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Revenue down but profit up as Keller CEO Alain Michaelis eyes new acquisitions

Keller would “love to buy something big and profitable in Asia” according to its FD, as it continues to push towards being a £2bn revenue company.

Finance director James Hind told Construction News the business was looking at fresh acquisitions, particularly in Asia, but that there were few major companies suitable to acquire.

Mr Hind and new CEO Alain Michaelis were speaking to CN after Keller released its H1 interim results (see box, below), showing revenue decline but improved profitability on the same period in 2014.

North America was a stand-out performer, with trading conditions strong in Western Europe, but margins down in Australia and Canada.

In North America, revenue grew from £373m to £415.8m year-on-year, with operating margin of 6.8 per cent (2014 H1: 5.5 per cent).

In Europe, Middle East & Africa, revenue declined slightly but operating profit grew from £2.7m to £7m.

The group has made several acquisitions in recent years, including Canadian firm North American Piling for around £204m and the acquisition of Austral, a piling and civil construction services business in Australia, which was announced last month.

Keller Share Price 1 month

Analyst Investec puts its estimated revenue at £1.91bn in 2017.

Asked whether the group expected to hit £2bn turnover by 2018, Mr Hind said: “If you look at historic growth rates, it’s not impossible, particularly if there’s a couple of acquisitions in there.

“We’d love to buy something big and profitable in Asia but there aren’t that many targets there. The market is pretty fragmented, it’s full of small players so by definition most of our acquisitions will be small.

“But we’re not afraid of doing something bigger. If the right opportunity comes along, which is significantly bigger, we will take it.”

Revenues in the UK were down as projects at Crossail and Victoria Station (pictured) completed and the business is expecting revenue growth in H2 and 2016, despite being a competitive market.

Mr Michaelis, who joined the firm from Rolls-Royce two months ago following Justin Atkinson’s departure, said his initial expectations of Keller had been that it was a “stronger company than anticipated”.

Asked whether he would be applying lessons learned from Rolls-Royce to the Keller group, he said the business could benefit from lean manufacturing processes.

“If you look at some of our big projects, we talk about 25,000 piles, that’s more akin to manufacturing than construction.

“We have a lot of repeat processes in what we do: lean manufacturing; quality management; and safety. These are all good things that the automotive industry taught many industries and construction still has some way to go.

“Keller should be a good place to drive those things, rather than a general contractor, because of the repeat nature of what we do.”

He added that the group’s strengths lay in a “very loyal, experienced workforce” and that the “growth prospects were great”.

“We have single digit market share globally, I know a lot of levers to pull for organic growth and… I anticipate we will continue to do acquisitions.”

Keller interim results

* The following results exclude exceptional items. These include costs of £3m, primarily relating to the amortisation of acquired intangible assets and £25 exceptional cash outflow following the settlement of a major contract dispute provided for in 2014.

Keller H1 2015    
 H1 2015H1 2014% changeConstant currency (% change)
Operating profit*£37.7m£35.5m+6%+4%
Operating margin*5.0%4.5%+11%+10%
Profit before tax*£34.6m£32.5m+6%+4%
Earnings per share*31.1p29.5p+5%+2%
Cash generated from operations*£18.6m£31.9m-42%-43%
Interim dividend per share8.8p8.4p+5%+5%

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