Preliminary Results for the year ended 31 Dec 2024

4 March 2025

Keller Group plc audited Preliminary Results for the year ended 31 December 2024

Keller Group plc ('Keller' or 'the Group'), the world's largest geotechnical specialist contractor, announces its results for the year ended 31 December 2024.

Another outstanding set of results ahead of expectations with improved performance in all key measures

1 Underlying operating profit, underlying profit before tax and underlying diluted earnings per share are non-statutory measures which provide readers of this announcement with a balanced and comparable view of the Group's performance by excluding the impact of non-underlying items, as disclosed in note 9 of the consolidated financial statements

2 Net debt is presented on a lender covenant basis excluding the impact of IFRS 16 as disclosed within the adjusted performance measures in the consolidated financial statements

Highlights

· Another outstanding result as we continued to build on the material step-up in operational and financial performance delivered in 2023

· Revenue of £2,986.7m, up 4% on prior year at constant currency

· Record underlying operating profit of £212.6m, up 22% at constant currency, with a modest weighting towards the first half of 2024 as previously indicated. Statutory operating profit up 34%

· Underlying operating profit margin increased by 100bps to 7.1% (2023: 6.1%)

· Free cash flow generation increased by 87% to £192.6m

· Underlying diluted EPS of 199.9p, up 30%, driven by higher profitability, reduced financing costs and a lower Group effective tax rate. Statutory EPS up 60% with significant reduction in non-underlying items

· Underlying ROCE increased to 28.2% (2023: 22.8%), the highest for 16 years

· Significant deleveraging with net debt of £29.5m, down £116.7m, driven by strong profitability and robust cash generation, resulting in a net debt/EBITDA leverage ratio of 0.1x (2023: 0.6x)

· Record year-end order book of £1.6bn (2023: £1.5bn)

· Safety: accident frequency rate halved to 0.05, a material improvement on prior year (2023: 0.10)

· In recognition of the excellent performance and the Group's future growth prospects, the Board is recommending a final dividend of 33.1p, bringing the total dividend for the year to 49.7p (2023: 45.2p), an increase of 10%

· In addition, Keller announces its intention to launch a multi-year share buyback programme, with an initial tranche of £25m in the first quarter of 2025

Michael Speakman, Chief Executive Officer said:

"2024 was another outstanding year for Keller, ahead of expectations, delivering improved performance across all key metrics - profits, earnings, margin, return on capital, cash conversion and debt reduction. This performance builds on the positive momentum developed in recent years as a result of the disciplined execution of our strategy. Since the strategy was first launched in 2019, we have rationalised the geographic and product portfolio of the Group and more recently focused on improving the project execution across the business. The result is a more consistent performance, improved operating margins and higher levels of cash flow have allowed the Group to grow earnings and de-lever the balance sheet considerably, and given us the platform to increase the dividend and announce our intention to launch a multi-year share buyback programme, part of an ongoing commitment to return capital to shareholders.

Our record year-end order book of £1.6bn across our diverse revenue streams underpins our expectations for growth in the next phase of implementation of the Group's strategy. Whilst we remain mindful of the uncertain geopolitical and macroeconomic environment in the short-term, we anticipate further progress in 2025 and a return to our typical second half weighting. We have ensured that Keller is set up to be resilient over the medium and longer term and well positioned to capture growth opportunities both organically and through selective M&A. We are strongly encouraged by the sustained improvement in the Group's performance that provides the platform to continue to enhance shareholder value."

A webcast for investors and analysts will be held at 09.00 GMT on 4 March 2024

and will also be available later the same day on demand

https://connectstudio-portal.world-television.com/en/67a3c49885959b153c4ce1d5

Notes to editors:

Keller is the world's largest geotechnical specialist contractor providing a wide portfolio of advanced foundation and ground improvement techniques used across the entire construction sector. With around 10,000 staff and operations across five continents, Keller tackles an unrivalled 5,500 projects every year, generating annual revenue of c£3bn.

Cautionary statements:

This document contains certain 'forward-looking statements' with respect to Keller's financial condition, results of operations and business and certain of Keller's plans and objectives with respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'reasonably possible', 'targets', 'goal' or 'estimates'. By their very nature forward looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the regulatory and competition frameworks in which the Group operates; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. For a more detailed description of these risks, uncertainties and other factors, please see the Principal risks and uncertainties section of the Strategic report in the Annual Report and Accounts. All written or verbal forward looking-statements, made in this document or made subsequently, which are attributable to Keller or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Keller does not intend to update these forward-looking statements. Nothing in this document should be regarded as a profits forecast. This document is not an offer to sell, exchange or transfer any securities of Keller Group plc or any of its subsidiaries and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. Securities may not be offered, sold or transferred in the United States absent registration or an applicable exemption from the registration requirements of the US Securities Act.

LEI number: 549300QO4MBL43UHSN10. Classification: 1.1 (Annual financial and audit reports)

Adjusted performance measures

In addition to statutory measures, a number of adjusted performance measures (APMs) are included in this Preliminary Announcement to assist investors in gaining a clearer understanding and balanced view of the Group's underlying results and in comparing performance. These measures are consistent with how business performance is measured internally.

The APMs used include underlying operating profit, underlying earnings before interest, tax, depreciation and amortisation, underlying net finance costs and underlying earnings per share, each of which are the equivalent statutory measure adjusted to eliminate the amortisation of acquired intangibles and other significant one-off items not linked to the underlying performance of the business. Net debt (bank covenant IAS 17 basis) is provided as a key measure for measuring bank covenant compliance and is calculated as the equivalent statutory measure adjusted to exclude the additional lease liabilities relating to the adoption of IFRS 16. Further underlying constant exchange rate measures are given which eliminate the impact of currency movements by comparing the current measure against the comparative restated at this year's actual average exchange rates. Where APMs are given, these are compared to the equivalent measures in the prior year.

APMs are reconciled to the statutory equivalent, where applicable, in the adjusted performance measures section in this Announcement.

Chief Executive Officer's review

Overview

2024 was another outstanding year for Keller, surpassing the record financial performance achieved in 2023. Keller has continued to sustain the material step-up in performance delivered in the prior year in a macro environment that presented both opportunities and challenges.

We have ensured Keller is set up to be resilient over the medium and longer term to capture the growth opportunities we see through continuing positive market demand trends, as reflected in our record year-end order book of £1.6bn (£1.5bn at December 2023), and the effective execution of our strategy.

We are implementing the right set of actions to enhance value now and in the longer term. By doing so, we are well positioned to benefit from our specialist products and solutions offering that play a critical role in the construction industry today and in the future.

We remain fully committed to safety and consistently work towards fostering a workplace where every employee can go home safe and healthy at the end of each day. An increased leadership presence on site, with a focus on high potential risks, played a key role in achieving an improved recordable injury frequency rate in 2024.

Keller has an unbroken record of dividend payments, with the consistent and material growth in its dividend in the 31 years since listing, clearly demonstrating the Group's ability to continue to prosper through economic downturns, including both the global financial crisis and the pandemic. In recognition of the excellent performance in the year and the Group's future growth prospects, the Board is recommending a 10% increase to the dividend for 2024. In addition, given the strength of the Group's balance sheet, Keller announces its intention to launch a multi-year share buyback programme, with an initial tranche of £25m in the first quarter of 2025, part of an ongoing commitment to return capital to shareholders.

Financial performance

Group revenue at £2,986.7m (2023: £2,966.0m) was 4% higher on the prior year on a constant currency basis, while underlying operating profit was up 22% on a constant currency basis, to a record £212.6m (2023: £180.9m), with, as previously indicated, a modest weighting towards the first half given uncharacteristic beneficial tailwinds in the early months of the year. Underlying operating margin increased to 7.1% (2023: 6.1%), the highest for nine years, demonstrating our continued focus on margin improvement over revenue growth. We expect a return to our typical second half weighting for operating profit in 2025 after a particularly strong performance in the first half of 2024. Underlying earnings per share increased by 30% to 199.9p, driven by higher underlying operating profit as well as lower financing costs and a lower Group effective tax rate. Cashflow generation also saw a significant improvement compared to the strong prior year, largely driven by improved profitability and good working capital management, generating increased free cashflow of £192.6m and a significant reduction in net debt (IAS 17 lender covenant basis) to £29.5m (2023: £146.2m). This equated to a year-end net debt/EBITDA ratio of 0.1x (2023: 0.6x), below the lower end of our leverage target range of 0.5x-1.5x.

Operational performance

In North America (NA), revenue increased by 4.2% to £1,785.8m (on a constant currency basis), driven by improved trading in the foundations business. This was partially offset by lower revenue at Suncoast as a result of the anticipated normalised pricing and slow-down in residential housing, and lower volumes at RECON. Underlying operating profit in North America increased by 16.1% to £190.0m, driven by the sustained improvement in operational performance in the foundations business and benefiting from the buoyant market conditions in the year. The increase in profitability saw underlying operating margin in North America increase to 10.6% (2023: 9.6%).

In Europe and the Middle East (EME), revenue increased by 5.5% to £835.1m, reflecting an improved performance in Europe and the completion of a large infrastructure project in Central Europe. Underlying operating profit reduced by 17.7% to £7.9m on a constant currency basis, as a result of an ongoing challenging project in the Middle East and the successful completion of a large contract in the Middle East in the prior year. EME's performance benefitted from the improved project performance in the Nordic region. Underlying operating margin reduced to 0.9% (2023: 1.2%).

In Asia-Pacific (APAC), revenue declined by 2.1% to £365.8m on a constant currency basis, driven by the moderation of trading volume in Australia following a record trading performance in the prior year, and lower volumes at Austral, reflecting management focus on margin over volume. Underlying operating profit increased significantly to £28.7m (2023: £14.6m) driven primarily by the sustained turnaround at Austral that commenced in the second half of 2023.The operating margin for the division increased to 7.8% (2023: 3.8%).

Strategy

In 2024 we continued to execute our strategy to be the preferred international geotechnical specialist contractor focused on sustainable markets and attractive projects, generating long-term value for our stakeholders. Our local businesses leverage the Group's scale and expertise to deliver engineered solutions and operational excellence, driving market share leadership in our selected markets.

Since the strategy was first developed in 2019, we have rationalised the geographic and product portfolio of the Group and more recently focussed on improving the project execution across the business, resulting in a more consistent performance, generating improved margins and higher levels of cash flow that has allowed the Group to de-lever considerably.

While macroeconomic conditions may lead to short-term market fluctuations, we have positioned Keller for medium and long-term resilience, enabling us to capitalise on our next phase of growth, both organic and through selective M&A. Strengthened by the Group's improved performance, we are confident that the actions we are taking will drive sustainable value creation for shareholders now and in the future.

Progress on strategic priorities in 2024

In 2024 we continued to rationalise and restructure our business to respond most effectively to our evolving markets and maximise the potential benefits of our strategy. In March 2024 we announced the restructuring of two of our divisions; Europe became Europe and Middle East (EME), and AMEA became Asia-Pacific (APAC). This new structure was successfully implemented in the year.

Within our divisions we have rationalised several business units as we look to achieve further efficiency gains whilst delivering on our strategic objectives. In North America, we combined the North-East business with the West business whilst also rationalising equipment and yard activities in the region. In APAC, we have combined the India business unit with ASEAN as we look to maximise our opportunities in the region, and rationalised an equipment yard in Western Australia. In June 2024 we saw the completion of the sale of our South African business. This consolidation and rationalisation across the Group provides us the opportunity to increase both the effectiveness and efficiency of expertise and key resources, and exemplifies the pursuit of operational leverage and economies of scale which is a key aspect of our strategy.

Progress in the implementation of the enterprise resource planning (ERP) system was delayed in the year due to a necessary change in the strategic implementation partner that is supporting the programme. We expect further carefully managed progress in 2025, with a pilot business unit going live on the system early next year. We have continued to refine our ways of working and our improved Project Performance Management system will also commence rollout in NA in 2025.

Strategic priorities for 2025

We are nearing the conclusion of the periodic strategy review which has confirmed the strength of the Group's ambition. Over the last six months we have tested, externally revalidated and refined the strategy we established in 2019.

Now we have rationalised our portfolio, honed our project execution capability and strengthened our balance sheet, it is the appropriate time to focus on growing market share within our existing geographic footprint, through both organic investment and targeted bolt-on M&A. We will continue to be customer focused locally through our branch structure and obtain the benefit of operational leverage by gaining high quality, leading market shares in our chosen markets. Organic investment will include initiatives to increase the cross selling of existing services into established branches that don't currently provide those services, and investing in our people to build on our technical expertise and influence. The Group's disciplined approach to M&A activity will be focussed on expanding the service offering and building critical mass in key local markets, and will be biased towards markets with higher rates of growth. We continue to evaluate optimal targets at an appropriate value.

Sustainability and Environmental, Social and Governance (ESG)

As the world's largest geotechnical specialist contractor, we have the responsibility and opportunity to make a difference to our customers and society and to help drive a low-carbon future. We are committed to reducing the carbon intensity of our work and have set out clear targets and action plans for our journey to net zero. We will be net zero across all three emission scopes by 2050: net zero on Scope 2 by 2030, net zero on Scope 1 by 2040 and net zero by 2050 on Operational Scope 3 (covering business travel, material transport and waste disposal). The short, medium and long-term actions required to achieve these goals are in progress and we are on track to meet this year's Scope 2 carbon reduction target.

We continued to focus on safety, as we continually improve our safety culture and performance. In 2024 the Accident Frequency Rate (AFR) halved to 0.05, with a total of 13 lost time incidents reported in the year, a reduction of 13 versus 2023. Of those 13 events, six were classified as critical injuries, an improvement of four less critical injuries year-on-year. Despite achieving industry-leading figures in this area, we recognise the need to continually improve and we will not be satisfied until we eradicate harm in the workplace.

People

In addition to the divisional re-structure announced in March 2024, in June we welcomed Paul Leonard to the role of President North America, a highly experienced industry professional with long tenures in public companies. We have further strengthened our Executive Committee with several new leadership roles that will assist us in driving forward our strategy. Kerry Porritt has been appointed as Keller's first Chief Sustainability Officer, in addition to her responsibilities as Group Company Secretary, where she will drive Keller's sustainability agenda and ensure it continues to build momentum across the Group. Marisa Schleter is promoted to the new role of Chief Communications Officer to foster effective communication across the Group. Brent Byford has been promoted to the new role of Chief Construction Officer.

Board

On 15 May Eva Lindqvist retired from the Board having served seven years as an independent Non-executive Director and five years as the Chair of the Remuneration Committee.

On 1 September Stephen King joined the Board as an independent Non-executive director. Stephen is a member of the Audit and Risk, Nomination and Governance, Remuneration, and Sustainability Committees. Stephen brings a wealth of senior level experience within the industrial, engineering and manufacturing sectors.

On 16 December Carl-Peter Forster joined the Board as a Non-executive Director and Chair designate. Carl-Peter will succeed Peter Hill CBE who announced in July 2024 his intention to step down after approaching nine years as Chairman. Carl-Peter will succeed Peter as Chair on 5 March 2025. As well as his role as Non-executive Director and Chair designate, Carl-Peter was appointed to the Nomination and Governance Committee and will become Chair of that committee on 5 March 2025 when he assumes the role of Chair of the Board. Carl-Peter is Chairman of Vesuvius plc and the Senior Independent Director and Remuneration Committee Chair at Babcock International Group plc.

Growing the dividend

In 2023 the Board rebased the full year dividend to 45.2p, a 20% increase on 2022 in recognition of the step-change in profitability in 2023. In recognition of the excellent performance in 2024 and the Group's future growth prospects, the Board is recommending a final dividend of 33.1p, bringing the total dividend for the year to 49.7p (2023: 45.2p), an increase of 10%. Keller has a notable 31-year history of a maintained or growing dividend with a CAGR of 9% since flotation in 1994 and is one of only a very few FTSE listed companies to have consistently paid a dividend over such a period. The final dividend is payable on 20 June 2025 to shareholders on the register as at the close of business on 23 May 2025.

Share buyback programme

In addition to the increased dividend, given the strength of the Group's balance sheet, Keller announces its intention to launch a multi-year share buyback programme, with an initial tranche of £25m in the first quarter of 2025, part of an ongoing commitment to return capital to shareholders. This action reflects the Board's continued confidence in the future prospects for the Group. Keller will continue to target a through the cycle leverage range of 0.5x to 1.5x net debt / EBITDA, albeit we expect to be below this range during 2025.

Outlook

2024 was another outstanding year for Keller, ahead of expectations, delivering improved performance across all key metrics - profits, earnings, margin, return on capital, cash conversion and debt reduction. This performance builds on the positive momentum developed in recent years as a result of the disciplined execution of our strategy. Since the strategy was first launched in 2019, we have rationalised the geographic and product portfolio of the Group and more recently focused on improving the project execution across the business. The result is a more consistent performance, improved operating margins and higher levels of cash flow have allowed the Group to grow earnings and de-lever the balance sheet considerably, and given us the platform to increase the dividend and announce our intention to launch a multi-year share buyback programme, part of an ongoing commitment to return capital to shareholders.

Our record year-end order book of £1.6bn across our diverse revenue streams underpins our expectations for growth in the next phase of implementation of the Group's strategy. Whilst we remain mindful of the uncertain geopolitical and macroeconomic environment in the short-term, we anticipate further progress in 2025 and a return to our typical second half weighting. We have ensured that Keller is set up to be resilient over the medium and longer term and well positioned to capture growth opportunities both organically and through selective M&A. We are strongly encouraged by the sustained improvement in the Group's performance that provides the platform to continue to enhance shareholder value.

Operating review

North America

In North America, revenue increased by 4.2% to £1,785.8m (on a constant currency basis), largely driven by an increase in trading in the foundations business. This was partially offset by lower volumes in our Suncoast business, down 19.3%, and lower volumes at RECON, down 29.9% (both on a constant currency basis). Underlying operating profit in North America increased by 16.1% to £190.0m, driven by the sustained improvement in operational performance in the foundations business and benefitting from the buoyant market conditions in the year. The increase in profitability saw underlying operating margin in North America increase to 10.6% (2023: 9.6%). The Accident Frequency Rate, our key safety metric, improved to 0.04 versus the prior period at 0.09, a reduction of six lost time injuries reported in 2024.

The improved performance in 2023 has been sustained and built upon and our foundations business had another outstanding year in both the US and Canada. Management actions include the introduction of standard operating procedures, an upgraded project performance review process and a new variation order tracking system. Further efficiencies and improvements have been achieved through the combination of two business units as we continually drive operational performance. An unseasonably strong first quarter and a particularly buoyant market contributed to the strong performance.

Suncoast, the Group's post-tension business, reported a decline in revenue reflecting a decreased level of activity as a result of the slowdown in residential housing. Whilst profitability benefitted from better than expected resilience in pricing in the first half of the year, overall profitability for the year was down versus the prior year as pricing normalised in the second half as expected.

Moretrench Industrial, our business that operates in the highly regulated environmental remediation market, continued to make good progress in the period, with growth in revenue and profit. At RECON, our geoenvironmental and industrial services company, volumes and profit were lower following the completion of the large LNG contract in the Gulf of Mexico project in the prior year and delays in the period related to the permitting of new LNG projects. In 2025 we expect to commence work on a further LNG contract in the Gulf region.

In June 2024, Paul Leonard joined as President North America. Paul is a highly experienced industry professional and a seasoned expert in energy and construction, with a proven track record in project delivery, and is building on the improved operational performance achieved in the division over the last 18 months.

North America Outlook

The order book for North America at the period end was at £1,130.4m, up 24% (on a constant currency basis) from the closing position at the end of 2023. The increase year-on-year is predominantly driven by continued strong volumes in Foundations and the LNG contract at RECON which is expected to commence in 2025. Following a particularly buoyant market in 2024, we expect the market environment to normalise in 2025. Whilst the improved operational performance in Foundations is expected to be maintained, we expect a more normalised pricing environment in Suncoast.

Europe and Middle East (EME)1

In Europe and Middle East (EME), revenue increased by 5.5% on a constant currency basis, reflecting an improved performance in Europe and the completion of a large infrastructure project in Central Europe. Underlying operating profit was down 17.7% on a constant currency basis, as a result of an ongoing challenging project in the Middle East and the successful completion of a large contract in the Middle East in the prior year. As a consequence, underlying operating margin reduced slightly to 0.9% (2023: 1.2%). The Accident Frequency Rate reduced from 0.11 to 0.05, with six fewer lost time injuries versus the prior year.

The European businesses reported revenue and underlying operating growth despite challenging market conditions in parts of Europe, which continue to be affected by ongoing weak demand in the residential and commercial sectors. Performance was driven by large projects in the infrastructure sectors, primarily in Central Europe, North-East Europe and the Nordics.

Our North-East Europe business, which comprises Poland and the Baltic countries, improved year-on-year and reported both revenue and underlying operating profit growth, largely driven by a contract relating to CPK, a large government funded project that will include the construction of a new high-speed rail and road network across Poland.

In South-East Europe and Nordics, revenue was down in the year following several large infrastructure projects in the Nordics in the prior year, while underlying operating profit increased due to the turnaround and completion of these projects and a restructured cost base.

In the UK, trading was down versus prior year reflecting the near completion of our contract on High Speed 2 and the continued soft market conditions.

In Central Europe, revenue and profit increased in the period, driven by work on a large railway tunnel project that was successfully completed in Germany.

South-West Europe delivered growth in both revenue and operating profit, driven by favourable trading conditions in Spain.

In the Middle East, both year-on-year revenue and profit were negatively impacted by the performance of two projects; with the prior year comparative benefitting from the successful completion of a large project whilst the current year was impacted by an ongoing challenging project in the region, where we are currently in discussions with the client to remedy the commercial performance. The rest of the Middle East region including UAE, Bahrain and other Saudi Arabian projects, performed strongly in the year. Underlying operating profit in the Middle East region was down £19.9m versus the prior year (on a constant currency basis).

We completed the exit of our business in South Africa at the end of the first half, which recorded a modest profit in the period prior to sale.

EME Outlook

The EME order book at the end of the period was £302.1m, down 21% versus the prior year on a constant currency basis, with the prior year comparative benefitting from the large infrastructure projects completed in 2024. Notwithstanding this, we expect a significant improvement in overall performance and margins in 2025 as a result of improved project execution and a number of self-help measures.

1EME performance included the South Africa business up until it was sold at the end of the first half of 2024.

Asia-Pacific (APAC)

In APAC, revenues decreased by 2.1% on a constant currency basis, largely due to a strong prior year comparative following record volumes in Keller Australia in 2023. Underlying operating profit increased significantly to £28.7m driven by the turnaround in performance at Austral. Underlying operating profit margin increased significantly to 7.8% (2023: 3.8%). The Accident Frequency Rate reduced from 0.06 to 0.05, a reduction of one lost time injury versus the prior year.

Keller Australia delivered a record performance in 2023 and continued to perform well in 2024 driven by continued federal and state government spending, particularly in the infrastructure sector, though this spending eased somewhat as the year progressed. Austral reported a full year of profit, following the return to profit in the second half of 2023, despite a drop in revenue, following a focus on project execution and margin growth.

In ASEAN, the market recovery has been slow, although our business showed signs of recovery with growth in revenue and operating profit over the prior year.

Keller India performed well, delivering a record profit in the year through successful execution of projects across the industrial, manufacturing, commercial and petrochemical sectors. We continue to see good prospects for the Keller India business in 2025.

APAC Outlook

The APAC order book at the end of the period was at £177.5m, unchanged (on a constant currency basis) on the prior year. Following a strong recovery in 2024, we expect the APAC Division to deliver another resilient performance and operating margin in 2025.

Chief Financial Officer's review

This report comments on the key financial aspects of the Group's 2024 results.

1 Details of non-underlying items are set out in note 9 to the consolidated financial statements. Reconciliations to statutory numbers are set out in the adjusted performance measures section.

Revenue and underlying operating profit split by geography

2 Details of non-underlying items are set out in note 9 to the consolidated financial statements. Reconciliations to statutory numbers are set out in the adjusted performance measures section.

3 From 1 January 2024 the Middle East and Africa (MEA) business was transferred to the Europe division, creating the Europe and Middle East division, and the remaining Asia-Pacific, Middle East and Africa division became the Asia-Pacific division. The 2023 comparative segmental information has been updated to reflect this change as it is consistent with the information reviewed by the Chief Operating Decision Maker.

Revenue

Group revenue of £2,986.7m (2023: £2,966.0m) was up 1% at actual foreign currency rates and 4% up at constant currency. This was driven by an increase in trading in the North America foundations business and the impact of larger projects in Europe partially offset by a reduction in APAC.

In North America, revenue increased by 4.2% on a constant currency basis as foundations volumes offset lower volumes in our Suncoast business, largely as a result of the slowdown in residential housing and lower volumes at RECON. In Europe and the Middle East (EME), revenue increased by 5.5% on a constant currency basis reflecting improved trading volume in Europe and the completion of a large project in the European infrastructure sector. In Asia-Pacific (APAC), revenue reduced by 2.1% on a constant currency basis due to the moderation of trading volume in Australia following a record trading performance in the prior year, and lower volumes at Austral following management focus on margin over volume.

We have a diversified spread of revenues across geographies, product lines, market segments and end customers. Customers are generally market specific and, consistent with the prior year, the largest customer represented less than 4% of the Group's revenue. The top 10 customers represent 19% of the Group's revenue (2023: 15%). The Group worked on c.5,500 projects in the year with 48% (2023: 51%) of contracts having a value between £25,000 and £250,000, demonstrating a low customer concentration and a wide project portfolio.

Underlying operating profit

The underlying operating profit of £212.6m was 18% up on prior year (2023: £180.9m) at actual foreign currency rates and 22% up on a constant currency basis. The underlying operating margin increased to 7.1% (2023: 6.1%). In North America, underlying operating profit increased 16% on a constant currency basis to £190.0m (2023: £169.6m), driven by the sustained improvement in operational performance in the foundations business and benefitting from the buoyant market conditions in the year. The increase in profitability saw underlying operating margin in North America increase to 10.6% (2023: 9.6%). In Europe and the Middle East, underlying operating profit reduced by 18% on a constant currency basis to £7.9m (2023: £9.8m), primarily as a result of project performance at a current challenging project in the Middle East and the completion of a profitable contract in the Middle East in the prior period. Underlying operating margin reduced to 0.9% (2023: 1.2%). In APAC, underlying operating profit increased significantly to £28.7m (2023: £14.6m) driven primarily by the sustained turnaround at Austral that commenced in the second half of 2023. The operating margin for the division increased to 7.8% (2023: 3.8%).

Share of post-tax results from joint ventures

The Group recognised an underlying post-tax profit of £0.5m in the year (2023: £0.8m) from its share of the post-tax results from joint ventures.

The prior year included the share of the post-tax amortisation charge of £0.6m arising from the acquisition of NordPile by our joint venture KFS Oy in 2021 as a non-underlying item. No dividends (2023: nil) were received from joint ventures in the year.

Statutory operating profit

Statutory operating profit, comprising underlying operating profit of £212.6m (2023: £180.9m) and non-underlying items comprising net costs of £7.5m (2023: £27.8m), increased by 34% to £205.1m (2023: £153.1m). The increase in statutory operating profit is a reflection of the increase in underlying operating profit in 2024, combined with a decrease in non-underlying operating costs. The non-underlying costs are set out in further detail below.

Net finance costs

Net underlying finance costs decreased by 23% to £21.2m (2023: £27.5m). The decrease was driven predominantly by the decrease in average debt levels through the year, with a higher average cash balance.

Following the issuance of $300m of private placement notes in August 2023, the Group's borrowings are now largely at fixed interest rates. The average month-end net debt during 2024, excluding IFRS 16 lease liabilities, was £96.5m (2023: £224.8m).

Taxation

The Group's underlying effective tax rate decreased to 23% (2023: 25%), largely due to the change in the profit mix of where the Group is subject to tax. As expected, the introduction of the Pillar Two rules with effect from 1 January 2024 did not have a material impact on the Group's effective tax rate.

Cash tax paid in the year decreased from £72.7m to £65.6m. The reduction is due to the fact that the tax payments in 2023 included a catch-up payment for 2022 US tax. Further details on tax are set out in note 12 of the consolidated financial statements.

Non-underlying items

The items below have been excluded from the underlying results and further details of non-underlying items are included in note 9 to the financial statements. The total non-underlying items in operating profit in the year decreased to £7.5m (2023: £27.8m), due to the goodwill impairment charge in the prior year and a credit arising this year from a change in the fair value of contingent consideration.

Non-underlying items in operating profit

Exceptional restructuring costs of £4.3m (2023: £2.8m) in the year, comprise the cost of a new Group-wide finance transformation project. Finance shared service centres in Poland and Malaysia, serving the EME and APAC divisions respectively, were established and became operational. These shared service centres will ultimately improve efficiency, reduce costs, and provide high-quality support services to the operational businesses. The non-underlying costs for the year include headcount restructuring and one-off set up costs; it does not include the running costs of the shared service centres. In the prior year, restructuring costs of £2.8m related to the scheduled exit of the Kazakhstan business and the costs arising from the mothballing of the Egypt business.

The Group is continuing the strategic project to implement a new cloud-based computing enterprise resource planning (ERP) system across the Group. As this is a complex implementation, project costs are expected to be incurred for a further three years. Non-underlying ERP costs of £4.0m (2023: £7.5m) include only costs relating directly to the implementation, including external consultancy costs and the cost of the dedicated implementation team. Non-underlying costs do not include operational post-deployment costs such as licence costs for businesses that have transitioned.

Claims related to closed businesses of £1.5m (2023: £nil) reflect increased provisions for customer claims for businesses no longer operating.

The Group realised a £0.8m loss on the disposal of the South African business, which completed on 28 June 2024. There is an earnout arrangement on the sale, with a potential maximum further £1.3m sale proceeds dependent on the profitability of the business post-disposal. No receivable for the earnout has been recognised at year end.

Goodwill impairment in the prior year of £12.1m related to the UK business. The impairment of trade receivables related to restructuring in the prior year related to the exit from Kazakhstan.

The classification of costs as non-underlying is a management judgement and is reviewed on a regular basis.

Amortisation of acquired intangibles

The £3.3m (2023: £5.1m) charge for amortisation of acquired intangible assets relates to the RECON, GKM Consultants, NWF and Moretrench acquisitions.

Change in fair value of contingent consideration

Non-underlying other operating income of £6.4m arises from a change in fair value of the contingent consideration related to the non-controlling interest transaction to acquire 35% of Keller Company Limited (our main Saudi Arabian subsidiary) and the acquisitions of GKM Consultants and NWF. The majority of this relates to Keller Company Limited where the earnout is based on revenue earned in Saudi Arabia, which is now expected to be lower given the reduced level of revenue now expected from NEOM.

Non-underlying taxation

A non-underlying tax credit of £2.7m (2023: £3.0m) has been determined by assessing the tax impact of each component of the non-underlying loss, and primarily relates to the tax relief for the finance transformation and ERP projects.

Earnings per share

Underlying diluted earnings per share increased by 30% to 199.9p (2023: 153.9p) driven by higher operating profit as well as lower finance costs and a lower effective tax rate in the year. Statutory diluted earnings per share was 193.3p (2023: 120.5p) which includes the impact of the non-underlying items.

Dividend

The Board has recommended a final dividend of 33.1p per share (2023: 31.3p per share) which, following the interim dividend for 2024 of 16.6p (2023: 13.9p), brings the total dividend for the year to 49.7p (2023: 45.2p), an increase of 10%. The 2024 dividend earnings cover, before non-underlying items, was 4.0x (2023: 3.4x). If approved, the proposed 2024 final dividend of 33.1p (2023: 31.3p) will be paid on 20 June 2025 to shareholders on the register as at the close of business on 23 May 2025.

Keller Group plc has distributable reserves of £283.7m at 31 December 2024 (2023: £190.8m) that are available to support the dividend policy, which comfortably covers the proposed final dividend for 2024 of £23.6m. Keller Group plc is a non-trading investment company that derives its profits from dividends paid by subsidiary companies. The dividend policy is therefore impacted by the performance of the Group, which is subject to the Group's principal risks and uncertainties as well as the level of headroom on the Group's borrowing facilities and future cash commitments and investment plans.

Free cash flow

The Group's free cash flow was an inflow of £192.6m (2023: £103.2m); the improvement was driven by improved profitability, good working capital management and higher than usual proceeds from the disposal of property, plant and equipment. The basis of deriving free cash flow is set out below.

Free cash flow

Working capital

Net working capital decreased by £27.7m (2023: decrease of £2.7m) reflecting decreases in all three divisions, and the benefit of some timing differences where cash has been received from customers ahead of revenue recognition. The net movement comprises a £10.4m decrease in inventories and a £71.7m increase in trade and other payables, offset by an increase in trade and other receivables of £54.4m.

An increase in provisions, retirement benefit and other non-current liabilities improved the working capital by £30.9m (2023: increase of £12.1m). This reflects an increase in provisions, as the amounts provided for contract and legal disputes exceeded the amounts settled in the year. This excludes the cash outflow on non-underlying restructuring provisions and other items included in non-underlying costs which are presented within non-underlying items in the free cash flow calculation.

Capital expenditure

The Group manages capital expenditure tightly whilst investing in the upgrade and replacement of equipment where appropriate. Net capital expenditure, excluding leased assets, of £60.0m (2023: £73.6m) was net of proceeds from the sale of equipment of £29.0m (2023: £20.9m). The asset replacement ratio, which is calculated by dividing gross capital expenditure, excluding sales proceeds on disposal of items of property, plant and equipment and those assets capitalised under IFRS 16, by the depreciation charge on owned property, plant and equipment, was 113% (2023: 115%).

Acquisitions, disposals and transactions with non-controlling interests

Acquisition cash outflow of £0.9m reflects payment of contingent consideration, mainly in respect of last year's purchase of the remaining 35% share in our main Saudi Arabian subsidiary. The earnout arrangement extends for a further three years.

The business disposal cash outflow of £2.6m relates to the £5.0m disposal of the cash held by the South African subsidiary on the disposal date of 28 June 2024 less the sale proceeds of £2.4m.

Financing facilities and net debt

Strong cash generation, combined with the refinancing of the Group's £400m revolving credit facility and the year-end borrowing headroom of £447.4m (2023: £425.2m) has significantly improved the resilience of the Group's balance sheet.

The Group's total net debt of £126.9m (2023: £237.3m) comprises loans and borrowings of £236.6m (2023: £297.1m), lease liabilities of £98.0m (2023: £91.6m) net of cash and cash equivalents of £207.7m (2023: £151.4m). The Group's term debt and committed facilities principally comprise US private placement notes repayable in August 2030 ($120m) and in August 2033 ($180m). The Group's multi-currency syndicated revolving credit facility was refinanced in the year, increasing the facility from £375m to £400m, with no change in the related covenants. The revolving credit facility is a five-year facility, with the option to extend for two further years, with the agreement of the lenders. It was undrawn at the year end. At the year end, the Group had undrawn committed and uncommitted borrowing facilities totalling £447.4m (2023: £425.2m).

The most significant covenants in respect of the main borrowing facilities relate to the ratio of net debt to underlying EBITDA, underlying EBITDA interest cover and the Group's net worth. The covenants are required to be tested at the half year and the year end. The Group operates comfortably within all of its covenant limits. Net debt to underlying EBITDA leverage, calculated excluding the impact of IFRS 16, was 0.1x (2023: 0.6x), well within the covenant limit of 3.0x and below the Group's leverage target of between 0.5x-1.5x. Calculated on a statutory basis, including the impact of IFRS 16, net debt to EBITDA leverage was 0.4x at 31 December 2024 (2023: 0.8x). Underlying EBITDA to net finance charges, excluding the impact of IFRS 16, was 20.2x (2023: 12.3x), well above the limit of 4.0x.

On an IFRS 16 basis, year-end gearing, defined as statutory net debt divided by net assets, was 21% (2023: 46%).

The average month-end net debt during 2024, excluding IFRS 16 lease liabilities, was £96.5m (2023: £224.8m). The Group had no material discounting or factoring in place during the year. Given the relatively low value and short-term nature of the majority of the Group's projects, the level of advance payments is typically not significant, although we have negotiated advance payments on larger projects.

At 31 December 2024 the Group had no drawings under uncommitted overdraft facilities (2023: £2.4m) and had drawn £201.8m of bank guarantee facilities (2023: £199.7m).

Retirement benefits

The Group has defined benefit pension arrangements in the UK, Germany and Austria.

The Group's UK defined benefit scheme is closed to future benefit accrual. The most recent actuarial valuation of the UK scheme was as at 5 April 2023, which recorded the market value of the scheme's assets at £45.2m and the scheme being 98% funded on an ongoing basis. Given the funding level, contributions ceased in August 2024, with a total of £1.7m paid in 2024. Contributions will be reviewed following the next triennial actuarial valuation to be prepared as at 5 April 2026. The 2024 year-end IAS 19 valuation of the UK scheme showed assets of £43.5m, liabilities of £37.2m and a pre-tax surplus of £6.3m before an IFRIC 14 adjustment to reflect the minimum funding requirement for the scheme, which adjusts the closing position to a nil balance.

In Germany and Austria, the defined benefit arrangements only apply to certain employees who joined the Group before 1997. The IAS 19 valuation of the defined benefit obligation totalled £11.5m at 31 December 2024 (2023: £12.6m). There are no segregated funds to cover these defined benefit obligations and the respective liabilities are included on the Group balance sheet.

All other pension arrangements in the Group are of a defined contribution nature.

The Group has a number of end of service schemes in the Middle East as required by local laws and regulations. The amount of benefit payable depends on the current salary of the employee and the number of years of service. These retirement obligations are included on the Group's balance sheet and obligations are met as and when required by the Group. The IAS 19 valuation of the defined benefit obligation totalled £3.7m at 31 December 2024 (2023: £3.6m).

Currencies

The Group is exposed to both translational and, to a lesser extent, transactional foreign currency gains and losses through movements in foreign exchange rates as a result of its global operations. The Group's primary currency exposures are US dollar, Canadian dollar, euro and Australian dollar.

As the Group reports in sterling and conducts the majority of its business in other currencies, movements in exchange rates can result in significant currency translation gains or losses. This has an effect on the primary statements and associated balance sheet metrics, such as net debt and working capital.

A large proportion of the Group's revenues are matched with corresponding operating costs in the same currency. The impacts of transactional foreign exchange gains or losses are consequently mitigated and are recognised in the period in which they arise.

The following exchange rates applied during the current and prior year:

Treasury policies and risk management

Currency risk

The Group faces currency risk principally on its net assets, most of which are in currencies other than sterling. The Group aims to reduce the impact that retranslation of these net assets might have on the consolidated balance sheet, by matching the currency of its borrowings, where possible, with the currency of its assets. The majority of the Group's borrowings are held in US dollar.

The Group manages its currency flows to minimise transaction exchange risk. Forward contracts and other derivative financial instruments are used to hedge significant individual transactions. The majority of such currency flows within the Group relate to repatriation of profits, intra-Group loan repayments and any foreign currency cash flows associated with acquisitions. The Group's treasury risk management is performed at the Group's head office.

The Group does not trade in financial instruments, nor does it engage in speculative derivative transactions.

Interest rate risk

Interest rate risk is managed by mixing fixed and floating rate borrowings depending upon the purpose and term of the financing. At 31 December 2024 all of borrowings were fixed rate.

Credit risk

The Group's principal financial assets are trade and other receivables, bank and cash balances and a limited number of investments and derivatives held to hedge certain Group liabilities. These represent the Group's maximum exposure to credit risk in relation to financial assets.

The Group recognises impairment losses on trade receivables where there is uncertainty over the amount we can recover from customers. The amount recognised in underlying costs of £12.0m (2023: £21.3m) has decreased on the prior year.

The Group has procedures to manage counterparty risk and the assessment of customer credit risk is embedded in the contract tendering processes. The counterparty risk on bank and cash balances is managed by limiting the aggregate amount of exposure to any one institution by reference to its credit rating and by regular review of these ratings.

Other Risks

Following the recent change of government in the US, the new government has stated its intention to implement significant policy changes around tariffs, taxation and climate action. The Group is closely monitoring any changes and the potential impact on our business, not only in North America, but also in other potentially impacted regions where we operate. Should any policy changes be implemented, the Group will then take the appropriate actions to mitigate any negative impact of these changes on the business as far as possible.

Return on capital employed

Return on capital employed is defined at Group level as underlying operating profit divided by the accounting value of equity attributable to equity holders of the parent plus net debt plus retirement benefit liabilities. Return on capital employed in 2024 was 28.2% (2023: 22.8%).

Consolidated income statement

For the year ended 31 December 2024

Consolidated statement of comprehensive income

For the year ended 31 December 2024

Consolidated balance sheet

As at 31 December 2024

These consolidated financial statements were approved by the Board of Directors and authorised for issue on 3 March 2025.

They were signed on its behalf by:

Consolidated statement of changes in equity

For the year ended 31 December 2024

Consolidated cash flow statement

For the year ended 31 December 2024

Notes to the consolidated financial statements

1 Corporate information

The consolidated financial statements of Keller Group plc and its subsidiaries (collectively, the 'Group') for the year ended 31 December 2024 were authorised for issue in accordance with the resolution of the Directors on 3 March 2025.

Keller Group plc (the 'company') is a public limited company, incorporated and domiciled in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. The registered office is located at 2 Kingdom Street, London W2 6BD. The Group is principally engaged in the provision of specialist geotechnical services. Information on the Group's structure is provided in note 10 of the company financial statements.

2 Material accounting policy information

Basis of preparation

In accordance with the Companies Act 2006, these consolidated financial statements have been prepared and approved by the Directors in accordance with UK adopted international accounting standards. The company prepares its parent company financial statements in accordance with FRS 101.

The financial information for the year ended 31 December 2023 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The independent auditors' report on the full financial statements for the year ended 31 December 2023 was unqualified and did not contain an emphasis of matter paragraph or any statement under section 498 of the Companies Act 2006. This announcement does not constitute the Group's full financial statements for the year ended 31 December 2024.

The consolidated financial statements have been prepared on an historical cost basis, except for derivative financial instruments that have been measured at fair value. The carrying values of recognised assets and liabilities that are designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to recognise changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest hundred thousand, expressed in millions to one decimal point, except when otherwise indicated.

Going concern

At 31 December 2024, the Group had undrawn committed and uncommitted borrowing facilities totalling £447.4m, comprising the undrawn committed £400m revolving credit facility and undrawn uncommitted borrowing facilities of £47.4m, as well as cash and cash equivalents of £207.7m. At 31 December 2024, the Group's net debt to underlying EBITDA ratio (calculated on an IAS 17 covenant basis) was 0.1x, well within the limit of 3.0x.

The Group has prepared a forecast of financial projections for the three-year period to 31 December 2027. The forecast underpins the going concern assessment which has been made for the period through to 31 March 2026, a period of at least 12 months from when the financial statements are authorised for issue and aligning with the period in which the Group's banking covenants are tested. The base case reflects the forecast of financial projections prepared by the Group for the three-year period to 31 December 2027. The forecast shows significant headroom and supports the position that the Group can operate within its available banking facilities and covenants throughout this period.

For the going concern assessment, management ran a series of downside scenarios over the base case forecast to assess covenant headroom against available funding facilities. This process involved constructing scenarios to reflect the Group's current assessment of its principal risks, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties modelled by management align with those disclosed within this Annual Report and Accounts.

The following severe but plausible downside assumptions were modelled:

· rapid downturn in the Group's markets resulting in up to a 10% decline in revenues;

· ineffective execution of projects reducing profits by 1.5% of revenue;

· a combination of other principal risks and trading risks materialising together reducing profits by up to £19.9m over the period to 31 March 2026. These risks include changing environmental factors, costs of ethical misconduct and regulatory non-compliance, occurrence of an accident causing serious injury to an employee or member of the public and the cost of a product or solution failure; and

· deterioration of working capital performance by 5% of six months' sales.

The financial and cash effects of these scenarios were modelled individually and in combination. The focus was on the ability to secure or retain future work and potential downward pressure on margins. Management applied sensitivities against projected revenue, margin and working capital metrics reflecting a series of plausible downside scenarios.

Even in the most extreme plausible downside scenario incorporating an aggregation of all risks considered, which showed a decrease in operating profit of 21.6% and an increase in net debt of 30.5% against the Group's latest forecast profit and cash flow projections for the review period up to 31 March 2026, the adjusted projections do not show a breach of covenants in respect of available funding facilities or any liquidity shortfall. Management considered the breaking point of the model, which would result in a breach of financial covenants and the reduction in forecast profit and cash flow projections required to achieve this. These outcomes were considered extreme and remote.

This process allowed the Board to conclude that the Group will continue to operate on a going concern basis for the period through to the end of March 2026, a period of at least 12 months from when the financial statements are authorised for issue. Accordingly, the consolidated financial statements are prepared on a going concern basis.

Climate change

In preparing the consolidated financial statements, management has considered the impact of climate change, particularly in the context of the risks identified in the TCFD disclosure. The output from the scenario analysis has been considered, particularly the financial reporting judgements and estimates in respect of the following areas:

• estimates of future cash flows used in impairment assessments of the carrying value of goodwill;

• the useful economic life of plant, equipment and other intangible assets; and

• going concern and viability of the Group over the next three years.

Although the scenario analysis identified a risk of stranded assets as a result of increased emission standards, this was in one extreme downside scenario and we have not adjusted the useful economic life of any plant or equipment as a result. Whilst there is currently no change, management are aware of the variable risks arising from climate change and will regularly assess these risks against judgements and estimates made in preparation of the Group's financial statements.

Changes in accounting policies and disclosures

New and amended standards and interpretations

The following applicable amendments became effective for annual periods beginning on or after 1 January 2024:

· Amendments to IFRS 16 'Lease Liability in a Sale and Leaseback'.

· Amendments to IAS 1 'Classification of Liabilities as Current or Non-Current'.

· Amendments to IAS 7 'Statement of Cash Flows' & IFRS 7 'Financial Instruments: Disclosures'.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Amendments to IFRS 16 'Lease Liability in a Sale and Leaseback'

The amendments in IFRS 16 specify the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognise any amount of the gain or loss that relates to the right of use it retains. The amendments had no impact on the Group's financial statements.

Amendments to IAS 1 'Classification of Liabilities as Current or Non-Current'

The amendments to IAS 1 specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

· What is meant by a right to defer settlement.

· That a right to defer must exist at the end of the reporting period.

· That classification is unaffected by the likelihood that an entity will exercise its deferral right.

· That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification.

In addition, an entity is required to disclose when a liability arising from a loan agreement is classified as non-current and the entity's right to defer settlement is contingent on compliance with future covenants within twelve months. The amendments have resulted in an additional disclosure in Note 26, but have not had an impact on the classification of the Group's liabilities.

Amendments to IAS 7 'Statement of Cash Flows' & IFRS 7 'Financial Instruments: Disclosures'

The amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures clarify the characteristics of supplier finance arrangements and require additional disclosure of such arrangements. The disclosure requirements in the amendments are intended to assist users of financial statements in understanding the effects of supplier finance arrangements on an entity's liabilities, cash flows and exposure to liquidity risk. The amendments had no impact on the Group's financial statements.

Basis of consolidation

The consolidated financial statements consolidate the accounts of the parent and its subsidiary undertakings to 31 December each year. Subsidiaries are entities controlled by the company. Control exists when the company has power over an entity, exposure to variable returns from its involvement with the entity and the ability to use its power over the entity to affect its returns. Where subsidiary undertakings were acquired or sold during the year, the accounts include the results for the part of the year for which they were subsidiary undertakings using the acquisition method of accounting. Intra-group balances, and any unrealised income and expense arising from intra‑group transactions, are eliminated in preparing the consolidated financial statements.

Joint operations

Where the Group undertakes contracts jointly with other parties, these are accounted for as joint operations as defined by IFRS 11. In accordance with IFRS 11, the Group accounts for its own share of assets, liabilities, revenues and expenses measured according to the terms of the joint operations agreement.

Joint ventures

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. The consolidated financial statements incorporate a share of the results, assets and liabilities of joint ventures using the equity method of accounting, whereby the investment is carried at cost plus post-acquisition changes in the share of net assets of the joint venture, less any provision for impairment. Losses in excess of the consolidated interest in joint ventures are not recognised except where the Group has a constructive commitment to make good those losses. The results of joint ventures acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Summary of material accounting policy information

Foreign currencies

The Group's consolidated financial statements are presented in pounds sterling, which is also the parent company's functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in the consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

Group companies

On consolidation, the assets and liabilities of foreign operations are translated into pounds sterling at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange movements arising on translation for consolidation are recognised in other comprehensive income (OCI). On disposal of a foreign operation, the component of the translation reserve relating to that particular foreign operation is reclassified to profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation.

The exchange rates used in respect of principal currencies are:

Revenue from construction contracts

The Group's operations involve the provision of specialist geotechnical services. The majority of the Group's revenue is derived from construction contracts. Typically, the Group's construction contracts consist of one performance obligation; however, for certain contracts (for example where contracts involve separate phases or products that are not highly interrelated) multiple performance obligations exist. Where multiple performance obligations exist, total revenue is allocated to performance obligations based on the relative standalone selling prices of each performance obligation.

For each contract, revenue is the amount that is expected to be received from the customer. Revenue is typically invoiced in stages during the contracts, however smaller contracts are usually invoiced on completion. Variable consideration and contract modifications are assessed on a contract-by-contract basis, according to the terms, facts and circumstances of the project. Variable consideration is recognised only to the extent that it is highly probable that there will not be a significant reversal.

The effects of contract modifications, including claims to customers, are recognised only when the Group considers there is an enforceable right to consideration, therefore no revenue is recognised until this point. Operating expenses in relation to customer modifications are recognised as incurred. Factors indicating an enforceable right to consideration will vary from country to country but usually includes written confirmation from the customer..

Revenue attributed to each performance obligation is recognised based on either the input or the output method. The output method is the Group's default revenue recognition approach. The input method is generally used for longer-term, more complex contracts. These methods best reflect the transfer of benefits to the customer.

● Output method: revenue is recognised on the direct measurement of progress based on output, such as units of production relative to the total number of contracted production units.

● Input method: revenue is recognised on the percentage of completion with reference to cost. The percentage of completion is calculated based on the costs incurred to date as a percentage of the total costs expected to satisfy the performance obligation. Estimates of revenues, costs or extent of progress towards completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in the percentage of completion calculation in the period in which the circumstances that give rise to the revision become known.

Where the Group becomes aware that a loss may arise on a contract, and that loss is probable, full provision is made in the consolidated balance sheet based on the estimated unavoidable costs of meeting the obligations of the contract, where these exceed the economic benefits expected to be received. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

Incremental bid/tender costs and fulfilment costs are not material to the overall contract and are expensed as incurred.

Any revenues recognised in excess of billings are recognised as contract assets within trade and other receivables. Any payments received in excess of revenue recognised are recognised as contract liabilities within trade and other payables.

Revenue from the sale of goods and services

The Group's revenue recognised from the sale of goods and services primarily relates to certain parts of the North America business. These contracts typically have a single performance obligation, or a series of distinct performance obligations that are substantially the same. There are typically two types of contract:

● Delivery of goods: revenue for such contracts is recognised at a point in time, on delivery of the goods to the customer.

● Delivery of goods with installation and/or post-delivery services: revenue for these contracts is recognised at a point in time by reference to the date on which the goods are installed and/or accepted by the customer.

Taxes

Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement.

The Group provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods. Such provisions are based on management's best judgement of the probability of the outcome in reaching agreement with the relevant tax authorities. For further information refer to note 12.

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax is recognised on temporary differences in line with IAS 12 'Income Taxes'. Deferred tax assets are recognised when it is considered likely that they will be utilised against future taxable profits or deferred tax liabilities.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity or to OCI, in which case the related deferred tax is also dealt with in equity or in OCI.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Interest income and expense

All interest income and expense is recognised in the income statement on an accruals basis, using the effective interest method.

Employee benefit costs

The Group operates a number of defined benefit pension schemes, and also makes payments into defined contribution schemes.

The liability in respect of defined benefit schemes is the present value of the defined benefit obligations at the balance sheet date, calculated using the projected unit credit method, less the fair value of the schemes' assets where applicable. The Group recognises the administration costs, current service cost and interest on scheme net liabilities in the income statement, and remeasurements of defined benefit plans in OCI in full in the period in which they occur. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans. Where there is no legal right to a refund from the plan, the liability is calculated as the minimum funding requirement to the plan that exists at the balance sheet date.

The Group also has long service arrangements in certain overseas countries. These are accounted for in accordance with IAS 19 'Employee Benefits' and accounting follows the same principles as for a defined benefit scheme.

Payments to defined contribution schemes are accounted for on an accruals basis.

Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Further details are set out in note 16 for impairments recognised in the year. Subsequent expenditure on property, plant and equipment is capitalised when it enhances or improves the condition of the item of property, plant and equipment beyond its original assessed standard of performance. Maintenance expenditure is expensed as incurred.

Depreciation

Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment using the straight-line method by reference to their estimated useful lives as follows:

Depreciation is not provided for on freehold land.

An item of property, plant and equipment is derecognised upon disposal (i.e. at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted where appropriate.

Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets (less than £3,000). The Group recognises lease liabilities to make payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and estimated useful lives as follows:

Right-of-use assets are tested for impairment in accordance with IAS 36 'Impairment of Assets'.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate applied to each lease is determined by considering the risk-free rate of the country where the asset under lease is located, matched to the term of the lease and adjusted for factors such as the credit risk profile of the lessee. Incremental borrowing rates applied to individual leases range from 1.85% to 15.2%.

After the commencement date, the amount of lease liabilities is increased to reflect the addition of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group's lease liabilities are included in interest-bearing loans and borrowings. Refer to note 26 for details.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of plant, machinery and vehicles (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low asset value (below £3,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the fair value at the acquisition date. Acquisition-related costs are expensed as incurred and included in administrative expenses. Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date. The excess of cost of an acquisition over the fair value of the Group's share of the identifiable net assets acquired, including assets identified as intangibles on acquisition, is recorded as goodwill.

The results of subsidiaries which have been disposed are included up to the effective date of disposal.

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually and whenever there is an indication that the goodwill may be impaired in accordance with IAS 36, any impairment losses are recognised immediately in the income statement. Goodwill arising prior to 1 January 1998 was taken directly to equity in the year in which it arose. Such goodwill has not been reinstated on the balance sheet. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.

Other intangible assets

Intangible assets, other than goodwill, include purchased licences, software (including internally generated software), customer relationships, customer contracts and trade names. Intangible assets are capitalised at cost and amortised on a straight-line basis over their useful economic lives from the date that they are available for use and are stated at cost less accumulated amortisation and impairment losses. The estimated useful economic lives are as follows:

Software-as-a-service arrangements

The Group's current SaaS arrangements are arrangements in which the Group does not control the underlying software used in the arrangement.

Software development costs incurred to configure or customise application software provided under a cloud computing arrangement and associated fees are recognised as operating expenses as and when the services are received where the costs represent a distinct service provided to the Group.

When such costs incurred do not provide a distinct service, the costs are recognised as expenses over the duration of the SaaS contract. The Group capitalises other software costs when the requirements of IAS 38 'Intangible Assets' are satisfied, including configuration and customisation costs which are distinct and within the control of the Group. Such software costs are capitalised and carried at cost less any accumulated amortisation and impairment, and amortised on a straight-line basis over the period which the developed software is expected to be used.

Amortisation commences when the development is complete and the asset is available for use and is included in the operating costs item of the consolidated income statement. The amortisation is reviewed at least at the end of each reporting period and any changes are treated as changes in accounting estimates.

Impairment of assets excluding goodwill

The carrying values of property, plant and equipment, right-of-use assets and other intangibles are reviewed for impairment when events or changes in circumstances indicate the carrying value may be impaired. If any such indication exists, the recoverable amount, being the lower of their carrying amount and fair value less costs to sell, of the asset is estimated in order to determine the extent of impairment loss.

Capital work in progress

Capital work in progress represents expenditure on property, plant and equipment in the course of construction. Transfers are made to other property, plant and equipment categories when the assets are available for use.

Inventories

Inventories are measured at the lower of cost and estimated net realisable value with allowance made for obsolete or slow-moving items.

Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition.

Write-downs to net realisable value are made for slow-moving, damaged or obsolete items based on evaluations made at the local level by reference to frequency of stock turnover or specific factors affecting the items concerned.

Assets held for sale

Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell, with reference to comparable market transactions. Assets that are classified as held for sale are not depreciated.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows:

(a) Trade receivables and trade payables

Trade receivables are initially recorded at fair value and subsequently measured at cost and reduced by allowances for estimated irrecoverable amounts.

Trade receivables and contract assets are stated net of expected credit losses (ECLs). At each reporting date, the Group evaluates the estimated recoverability of trade receivables and contract assets and records allowances for ECLs based on experience.

The Group applies the simplified approach to measurement of ECLs in respect of trade receivables, which requires expected lifetime losses to be recognised from initial recognition of the receivable. Immediately after an individual trade receivable or contract asset is assessed to be unlikely to be recovered, an impairment is recognised as the difference between the carrying amount of the receivable and the present value of estimated future cash flows. Customer specific factors are considered when identifying impairments, which can include the geographic location and credit rating of a customer.

Where there are no specific concerns over recovery, other than the increasing age of a trade receivable or contract asset balance past payment terms, the Group uses a provision matrix, where provision rates are based on days past due. The provision matrix used reflects estimates based on past experience, current economic factors and consideration of forward looking estimates of economic conditions. Generally, trade receivables are written-off completely if past due for more than 180 days. Default is defined as the point where there is no further legal address available for the Group to recover the receivable amount.

The information about the ECLs on the Group's trade receivables and contract assets is disclosed in note 20.

Trade payables that are not interest bearing are initially recognised at fair value and carried at amortised cost.

(b) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with a maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group's cash management. Bank overdrafts are included within financial liabilities in current liabilities in the balance sheet.

(c) Bank and other borrowings

Interest-bearing bank and other borrowings are recorded at the fair value of the proceeds received, net of direct issue costs. Subsequent to initial recognition, borrowings are stated at amortised cost, where applicable.

Bank or other borrowings are derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the consolidated income statement.

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, ie to realise the assets and settle the liabilities simultaneously.

(d) Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to manage interest rate risk and to hedge fluctuations in foreign currencies in accordance with its risk management policy. In cases where these derivative instruments are significant, hedge accounting is applied as described below. The Group does not use derivative financial instruments for speculative purposes.

Derivatives are initially recognised in the balance sheet at fair value on the date the derivative contract is entered into and are subsequently remeasured at reporting periods to their fair values. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Changes in the fair value of the effective portion of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income (OCI). Changes in the fair value of the ineffective portion of cash flow hedges are recognised in the income statement. Amounts originally recognised in OCI are transferred to the income statement when the underlying transaction occurs or if the transaction results in the recognition of a non-financial asset or liability, the amount accumulated in equity is included in the initial cost or carrying amount of the hedged asset or liability.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in OCI is retained in equity until the hedged transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in OCI is transferred to the income statement in the period.

For the purpose of hedge accounting, hedges are classified as:

● Cash flow hedges when hedging the exposure or variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable transaction.

● Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability.

● Hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

● There is 'an economic relationship' between the hedged item and the hedging instrument.

● The effect of credit risk does not 'dominate the value changes' that result from that economic relationship.

● The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

Provisions

Provisions have been made for employee-related liabilities, restructuring commitments, onerous contracts, insured liabilities and legal claims, and other property-related commitments. These are recognised as management's best estimate of the expenditure required to settle the Group's liability at the reporting date.

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and where it is probable that an outflow will be required to settle the obligation and the amount of the obligation can be estimated reliably. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost. Details of provisions are set out in note 24.

Provisions for insured liabilities and legal claims include the full estimated value of the liability. Any related insurance reimbursement asset that is virtually certain to be received is separately presented gross within trade and other receivables or other non-current assets on the consolidated balance sheet.

Contingent liabilities

Contingent liabilities are possible obligations of the Group of which the timing and amount are subject to significant uncertainty. Contingent liabilities are not recognised in the consolidated balance sheet, unless they are assumed by the Group as part of a business combination. They are however disclosed, unless they are considered to be remote. If a contingent liability becomes probable and the amount can be reliably measured it is no longer treated as contingent and recognised as a liability on the balance sheet.

Contingent assets

Contingent assets are possible assets of the Group of which the timing and amount are subject to significant uncertainty. Contingent assets are not recognised in the consolidated balance sheet. They are however disclosed, when they are considered to be probable. A contingent asset is recognised in the financial statements when the inflow of economic benefits is virtually certain.

Share-based payments

The Group operates a number of equity-settled executive and employee share plans. For all grants of share options and awards, the fair value of the employee services received in exchange for the grant of share options is recognised as an expense, calculated using appropriate option pricing models. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions, with a corresponding increase in retained earnings. The charge is adjusted to reflect expected actual levels of options vesting due to non-market conditions.

Shares purchased and held in trust in connection with the Group's share schemes are deducted from retained earnings. No gain or loss is recognised within the income statement on the market value of these shares compared with the original cost.

Segmental reporting

During the year the Group comprised three geographical divisions which have only one major product or service: specialist geotechnical services. North America; Europe and Middle East; and Asia-Pacific, continue to be managed as separate geographical divisions. This is reflected in the Group's management structure and in the segment information reviewed by the Chief Operating Decision Maker.

Dividends

Interim dividends are recorded in the Group's consolidated financial statements when paid. Final dividends are recorded in the Group's consolidated financial statements in the period in which they receive shareholder approval.

Non-underlying items

Non-underlying items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are items which are exceptional by their size and/or are non-trading in nature, including amortisation of acquired intangibles, goodwill impairment, restructuring costs and other non-trading amounts, including those relating to acquisitions and disposals. Tax arising on these items, including movement in deferred tax assets arising from non-underlying provisions, is also classified as a non-underlying item.

Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies, reported amounts of assets and liabilities, revenue and expenses and the accompanying disclosures, and the disclosure of contingent liabilities. The estimates are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Actual results may also differ from these estimates.

The estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that and prior periods, or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Construction contracts

The Group's approach to key estimates and judgements relating to construction contracts is set out in the revenue recognition policy. In the Group consolidated balance sheet this impacts contract assets, contract liabilities and contract provisions (refer to notes 4 and 24).

As described in the policy the default revenue recognition approach is the output method. When revenue is recognised based on the output method, there is little judgement involved in accounting for construction contracts as the amount of revenue that has not been certified/accepted by the client is typically small and is usually based on volumes achieved at agreed rates. These contracts can still be subject to claims and variations resulting in an adjustment to the revenue recognised.

When revenue is recognised based on the input (cost) method, the main factors considered when making estimates and judgements include the cost of the work required to complete the contract in order to estimate the percentage completion, and the outcome of claims raised against the Group by customers or third parties. The Group performed around 5,500 contracts during 2024, at an average revenue of approximately £540,000 and a typical range of between £25,000 and £10m in value. The majority of contracts were completed in the year and therefore there are no estimates involved in accounting for these. For contracts that are not complete at year end and revenue is recognised on the input method, the Group estimates the total costs to complete in order to measure progress and therefore how much revenue to recognise, which may impact the contract asset or liability recorded in the balance sheet. The actual total costs incurred on these contracts will differ from the estimate at 31 December and it is reasonably possible that outcomes on these contracts within the next year could be materially different in aggregate to those estimated.

Total contract assets are £119.2m and contract liabilities are £115.2m at 31 December 2024.

However, due to the level of uncertainty and timing across a large portfolio of contracts, which will be at different stages of their contract life, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied at a portfolio level. The estimated costs to complete are management's best estimate at this point in time and no individual estimate or judgement is expected to have a materially different outcome.

In the case of loss-making contracts, a full provision is made based on the estimated unavoidable costs of meeting the obligations of the contract, where these exceed the economic benefits expected to be received. The process for estimating the total cost to complete is the same as for in progress profitable contracts, and will include management's best estimate of all labour, equipment and materials costs required to complete the contracted work. All cost to complete estimates involve judgement over the likely future cost of labour, equipment and materials and the impact of inflation is included if material. The amount included within provisions in respect of contract provisions is £66.3m (2023: £41.2m), this includes other contract related provisions as well as onerous contract provisions.

As stated in the revenue recognition accounting policy, variable consideration is assessed on a contract-by-contract basis, according to the terms, facts and circumstances of the project. Variable consideration is recognised only to the extent that it is highly probable that there will not be a significant reversal; management judgement is required in order to determine when variable consideration is highly probable. Uncertainty over whether a project will be completed or not can mean that it is appropriate to treat the contracted revenue as variable consideration.

Non-underlying items

Non-underlying items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are items which are exceptional by their size and/or are non-trading in nature, including amortisation of acquired intangibles, goodwill impairment, restructuring costs and other non-trading amounts, including those relating to acquisitions and disposals. Tax arising on these items, including movement in deferred tax assets arising from non-underlying provisions, is also classified as a non-underlying item.

The Group exercises judgement in assessing whether restructuring items and the ERP implementation costs should be classified as non-underlying. This assessment covers the nature of the item, cause of the occurrence and scale of impact of that item on the reported performance. Typically, management will categorise restructuring costs incurred to exit a specific geography as non-underlying, in addition restructuring programmes which are incremental to normal operations undertaken to add value to the business are included in non-underlying items. The value of exceptional restructuring costs in 2024 (£4.3m) is higher than in 2023 (£2.8m), due to the impact of the finance transformation project in the year. ERP implementation costs are categorised as non-underlying due to the scale and length of the project. The nature of the project and costs incurred are reviewed on a regular basis to assess the appropriateness of the classification as a non-underlying cost.

Carrying value of goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy set out above. Impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value-in-use. The fair value less costs of disposal calculation is based on available market data for transactions conducted at arm's length, for similar assets or observable market prices less incremental costs of disposing of the asset. The Group estimates the recoverable amount based on value-in-use calculations. The value-in-use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the relevant budget and forecasts for the next three years, including a terminal value assumption. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash inflows, growth rates and maintainable earnings assumed within the calculation.

In 2024, management noted sensitivity in the headroom available for Keller Canada and Keller Norway. The DCF for each CGU is sensitive to the future successful execution of business plans to consistently meet forecasted margins (which assumes an improvement in operating performance compared with 2024) by improving project delivery and revenue growth. Refer to note 15 for further information.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses and other timing differences to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits (based on the same Board-approved information to support the going concern and goodwill impairment assessments). The Group uses judgement in assessing the recoverability of deferred tax assets, for which the significant assumption is forecast taxable profits. A 10% shortfall in expected profits would have a proportional impact on the value of the deferred tax assets recoverable. Deferred tax assets recognised on unused tax losses were £13.1m at 31 December 2024 (2023: £10.7m). Refer to note 12 for further information.

Insurance and legal provisions

The recognition of provisions for insurance and legal disputes is subject to a significant degree of estimation. In making its estimates, management seek specialist input from legal advisers and the Group's insurance claims handler to estimate the most likely legal outcome. Provisions are reviewed regularly and amounts updated where necessary to reflect developments in the disputes. The ultimate liability may differ from the amount provided depending on the outcome of court proceedings and settlement negotiations or if investigations bring to light new facts. Refer to note 24 for further information.

3 Segmental analysis

During the year the Group was managed as three geographical divisions and has only one major product or service: specialist geotechnical services.

This is reflected in the Group's management structure and in the segment information reviewed by the Chief Operating Decision Maker.