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Keller CEO warns over UK 'clutching at straws'

Keller’s chief executive has warned that trading conditions in the UK are still “extremely competitive” and that anecdotal evidence of an improving market could be people “clutching at straws”.

In interim results for the six months to 30 June, the ground engineering specialist saw its Europe, Middle East and Africa division return to profit after an operating loss in the same period last year.

Keller has stressed its commitment to the UK despite tough conditions and hopes to benefit from the government’s commitment to major infrastructure schemes.

Justin Atkinson said: “Anecdotally, I have heard that [conditions are improving in the UK] but things were so difficult that it might be people clutching at straws a bit. Things are not as bad as they were, but are still extremely competitive.”

He said Keller had benefited from working on large infrastructure projects such as Crossrail and the Victoria Station Upgrade programme.

He also echoed Turner & Townsend chief executive Vince Clancy’s view that major clients wanted to see greater geographical coverage when awarding deals.

The firm has been more selective on bidding contracts and has made cost reductions, primarily in EMEA.

Mr Atkinson said staff reduction, primarily in eastern Europe, was among the cost-cutting measures which helped EMEA return to growth, but that the UK had not seen significant restructuring.

However, the group said the German market was “starting to look more challenging” due to fewer major projects and “strong competition” for small to medium-sized deals.

On the UK, group chairman Roy A Franklin said that “while some commentators are voicing growing optimism on the state of the construction market, our experience is that actual improvement is fragile and from a very low base”.

Major contractors such as Kier and Sir Robert McAlpine were partnering with Keller due to its independence, Mr Atkinson added.

He said this factor was helping to provide the company with work, where contractors were often reluctant to offer deals to rivals with engineering arms.

Firms including Carillion, May Gurney and Morgan Sindall have disposed of specialist engineering divisions over the past three years, but Mr Atkinson pointed to Balfour Beatty, Laing O’Rourke, Skanska and Vinci’s continued presence in the sector as proof it remained competitive.

He pointed to Canada as a big growth market in the short to medium term, after Keller completed its acquisition of Canadian firm North American Piling for around £204m earlier this month.

Keller’s presence in sectors from residential to major infrastructure was a “great strength”, Mr Atkinson claimed, but that in emerging markets such as India, for example, it would restrict its offering as it could not compete on price with local contractors for commercial building jobs.

Group revenue was up 5 per cent at £644.6m (2012: £613.8m) and operating profit more than doubled to £28.6m (2012: £13.3m).

Keller’s operating margin was 4.4 per cent, compared with last year’s 2.2 per cent.

In EMEA, revenue increased to £185.5m (2012: £160.6m) and it reported an operating profit of £1.8m (2012: loss of £2.8m).

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