Keller Group plc (KLR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Keller's preliminary announcement and results for 2021. And happy International Women's Day to you all. I hope you enjoyed the clip which has been playing. It gives you some insight into the breadth and indeed depth of activities in this area across the group. And indeed, I will be coming back to that subject a little bit later on. For those of you in the room, safety moment, there aren't any drills planned for today. So if the alarm goes off, it is for real. We'll leave by the door here down to the left, and you go down the stairs in the corner over there and the muster point is by the guild hall. But I also request that you switching mobile phones on to silent. And then finally, when we get to the questions and answer session at the end, do wait for a microphone because whilst we can hear you in this room, it's important that the people on the webcast also get the benefit of your question and indeed, our answer. Clearly, since we were started to put this presentation together, Russia has invaded Ukraine, and that has consequences. Fortunately, for the group, the direct business consequences are small, minimal, but it has got human consequences, and it will have potentially indirect consequences on the business as well. And I will cover those in the presentation a little bit later on. Our normal cautionary statements, which I'm sure that [ Kerry and Sylvain ] will be keen for me to get you to draw attention to. And now, on to our agenda. This follows our normal format. It's -- I'll give you a brief summary at the beginning of the session. David will then take you through the detail of the financial results and the operational performance in the year before I move on to talking about the business performance, some ESG matters, moving on to some strategic perspectives before finishing off with a summary, question and answers at the end. So in terms of summary, 2021 has been a good year for Keller. It's been a resilient year. It's worked out pretty much what we expected. In the first half of the year, there was a shrinkage, and we'd indicated in the previous year in middle of 2020 that we anticipated in the first half, there would be shrinkage in terms of volume and indeed, that did prove to be the case. And that caused the margin compression, which, again, we indicated it was roughly about 1 percentage point, and indeed, that was the way it worked out. Halfway through the year, we've met an inflection point and started to grow again. And if anything, the rebound in the second half was probably a little bit stronger than we originally anticipated. During this time, though, there was a margin compression, largely driven by market pricing. Now, I'm keen to get that across because one of the questions that will come up as we go through the presentation is how quickly and how -- what's our ability to pass cost inflation on. And indeed, as David will talk you through, it's given our short cycles of our orders, that proved to be pretty good with one exception, which he'll talk you through. So from our point of view, 2021 has been a good year in terms of our performance. And indeed, halfway through the year, we had a little bit of an upgrade. And even against that upgrade from the year-end, we have outperformed. So that set us up quite nicely. In terms of strategic endeavors, we've made some good progress there as well. There's been some restructuring. There's been some reshaping of some of the business units to make them more efficient and more effective. And you'll see that we've also started to engage in some very focused M&A activity on a very measured basis and a very precise basis. All of that culminates in a recommendation for a dividend, which, as you can see, is roughly 2.5x covered. Now with that as I've skipped through the detail there, I'm going to hand you over to David, who will go through the detail.

Thank you, Mike. And just to add my own welcome and say it's great to finally do this in person for the first time. The format for the financial slides today are similar to what you have seen in the past. I'll provide some comment on the income statement for the year, looking at both underlying and non-underlying items, then provide a waterfall analysis that identifies the key bridging items between underlying operating profit of 2020 and 2021. I'll then talk through the cash flow, some balance sheet highlights, including net debt and then highlight look-ahead modeling considerations for 2022. So let's start with the income statement. This slide shows the summary income statement for 2021, with the 2020 comparator to the right. This is taken from the income statement that was included in the announcement this morning. Before we go through further detail, it is worthy of note that the statutory profit for Keller has improved by GBP 21 million to GBP 62.1 million given the reduced volume of non-underlying items. Let's turn to underlying performance, first. Year-on-year, revenue in 2021 increased by GBP 162 million or approximately 8%, which is equivalent of 13% on a constant currency basis. Volume was up in all divisions as we saw increased activity as markets emerge from the impact of the pandemic, particularly in the second half of the year and with the impact of acquisitions coming through in H2. On a constant currency basis, North America increased by 15.4%, Europe by 5.2% and AMEA by 20.4%. As previously trailed, this year-on-year growth in volume was not mirrored by increased profitability, due to margin pressure on pricing and operational inefficiencies associated with COVID in the foundation's businesses across the globe. Furthermore, in the Suncoast high-rise business line, the sustained increase in steel prices had a significant impact on margin levels. As a result of these factors, underlying operating profit for 2021 decreased by 10% on a constant currency basis, and our margin rate came under pressure, reducing to 4.2% from 5.3%. In the next slide, I will bridge that operating profit performance. Net finance costs have decreased from GBP 13.2 million in 2020 to GBP 8.9 million in '21, driven by lower average borrowings and lower average interest rates. Taxation at GBP 20.1 million is an effective rate of 24%. This is a significant drop on the 2020 effective rate, largely as a result of a prior year adjustment for R&D tax credits in the U.S. The estimate made for R&D in the prior year statement for 2020 was understated. And the level of time spent on design and innovation during COVID only became apparent as the return was finalized in the later months of 2021. The earnings per share has decreased by 8% to 88.4p driven by the reduced profitability offset by the lower finance cost and the impact of the prior year on R&D tax credit. The Board are recommending a final dividend of 23.3p to the May AGM, and that will bring the 2021 dividend to 35.9%, which is consistent with 2020. We now move on to the operating bridge slide. This seeks to bring to life the movement year-on-year, and this should be a format you're familiar with from previous presentations. Moving from left to right, starting with last year's profit of GBP 110.1 million, we highlight the FX impact, which was considerable at GBP 7.4 million given the stronger sterling, but this impacted, however, ease in the second half of the year. Coming to the North America division, which is down GBP 4.3 million year-on-year. As mentioned earlier, there was a margin compression impact that we have estimated at GBP 9 million, driven by increased pricing pressures and the operational inefficiencies caused by COVID. The next block brings out the reduced profitability in Suncoast due to the sustained increase in steel prices. This relates to the high-rise business line, whereby the combination of the fixed price nature of the business, and the lead time between contract agreement and job execution impacts the margin in an environment where steel prices have increased in such a sustained manner. The Slab on Ground business line is less impacted, given the shorter lead times, whereby the steel price increase can be more readily passed on. The historical claim on an all 2017 job of GBP 6.7 million is as reported at the half year. The GBP 11.2 million volume represents the increased levels of activity that we have seen across the division compared to 2020, skewed to the second half of the year. The last block of GBP 2.1 million relates to the part year impact of the profitability of acquisitions and disposals in the year. Now, turning to Europe, which was GBP 6.7 million up. There was a COVID margin compression of GBP 3.3 billion, but this was offset significantly by the increased volume, particularly in the U.K. with HS2. The GBP 1.6 million restructuring number relates to the impact of exited businesses, the divisional restructure and associated cost reductions. The AMEA division was down by GBP 11.4 million. This division was the one most impacted by COVID, particularly in Australia and the Middle East and Africa, with lockdown and border restrictions that affected productivity, as reflected in the GBP 10.6 million block. There were some project execution issues in Australia and in the Middle East that we separately call out. We signed a settlement agreement on Mozambique in November, which largely [indiscernible] the losses we showed at the half year. There is an element of Mozambique in that block, given that it was profitable in 2020. There was a volume increase in the region, particularly in Austral and India that contributed to the GBP 9.1 million. Increased costs in the [ central ] gets you to GBP 92.8 million operating profit for 2021. Moving to the next slide, I will cover off non-underlying items. Again, the income statement, but this time focusing on the middle column, non-underlying items. Non-underlying operating costs were significantly down on the levels from recent years. The breakdown of the GBP 9.6 million operating cost is provided in the analysis box. It is predominantly made up of exceptional restructuring costs incurred in Europe and in AMEA on the further restructuring of the Middle East and Africa business unit. About GBP 5.4 million of the non-underlying operating cost of GBP 9.6 million is cash related, with GBP 1.6 million spent in 2021 and the remaining GBP 3.8 million coming through in 2022. The tax credit of GBP 10.6 million reflects the tax benefit of the above items at the appropriate rate, plus and more significantly, the benefit of historical tax losses in Australia and Canada coming available as the profitability of these jurisdictions is more assured. They go through non-underlying, and this is where the provisions went through originally. The sum of all items across underlying and non-underlying performance gives a post tax statutory profit of GBP 62.1 million. I'll now move on to cash flow. This page shows the summary of cash flow from operating profit down to net debt. First thing to be said is that 2020 was an exceptional year for cash generation given how our working capital cycle works. We are a positive working capital business. So when the business declines, we generate high levels of cash as in 2020. In contrast, as our activity ramps up, the pressure on working capital increases. So whilst there is a big free cash flow variance, 2021 is still a pretty good cash generation year as we kept net debt relatively flat after spending GBP 31 million on acquisitions. In the bottom box on the right, we highlight the net debt on an IAS 17 covenant basis of GBP 119.4 million, a marginal reduction from 2020. Leverage on a lender covenant basis at the year-end was 0.8x, within our target of 0.5 to 1.5x. More on net debt later. As mentioned, the biggest driver of the free cash flow was the working capital movement. As activity ramped up, particularly in the second half of the year, all aspects of working capital have grown, including inventory, driven by steel purchases in Suncoast. Our CapEx and depreciation continue to align, albeit there is a net increase of GBP 9.7 million in CapEx, reflected of the increased activity. Other callouts, the lower finance costs due to lower average borrowings and reduced interest rates, tax cash payments, reflecting the lower payments in the U.S. given the R&D tax credit mentioned earlier. Acquisitions, GBP 20.7 million of the GBP 31.3 million related to RECON and the GBP 7.1 million relates primarily to the Cyntech disposal in Canada. We shall now move on to look at the summary balance sheet. This slide shows a summary balance sheet at December 2021 compared with the amounts of December '20. The movements are set out in the table, items of significance is the increase in intangibles, including goodwill for the acquisitions during the year. And the movement in assets and liabilities are reflective of the increased activity levels referred to earlier. The next slide provides some more detail on the net debt profile during the year. Looking at the trend in the graph, you can see the increase in net debt driven by the ramp-up of activity levels and the acquisitions in the second half of the year. The teams have done very well to manage the working capital to the levels achieved for year-end. Net debt did decrease by GBP 1.5 million, with average levels decreasing by 20%. We have operated well within our covenants throughout the year, with leverage of 0.8x at year-end against a limit of 3x and interest cover at 30.5x against a minimum of 4x. At year-end, we have GBP 291.9 million of undrawn borrowing facilities. And as a reminder, our facilities comprised of a GBP 375 million multicurrency RCF expiring in 2025 and the USD 75 million private placement expiring in 2024. We repaid the USD 50 million private placement that expired in October 2021. 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 talked about as we step through 2022. Suncoast margin, the impact of steel costs expected to gradually unwind in 2022, and that's macro dependent. And hopefully, that still holds despite what's happened over the last couple of weeks. Larger projects in North America, the RECON contract and Hampton Roads in Europe for us, HS2 and SMS2. M&A, we continue to pursue suitable bolt-ons. Operating profit percentage, we do expect that to improve in 2021, given some of the hits we took in 2022 -- given some of the hits we took in 2021. OP phasing, I think we're back to the usual H2 bias interest in line with 2021 and a tax rate. Following the impact of the R&D tax credit, we expect to revert back to a higher number, albeit at a rate closer to 26%, given the reduced provisioning as a result of us exiting far from territories in recent years. FX rates, macro dependent. And on cash and debt, working capital will continue to come under pressure as activity ramps, but we do continue to expect to be in the 0.5 to 1.5 target range. That's it for me. Thank you for your attention, and I'll now pass you back to Mike, who will take you through the business performance update.

Thank you, David. Now, for the review of business performance. And I'll start with the order book. The first thing to mention is that the order book is at a record high to GBP 1.3 billion. It's a reasonable quality and geographically, it's pretty evenly spread and gives us coverage for the next 6 months or so, gives us momentum certainly through a large portion of 2022. Conscious that the company hasn't always been as good as it might have been in terms of highlighting large material contracts in the ebb and flow of the same, I have highlighted at the bottom there, our 2 largest contracts, those being the LNG win in RECON, so about GBP 1.2 -- sorry, GBP 120 million over 2 years. And secondly, the cluster of contracts around HS2, which is a little over GBP 100 million, which will gradually unwind over 2 to 3 years. They will, I don't doubt, grow slightly and probably extend slightly. But I think it is important to highlight them to you. And also, to highlight as they do unwind, of course, the order book will decrease as a consequence of that. In terms of moving to the divisions, first of all, North America. I'm very pleased to say that Eric Drooff, who's taken over from James Hind, who retired at the end of 2021, is settling in very, very well. In terms of 2021, I think North America foundations in the round, all things considered, had a good year. I think Canada, led by Curtis Cook, had an excellent year. He's gradually -- him and his team gradually rebuilt that business and put it in very good shape over the last 2.5 years. In contrast, as David has mentioned, Suncoast, especially the high-rise part of that business, had a pretty tough year. And I think in overall terms, volume has held up probably better than we expected. But in terms of the margin compared to pre-COVID levels, clearly, we've seen some market pressures coming through. In terms of labor shortages and the like, whilst it's been quite acute during 2021, in the latter part of the year and beginning of this year, that's beginning to abate a little bit. And that, together with various other factors gives us confidence that as we move through 2022, we will see the beginning of a gradual recovery in the margins. In terms of acquisitions, clearly, there was RECON. And it's very pleasing with RECON, because it's the first reengagement of any size. And I'm very pleased to say that we got exactly what we thought we were going to get. And the process of integrating that business has been -- has worked to plan. They're on our systems, they're with our management systems. They're on our IT systems. John Carpenter, who's leading the group as part of -- in concert with Moretrench Industrial is actually plugging them in and connecting and networking them with the rest of the group very, very effectively indeed. So in contrast to some of our historical acquisitions, this is following the model which we want to pursue in the future. We buy things that make sense that actually adds to the whole, and we can actually integrate and integrate very quickly. And I think it's fair to say as well, between Moretrench Industrial and RECON, those 2 businesses do establish a very good starting point for developing an environmental geotechnical and industrial services company for the whole of North America, which is a market which, frankly, we have not been as strong and has not played in as much as perhaps we should have done in the past. And that sets us up very well going forward. Voges and also Subterranean, again, 2 much smaller acquisitions, but have the sweet spot in terms of building up our market share in their relative territories. So they've gone on very, very well and indeed, are also integrating well. Order book, up roughly 1/3. If you take out the LNG contract, it's something about 12% or roughly in line with volume overall. Moving on to Europe, led by Jim De Waele and his team. Jim has been in post a year now. And in terms of, if you like, the development of his team, like in a little bit in terms of maturity, if you like, in development compared to North America who got a bit of a head start, but nonetheless, the team is doing well. They've restructured this year, as you can see, downsized the headquarters, made it more rightsized for the redefined geography that the European team have. And at the same time, they've reorganized one of the business units in terms of consolidating 2 of them into what's now the Southwest Europe business unit. And in doing so, they're recognizing that our business units have to be at a certain size and scale to make sense. And that's something which we're constantly looking at and constantly refining. And finally, on the strategic side of things, we had a nice little tidy bolt-on in our JV in Finland, which, again, establishes that entity as the market leader in the geographic scope which it plays. And again, that has been very, very well integrated. Business-wise, they've also had a little bit of momentum going into '21. And part of that was recovering from '20 and some of the trials there. And part of it is also additional volume from the likes of HS2, which feeds through very nicely indeed. Overall, I'd say this market was slightly more impacted by COVID and the disruption than North America, but less than AMEA, which I'll come onto next. AMEA was impacted, by far, the worst in relative and absolute terms by COVID. And Peter Wyton and the crew, I think, did very, very well in terms of dealing with that. But nonetheless, it did have quite significant impacts takeout in particular, Australia, where the interstate lockdowns meant that we had people and equipment in the wrong places, and that could absolutely havoc in terms of efficiency and delivery to clients. And the whole of that, I think, was compounded in the Middle East and Africa by what were essentially pretty poor market conditions in that particular business unit as well. So that was pull market and COVID, which didn't help at all. So whilst Keller Australia and the Middle East have had, if you like, a poor year, in contrast, I think India, ASEAN and Austral, despite pretty difficult conditions in terms of trading, all of those performed very well indeed, and they're actually very well placed as they move into '22 as well. The other thing which I should draw your attention to, and I think David has mentioned it earlier, is just to reiterate that we did secure a very good settlement in terms of the LNG contract in Mozambique. And that was interrupted by terrorist activity. We got a good settlement, and that has actually protected the balance sheet and actually put us in a very good position at the point in which that contract should restart. Moving on to ESG. For me, it's an increasingly important area. And to focus on everything is to focus on nothing. And so we've picked, from a global perspective, 4 SDGs, which we are focusing on monitoring and developing across the whole of the group. There are several others locally which people are adopting, which are context-sensitive, but these are the ones which we cover across the whole of the group. I will be talking about 3 of them today. The one I won't be talking about is governance. We've done a lot on governance before, so that's -- I'm sure everybody, we're quite familiar with that. The one thing I would say, though, is a big thank you to all shareholders, investors who participate in our recent shareholder survey. The feedback from that has been very thoughtful, very high quality and certainly, from my perspective, is very, very useful. So to everybody who invested time in that, thank you very much indeed. We will be using it. Starting with safety then. John Raine and the team, the HSEQ team, I think, have done a brilliant job in keeping everybody engaged and keeping the culture momentum developing in terms of the group. And that shows in the results, AFR, TRIR continue to come down. And if you look at the events and activities behind that, it is substantive and it is pervasive. It is very good indeed. Tragically, we did lose a long service and valued colleague last February last year. And whilst both internal and external investigations, which were all very thorough determined it wasn't our fault. It was nonetheless, another point where it gave you that sparking momentum to actually just try that a little bit harder. COVID, I think, was the trigger point, if you will, for us developing a well-being program. I think, like, a lot of companies, we've recognized that COVID has taken its toll in this area. And frankly, it's actually shown a light on something which was always there, we just haven't really recognized perhaps as much as we should. And the framework there, I think, is excellent and will develop over time. Which brings me on to COVID. I mean, our workplace disciplines and some of the protocols we've got there have worked very well indeed. They've been flexible, they're very responsive, but they have worked well. Unfortunately, we have lost 8 colleagues during the pandemic. And those individuals, pretty representative of the risk groups at large. And it's no accident that we have been absolutely pushing the vaccination theme as a way of protecting against that, and we will continue to do so. To the extent that the donation to COVAX was, if you like, representative of that theme of and support for getting -- propagating vaccinations. I mentioned earlier on that we would talk about the Ukraine conflict, the war in Ukraine. For us, the immediate impact of this is very much humanitarian. We have 2 employees and who were based in Kyiv in a small representative administrative office. They have now moved to the west of the country. We have a little over 20 employees who largely work in Poland who are Ukrainian nationals. We are being supportive of them as we possibly can be. We've relocated 3 of their families. We're doing humanitarian aid. There's minibus with 2 drivers who've provided support to our employees and anybody at the border at the moment, and we'll continue to do that. From a business point of view, immediacy, there's no impact at all. There is -- we have no business in Ukraine. We have no business in Russia. And indeed, for some time, we've avoided any business in Russia at all. I do suspect though, in the fullness of time, there will be an indirect impact, because Ukraine was a good producer of steel. Russia is, too, and they both export to Europe. I don't doubt that will have some impact, some ripples in terms of steel prices short term. And of course, with the barrel price of up close to 140, there's an inevitable impact with respect to some of the fuel increases, which for us, will manifest itself in diesel. That, we will undoubtedly pass on to our clients. And indeed, in many cases, we're already protected against inflation in that area, but it's something which we will reinforce. Addition to that, of course, it's going to be the confidence of our clients in Europe in terms of just net demand, but that is clearly something which will affect everybody. On a happier subject, International Women's Day. This is, I think, a very exciting area. Some of our team have done some great work in this area, and actually got people quite excited about this. And indeed, when we talk about carbon a little bit later on, that also. We recognize we need to maintain being an employee of choice in a market which actually has a shortage of skills and shortage of key people. So this actually is a business positive no matter which way you look at it. During the year, and inspired by people who work for Graeme actually, we've developed our inclusion commitments, and you can see some of those there. And one of those is to actually to celebrate what we do as you go through the year. And the video you saw earlier on is part of that. And today's theme, in terms of International Women's Day, is a good point in which we can actually celebrate progress in this area. This year's theme overall, breaking the bias is something which we will support as we go forward. And talking about going forward. This is just -- I'm not going to go through each of these things, but it just shows you, if you like, the timeline of some of the things which were done in 2021. And pleasingly, it started with this establishment in all of our divisions, our Keller Women in Construction Group, which started in North America, but it's very quickly propagated across the world. And from my perspective, and I do go and quietly check this, I'm really pleased to actually does get the support of the divisional BU management in a proper sense. They don't -- it's not tokenistic. They do get stuck in, which I'm very pleased to see because the worst thing I think is to find that this is actually just a tick box exercise. And it's not. They're actually after it. Some other good things on this, though, is there's some very good toolkits, some very practical toolkits which the team have developed, which it can roll out to the leadership group to help them in the process. And also, as part of our quarterly reviews, diversity -- gender diversity, as well as safety, as well as some of the stuff we're doing on carbon. That all becomes part of our internal monitoring protocol, just to keep focus on it and keep people moving along as we go. Which brings me on to carbon. This is another slide, you wouldn't believe how long it took to develop this slide and how many people at various stages in the middle of the night, were crafting this. Because they're all very excited in this particular area. And rightly so. I mean, if you start in the middle, the donut there really shows, if you like, the different parts of the 4 scopes, which we have an impact on. And the 3 scopes in our control, we've now set net zero targets for. You can see from that, that the biggest scope, which is Scope 3 Materials is the one which we actually have the least amount of immediate impact on, but we're going to work towards it. We do have some design impacts on that, and we will continue to leverage that. But in the main, it's down to the materials and design that the client chooses. Scope 1 and Scope 3 are things which we've set longer dated targets awards, but nonetheless, are engaged with activities now, which can actually impact and influence those. Scope 1 is -- sorry, Scope 2, whilst it's the smallest lever there, it is the one which we actually know the most about and have measured the most, historically. And so we're starting there to actually commit to a 10% reduction every year and indeed, management incentives are actually, I mentioned around that and targeted around that. And it's a way of actually starting the process of getting people engaged in this particular activity in a way that what gets measured gets done. And I'm very pleased with the way that people have responded to this, because I'd say that target is set all the way through the company now. And as we go forward, this year's Scope 2, 2 years down line, it might be moving on to Scope 1 as we develop that agenda and get better measurements there. But a tremendously exciting area. Moving on to strategic progress. This particular slide, which you've all seen before, is probably the slide I used the most in all of my presentations. I use it in all of my leadership meetings. And indeed, I had an IT global leadership meeting last week and this was the second slide in. And the thing is to actually bring the whole team back to the fact that everything they do should be aligned to our strategy. And if it's not on that slide, then frankly, you shouldn't be doing it, because it brings alignment, then into the whole of what we do. And it's gradually, gradually working. What I'm now going to move on to is 2 slides, which -- the format which we will retain for the next couple of sequences, really. And that is, first of all, to talk about the strategic progress in 2021. And then subsequently, what I'll do is sign post what we are trying to prioritize in 2022. If you look at the top box there, I've already talked briefly about these. We have restructured the business units in Europe and consolidated the French Beacon units with Iberia LatAm to recognize the fact that those business units do need a certain size to make sense. And it's quite interesting, because in terms of bringing those 2 together, we not only save cost, but we also actually enhanced their ability to cross-sell, which is something which we've missed before. And certainly from my perspective, I'm now alert to, if you like, unseen boundaries between business units in terms of the way in which they cross-sell. Because there's activities now which are taking place in that combined business unit, which wouldn't have occurred before. And that's a bit of a wake-up call, frankly. There's also the rightsizing of the European HQ, which happened early on in the year, but pleasingly, went to plan. And in Europe, in terms of restructuring, it's always a bit of a challenge. And the fact that we had a plan and worked it and it came out right, I think was good. And in terms of M&A, we've talked through some of these already. We are developing standardized gated process for acquisitions. Part of that is to actually make sure there is absolute discipline about it, both in Keller and indeed, some of the historical companies I've worked with, you have to be absolutely alert to making sure acquisitions are well founded and actually fit the commercial strategy and the financial strategy, and that's what we're seeking to do. I've already mentioned, John Carpenter has done an excellent job of plugging in RECON. And one of the acid test for us is really to make sure that when we acquire something, we can bring it into the rest of the company and assimilate it and integrate it and make sure that the sum of the parts is that much more valuable as a consequence of it. In terms of priorities for 2022, the first part of this in terms of portfolio is a bit like painting the Forth Bridge. It's always ongoing. You're always trying to do a little bit more as things evolve. And I think we've dealt with some of the more obvious things we needed to deal with in terms of our portfolio. I think, as we emerge out of COVID and we get to see a truer performance profile of some of our middling business units and activities, there may be a few little bits to tidy up as we move forward. And we won't [ shy ] away from doing the right things with those, and I don't expect them to be big, but there'll be things around the edges. In terms of M&A, there will be selected bolt-ons. We're not in a rush. We've got the firepower to do it. We will be selective, but we're not hell-bent on doing it whatever we do, we'll either derisk or accelerate our strategy. It's there for a reason. We will be looking for local market share dominance and leadership, and that leads to virtuous outcomes in terms of cash and margin. That's what we've been seeking to reinforce. In terms of performance, there are various local initiatives, which you're indulging in terms of here, that will help us gain market share and also improve our margins. And they tend to be local initiatives, cross-selling is a good case in point. And we've got a strategic process, which is just about to kick off, which will reinforce that particular part of this particular management cycle. And it is, again, to alert people to the importance of making sure that they go deep as opposed to wide. And then finally, in terms of the global initiative of implementing best practice here. Historically, the group has been a periphery of different management activities on different systems using different processes. And what we're seeking to do here is to identify the best practices in the group, specifically to do with project execution which is, frankly, what we do. And to actually make sure that we can leverage that knowledge across the whole of the group using a new ERP system. Now, when people mention the ERP systems in form like this, people start to get a little bit nervous. You shouldn't get nervous, because this is something which both David and I have done before. Katrina, our CIO, who's leading this charge, has done many, many, many times before. We have the best and brightest on the team and we are going to take it very, very slowly. And we'll template it. We'll implement it on a couple of smaller BUs. And it only once that's proven and proven well where we actually gradually move it to the rest of the company. This is a multiyear program. And frankly, I'm hoping by year 5, you're just bored of seeing it on a slide, and it is an exciting in that respect. Moving on to the summary and the outlook. And this is a little bit like news at 10, but I'm going to replay it. I think for us, 2021 for Keller has been a good year. It's been a resilient year. And David has taken you through all of the details of that. And if you -- I'm sure you'll have some further questions, which we'll answer in a moment. It has pleasingly unfolded pretty much how we expected. And frankly, the team have responded really positively throughout that year. So from pretty difficult conditions and responses be it. The presidential executive order at one end or be it lockdowns at the other or material shortages or people shortages, people have been ducking and diving, and making sure we've delivered for clients and kept it profitable in the meantime. So I've been very, very pleased the way it's responded. In terms of strategy, despite certainly in the first half of the year, the lack of access and lack ability to actually engage with some of the management, we have kept the momentum behind that. There's been some nice little acquisitions. There's been some restructuring, and there's been some reorganization. I'm hoping that as we go through this year, we can actually add a little bit more momentum to that, as we're able to travel more and actually get more involved. Which brings me on to the outlook. I mean, from our perspective, the residual effects of COVID are beginning to recede. It's variable by geography and different nations responses to it. But as a general thing, I think in markets, we're beginning to get more confidence and get more activity in there. And it's largely that, that's actually given us a positive step-up for our ambitions for 2022. I think when you consider the effects of the war in Ukraine, and frankly, depending upon what happens in the next couple of weeks, a couple of months, that will clearly have a macro overlay on top of that picture. And in particular, as I mentioned earlier on. Some of the input costs and the way that's passed on to our clients. But more particularly in Europe, I think the confidence around some of the demand. And we'll see what happens in that regard. However, where we're sitting right now, we do have a big order book in front of us. We do have a bit of momentum behind the order flow. And the business is in good shape to exploit the opportunities which are in front of us. So certainly, as far as 2022 is concerned, I think we're in a pretty firm footing. You will see more M&A as we go forward. And I would caution to say that it will be focused -- it will be things which fit what we want to do. But it's -- put it out there, so it doesn't come a surprise to anybody. And we do expect 2022 to be materially better than this year, and it will probably have the second half bias, which we're used to. That's been a feature of the business for some time. And last but not least, I think the Board is -- will be taking a look at the dividend again. We've had a couple of years, 4 years now, where it's been flat. As we return to growth, it is a natural time where, in terms of capital allocation, and I view that's something which we will naturally consider. Absolutely no promises, but it's -- I'm sure people will ask and preempting that question to say it will be on the table as we go through the year. And all of this is to really live by our purpose, which needs to go about building the foundations for a sustainable future.

So with that, I'm going to hand over to Q&A session. And I'd remind you, there are people in the room that we should be waiting for -- a microphone, please.

Joe Brent at Liberum. Three questions, if I may. Firstly, could you give us the organic revenue and profit growth in constant currency for the year? Secondly, on COVID, do you very helpfully give the profit impact for '21? Clearly, you have a budget for '22. I'd be interested, I think, to hear what your assumptions are, roughly. Do you expect it will be a quarter or like maybe half of the impact that you saw in '21? And finally, can you just elaborate on the ERP costs in terms of CapEx, in terms of P&L as well, please?

Well, I'll tell you what, we'll answer them in reverse order, and I will deal with question 3 and half of question 2, whilst David collects his thoughts on question 1, and then the other half of question 2. On ERP, it will be a mixed year -- we haven't quantified the costs on the ERP. Clearly, we have a business case internally, which we presented to the Board and is authorized. And I expect that, that business case as we go forward, we learn more, will morph. It is a very solid business case, well thought through. There's nothing which I think should affect people's models, which, I guess, is the angle of the question in terms of impact, in terms of the way you go about modeling it. Because as I say, we're going to take this very slowly. Some of the cost -- the external costs will be capitalized, but it's not going to be a huge number. And it is going to be one of those things which we will amortize and absorb into our normal flow of results. And that, if you like, reflects the fact that we're [ waving hands as ] so we're going to do it, but it's not something which is a big bang, it is something which we're going to do progressively. In terms of COVID, I'm sure David will have a view on this. My expectation, in terms of margin. If you think about the normal recessionary effect, you have a drop in volume that then causes a fight for [indiscernible] market share and you have a drop in margin. And then when you start recovering, the volume recovers and a little time afterwards, the margin recovers. And I think we're in that third zone, if you will, generally across the globe. And I think progressively, through both market pricing and indeed, the market disruption from COVID -- over the next 2 years or so, what we've seen in 1 year will gradually come back. Now, whether it's 1/3 or half or 1/4, it's hard to tell at this point. but I certainly expect it to recover a reasonable amount next year, progressively over the next 2 years. And frankly, we'll begin to see that as we go through -- My anticipation as we go through the quarter 2, quarter 3, we'll begin to see that in the margin in the order book.

Just to follow up on that. Do you think the whole COVID costs will come back over 2 years?

I'd say 3 years. It's of that sort of order.

Yes. I think that's fair enough. I think if you look at those blocks there in the waterfall, I think we look to eliminate a lot of those in '22. But I still think there'll be that pricing pressure. And particularly, in AMEA where we had the restrictions and border closures. They are starting to ease up. So hopefully, that should turn quicker on that block. It should be no way as big as next year. And on the first question, the organic growth was 9.7%, excluding the acquisitions. There's about GBP 40 million of revenue associated with acquisitions in '21.

Sorry, is it the profit number as well?

Profit wouldn't -- that it's marginal actually in terms of those acquisitions that came through. In terms of the acquisitions that came through year-on-year.

Jonny Coubrough at Numis. Two, please. Firstly, in terms of cost inflation at Suncoast, just keen to hear your thoughts on the impacts if steel prices remain stable and what the propensity is to offset that in terms of procuring early or writing that into contracts? And then secondly, in terms of labor availability. I mean, you spoke there about your diversity initiatives. Are you seeing any particular labor shortages at the moment in any areas? And what are the dynamics of that expected to be over the next couple of years?

Okay. I'll deal with the second question. We've got this. We're going in reverse order on this one. I'll deal with the second question and then hand over to David [ for ] anything that involves numbers. In terms of labor, it's very situational specific. I think, as a generality, it is beginning to ease a little bit. If you think about somewhere like North America, where both government and indeed, state level aid is gradually to employment market has been withdrawn, you are beginning to see more people come back to the market. And at the bottom level of the permit in terms of the workforce, we are seeing more people come back and therefore, there's more availability and there's less pricing pressures there. That's a huge generality. You are, in contrast to that, seeing pinch points elsewhere. So for instance, HS2 and some of the work around there exacerbated by COVID and exacerbated by the difficulty of getting skilled people in from Europe on certain trades. That can be quite challenging, and that is quite competitive. And frankly, from our perspective, if that project was to elongate over time, from an employment market point of view, that wouldn't be a bad thing. C1's absolutely on time. It's doing very well. So that's how [indiscernible], but it's very situation specific.

Just on Suncoast and steel prices. So I think the question was around if steel prices remained stable. So I think if prices remain where they are, then there would still be a bit of a block in terms of that GBP 15.3 million in 2022. And a reminder, that GBP 15.3 million is year-on-year profitability. I think if prices decrease, then we should expect that to reduce and eliminate. And actually, if they decrease even further, we'd expect to get some of that coming back and unwinding in 2022. I think, if you asked this question a couple of weeks ago, we see the hot roy -- rolled coil which is an indicator of the strand price, reducing and particularly, in the second half of the year. But given the geopolitical crisis that's happened over the last couple of weeks, we haven't seen that impact come through. And if that does, it could well impact the steel prices.

Clyde Lewis at Peel Hunt. I think I've got 5, maybe, even 6, but can you update us on Mozambique, where your latest expectations are, I suppose, for restarting that project? Are there any other claim settlements being discussed that might provide another little surprise as we had last year, just sort of where we are on that? Coming back to steel, can you give us an idea of what your total spend on steel is across the whole group in a year? And a similar sort of question, really, around oil and energy as well. Just to give us a sort of quantification on that front? And the last one -- well, for now anyway, was on M&A pipeline. Obviously, the bulk of what you did last year was in North America. Should we be expecting a similar sort of geographical, sort of focus for the time being?

Okay. Well, I'll talk to 1 and 5.

I think I can do the rest.

Okay. I had 1 and 4, but anyway -- In terms of M&A pipeline, the 2, if you like, lungs, which we're trying to grow up in terms of our key markets, clearly, is North America and is Europe. And I think naturally, because the North American market is less vertically integrated, and there tends to be more self-built businesses, which come up for sale more frequently, that market, in itself, is an area where I suspect we will have more opportunities in terms of M&A than we do in Europe. That having been said, there are some opportunities in Europe, which we're looking at the moment. It's also fair to say we have turned down several numerous opportunities, where it either didn't fit, price expectation was wrong, culture didn't fit. A variety of other reasons. You see the ones which get to the end. There is a lot that don't. So I suspect, if it was 3 over there and 1 over here next year, that's probably similar. In terms of Mozambique, it's kind of watch this space. The facility is supposedly being secured. And we haven't received an instruction from client to remobilize yet, but things are looking more positive. I doubt we'll see much, if anything, this year. I think it will be the tail end of the year before they really get to our part of it, because they do have to resecure the compound, they need to reinstall all the facilities there and regain access. So it will be -- it will take a little while before that happens.

Okay. In terms of claim settlements, similar to...

There's not much, really.

No, there's nothing, really, in the pipeline that we would expect to come through that whatever material impact like the one we had in '21, looking along those fronts. In terms of steel and fuel, I mean, we don't really capture the total steel cost across the group. And I think that's one of the reasons why we've put in a common ERP system, frankly, is to be able to gather data at that level. But having said that, actually, because of the nature of the business and particularly, we have reinforced with the leadership teams across the globe in respect of commodity pricing and making sure that -- making sure that there is escalation clauses in contracts, such that we can reduce our exposure as much as possible. And that covers steel, it covers fuel, and it covers labor as well for that matter. I mean, the high-rise business in Suncoast is the area where we do have that -- where we do have that exposure, and it's a bit more difficult to do that. But for other areas, we expect the teams to stay on top of it. And along with that, because of the nature of our contracting portfolio, with the short duration of contracts, we do get the opportunity to reprice in respect of new contracts.

I think in terms of our 3 largest consumables, cement concrete, steel and fuel are the biggest. The top 2 of those is not uncommon for the client to supply them, self-supply, especially on a larger project where they will have a concrete facility, which is doing lots of different activity on site, we'll just pick it up from there. Fuel tends to be the one which we need -- just need to be a little bit more alert to, because it's the one which contractually is least often addressed. And that's what we'll -- that's why, in the last week or so, Dave has been writing to all of the MDs and [ FDs ], just reinforcing the need to make sure that, that's got cap and collar around it.

As part of the sort of scope -- I forget which one it is now, probably the Scope 3 operational, you haven't yet sort of calculated how many liters or gallons...

We do, actually. He neatly avoided that answer because whilst we don't -- we don't do it with respect to steel, because of what I've just said, it's not always in there. In terms of fuel and our carbon calculations, we do. And we do know what the spend is. We just never -- we haven't actually published it anywhere. And it is something which historically, we have, in instances where it has been volatile, we passed it on to the client pretty quickly, and we would seek to do the same now. Well, I believe there's no further questions in the room, and there's none on the telephone line either. Which means, David, you must have given a brilliant presentation. You've answered all of the [ remaining ] questions. So thank you very much, everybody. And thank you very much for your participation today. And it is -- as David said earlier on, it is very exciting to actually be doing this in person. It's very much more real, and it's greatly appreciated you coming. So thank you.