Keller Group plcAnnual Reportand Accounts 2011

Overview02 Our businesses03 Our services04 Our business model06 Principal risks and KPIsBusiness Review08 Chairman’s statement10 Operating reviewNorth AmericaEMEAAsiaAustralia15 Financial review18 The Board20 Social responsibilityCorporate Governance27 Directors’ report29 Remuneration report38 Corporate governance43 Statement of Directors’responsibilities44 Independent Auditor’s reportFinancial Statements46 Consolidated financialstatements46 Consolidated income statement46 Consolidated statement ofcomprehensive income47 Consolidated balance sheet48 Consolidated statement ofchanges in equity49 Consolidated cash flowstatement50 Notes to the consolidatedfinancial statements72 Company financial statements72 Company balance sheet73 Notes to the Company financialstatements78 Financial recordNotice of Annual General Meeting79 Notice of Annual GeneralMeeting84 Principal officesIBC Secretary and advisers

to find out moreplease visit our are the world’s largest independentground engineering specialist, renownedfor providing technically advanced andcost-effective foundation solutions. Ourreputation is built on engineering excellenceand a commitment to continual innovation.Corporate GovernanceWith over 6,000 employees and a combinedturnover in excess of 1 billion, we haveunrivalled coverage in Europe, NorthAmerica and Australia and a growingpresence in Asia and the Middle East.Business ReviewOur services are used across theconstruction sector in infrastructure,industrial, commercial, residential andenvironmental projects.OverviewKeller Group plcFinancial StatementsRevenue from continuingoperations mOperating profitfrom continuing operations m*Earnings per sharefrom continuing operations 9.42008111.12007955.12007107.4200797.6Notice of AGM2011* 2010 results are stated before goodwill impairment.Operating profit fromcontinuing operations mEarnings per sharefrom continuing operations percentRevenue from continuing operations mAnnual Report and Accounts 2011 01

Our businessesNorth AmericaWe are the market leader in North America,where we have had a market presencefor over 25 years. Today, we operate fromlocations spanning the country. HaywardBaker offers extensive ground engineeringsolutions; Case, McKinney and HJ areheavy foundation specialists; and Suncoastprovides post-tension cable systems. Theyare able to combine their expertise andresources to take on some of the country’smost demanding projects.This overview of our four business areas reflects our new reportingstructure from January 2012. The reasons for, and benefits of, changing thestructure are explained on page 10 and you will find a segmental analysis ofthe results on both the old and new bases on pages 54 and 55.Revenue mOperating profit* m 471.1mRevenue mOperating profit* 22008532.1200852.12007473.2200761.6 12.0m* 2010 results are stated before goodwill impairment.EMEAOur EMEA division has operations acrossEurope, the Middle East and Africa.Its results also include the contribution fromour emerging business in Latin America.We operate as Keller in most regions, butalso as Phi Group and Colcrete-Eurodrillin the UK, LCM in Sweden and Boretain the Czech Republic. These businessesare supported by a facility in Germany,which designs and manufactures ourspecialist plant.AsiaIn recent years we have built up ourpresence in Asia, where we started life asa ground improvement specialist, but nowoffer a wide range of foundation services.We are well established in Singapore, Indiaand Malaysia, with developing businessesin other parts of the Asean Region. In Asiawe generally operate as Keller, although theResource Piling name has been retainedalongside the Keller brand in Singapore.AustraliaFrankipile, Vibro-Pile and PilingContractors offer a range of piling services.Keller Ground Engineering (‘KGE’) offersspecialist ground improvement andgeotechnical solutions. WaterwayConstructions (‘Waterway’) specialises infoundations for, and the maintenance of,wharves, jetties and other marine structures.Although they specialise in differenttechniques, on very large projects theysometimes join forces, under the KellerAustralia brand.02 Keller Group plcRevenue m 384.8mOperating profit mRevenue mOperating profit* 2008499.0200847.82007360.0200730.1 8.4mRevenue m 76.7mOperating profit mRevenue mOperating profit* 828.420084.8200714.820074.1 6.0mRevenue m 221.7mOperating profit* mRevenue mOperating profit* 82008137.1200819.42007107.1200714.7 6.7m* 2010 results are stated before goodwill impairment.

Our servicesHayward Baker 58%Suncoast 15%Case 12%McKinney 10%Ground improvementPiling involves the installation ofstructural elements to transferfoundation loads through weak soilsto stronger underlying ground. Kelleroffers a wide range of piling and earthretention systems including diaphragmwalls and marine piles. Piles may bepreformed and driven into the groundor cast in situ. Keller has installed pilesunderpinning many major buildingand civil engineering projects aroundthe world.Ground improvement techniques areused to prepare the ground for newconstruction projects and to reducethe risk of liquefaction in areas ofseismic activity.Specialty groutingSpecialty grouting strengthens targetareas in the ground and controlsground water flow through rocks andsoils by reducing their permeability.Revenueby regionKeller was the first to develop methodsand equipment for the successfuldeep compaction of soil in the 1930sand has continued to develop theequipment and widen its application.Common soil stabilisation techniquesinclude a combination of vibrocompaction with stone, concrete orlime columns as well as soil mixingand injection systems, which havebeen used by Keller to improve manythousands of sites around the world.Business ReviewHJ 5%Piling and earth retentionOverviewRevenueby business unitto find out moreplease visit our Europe 66%Eastern Europe 27%Other 2%Revenueby regionSingapore 65%Anchors, nails and minipilesAnchors, nails and minipiles canprovide temporary or permanentsolutions for a wide range of stabilityor support problems and are oftenused to underpin or stabilise buildings,slopes and embankments.Post-tension concretePost-tension cable systems are usedto reinforce concrete foundationsand structural spans, enhancing theirload-bearing capacity by applying acompressive force to the concrete,once set. Suncoast’s post-tensionsystems are used in foundationslabs for single family homes and, inthe commercial high-rise sector, inconcrete structural spans and beams.Corporate GovernanceMiddle East 5%It is applicable to both newconstruction projects and to repair andmaintenance work. Other applicationsinclude excavation support, settlementcontrol and geo-environmentalservices to protect adjacent groundfrom contamination.Approximate splitof servicesPiling and earth retention 38%Groundimprovement 26%India 15%Anchors, nails andminipiles 15%Other 2%Specialty grouting 15%Financial StatementsMalaysia 18%Post-tension concrete 6%Revenueby business unitNotice of AGMFrankipile 27%Piling Contractors 25%Vibro-Pile 17%Keller GroundEngineering 17%Waterway 14%Annual Report and Accounts 2011 03

Our business modelOur strengthsGlobal ScaleInternational footprint and financialstrengthThis review of our 2011performance reflects our keystrengths, the combinationof which sets us apart as abusiness:Local FocusExcellent serviceWide RangeFlexible and cost-effectivetechnologiesBroad BaseDiverse customer base andend marketsCo-operationAdded value through workingtogetherShared ValuesPerformance delivered safely andwith integrityDeep ExperienceHuge knowledge baseGrowth CredentialsOrganic and acquisition growthrecordWe have a fundamental belief that wecan best serve our local constructionmarkets with a regional structurethrough which we are fully aligned withour customers. Overlaying thisstructure are common goals, sharedinterests and excellent workingrelationships which drive the pooling ofexpertise and resources and thetransfer of technologies. These things,in turn, create synergies, making KellerGroup more than the sum of its parts.04 Keller Group plc

to find out moreplease visit our driversOur strategy is to extend further our globalleadership in specialist ground engineeringthrough both organic growth and targetedacquisitions. There are three key elementsto our strategy:We value highly the customers in ourday-to-day business and we constantlystrive to meet their needs through theconsistent execution of many small-tomedium sized contracts.Expansioninto new, higher growth geographicregions;In addition, we will continue to grow ourmarket share in sectors where the barriersto entry are highest and where we havecapabilities which give us a clearcompetitive advantage:–– bigger and more sophisticatedfoundation systems, often requiringspecialist equipment;–– foundations for safety- and qualitycritical environments; and–– bespoke solutions with a high designcontent.Throughout the world, we expect thegrowth in specialist ground engineering toexceed the growth in general construction,driven over the medium-to-long term bysuch trends as:–– increasing land shortage, driving a needto use brownfield and marginal land;–– climate change, triggering more riverand dam flood protection projects;–– the prevalence of very large-scaledevelopment projects;–– the need for investment in energycapacity; and–– the renewal of outdated road andrail infrastructure.Acquisition and developmentof new technologies and methods; andTransfer of technologiesand methods within our currentgeographic regions.In our developing markets, additionaldrivers, such as population growth,urbanisation, rapid industrialisation andincreased overseas trade, are expectedto sustain high levels of investment acrossthe whole construction sector over themedium-to-long term and we continue tostrengthen our position in these regions.Corporate GovernanceOur markets and competitionLocalTypes of projectStandard foundations for small to mediumstructures, where ground conditions arerelatively straightforward.Keller’s advantage in this segmentOur regional structure and agileorganisation enables us to compete withlocal players for small-to-medium sizedcontracts.(regional in larger countries such as theUS and Australia)CompetitionIn Europe, competition is often ownedby general contractors. In the US andAustralia, these services are usuallyoutsourced. Independent nationalcompetitors tend to be privately owned.Types of projectAs local markets, plus foundations forlarger structures and complex solutionsfor more difficult ground conditions.Keller’s advantage in this segmentWe have a wide network of subsidiarycompanies and branch offices employinglocal people with knowledge of:–– national building codes–– local language and business culture–– local ground conditions.InternationalCompetitionFew competitors can claim to have atruly global capability, strong financialcredentials and the ability to offer a fullproduct range.Types of projectVery large scale, requiring capacity orexpertise which may not be availablein-country. Often direct foreign investment,where funders or clients choose to usecontractors with whom they have workedin other parts of the world.Keller’s advantage in this segment Largest independent operator with aglobal presence. Able to follow known customers intonew geographic markets. Can pool resources and expertise fromaround the globe.Annual Report and Accounts 2011 05Notice of AGMWe typically work on around 5,000contracts each year, of which around85% have a value of less than 200,000.NationalFinancial StatementsCompetitionLocal competition is highly fragmentedcomprising many small businesses, oftenfamily-owned, with limited equipmentcapacity and few (or single) product lines.Business ReviewPositioningOverviewStrategy

Principal risks and KPIsRiskMarket cyclesThe Group’s broad basehelps to mitigate againstthe risk of downturn inour markets Tendering andmanagement ofprojectsProject risk is managedthroughout the life of aproject from the tenderingstage to completion AcquisitionsOur long-term growthtrack record is built ona combination of organicgrowth and acquisitions PeopleThe accumulation ofknowledge and experienceis essential to helpingour customers to find thebest solution 06 Keller Group plcDescriptionWhilst our business will always be subjectto economic cycles, market risk isreduced by the diversity of our markets,both in terms of geography and marketsegment. It is also partially offset byopportunities for consolidation in ourhighly fragmented markets. Typically, evenwhere we are the clear leader, we stillhave a relatively small share of the market.Our ability to exploit these opportunitiesthrough bolt-on acquisitions is reflectedin our track record of growing sales, anddoing so profitably, across market cycles.It is in the nature of our business that wecontinually assess and manage technical,and other operational, risks. Some of thecontrols we have in place, particularly atthe crucial stage of tendering of contracts,are set out in the table opposite. Given theGroup’s relatively small average contractvalue (less than 200,000), it would beunusual for any one contract to materiallyaffect the results of the Group. Our abilityto manage technical risks will generally bereflected in our profitability.We recognise the risks associated withacquisitions and our approach to buyingbusinesses aims to manage these toacceptable levels. First, we try to get toknow a target company, often working injoint venture, to understand theoperational and cultural differences andpotential synergies. This is followed by arobust due diligence process, most ofwhich is undertaken by our ownmanagers, and we then develop a clearintegration plan which takes account ofthe unique character of the targetcompany.The risk of losing, or not beingable to attract, good people is key.We pride ourselves in having some of thebest professional and skilled people in theindustry, who are motivated by our cultureand the opportunities for career growth.

to find out moreplease visit our and method of calculationYear-on-year sales growth (includingacquisitions) in local currency comparedwith growth in the total regionalconstruction market.Operating marginOperating profit before impairmentof intangibles, expressed as apercentage of revenue. Strategy of geographic diversification:– operations in over 30 countries– growing presence in Australia anddeveloping markets. Broad customer base. Services used across all industrysegments: infrastructure, industrial,commercial, residential andenvironmental. Risk-based tender approval process,with clear delegations of authority. Establishment of ‘centres of excellence’. Independent review of tenders. Formal daily reports generated andreviewed for each contract in progress.Weekly cost reports produced for allprojects and reviewed by next levelmanagement. Formal and informal training for staffin the typical risk issues they may facewhen tendering for jobs, negotiatingcontracts and executing work. Project staff selected on the basis oftheir skills, experience of a particulartype of project and their workload.Return on net operating assetsDefinition and method of calculationsOperating profit before impairment ofintangibles expressed as a percentage ofaverage net operating assets (includinggoodwill acquired through acquisitions).Staff turnover rate Robust due diligence process, mostlyundertaken by own management. Clear integration plan, reflecting theunique character of the target company. Excellent training and developmentopportunities. Opportunities for career growth.Notice of AGMDefinition and method of calculationThe number of managerial, professionaland technical staff leaving in the period,other than through redundancy or normalretirement, expressed as a percentage ofemployees in this category. Target companies are usually wellknown to Keller; and the operationaland cultural differences and potentialsynergies are well understood.Financial StatementsNet operating assets excludes net debt,tax balances, deferred consideration andnet defined benefit pension liabilities. Periodic reviews of poorly performingcontracts to establish lessons learnedwith the results communicated to allrelevant staff.Corporate Governance Legal review of unusual or onerouscontract terms. Pre-job meetings undertaken on site.Business ReviewAs our work occurs at the start of theconstruction cycle, our revenue is aleading indicator for the constructionmarket, whereas market comparatorsare based on the lagging indicator‘construction put in place’.OverviewRevenue growth compared withmarket growthControls Good engagement and two-waycommunications. Employees treated with dignityand respect.Annual Report and Accounts 2011 07

Chairman’s statementFrom my visits to our operationsaround the Group, I have seenfirst-hand the resolve of our employeesand their pride in the business,together with their willingness toexplore new ways of working togethermore effectively.Roy FranklinResults1Group revenue increased by 8% to 1,154.3m (2010: 1,068.9m) and theoperating profit was 28.9m (2010: 43.3m), resulting in an operating marginof 2.5%, compared with the previous year’s4.1%. Profit before tax was 21.9m (2010: 39.6m) and earnings per share were 24.8p(2010: 44.0p).These results reflect tough marketconditions which remained very challengingthroughout 2011, with the uncertainmacro-economic outlook impeding anysignificant recovery in our matureconstruction markets – principally the USand Western Europe – and overcapacitymaintaining pressure on margins.Against this backdrop, the Group hascontinued to take steps to reduce its fixedcost base. Actions taken in 2011 will delivera further 5m of savings in 2012, bringingthe total fixed overhead reduction in NorthAmerica and Western Europe since 2009to over 20m, a reduction of around 20%.Going forward, we will continue to keepcosts under close scrutiny.Cash flow and net debt2The Group continues to focus hard onmaximising cash flow in these difficult times.Cash generated from operations was 54.8m (2010: 70.3m), which represented77% of EBITDA (2010: 83%).Net debt: EBITDA1.4xWhilst emphasising cash generation, wecontinue to make investments where theyare necessary to develop the business andto secure future growth, which in 2011included strategic capital expenditure forAsia and Australia. After net capitalexpenditure of 37.4m (2010: 28.6m),net debt at the end of the year stood at 102.5m (2010: 94.0m), which represents1.4x find out moreplease visit our Keller Group plcThe financial position of the Group remainsstrong. There is comfortable headroom inthe Group’s main financing facilities, whichrun to 2015, and we continue to operatewell within all of our financial covenants.1 010 results are stated before a 21.8m goodwill2impairment charge.2 et debt represents total loans and borrowings lessNcash and short-term deposits.

to find out moreplease visit our Franklin27 February 2012In order to comply with the Code’srequirement for at least as manyindependent as non-independent directors,further changes are planned. In particular,Mr Gerry Brown is now no longer deemedto be independent, having served on theBoard for more than nine years. We arein the process of finding a successor toMr Brown as Senior Independent Directorand we anticipate reporting further progresson this during the