it was. The benefit of restructuring and the absence of the Waterway losses also contributed to a better year-on-year result for the division. I'm cautiously optimistic for the prospects of '21 and some reasonable projects that are in the pipeline. The case study within APAC is that of the CRISP project. I love this case study. It's got a brilliant case study. Exxon are a tough client. They're knowledgeable, sophisticated buyers. Singapore is a tough competitive place to do business, which makes it even more impressive that we've managed to convince a very conservative client in a very traditional context to change the production technique and do something which will reduce the carbon footprint of the project by over 90%, equivalent to a reduction of CO2 of 20,000 tonnes. Not only was the project more environmentally friendly, it was quicker and cheaper, too. It puts in perspective the importance of giving our customers more choices in the techniques and educating them on the environmental impacts of their choices, which is a great segue to ESG. This is a topic that Dr. Venu Raju, our Equipment and Operations Director, focus much of his time, working with the whole organization, and in particular, 2 very qualified and energetic individuals, [ Luke Dima ] in the U.K. and [ Kimberly Martin ] in North America. Collectively, they're doing some excellent work on the whole ESG front. In respect to the group's governance regime, our holistic control environment has come a long way in the last 2 years. On the social front, I think Keller has always had the reputation in the sector of being a good employer once you're on board. And indeed, we have a pretty stable workforce. The challenge is to make it more representative over time. And recently, we've improved and reinforced our diversity, equity and inclusion activities, and I think these will generate results as we move forward over time. This is the environmental scope. That is the area where I think we have the biggest challenge in reality, and the CRISP case study earlier exemplifies why. Our Scope 1 and Scope 2 carbon emissions as a proportion of revenue reduced in 2020 for the seventh year in a row, down to 85 tonnes per million pounds of revenue from 90 the previous year. This equates to 176,000 tonnes of CO2. We reduced the Scope 3 emissions on the CRISP project by 20,000 tonnes, equivalent to 3x our Scope 2 emissions for the whole group and over 10% of our total Scope 1 and Scope 2 emissions in the year. And that's off one modest project. Scope 3 has to be the ultimate prize, and we'll only get there by providing our clients with lower carbon alternatives and working with them to make these alternatives more attractive. Hence, the launch of the initiative to integrate the Scope 3 project-specific carbon calculator into our tendering process using industry standard methodologies and techniques. I'm now going to talk to you about the group strategy. We've done a lot of refinement of the strategy this year, and I'm greatly indebted to Jim De Waele for his assistance in this process. Jim has now completed his stint in strategy and is now leading the European division. Our strategy statement. I use this slide a lot. Indeed, I use it every opportunity I can when I'm using -- doing group-wide webcasts. The intention is to make it central to each leader's thinking and decision-making. If an action or decision isn't contributing to the realization of this strategy, then they shouldn't be doing it. Actions must be aligned to the strategy if the strategy is to become effective. And in this regard, we are making a lot of progress. Talking of progress. In 2020, we made much more progress than I thought possible at the end of March last year. This progress mainly related to the first element of the strategy, that of portfolio. Despite severe restrictions on travel and a pretty volatile economic environment, we managed to sell our Brazilian business, Wannenwetsch in Germany and Colcrete Eurodrill in the U.K. We rationalized Franki Africa and integrated it into the Middle East business unit and then transferred the combined business unit into APAC, where it more naturally belongs. Having rationalized and considerably reduced the geographic footprint of EMEA, we then began the process of rightsizing the divisional HQ. Finally, we completed the successful reorganization in North America that I highlighted earlier. This slide shows the effect of our geographic rationalization and the change between 2019 and 2021. The scope of North America hasn't changed, but as you already know, we've reorganized the business within North America to make it more effective. In EMEA, the region has shrunk considerably. It's now essentially just Europe. North America and Europe are very similar in nature. They're fully functional business units in stable, sustainable markets with reasonable positions in terms of market share. The APAC division is slightly different. It is more orientated towards specific attractive projects and geographic scope where division includes small number of countries where we'll have a permanent establishment like Singapore and Australia and many more that will only be present for the duration of a project. Just moving on to the strategic focus for 2021. What's coming next? Well, we'll now begin to focus on the second part of the strategy. We'll be strengthening our performance management. We'll be looking to make further gains from operational excellence in driving simplification, standardization and digitization throughout the whole business. Eric Drooff, the COO in North America; and Katrina Roche, our new CIO for the whole business, will be key leaders in this initiative. Increasing our market penetration in our existing geographic markets by both organic and acquisitive means will also feature. And finally, completing some of the residual elements of our restructuring program will be the final element of it. I would remind you that the pandemic remains an obstacle to the effective execution of these elements. Moving on to the outlook and the summary. The outlook for 2021. We started the year with a lower momentum than we started 2020. We know from recent order intake levels that our customers are still a little cautious, and demand is generally a little softer as a result of the economic uncertainty brought about by the pandemic. In the short term, there will be a continuation of the current access and logistical challenges, too. Unlike many sectors, we expect momentum to gradually build as national vaccine programs take effect. A fortunate by-product of our portfolio rationalization is our geographic footprint is now concentrated in countries that are likely to come out of the lockdown earlier and in better economic shape. Overall, our expectations are unchanged. We expect a tough year weighted towards the second half. In summary, 2020 has been a strong year operationally, financially and strategically despite the pandemic. And all of it is because we've got some great people in Keller: people who are committed, clever and well led by their business unit leaders. And to all those employees, many of whom will be listening today to this webcast, I say a big thank you. We've made some great progress in many areas. We are in good shape. Progressively, we're getting into even greater shape and we're well placed for whatever the future holds. Thank you to everybody for listening to this webcast today. And we'll now move on to questions and answers.

[Operator Instructions] Our first question today comes from Christen Hjorth of Numis.

Just 3 from me, if that's okay. First of all, Mike, I think you referred in the beginning a bit on pricing, but just a bit more color perhaps across different geographies on pricing where there has been slowing order intake. The second one is, obviously, there's been significant restructuring, as you've run through. Can you just touch on risk management and whether that now feels that it's in the right place across all the divisions? And then my final one is just on the U.S., clearly a big market for you. Just you were sort of maybe touching on market structure there and perhaps how much more there is to go for in terms of market share gains and indeed whether that would be a focus of capital allocation going forward.

Christen, thank you. Some very interesting questions there. First of all, with respect to pricing, you'll recall that when we reinstated guidance in the summer of last year, we basically took what we knew at the time. We figured that from what we could see, there would be a volume challenge in -- towards the tail end of 2020 as we went into 2021. And at the time, frankly, it was a bit of a guess. We guessed about 10% overall in terms of reduction in run rate. And that, indeed, is kind of what we're seeing as we left the year and started this year. And that itself has led to, as you would expect in a general sense, people getting more competitive for what is there, and therefore, there is some margin pressure. I think in terms of the distribution of that around the globe, working from East to West, Asia Pacific is seeing some pockets of that. But given it's a more project-orientated market, pricing with that is always quite specific anyway. And I think like year-on-year, that is perhaps somewhere I'm a bit more confident we could push back a bit. I think, Europe, similarly, there are pockets in the midsized projects where, frankly, it is becoming a lot more competitive. But we're being disciplined and we're not taking everything, but where we have to, we're just trimming a little bit. Again, SMS2 and HS2, they're already bid, already landed. And therefore, from that point of view, subject to the pressure, which we're talking about now. In terms of North America, I think it is, as a generality, the American market is a very efficient market, and therefore, pricing both upwards and downwards tends to happen fairly quickly. But I would say that it is not entirely universal. I think where there are pockets of stronger activity, we're not seeing much in the way of pricing at all. Whereas there are areas where it is very competitive and we're seeing it's quite intense. And I think that really manifests the fact that North America isn't just one big market, it's actually a whole series of smaller ones. And it's what happens in those smaller pockets which makes the difference. And if I could give a good example of that, in Texas or in Dallas, residential buildings with single-family homes is still robust, and therefore, pricing there is important and it's important to us. But we're not seeing the same pressure on that as you would see on some of the retail-type build in -- on the East Coast, for instance, where build there is stopped or is very subdued, I should say, and therefore, there's a lot more intensity to it. So from that point of view, I think I've just answered your first question, and indeed, your third one probably. The market structure in North America, we are seeing pockets, which are going okay, and there are areas where, frankly, it is getting quite competitive. But we do expect sometime as we go through the second half of the year to see some rebound. In terms of restructuring, and this is more a strategic question, I guess, the actual -- there's 2 aspects to this, I suppose. One is the actual transformation activity itself in terms of the transition from A to B and that is something which I think we are getting gradually better at. I think the North American team did a really good job in terms of transforming their organization from the products-based organization to the geographic one. And as a transformation exercise, that was a huge undertaking. There's a lot of legacy there, there's a lot of systems, there's a lot of culture that all had to be gradually migrated to the new world. And that's working really, really well. And you can see the financial results here and the benefits coming through. We've also monitored nonfinancial results in terms of things like the attrition of people and people who have left as a result of not liking what's coming. And that -- the whole of that has actually worked really well, and the attrition that we've suffered has been much less than the targets we set. And frankly, from that point of view, be it financial or nonfinancial, it has actually worked well. Similarly, in Europe, Thorsten and now Jim have been working through those programs, perhaps hampered a little bit more by COVID and travel restrictions, but nonetheless, them and their business unit managers have worked through the programs that work the transformation in each of the senses in a very well-considered manner. And I'm very pleased with the progress. Stepping back from a strategic perspective, I am pleased now that we are now better placed geographically in terms of the risks associated with the markets we participate in. North America and Europe, by their nature, have similar characteristics in that regard and certainly Peter Wyton and his team running the AMEA division, they are very alert to commercial and other risks associated with the project activities they undertake outside their normal domestic areas. So I think we've taken a step-up in that regard over the course of the last 2 years. The next thing, of course, is to improve, as we're always doing, the project controls associated with those projects, which we are undertaking. Thank you.

[Operator Instructions] The next question is from Joe Brent of Liberum.

Three questions, if I may. Firstly, when we talk about the U.S., is it possible to make a distinction between resi and nonresi? I'm interested to hear your kind of views on the different outlooks for those businesses through that lens. Secondly, I know you've referenced some slides in the back about the new structure. I haven't had a chance to go through those yet. Can you just give us a sort of ready reckoner on how we get from the old divisional structure to the new? And finally, you provide a very good profit bridge for 2020. And I guess many of us will be trying to do the same thing for 2021. Can you give us some indication of kind of the restructuring benefits that you'll see in '21 but also the benefits in '21 from exiting loss-making areas in '20?

Okay. Well, I will have a crack at answering question one and probably question three, and then I'll ask David in between that to address the divisional ready reckoner, as you were. In terms of U.S. resi versus nonresidential, I'll give you a partial answer in terms of our exposure to it. And if you look in the slides at the back of the deck, there is a new split out there in terms of -- in fact, there are several split-outs of our revenue distribution, which emphasize the diversity of the group, be it by geography or product or by sector. And that should give you a little bit more insight into our revenue splits. It is something which, potentially, depending upon how the year goes, we're looking to actually explore a little bit more in terms of each of the dynamics of our markets by means of some additional interactions towards the end of the year, perhaps in the Capital Markets Day, because I'm keen as we get further down the track that we share more of that with you. In terms of prospects in the market and specifically in North America, I have been, like many people, pleasantly surprised at how well the residential market in North America is held up. And we are helped by the fact that most of our exposure is in the Southern states. And there tends to be -- there seems to be a migration of -- from North to South here. And not only that, but the actual building techniques which they use in the South typically use post-tensioned trends and that is the thing which we supply. They don't use basements, which you typically find in the North. So from that point of view, a, we're well positioned in that market; but also it seems to be holding up very well indeed. And I think part of that is the fact that they are larger homes. They are middle class and upwards-type buyers who, whilst affected by the pandemic, haven't been hit as badly as other economic groups. So the outlook for that, I think, is perhaps not as stellar as it was in terms of growth in '21, but I personally, at the moment, don't see it shrinking that much. And it will be affected by weather in the first quarter, and indeed, Texas during February, we spent 1.5 weeks where we didn't do anything because you couldn't. But I think the overall demand side there should be relatively robust. Nonresi, it's split by sector and it's quite fragmented both by sector, indeed, where you are in North America. The -- and I expect over time, it will change. If you're looking at things like data warehousing and distribution centers, they seem to be pretty robust. Pockets of infrastructure seem to be becoming a little bit more alive. It depends on the size of it as to how much involvement we have because we tend to be longer-term engineered projects as opposed to some of the simpler DOT stuff, but that is looking a little bit more positive. And I think as a generality, President Biden pumping, was, it $1.9 trillion into different initiatives can't do us any harm in terms of sentiment. So from that point of view, I think it should feed through to something more positive as we go through the year. Restructuring benefits, I think we've seen a lot of them this year in terms of certainly North America. There's been a big step-up in terms of the cost savings there. And I think clearly, you've got the full year benefit of the restructuring of everything, which happened in Asia Pacific. There will be a little bit more from Europe. Clearly, we only did the head office or divisional restructuring towards the tail end of the year, so you'll see a little bit of a pickup there. And there may be a little bit elsewhere as Jim and Mark actually get their arms around the Europe division. But it will -- probably it won't be on the same scale as we've seen elsewhere. And David, could you...

Sorry to interrupt, but can you put some numbers on that at all in terms of unpacking Europe?

Well, if you look at the bridge, you can see the benefit of, for instance, the Waterway restructuring is specifically highlighted in the bridge. And indeed, in North America, we pick out in the narrative of the [ R&S ], the cost savings, which we previously referred to. And similarly, if you work backwards, you can work out what the revenue uptick is. David, would you like to just have a chat through the divisional swap, please?

Sure, sure. Just as a reminder, so for the restructure, EMEA becomes Europe, so we drop the Middle East and Africa. So for 2020, that's GBP 69.1 million of revenue and GBP 2.6 million of profit. And for 2019, there was GBP 90 million of -- GBP 90.5 million of revenue and 0 of profit. And so APAC becomes AMEA, Asia Pacific, Middle East and Africa. So you add those numbers. So Europe now becomes GBP 538 million for 2020 and GBP 18.3 million of profit. And AMEA becomes GBP 296 million, GBP 0.5 million of revenue and GBP 15.6 million of profit.

And is it reasonable to see similar sort of adjustments going forward?

Then the performance of those of Middle East and Africa.

I think in terms of profile, Joe, yes, you will. I think Europe will be very stable. And as I've mentioned earlier, I think the margin will gradually improve. And APAC, or AMEA as it is now, by its nature, is more project-driven and therefore will be more volatile. But we will do our best to actually signpost for you, projects, as they roll on and roll off. And clearly, this year, you've got Cape Lambert, which is kind of halfway through at the year-end. And you've also got the start-up of the LNG facility or project in Mozambique, which is kind of stop/start and I expect that to be drawn out throughout the year.

Our next question comes from Clyde Lewis of Peel Hunt.

I think I might have 4, so apologies for that. One, I suppose sort of following on a little bit from your last comment there, Michael, about the sort of big projects, and I suppose, also sort of looping in sort of what you've seen in terms of inquiry levels. I mean how has that sort of varied over the last sort of 3 to 6 months? And in terms of sort of the different geographies, where have you seen more interest, less interest? And are there any sort of big projects out there that are kicking around that may well drop in apart from, obviously, what we know about HS2? That was the first one. Second one was on -- I suppose, on costs. I think you flagged -- again, keeping an eye on steel cost for Suncoast in particular. But are there any other cost pressures that are worth flagging for us to think about for 2021? The third one was on product mix. Again, within your presentation, you flagged a number of sort of new techniques. And I'm just sort of looking -- I mean it's very hard to sort of put a percentage on it, but can you help us a little bit as to understand how your product mix sort of currently sits between sort of more basic offering and then a more added value and how that's shifting and how you think that will shift going forward? And I suppose the last one I had was on margins. I mean I've got a spreadsheet goes back to 2000. And if I take the average since 2000, the group's delivered sort of margins of about 6.2%, 5.3% last year, but you think that's going to step back a little bit? As you look at the business mix going forward, do you think that long-run average is a crazy target for us to be thinking about on a 3-, 4-, 5-year view?

Well, some interesting questions. I think we should ration you to 3 questions in the future. No. In terms of projects, it's -- there's a reasonable volume coming through at the moment. Indeed, this morning before the call started, I received another bid to review on a particular project in Australia and that's on the back of one that was a similar project last week in terms of tender reviews. So I think there's a reasonable number of projects coming through. Not all of them are getting funding, but I think various governments and indeed states within federal nations are beginning to -- start to create stimulus and get things done. And certainly, that's certainly the case in Australia. And you've seen more of that elsewhere as well. So I think there are a reasonable number of projects out there. What I'm encouraging people to do is to be smart about it and think about, if you like, the sequence of projects and the packages within a bid such that you don't necessarily have to go for the first one. Sometimes it's best to sit out for a couple of rounds and wait until the capacity in the market has been absorbed a bit and you can often get better pricing as you get further into packages. And that depends on the size of the project, clearly. So we're trying to be sensible about it but also competitive about it. There is a reasonable number out there as a generality. And we are keeping our discipline in terms of the way in which we bid for these things, not being reckless, not overcommitting the capacity for a duration where we expect things to gradually recover. But you've certainly seen it slightly more positive at this point than negative, and I think that's pretty much universal. Europe is perhaps a little bit of more of a dwell point with the exception of the U.K. I think Norway seems to be fairly robust at the moment. So that's probably that one. Costs, and David might have a comment on this, I mean, costs is quite an interesting one. We're seeing less employee inflation generally at this moment in time, albeit that we do expect a little bit of a squeeze on -- in specific areas, for instance, in the U.K. I think there's just going to be a skill shortage in some areas. So that will bound to fuel a bit of inflation there. In terms of materials, depending upon the nature of the product and the client, oftentimes, we -- the client will buy the materials directly and we do not get involved anyway especially if it's a very big infrastructure project and they've got their own concrete batch plant or whatever. Steel and concrete is something which we're constantly -- we don't get it always right, but we're constantly alert to movements in those, especially still where you're importing it because, of course, you've got FX and duties to consider in those as well. And it is something, which we are alert to, and as I said, we don't always get absolutely perfectly right. Concrete is -- the cement is an interesting one because despite the more subdued demand at the moment, some of the raw material inputs into that terms of fly ash and other things are actually in short supply. So depending on where you are in the world, you've all seen prices increase, which, again, we are alert to. Product mix, interesting question with that, which I haven't got a natty answer for you. I would stress that at the end of the day, our clients look for -- this is probably 80% of what we do. Clients are looking for a foundation or a groundwork solution, which fulfills their technical requirements. And after that, the next big thing is the sticker price, the price to them. And be it through the technique that we use, moving from the heavy foundations techniques to ground improvements and others, and therefore, engineering the solution and making -- structurally taking cost out, and that's probably 40% or 50% or the 80% of what we do; or by turning up with bigger, better gear, vibro techniques or some of the jet grouting, all of those things put us in a position where we can deliver solutions at lower cost, and therefore, that cost puts us in a position where we can perhaps give some to the client but keep more ourselves. And that is a generality. I think the challenge for us is to maintain that momentum, and at the same time, start eking out some of these environmentally better solutions. And certainly, Venu and the team, I will be putting more push behind them to give me both on things which are quickest, working faster, but I also think on things which are better for the planet. And they will be more focused, they're bound to be, because these solutions are very much more niche-y but they're out there. We just need to find them. Finally, on margins, I certainly aspire for the group to be north of 5%. We are a specialist. The people we employ are good at what they do. They're very good at what they do. And we, as a management team, just need to get them doing more of that stuff in a structurally more intelligent way and getting us up to that longer-term average of the 6.2%, and I think we will get there. I think we're in a bit of a squeeze at the moment in terms of 2021. And we are in a cyclical market, and that is the one thing about our strategic position, which is out with our control. We can do all sorts of things, but we can't affect the fact that our market is inherently cyclical. And whilst we can spread that cyclicality by sector and sometimes by geography, it's still in there to an extent. So we can do some intelligent things about taking that out, but we are in terms of a global cyclical event. But I see no reason why we couldn't get to those sorts of levels.

We have no further questions at present. [Operator Instructions] We have no further questions, so I'll now hand back to the management team for closing.

Thank you. First of all, thank you, everybody, for joining this morning. I know it's a very busy part of the results season. So thank you all for your time. I think we are very, very pleased with the outturn for 2020. It has been a strong performance in terms of our operational performance, the financial performance, and indeed, the strategic progress we've made. As I mentioned earlier, we progressed a lot further than I thought. And it's frankly more well founded and more robust and it's despite the situation we found ourselves. We are well set for transforming the group even more into a more efficient and progressively higher quality business. And whilst 2021, I think, we just have to take a bit of a pause, prospects beyond that I'm very confident about. We just need to weather the current storm and get out the other side. But thank you very much, and look forward to catching up with you all as we go through the road show. Thank you very much.

Ladies and gentlemen, this concludes today's call. Thank you very much for joining. You may now disconnect your lines.