Keller Group declares profit warning after alleged fraud is unearthed

Engineering firm Keller Group has issued a profit warning after an investigation revealed suspected fraudulent behavior at its Australian company Austral.

Two employees have been laid off over the case, which Keller says relates to an “apparently deliberate and sophisticated financial reporting fraud” overstating Austral’s results since 2019.

The London-based company estimates the alleged fraud will cost it around £8m in operating profit in relation to the first half of 2022, and a further £8m to £10m for previous years.

Underlying operating income for last year is also expected to be slightly below the bottom of analyst forecasts.

Andrew Blain and Tom Callan, analysts at Investec, have cut their top-of-range earnings estimate on Keller by £8m to £106m, though they have maintained their 2023 outlook for the company due to “strong trading momentum”.

In his trading update, Keller highlighted significant volumes of activity in North America, aided by inflation and supply chain issues softening somewhat in its basics business, as well as a “robust” performance in Europe.

Despite issues within Austral, the group also noted healthy trade across its Asia-Pacific, Middle East and Africa operations, supported by work on NEOM, a desert city development in Saudi Arabia.

Keller said an internal investigation is now underway and an outside consultant is being sought to conduct an independent investigation.

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

“We responded quickly and decisively to a serious issue within one of our business units and a full investigation is underway,” said CEO Michael Speakman.

“Until this process is completed and the consequences are fully understood, it is inappropriate to comment further.

“The Board and management team have taken, and will continue to take, all actions that we deem appropriate to ensure the maintenance of both high ethical and professional standards and resilient and effective controls throughout our organization.”

Keller Group shares was down 11.1 percent to 750 pence on Monday afternoon after the announcement, making it the biggest faller on the FTSE 350 Index.

Over the past three months, however, the value has still risen by about 30 percent.

Austral is responsible for approximately 3 percent of Keller’s revenues and provides technical services to the Australian mining and infrastructure sectors.

Its most prominent clients have included Rio Tinto and BHP, two of the world’s largest mining companies, with whom it has completed more than 600 contracts and $750 million in work, according to the website.

The division was acquired by Keller in 2015 for £20.5 million, with a further £3.5 million paid out three years later after specific underlying profit targets were met.