- Firm uncovers sophisticated fraud dating to 2019
- Financial damage appears limited
- Shares fall but quickly steady down around 7%
Investors in FTSE 250 construction and infrastructure group Keller (KLR) received an unwelcome surprise at the start of the week with news the firm had unearthed financial fraud in its Australian division.
Fortunately, the share price wasn’t too badly affected due to the limited scale of the fraud, resulting in a fall of 6.7% to 785p and knocking £40 million of the firm’s market value.
HOW BAD IS THE FRAUD?
Keller says that following a recent internal management review of its operations it uncovered ‘an apparently deliberate and sophisticated reporting fraud’ within its Austral business in Australia, resulting in it sacking two individuals.
Austral contributes just 3% of group revenues, and the fraud involves the overstatement of its sales performance from 2019 onwards.
The impact on the group’s accounts is estimated to be limited to £6 million of revenues for the first half of this year and between £8 million and £10 million in previous years.
While the fraud continued into the second half of 2022, the rest of the group’s performance was strong enough that the board expects to report a full-year operating profit only slightly below the bottom end of market expectations of between £109 million and £114 million.
Moreover, given the fraud is a reporting issue there is no impact on the group’s cash balance or gearing and the final dividend is being increased by 5% to 24.5p taking the full-year pay-out to 37.7p per share.
BUSINESS AS USUAL
Leaving aside the issue of Austral, the AMEA (Asia, Middle East and Africa) division performed strongly last year, with work on the ambitious NEOM project in Saudi Arabia set to evolve into ‘a significant and material opportunity for 2023 and beyond’.
The North American division - which accounts for nearly two thirds of group revenues - saw a high level of activity, while the inflation and supply chain headwinds which impacted the first half receded in part during the second half meaning operating margins improved.
The European division also put in a ‘robust’ performance despite the operational challenges thrown up by the war in Ukraine and the knock-on effect on supply of materials.
The firm’s order book stood at a record £1.6 billion at the end of the first half thanks to major contract wins in North America and the AMEA region, underpinning the outlook for the current financial year.
