Keller Group declares profit warning after alleged fraud is unearthed

Keller Group issues profit warning after engineering firm discovers alleged fraud at Australian subsidiary

  • Keller Group estimates the alleged fraud will cost it c.£18m in operating profits
  • The firm is searching for an external adviser to conduct an independent probe 
  • Austral’s most prominent clients have included mining giants Rio Tinto and BHP

Outlook: Keller Group has issued a profit warning after a review uncovered suspected fraudulent behaviour at its Australian business Austral

Engineering contractor Keller Group has issued a profit warning after a review uncovered suspected fraudulent behaviour at its Australian business Austral.

Two employees have been sacked over the matter, which Keller said concerns an ‘apparently deliberate and sophisticated financial reporting fraud’ involving the overstatement of Austral’s results since 2019.

The London-based firm estimates the supposed fraud will cost it around £8million in operating profits related to the first half of 2022, and another £8million to £10million covering the previous years.

Underlying operating earnings for last year are also expected to be marginally below the lower end of analyst forecasts.

Andrew Blain and Tom Callan, analysts at Investec, have lowered their top-of-range profit estimate on Keller by £8million to £106million, although they have upheld their 2023 outlook on the company due to its ‘strong trading momentum’.

In its trading update, Keller highlighted significant volumes of activity in North America, helped by inflation and supply chain problems somewhat softening in its foundations arm, as well as a ‘robust’ performance in Europe.

Despite problems within Austral, the group also observed healthy trading within its overall Asia-Pacific, Middle East and African business, supported by work on NEOM, a desert city development in Saudi Arabia.

Keller said that an internal probe is now underway, and the search for an external adviser to conduct an independent investigation is taking place.

Keller declined to comment further on the two sanctioned individuals or the nature of the purported fraud beyond its statement to investors on Monday.

‘We have responded swiftly and decisively to a serious issue within one of our business units, and a full investigation is underway,’ commented chief executive Michael Speakman.

‘Until this process is complete and its consequences fully understood, it is inappropriate to comment further.

‘The board and management team has taken, and will continue to take, all actions we think appropriate to ensure the maintenance of both high ethical and professional standards and resilient and effective controls throughout our organisation.’

Keller Group shares had tumbled by 11.1 per cent to 750p on Monday afternoon following the announcement, making it the biggest faller on the FTSE 350 Index.

However, its value has still expanded by approximately 30 per cent over the past three months. 

Responsible for around 3 per cent of Keller’s revenues, Austral offers engineering services to the Australian mining and infrastructure sectors.

Among its most prominent clients have been Rio Tinto and BHP, two of the world’s largest mining corporations, with whom it has completed more than 600 contracts and $750million worth of work, according to its website.

The division was acquired by Keller for £20.5million in 2015, with an additional £3.5million paid out three years later after it hit specific underlying earnings targets.