Keller Group plc (KLR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Keller's preliminary results for 2024. First, some housekeeping. There are no programmed alarms for today, so if something does happen, it is for real. If we go out through the door, you'll find there's a fire exit just on the right-hand side and stairwell going, spiraling downwards. Could I ask for everybody just to silent their mobiles? And with that, we will move on to the presentation itself. You'll see, as we go through the results today, we have another outstanding set of results for you today. A year ago, when we stood up here, we presented you a set of results, which were a step up. The 2023 results moved forward compared to previous years. And the question which was out there at the time was, is this a one-off or is this something which we can sustain? You'll find as we go through the 2024 results, that question is very clearly answered. This is a step-up beyond what was already a step-up, and you'll see that as we go through the results. We're going to follow our normal agenda. I'm going to carry a bit of a summary at the beginning. David is then going to go through the detail in terms of the financials and some of the details within there. I will then come back and cover the divisional business summaries and some strategy before finishing off with a summary and outlook towards the end. Moving on to summary. Really, the clue is in the banner line, much like last year, another outstanding set of results, ahead of expectations, with improved performance across all of our key performance indicators. Revenue 4% up; profit, 22% up, margin increased by 100 bps. The order book is at all-time year-end high. Leverage is an all-time low. And particularly pleasing is the improvement in safety, in our accident frequency rate, which is halved compared to last year, which is already a good result. And frankly, out of all of these things, that's going to be the most difficult to sustain, I suspect. In terms of a summary, firstly, we've substantially improved in recent years and that is -- as you can see, has been demonstrated in recent results, and that is being sustained. Secondly, looking forward, if you look at the structural resilience of the business and the disciplined execution of our strategy, we have the belief that we can continue to grow further in the future despite the challenges which we face externally at the moment. And thirdly, that belief is evidenced by the Board's decision to increase the dividend by 10% and that's in addition to the step up last year. But also to initiate the share buyback program which was announced today which will begin by the end of the first quarter, and that's for the value of GBP 25 million. And that will be a multi-year program, starting with this first tranche. All of that is, I hope it was taken as an optimistic tone. And with that, I'm going to hand over to David.

Thank you, Mike, and good morning, everybody. As Mike mentioned, 2024 was an outstanding year as we continue to build on the material step up in operational and financial performance delivered in 2023. We've delivered improved performance across all key financial metrics, profits, earnings, margin rate, return on capital, cash conversion and debt reduction. So in the financial results section, the key highlights to watch out for are the underlying operating profit growth. I will share with you an understanding of the year-on-year movement. Following from that, the very strong free cash flow generation, which is gravitating us to net cash, creating a very strong platform for the future. And finally, we'll go through some look-ahead modeling considerations for 2025. Okay. Let's start with the P&L. This is the full P&L showing underlying operating profit of GBP 212.6 million. The reduced level of non-underlying of GBP 7.5 million gives us a bottom-line statutory profit of GBP 142.7 million, an impressive increase of 59% versus 2023. It's worth noting with the journey we have been on, this is a 6.5x increase on the statutory profit from 2019. Let's look at underlying first. Looking at revenue, we have solid revenue growth of 4% on a constant currency basis. Volume was up in North America by 4.2%, driven by foundations growth, partially offset by Suncoast as a result of the residential slowdown and RECON due to lower levels of activity in the LNG projects. Europe and Middle East increased revenue by 5.5%, reflecting improved performance in Europe and the completion of a large infrastructure project in Central Europe. APAC revenue reduced by 2.1%, driven by a very strong prior year comparative in Australia, lower volumes at Austral, reflecting focus on margin over volume and steady performance in the other business units. It is very pleasing to report an underlying operating profit increase of 18%, and our margin rate increasing 100 basis points to 7.1%. I'll bridge that operating profit in the next slide. Net finance costs have decreased by GBP 6.3 million, driven by the lower average net borrowing levels due to the strong cash generation. And taxation at GBP 43.9 million is at an effective rate of 23%, reducing since last year, predominantly driven by profit mix. The underlying earnings per share has increased by 30% to 199.9p, driven by the improved underlying profitability, lower finance costs and a reduced tax rate contributing to the higher growth level compared to underlying operating profit. The Board has agreed to propose a final dividend of 33.1p, bringing the total dividend for the year to 49.7p, a 10% increase on 2023. We'll now move on to the operating profit bridge slide. Moving from left to right, starting with 2023 underlying operating profit of GBP 180.9 million, there is an FX impact of GBP 6.6 million due to the dollar strength against sterling compared to 2023. So coming to the North America division first, which is up GBP 26.3 million versus last year. Foundations volume relates to growth in comparison with last year, driven by busy markets in the South Central and North-East business units in particular. The foundations margin block of GBP 17.5 million is made up of a few factors. Firstly, a storm in Q1 given the business of the markets and with little or no impact from bad weather. Secondly, a buoyant market in South Central, where schedule and program were more important to clients than price. This resulted in robust pricing and tighter, more effective utilization of resources. Finally, the continuing impact of sustained improvement in underlying contract performance as a result of better project execution and focus on commercial discipline that we saw coming through in the second half of 2023. The next box shows the impact of lower price and volume in Suncoast driven by the reduced Residential Market activity, particularly in the second half. The combined Moretrench RECON business was down year-on-year, driven by lower volumes in RECON as a result of less LNG work. Now turning to Europe and Middle East, where operating profit was GBP 1.7 million down. The European businesses performed well, increasing profitability, predominantly by a large infrastructure project in Germany and the turnaround of performance in the Nordics region. The market conditions in Europe do, however, continue to be tough, particularly in the residential and commercial sectors. Middle East is negatively impacted by the prior year comparative, benefiting from work on The Line at NEOM. In addition, there is an ongoing challenging project in the region where we are currently in discussions with the client to remedy the commercial performance. The APAC division was up GBP 14.6 million, predominantly driven by the turnaround in Austral with consistent profitability this year compared to losses in the first half of 2023. The rest of APAC has performed well with Australia and India maintaining strong levels of profitability. Moving to the next slide, I'll cover off non-underlying items. Again, the income statement, but this time focusing on the middle column, non-underlying. We continue to tighten the definition of non-underlying across the business. The analysis box shows the items that make up the GBP 7.5 million, down from GBP 27.8 million in 2023, which we have split between cash and non-cash items. We continue to invest in the ERP program and the restructuring cost relates to the Group's finance transformation program that was launched in H1 with the setup of 2 finance shared service centers, one in Kuala Lumpur and the other in Warsaw, servicing the APAC and EME divisions, respectively. We will be looking at North America in 2025. The loss on disposal relates to the sale of the South Africa business to local management. On the operating income line, there is a non-cash credit of GBP 6.4 million arising from a change in the fair value of the contingent consideration related predominantly to the acquisition of a non-controlling interest of an entity in Saudi Arabia in 2023. I'll now move on to talk about cash. This page shows the summary net debt from underlying operating profit down to net debt. Free cash flow generation of GBP 192.6 million after interest and tax has been exceptional. This is an 87% improvement on 2023, which in itself was a stellar year. Building on improved profitability, working capital was well managed by the team, resulting in an inflow of GBP 27.7 million. This is mostly short-term timing around the period end. Net CapEx levels are reduced, driven by disposal proceeds, in particular, the sale of the Austral office and The Yard in Melbourne. And cash tax is lower as part of the 2022 liability payments slipped into 2023, as previously noted. Other call-outs, purchase of own shares relates to our Employee Benefit Trust acquiring to satisfy share award requirements and the GBP 2.6 million outflow on disposal of businesses related to the South African sale. In the bottom box on the right, we highlight the reconciliation of net debt on an IAS 17 covenant basis to GBP 29.5 million. Leverage on a lender covenant basis is 0.1x, outside the lower end of our target range of 0.5x to 1.5x. So more on net debt later. The next slide is the summary balance sheet. This slide shows a summary balance sheet with comparators for December 2023. For reference, we set out the movements in the boxes, which are pretty standard with no particular callouts, so we'll move on. The next slide provides some more detail on the net debt profile during the year. The cash generation from operations has driven the reduction in net debt. You can see the downward trend as we gravitate towards net cash. The Group's multi-currency syndicated revolving credit facility was refinanced in 2024, increasing the facility from GBP 375 million to GBP 400 million with no change in the related covenants. The revolving credit facility was undrawn and along with cash at period end, gives us headroom of circa GBP 650 million. This is a very resilient position and along with our cash generating capacity gives us confidence as we look to the future at organic and inorganic opportunities. We are well within all our key covenant metrics. Our leverage ratio is now at 0.1x, and we anticipate we will be in a net cash position during 2025, subject to M&A and the impact of the share buyback program with an initial GBP 25 million we attempt to launch in Q1. The next slide shows some look-ahead modeling considerations for the coming year. A few highlights to draw out. First, the divisions. In North America, in foundations, we do expect the buoyancy of 2024, particularly in H1 to normalize in 2025. At Suncoast, 2025 will be a full year of normalized pricing with weak volumes stemming from the depressed Residential Market. Europe and Middle East division. For the European businesses, we expect the market to continue to be challenging but with another year of good project delivery. In the Middle East, we expect trading to return to normal with no repeat of the one contract issue in 2024. In APAC, the division had a stellar year in 2024. We expect the same in 2025, albeit we expect the infrastructure market in Australia to come under pricing pressure as the level of spend reduces. Other items, phasing, H1 2024 was exceptional. We expect a more normalized position weighting towards H2 for 2025. Tax, we are guiding towards a similar 23% rate for 2025. However, it's heavily caveated on the actions of the new administration in the U.S. On cash and net debt, we will be net cash subject to M&A and where we get to on the share buyback program in 2025. I want to show you another slide to demonstrate that those outstanding results in 2024 do represent consistent, reliable delivery. Across all key metrics that we monitor and measure, in 2024 the Group has performed remarkably well, and those are highlighted here. With the last 3 years' comparators, you can see that this has been a steady build with the Group going from a circa GBP 100 million operating profit business to over GBP 200 million. Following on from this, our cash generating capacity gives a strong platform to be agile and confident in the future despite the uncertain geopolitical environment. That's it for me, and 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. You would have seen now the KPIs I referred to earlier in terms of -- it's across the board, this great performance. Moving on to something which is close to everyone's heart in Keller, safety and well-being. Again, we've had a really good set of performance in inputs and outputs in this particular area. John Raine and indeed the whole of the operations group, I think, this year has actually done a really, really good job. Statistically, in terms of outputs, we've halved the accident frequency rate to 0.05. That represents 13 accidents across 10,000 employees for the whole of the year. And in terms of those 13, 6 of them we would classify as critical, which is the first time ever that, that statistic has been in single digits. And that for us is a big, big, big achievement and will be very difficult to sustain over time. But nonetheless, we'll give it our all. In terms of total recordables, this hasn't -- this has reduced, but not by quite so much, which is good, in a sense that it means that people are not under reporting. It's actually the severity of the accidents and the incidence, which is coming down, which is excellent because it means we can say that people are not under reporting. In terms of initiatives, things which are driving that performance, you'll see that we're improving the strength of our assurance program. We're getting senior leaders more visible, more often out on-site, making sure that the key messages are being driven home. We're focusing on things which matter. So for instance, North America, the telematics implementation there has had a very significant improvement in terms of automotive accidents and the severity of those, which is great. That's a very difficult one to actually manage often times. Across the globe, you can see there the third Global Safety Week, that was a really great success. I had a lot of completely unsolicited feedback on that. And people were engaged, they were buzzed up about it. And because we invest behind it and we draw attention to it, people realize it's important. And that becomes self-fulfilling because all of a sudden, they take note, they take the key messages, they go and implement them. And yes, you have to reinforce it over time, but it's very important that people realize that it is important top to bottom in the organization, and that's a really good vehicle for doing that. And then finally, UNICEF and the foundation, it's not all about internal of the company, we also look to support good initiatives outside the company as well, be it the UNICEF fund or indeed the support for our Ukrainian employees and their families. Moving on to carbon, and I know there's lots of ebbs and flows into the way people are approaching the whole sustainability area at the moment. We will continue to do what we think is the right things in the right places in the right way. And this is a good example of that. You see here the 3 scopes of carbon. And they're reordered slightly because they're reordered in terms of the time scale in which we will take them to net-zero. So Scope 2 is by 2030, Scope 1 by 2040 and Scope 3 by 2050. They also happen to be in the order in which they size and magnitude to us. So Scope 2 is the smallest. Scope 3 is the biggest and it's by far the biggest. It's the one which is the most difficult to have an impact on, but the one which will, when we get to it, have the most material impact on it. You'll see from the slides there that in terms of our progress on the first 2 Scopes where we have formalized targets for in the short-term, we're making good progress. It's not plain sailing, and I'm sure it's going to get harder over time. But nonetheless, people are busy working away on those things and are chipping away every opportunity we possibly can in a sensible and economic and a proportionate way. Scope 3, I think we're beginning the journey with that. It's a lot more difficult, there's a lot more moving parts, you are a lot more dependent on third parties for information, and we're beginning to get to know what we don't know. And I think in successive presentations, you'll see us making more considered progress on that front. But it is by far the most difficult to work our way through. Moving on to the order book. Record year-end closing order book. What's not to like? In this uncertain world, it gives us great comfort that as we go through the first half of this year, at least, we've got something to go out, which is solid and is quality and it's evenly spread. There's nothing exotic in the order book that I wish to draw to your attention. This is a well-balanced geographically. It's well balanced in tenure, and it's a good quality. In terms of the -- as we move forward, as we go through the divisional things, I'll explore this a little bit more. But overall, it puts us in a very, very good shape as we go forward. And I'd say at this point that, in terms of tender levels and the levels which we're pitching business at the moment, that's pretty solid at the moment, too. Wherever you are in the globe, it hasn't changed much from the momentum earlier in the year. Moving on to North America. North America, as David talked to earlier, had a very, very good year. This division is now led by the newly appointed Paul Leonard, and he's slotted into that role very well. In terms of what's happened in the year, the first quarter, we had that great momentum as we came into the year. We had the first half where we benefited from the Suncoast pricing, the last bit of benefit from there. But all the way through the year, they've had a pretty reasonable momentum. As we go into 2025, though, I would urge you -- caution you to say, look, we had a very strong H1 in 2024 because of the factors I've just mentioned. 2025, it will flip back to its normal second half bias, so that's something to watch out for. We do expect them to continue to perform well. And it's certainly -- whilst we're not banking on quite the level of buoyancy, we had in 2024, the market is doing okay. Despite the change in administration, the momentum is absolutely being maintained. And if you look at the characteristics of the tenders and the bids, which we're looking at the moment and the quality and the competition for it, it's pretty much the same as we saw throughout 2024. And in some areas, perhaps even a little bit stronger. So from my point of view, I think North America is in a good place. It may not be quite so frothy next year, but it's solid. It's absolutely solid. Moving on to EME. This division is now run by Peter Wyton, who moved across from AMEA during last year and has got his arms around this particular division. Frankly, in the year, somewhat disappointing. But I would caution you to say the headlines here don't really tell the full story. If you dig a bit deeper, and David did that a little bit earlier on, Europe year-on-year is actually improving. Middle East, absent Saudi Arabia, has actually had an improvement. And it's really the performance of Middle East, which has shrouded the performance of the division as a whole. And clearly, we're doing something about that. In terms of market conditions, Europe, frankly, is still pretty tight. It's pretty flat. That doesn't mean to say there aren't opportunities out there. And there's going to be a thematic thing for us, I think of remaining agile and taking those opportunities as they come. And if you look at the Nordics, we had some very good results this year compared to the previous year. You look at things like the [ Grundbau ] tunnel in Germany. That was a technically demanding, commercially quite hard to negotiate project, which we've come out of very, very successfully indeed. And that's the sort of project, which we were looking for further on course of. It fits our remit absolutely perfectly. There's not many people who can do it, and we get paid properly for what we do. And those are the sorts of things, those are little nuggets, which we'll have to pick out across the whole of Europe as we go forward. And I would say, though, the general market, I'd say, pretty tight and pricing and margin remains pretty squeezed. Moving on to Asia-Pacific. Asia-Pacific is now run by the newly promoted Deepak, Deepak Raj, who has come through the business. Who is actually one of the characters who actually shows the strength of the development that's beginning to happen in the company. He had previously been working with -- in India. He worked running ASEAN and more laterally had actually been working in Austral and helping the recovery of the company there. Talking of Austral, I'm pleased to say we've now appointed a new Managing Director there. And as you can see from the results, the company is now set on a good path and is now out of special measures. Austral is the turnaround, the key step up year-on-year. It's fair to say that Keller Australia and India have had good years, but it's Austral that had the big turnaround and step up in the full year. Looking forward, as David mentioned earlier on, Austral is doing -- will do fine as we move forward. There's plenty of demand there. Keller Australia, as the infrastructure cycle weakens a little bit, it will become a little bit softer. I think, we'll just have to be a little bit more selective about the things we engage in and that's not unusual at this point in that particular evolution. India, I would say, right now, looking forward, tremendously busy, lots of opportunity, probably more than we can actually take on at this moment in time. And we just have to be very selective and very measured about what we do. Talking about decisions, moving on to strategy. This is the strategy we developed in late December 2019, which seems like a long time ago. Since we developed this, this has really driven and fashioned all of the key management and strategic decisions which we've undertaken with the business ever since. And it has served us well, served us very well. Given the passage of time, it's -- we thought it was a good time to actually revalidate the strategic process and the strategic statement and make sure that it was still fit for purpose, still appropriate as we move forward. And we're nearing the end of that review. We've had some external help, so we weren't conscious of group think. And the Board itself has been heavily involved in testing it and kicking it around. And where we've ended up is that, frankly, it largely remains absolutely valid for what we need going forward, which is pleasing. But it means that in terms of the next stage of our development, we're already pretty well set up to actually move forward. If you actually look at where we've come from in the last 5 years, you'll see that, really, we've concentrated on the top 2 blocks. We've -- if you think about the shrink concentrate growth cycle you often see in strategic processes, the focusing of the portfolio is really that shrink aspect of it. We actually pulled out of areas which were not good for us. The strategy is not difficult. You look at the characteristics where you're profitable and you repeat it. You look at the areas where you're not successful and you avoid it. That's exactly what that box is. It's saying, these geographies aren't good for us. We don't make good cash out of it. Let's withdraw from it. Let's focus on the areas which actually are good for us. And that's what that first box is all about. The second box is saying, right, okay, we're in those particular geographies, in those particular activities, how do we do them to the best of our ability? How do we execute them as hard, as fast, as slick as we possibly can and get the best returns, the most repeatable returns we possibly can? That's what that improved performance is about. And it's a mixture of hard things in terms of project management processes and procedures and all that kind of stuff. But importantly, vitally importantly, it's about this: culture, performance culture. And that it takes a little bit longer to instill in people. Some people get it, some people don't. Some people stay, some people don't. That's what this is about. And it's a bit of a journey, and that's positioned us well. And they're the sorts of things which have fueled the results, which David and I presented this morning. So what have we got to look forward to? Well, we're moving down to the bottom box. We're now into a grow mode. We've got ourselves in the right place. We're executing well. We now need to build on that. And that's where we are now. And we'll do that through a process of both organic and in some cases, inorganic, but it will be within the existing footprint, both geographically and from a technique point of view, and therefore, will be low risk in relative terms. And what we'll be looking for is, frankly, using our brains, looking for the stuff which is easy to grow into, where we can actually get better returns. And that's what we'll be doing over the next 5 years. Moving on to the summary and outlook. First part of this is a repeat of where we started this morning. We have had an outstanding set of results, slightly ahead of expectations. We've outperformed on all the KPIs. David demonstrated that at the end of his presentation. And in recognition of that, in terms of the history. And also recognizing our future prospects, the Board decided that we would increase the dividend up to 10% this year, building on the step up we had last year, and we'd also launch a multi-year share buyback program, starting with an initial tranche of GBP 25 million. And all of that just frankly, evidences our commitment and our belief as we move forward. Now why do we believe that? Well, we've got ourselves a record order book. It's balanced. It's there to fuel the company and the momentum of the business at the moment is good, both in terms of the execution we're doing in front of us, but also the bids and tenders which are coming in right now. However, we're not living in a bubble, and we recognize that there are some short-term geopolitical ebbs and flows, which we're going to have to navigate. And we're conscious of that. And that having said, those gives as much opportunities as they do threats. So it's something we're alert to, but we're not frightened of. And we'll have to remain agile as the way we actually exploit that. That's fine. And then finally, in the longer term, disciplined execution of our strategy will put us in a very good place as we go forward. If you think about it strategically, there are 2 key resources, finance and people. We are very fortunate. We've got a very strong balance sheet, and we've got some very good people. So in terms of the medium-term outlook for this business, we're in a very good place indeed. And with that, I'm going to draw it to a close and to open up for questions and answers.

Aynsley Lammin from Investec. I only got 2 actually. Just on the share buyback, obviously, it's only an initial GBP 25 million. But how should we think about that in terms of the scope of that going forward? Is your target leverage range still 0.5x to 1.5x? Would you aim to get into that range using share buybacks if there's no M&A? Just a bit more kind of color around that. And then second question, just on the U.S., interested maybe to hear a bit more color around the kind of Residential Market outlook and the private non-residential, you said some bits are good, some bits there not so good. Just a bit more color would be helpful.

I'll do the share buyback, you could do residential piece.

All right.

In terms of the share buyback, I mean, as I mentioned earlier on, we're in the process of concluding a strategic review. And we've got a new Chairman that's just onboarding with the company at the moment, so I don't want to be premature about anything that the Board as a whole will decide. What I would say is this, that we are committed to a multi-year program. This is not a flash in the pan. This is something which is -- is actually be with us as a part of the armory going forward. And it is something which we will use to deploy genuinely surplus cash. And from my point of view, I think it makes perfect sense because if you think about it, if we're doing organic growth or acquisitive growth, you're growing the earnings per share by growing the earnings, same number of shares. If you exhaust that, then you can still grow the EPS by reducing the number of shares effectively. So to me, there's no conflict there. And that's what we will do. So this is a multi-year commitment, and it will be for genuinely surplus cash. Whether that's at 0.5x or whether that's at 0, frankly, we will work through as we go forward. We will remain the conservative side of EPS.

I think the U.S. Residential Market that really for us is in the -- its impact for us is seen in the Suncoast business. And in terms of our outlook around that, we just think that's just going to be steady in '25 where we're not expecting any -- the market to do anything great for us in '25 in terms of turning that -- increasing that profile in '25.

Rob Chantry at Berenberg. Just 3 questions. I suppose, firstly, on strategy, you kind of gone through a process of reviewing it. What did you generally learn about the business in that review that maybe isn't obvious? And what sort of things did you bat away during that process? Secondly, APAC margins at 7.8%. I had a look at the model this morning. I think it's the highest since 2010 or so, so a very big step up. Can you just comment around the sustainability of that given it's really quite different to the past kind of decade, I suppose, we've seen in margins there? And then thirdly, also in APAC, you called out India. I suppose can you just kind of remind us how big India is of that APAC division? And then what's changed? Because I guess, there might have been a historic perception of lots of local competition, tight margins, et cetera. And now you're kind of talking about it in, I guess, more positive terms. The guy that ran it has been promoted to run APAC, slightly more buoyant outlook. So just some more color on the Indian division would be helpful.

Sure. I'll take the strategy one...

Yes.

You take the APAC one, and I'll come back and do both, covering...

All right. Okay.

So in terms of the strategy, it's been a really great process to tell you straight. We had external help in to actually test it and test what we've been doing over time. And frankly, the first task was to try and rip it apart and see what we've got wrong. And after a number of weeks, they came back and actually said, well, you've got it pretty much right and here's the evidence, the quantifiable evidence behind it in terms of the market we are positioning and the differences in margins. And if you think about the business, there's lots of different axis that you can actually focus on and try and draw a differentiation. And that's what you have to do in terms of working out where you can apply the best levers. And they came back and actually proved we've made the right decisions. I think that for me was great because you actually got external validation, which reassessed and reaffirmed what we've done in the first place. It also -- then you get to looking more positively looking forward. And it wasn't a question of throwing things out, but actually opening your eyes to actually how much opportunity that were out there and I'll give you proof. For instance, I've always made the assumption, and this is based on experience in automotive, that we're going to hit sort of 25% market share, and clients would actually hold us to that. And we'll start giving this to other people, and in fact, in certain of our markets the threshold is much higher than that which gives us more to go out, it gives us more opportunity. And if you think about it, it's more opportunity in something we know, something which is relatively safe. We don't have to go to a new geography where we don't know, where it's experimental which is difficult. It's within our own existing footprint, which has got to be the best stuff to go after. And also, in terms of the way in which we're thinking about exploring both organic and indeed inorganic opportunities, it honed our thinking in those areas. So it's been a really good cathartic process.

So on APAC margins, I think we haven't really moved our position in respect to the long-term positioning around APAC margin. There is that few one-offs in there in '24, which have driven that margin up. There was particularly a property sale where we sold the Austral office and yard in Melbourne, which did drop in a level of profit in there. So when we talked about it in the past, we said our view through the cycle in terms of margins for APAC is 6% to 7%. I'm not sure we're moving away from that, even though they are up at 7.8%, 7.9% for the full year '24. And in terms of India, I mean, as Mike said, India is a very well executed business. It is the smaller of the 3 major businesses, the 2 Australian businesses, India is smaller than that. But what's good about it is, the fact that it is -- it does deliver very well. So there's good profit and actually good cash coming back from the Indian business. And I think there is, as Mike said, a bit of a constraint on growth just in terms of having the capacity to do it. And we do need to be very selective in respect to the clients we choose in India as well.

I mean, India for me, Hari that runs that and his team are absolutely superb people. They do what they do, and they do it really well, and do it very consciously. And it's quite interesting. Because historically, it's a place where you have to pick who you can work with, because it is a challenging environment in some respects from a business conduct point of view or can be. And they're very selective about that. They're very selective about the safety and environment, and they're often setting the benchmark from the site in terms of execution and organization in that regard. And it's interesting at the moment because there are so many opportunities out there and yet Hari is consciously saying, look I'm not going to take on more than I can -- me and my team can manage, because we don't want to trip up, which to me, shows great self-awareness. And from a management discipline point of view, is exactly what you want. You don't people to get greedy and over stretch themselves. And they're being very measured. And next -- in fact, this month, we're taking the ExCom out there to actually go and share some of that because it's been -- over the last 3 years, it's been a great success story. And there's 1 or 2 clients there that frankly, personally I want to go out and press the flash with to see what else we can do in the future. It's good business.

Clyde Lewis of Peel Hunt. I think I might have 4 or even 5. I'll do it couple of time. Can you update us with regards to Saudi NEOM? Is that still gone for now as far as you're concerned? That was the first one. Second one around plant machinery. Are there any supply chain issues that would limit your ability to grow organically if you did want to step up, buy more kit, take more market share? So it'd just be interesting to hear where you are on that. If you are talking about market share, it sounds like you're not overly worried about competitors and what they're doing. It would be useful again to get an update, particularly probably in the U.S. and European markets as to how things are panning out on that front? And then probably last for now is on pricing. Just again, I think you talked about sort of Suncoast, obviously, sort of come off the top. You talked about then South Central, I think in the U.S., you talked about stronger pricing. But your perspective, I suppose, for where you think pricing will end up in 2025 and the flip side of that, obviously, whether there are any cost issues that are creeping up anywhere?

Okay. Given that you've just come back from Saudi, do you want to pick up The Line and Trojena?

Yes.

I'll talk about market share and competitors. You can talk about plant.

Okay.

And then I'll talk about pricing.

Okay. Yes. So Saudi, I mean, you saw that red block in the Middle East in the bridge slide. And there's 2 aspects that do relate to Saudi, one is NEOM The Line in '23, a good project, not repeating in '24 and the other is the problem contract, a challenging project that we're still leaning into in terms of resolving. So we haven't done any more on NEOM The Line, and I think as we've said in previous updates, it's got to be right for us in terms of price. And there is -- as there has been, a race to the bottom, then we're not going to get involved in that. So actually, we've got nothing in the pipeline in respect of The Line. Trojena is a project that we just need to get through with the execution. As Mike said, I have been there. And actually, the team has done a great job from an operational perspective in a very challenging environment in terms of getting their arms around it, what we need to do. And we have a clear road and schedule in terms of what needs to be done. The issue is from a commercial perspective, and we're still in discussions with the client because the whole design associated with that, the scope of it changed radically after -- compared to the bid, and we're still just walking through that. And Saudi, we do have other projects in Saudi, which we continue to work our way through.

Market share and competitors. We are going to go after deeper market presence in the places where we're pitched. That doesn't mean to say that we're at all arrogant about the people we meet. We've got some very good competition at a local level. Some of the local competitors on individual techniques can be very, very good. Some of the global competitors, Soletanche, Menard, you have to respect what they do. Menard, in particular, they are very competent in terms of what they do. I know some days of the week, they'd be that much better than us. Not much, but a little bit. Other days, we will outperform them dramatically. So there's ebbs and flows and there's no arrogance about that because as I say, there are certain techniques in certain locations, other people will be better than us. What we have to do is to learn why and up our game and people are getting increasingly good at doing that. And also realizing, well, actually, if we are doing, for instance, Vibro in Southern Germany, we've got the best crews. We've got the best kit. We can hit production rates, which are 20% better than anybody else's. So you need to know where you should be fighting your battles. What I would say is a generality is that North American competitors, I think, at the moment are doing very well. Some of the Europeans are struggling a bit. And in APAC, it's a mix. Some are doing okay, some are not. And that depends upon which contracts they've signed up to, frankly. Do you want to talk about the plant?

Yes. I mean, we don't see any supply chain issues. We don't consider that a constraint for us in terms of growth. I mean, we continue to invest in our CapEx and tend to keep that roughly around the 1x the depreciation rate. And we continue to make the right decision around whether to lease stuff or buy stuff depending on the utilization in respect of that equipment. But it's definitely not coming -- opening up from the business as being a constraint on growth.

Interestingly enough this year is the year for Bauma, which is the in Munich and it's the Big Boys and Toys exhibition show. So if you're interested in groundworks and hardware, that's the place to be. And it's genuinely actually a very -- it's a very good show to actually see the emerging technology, which I think over time will become increasingly important to us. I know a lot of people talk about AI and all of the data-driven stuff, we're -- construction is a ways behind everybody else in that respect. And there's a lot of building blocks, which we have to put in place before you could get to that sort of exploitation. In a broad way, there's opportunities there already, but it's not as good. In terms of pricing, I would say, certainly, North America pricing remains pretty robust, pretty strong. There are pockets in Europe where it's pretty tight. But there's also pockets we're beginning to emerge, especially where there is a facet which we bring to the party which others don't, and it could be capacity, it could be certainty of execution. It could be a whole host of different things, where pricing is less important. I think what we'd say -- what I'd also say in North America, and this is a bit like the covenant-light loan scenario, but it's not always about the rate. It's about the risk you're prepared to take on. And what our teams are getting increasingly alert to, and we've lost 1 or 2 bids recently where people have been prepared to take on more technical risk than we were prepared to do. And that's fine. We have to draw a line and we have to stand by it. And that to me is important because it shows an increasing discipline about what we're prepared to do in terms of risk and reward.

[ Johnny Hubert, Deutsche Neils ]. Congratulations on another year of growth and also the halving of the accident frequency rate.

Thank you.

Could I ask firstly on ROCE, you mentioned 28% in the year, which clearly an excellent level. Is that reflecting capacity utilization, change in mix? Or is it just top line inflation on a fixed asset base and it will naturally come down?

Bottom line in terms of that growth in the ROCE is the operating -- is the profit number because the asset base is pretty similar. We haven't -- if you look at the top line of the business, we haven't grown essentially over the last couple of years. And we continue to invest in essentially maintenance CapEx to keep up with the size of the business. So, again, depending on what we do from an investment perspective, if we don't do anything, I expect that rate to continue roughly at the same level.

And then just on Suncoast, you had it in the bridge this year of operating profits having a negative GBP 18 million impact. I don't think it was in the bridge in the first half.

No.

Was that all H2?

Yes, it was. And I think at the time, when we did the half year, we said we would have expected it to have been in there, but because the pricing had held up to the extent that it had and literally from July onwards that just normalized in the second half, which is why you have that drop off.

And last one is just an update on the ERP implementation.

Yes. So as I said, we continue to invest in the ERP. We did have an issue this year with our strategic implementation partner who chose to make a strategic decision, nothing to do with us, to get out of the market in respect of software in support of construction companies. So that has delayed us a bit. So we've had to go and find another partner. But we are a long way through that build. And really, we're just working with that partner now to walk through that schedule and program. But we do expect that by the first quarter of next year to have launched a pilot to test that from a process and system perspective. So we are making progress on that.

Can you follow Johnny's example and I ask all the questions to David?

The first one is -- I'll follow his example and do one at a time. I can't believe we got this far not talked about the U.S. margin. Can you give us an indication of what you think the sustainable medium-term margin for the U.S. is?

Yes. So I think when we've talked in the past about this, we've talked about 7% to 8%. But I think given the performance in '23 and '24, I think a sustainable target for us is 8% to 9%. And I think it will gravitate down to that in time. Because as we talked through there, there is buoyancy in the market, there is favorable pricing. I don't think that's sustainable in the longer term. So I think gravitation down to 8% to 9% is where we'll end up.

The counter to that in the medium-term is as we get greater penetration in the markets, we'll get more operational leverage. And that will force it upwards. But you're talking about 5 years for that.

And as part of the strategic review, it seems that acquisitions are pretty important. Could you give us an indication of what sort of businesses you're looking to buy, where you look to buy them and what the pipeline looks like and what the market sort of looks like for acquisitions?

Sure. I will give you some insight, and I'll give you more insight into the process we're going through rather than the specifics. We have developed over time and it's served us well a stage gated process for looking at acquisitions. And it's something which, I've used elsewhere, but it's actually frankly been honed by the team inside of Keller to get it even better than it was. And we have been, over the last 2 years, been looking at lots of different opportunities. And as you go through it and you look at the profile of it, does it fit our strategic purpose, does it fulfill what -- which we're after? And that's a very easy decision to work your way through. There's a filter of about a dozen different criteria, and it's basically a reg process. And the criteria quite specific as to whether it's red, green or amber. And you go through that, and it's very quick to actually discern whether you should be pursuing it further. We then go through a bit of a dance and then just start into initial due diligence. And the intention with that is to say, well, right, are there any red flags with this? Are there things which run to value which need to be addressed in a sale and purchase agreement? Or most importantly, what should you be addressing in integration? Because that's where acquisitions succeed or fail. And the earlier you prep for it, the earlier -- the more success you will have. We then work our way through 4 different cash models, projection over time between disaster case scenario, stand-alone with some cost synergies, stand-alone with cost and revenue synergies, and we'll model that against the key risks in which we see for the business. And it's that which will drive what we're prepared to pay under what conditions. We have got very close on a couple of occasions in the last 2 years, but either because the seller had inflated views of value or we found something at last knockings, we've pulled away, which is fine. I'd rather not do a deal than do a bad one. In terms of where we're looking at the moment, the majority of the prospects we're looking at are in North America and Europe. And the premise of that is twofold. One is North America is a good market to be in, but multiple expectations there are very high. So I'm quite cautious on that in terms of the modeling. And in Europe, I think it's fair to say there's some good assets out there that quality enough that survived COVID, but perhaps the balance sheet is in the wrong place. And I'm not against actually acquiring some of those, given that we can -- Europe, we can get more cost synergies more readily and it's a much more certain execution process. And if we can do that at the bottom of the cycle, when the cycle recovers, market recovers, we'll be in a much better place. So I'm looking at anything.

And then final question for me is that the Austral recovery is clearly quite a positive driver in '24. And I think you say you can maintain profitability. Are we to take that to mean you can maintain it at the exit rate, i.e., still some improvement '25 over '24? Or are you going to maintain the profitability at the FY '24 rate?

Yes. So I think the block associated with Austral is about '23 to '24. So we have had consistent profitability of Austral throughout 2024. So I think it's a similar level for '25.

I think we might get just a little bit more. And the reason why I say that is, because certainly in the first 2 quarters, they were quite cautious and actually had a lower level of activity on some of the nearshore marine work. They are being very cautious with that work because it's the work which has a higher risk profile with it. But there's a lot of assets there which actually need renewal. But we'll see. They'll be market-led in some respects.

Toby Thorrington from Equity Development. I've got 4, I think, a couple of which are supplementary. One at a time or all at once, gents?

Pardon?

Would you like them one at a time or all at once?

All at once, that way it gives us time to mentally rehearse.

So a couple of market questions then. First of all, you mentioned India is very busy. Are there any sectors in particular you'd like to call out in there? In North America, in FY '24, you said, I think LNG was a quiet market for you. Just wondering if the outlook for that is any better '25 or '26. Coming back to supply chain, I guess it's a North American question really. Is there anything either in materials or plant from a cross-border point of view given tariffs and all that kind of thing going on at the moment, which gives you any cause for concern? And lastly or firstly, whichever way you want to go about it, provisions, there's quite a big step up in net provisions, particularly in the second half in the year. And I think a lot of that has gone to the short end as well. Is there anything you can say on that or otherwise?

Okay. Well, I'll talk about India. You can then talk about supply chain.

Yes.

I'll talk about North American LNG, and then you can finish off with this flurry on provisions. India, we've always -- in terms of clients and opportunities, we've always tended to be at the industrial prospect kind of level. And typically, we will work for international blue chips, oil and gas, pharmaceuticals. And increasingly, it's the likes of microchip plants and the like. And there's a reasonable number of those about. And it's actually very good because it's one of the markets where actually people are in a hurry, and we want to make sure it works. And its foundations and some of these things have got very sensitive kit in it, so they can't afford to cut corners. The tolerance in terms of movement is much less. So those sorts of situations, people -- well, it puts us in a good place. And that is what at the moment, Hari is and his team are chasing after. And pleasingly is that they say they've got enough in front of them that they can be sensible, but selective.

Supply chain on materials and plant, I mean, yes, we do have a Canadian business and the U.S. business. But our business is actually very local. We don't cross-border essentially in terms of plant and equipment. So I don't perceive that as an issue. I think on the materials side, there will be some impact, I think, on tariffs in respect of the Suncoast business, particularly with the elevated structures part of that business where we agree pricing for a job and its many months before we actually execute. I think if the raw material cost goes up in the meantime, that's an issue for us. And that's something we had previously back in 2021-'22, but it's not going to be anything close to that level. It's just an increased raw material cost. And from the residential side of the slab on grade side, which is the other part of that business, we'll be able to recover it pretty quickly because they are very short-term turnaround contracts.

In terms of North American LNG, -- now that there's been a change in regime, there are -- there is a bigger push behind the building of some of the export facilities, especially around the Gulf, whichever gulf it is, the gulf. And that will come through in '25 and '26, and probably '27. I think it's fair to say that people are -- I wouldn't say slow, but they've been very measured about the speed at which they're doing that at the moment. And it is actually having interesting ripples elsewhere because LNG export around the globe, what happens over here will affect what happens over there, and we are seeing a little bit of that as well. But we will have more business in North America, in Texas around the area as a result of that.

And in terms of provisions, I think there is an element of timing around that with period end. I mean we are, by our very nature, relatively prudent in respect of taking positions on stuff. It is -- at the end of the day, it is construction. And there's always a wide spectrum in terms of outcomes. So I think it's just us being -- trying to get ourselves on the right size of evens in terms of the ultimate outcome in respect of those items.

Anything else?

I have a couple of questions on the webcast. Talking about our future growth over the next 5 years, what do you think the likely split would be between inorganic and organic?

Interesting question, but not one which I've got an answer for at the moment. What I would say is this. Normally, when you do strategic plans -- and this is actually really interesting because it's a sign of organizational maturity. Historically, when I've done strategic plans with the management team, there's been a little bit of organic and a big slug of very sexy M&A because they like that. That's easy stuff. In reality, when we rolled it up this time around, it4 was the opposite way around. And people were doing the hard yards themselves, and there was a little bit of M&A. Now how it actually works out in reality? It's probably somewhere between the 2, and that's fine. But from an organizational maturity point of view, people actually think, well, actually we can do a lot of less ourselves. It's a good starting point.

Second question, should Ukraine and Russia achieve a peace deal in '25, how well positioned is Keller to participate in any reconstruction effort?

We are working on that at the moment. What I'd say is this. Historically, we've had a presence in Ukraine. We had a representative office there. It is an area where historically it has -- have been challenges in working there, albeit that a lot of that, I think, is now sorted itself out. We had at the start of the war, something like 32 employees, half of whom roughly have had to go back and fight the war, and there's roughly half of them are still in our employee, working out principally out of Poland. And all of those people and their families are the people who have been supported by the Foundation. Now the fact we've got those people and the fact that some of the Polish management are well connected into Ukraine and have worked there before, does put us in a reasonable position to actually go in and actually sort out what's good opportunities and what's not and how to work there. And indeed, Peter Wyton has had a couple of his management team already working on the prospect of right, okay, how would we approach this? How would we gear up? What assets do we need? Which people do we take with us? And how do we backfill? Because if we pick up all 16 Ukrainians in Poland, sure we can leverage that, and I'm sure we can double or treble it, but we still have to backfill them in Poland, which is an incomplete answer. But just to say it is and has been on the radar and it is something which we'll gear up for, right? Well, I'm going to finish off where I started and say thank you very much for coming this morning. Some very good questions, some unexpected ones. So this is always pleasing because it keeps us on our toes. But thank you very much for attending. It's been a pleasure. And what you've seen today is actually not us. We just get to give people the role in all of this. It's really the efforts of everybody in Keller. So thank you to all of everybody in Keller.