Costain Group PLC (COST) Earnings Call Transcript & Summary

Right. Good morning, everyone, and thanks very much for joining Costain's 2026 Half Year Results Presentation. I'm going to start with sharing my reflections on the first half of the year. And then Helen Willis, our Chief Financial Officer, is going to come in and sort of take you through the financial results and the financial performance of the business before I return to sort of give you a bit of a strategic overview and update, operational insight and an outlook for the business as we move forward. Look, we're really pleased with -- to have reported another strong set of results for the business in the first half. It really reflects the quality, the resilience and the balance of the portfolio of business that we've got and also how our teams expertly deliver our services. We've returned to revenue growth in the first half. We've also grown operating profits and increased shareholder returns, again, thanks to the strong balance of cash and the strong cash generation in the business. I think as we said in our results statement, the revenue growth in the first half marks that beginning of a sustained period of growth for the business, built on the successful positioning of us in what are significant growing markets. I'm going to use a phrase a lot, but this is a really exciting time for U.K. infrastructure. And in our markets, we've continued to secure a good number of high-quality new contracts and extensions that underpins the fact that we've maintained our record forward work position of GBP 7 billion. For a business of our size, that is 6x our annual revenue, which really underpins that confidence in the growth. And the fact that the forward work visibility of 91%, not just for this year, but for next year, gives us that confidence in how we're going to grow and move the business forward. Our forward work also benefits from having added new customers. So we've now added Dover Ports, Gatwick Airport and National Grid in the first half of the year. And we've also accessed new market segments. So we've broken into the Great Grid Upgrade, and we've got a real presence already on the reservoir program. All of that really improves the strength of the group. We remain on track to deliver 2026 in line with expectations and to deliver that step change in growth for 2027. And I just wanted to sort of reflect that our first half year results mark a continuation of the progress that we've been making as a business, that momentum in the business. And based on 2026 consensus, we're going to be delivering a full year '26. We're on track to make it 6 years' worth of growth and industry-leading margins as a business. And as a result of the quality of the contracts that we take on and their nature and the fact that they're cash generative, this has continued to strengthen our balance sheet. And this consistent cash position, which is a feature of the type of business that we do, while strengthening the balance sheet has also allowed us to increase increased returns to our shareholders. Over the past 3 years, we've returned GBP 31.5 million in terms of shareholder returns, and that trajectory is going to increase. And today, we've announced a doubling of the interim dividend that we've got, which combined with the GBP 20 million share buyback means in 2026 alone, we'll be giving GBP 34 million worth of shareholder returns. This continued momentum is now set to accelerate in the second half of this year, as we've talked about with a step change in 2027. For the second half of the year, we've pulled together this graph that shows that in Water, we've spent last year and the beginning of this year, just finalizing design solutions for a lot of the water infrastructure. In the second half, we're now getting into the delivery of that infrastructure, which is why you get the step-up. And you'll see that really moving forward into next year as well, where we'll be at full operational level delivering that water infrastructure. Heathrow, we continue to expand the amount of work that we're doing to support their investment plans. And then from a road point of view, we've got the M60. We've spent 4 years in the design and consenting phase for the M60. We've now mobilized. We're on site. We've started construction activities. And obviously, the second half, you're going to get that. And then next year, we're going to get a full year. We've also got the ramping up of the nuclear energy work we talked about last year together with that Great Grid Upgrade. And we've also got some of the road -- local road contracts coming through. So a clear path for that increased growth coming through. The step change in '27 really builds on our momentum, that clear visibility of that GBP 7 billion worth of forward work. Our business is in great shape, and we're really excited. And I'll hand over to Helen.

Good morning, everyone. I'm just relieved to have navigated the step there. So all good so far. So thanks, Alex. And we've talked about momentum a lot, and it really does feel like that's coming through now. As Alex said, we're on track to deliver the sixth consecutive year of profit growth and with an industry-leading margin, which we intend to maintain. The balance sheet position continues to strengthen. We significantly increased shareholder returns having resumed in 2023. And we're winning the right work, and we maintain that GBP 7 billion forward work book. And of course, we entered the FTSE 250 earlier this year. It really is exciting to be part of this, even as a CFO, I can say that. So let me take you briefly through the headline financial results. Revenue up to just over GBP 0.5 billion, up 3.4% on prior year. Adjusted operating profit up 3%, up to GBP 17.3 million with no adjusting items, so that falls through to GBP 17.3 million on reported as well. Adjusted operating margin, consistent with the first half of last year at 3.2%. Adjusted basic earnings per share increased by 3.6% to 5.7p, and that's primarily reflecting the increase in adjusted operating profit and a reduced share count following the share buyback programs. The group has adopted a new target dividend cover, as Alex mentioned, to 2.5x adjusted earnings. And previously, that was 3x earnings. And that would be paid 1/3 H1 and 2/3 H2 as we have in the past. We continue to maintain a strong balance sheet, as I mentioned, and net cash was GBP 164.4 million at the end of the half, and that's GBP 20 million higher than half year last year, and that's after the increased shareholder returns. So revenue, as I mentioned, is up 3.4% on the half. And that was following the expected small reduction on Transportation, but more than offset by growth across all sectors in natural resources. Crucially, this marks a key inflection point, and we are confident of the step change in revenue growth in H2 this year, followed by a sustained period of growth thereafter. In Transportation, revenues in roads, as I said, reduced in line with expectations as several of our RDP framework projects completed. And we expect to return to growth in the second half, as Alex was mentioning, as we go into construction phase on the M60 and on the M5 thereafter. Integrated Transport increased almost 40% as we really are hitting our stride with the work at Heathrow. There was strong growth in Natural Resources across all sectors. In Water, we see the transition from design into construction phase as we are into AMP8 regulatory cycle. And we're scaling up to deliver a strong pipeline of work in the second half of '26 and thereafter. Energy revenue increased by 25.7%, and that's driven by a range of services we provide, including design and delivery of the carbon capture program at BP and the management of gas mains replacement for Cadent. And revenue increased on Defense and Nuclear by 3.6%, driven by our current delivery partnership roles. Adjusted operating profit, as I mentioned, grew 3% in the first half to GBP 17.3 million, and that was really reflecting the increased revenue, but maintaining the adjusted operating margin, so stable at 3.2%. We've seen the lower volumes, as I mentioned, in the RDP frameworks, offset by Natural Resources revenue. It should be remembered that last year, we had a normal course of business contract closure benefits in Natural Resources. And so the level this year is a more normalized level, I would say. We've spoken about our targeted areas of investment in recent periods, and it's important to note that we've seen another period of increased operating profit despite continued investment across the business, ensuring that we're really well positioned for growth. I'll now take you through the cash walk and moving from left to right, opening net cash of GBP 189.3 million and closing net cash of GBP 164.4 million. The first boxed area represents adjusted free cash flow, an outflow of GBP 1.4 million, and this outflow reflects strong operating profit, offset by the timing of working capital around the period ends as well as modest CapEx and tax outflow of GBP 3 million. Interest receipts were GBP 0.3 million. Lease expenditure is shown separately from cash from operations and was GBP 5.7 million for the first half, and we've seen an increase in lease expenditure in the period as we invest on contracts ahead of planned growth. There was a significant increase in shareholder returns, which totaled GBP 15.4 million in the period. GBP 7.2 million was spent as part of the FY '26 share buyback program and dividend payments of GBP 8.2 million, almost doubling against half year '25 of GBP 4.9 million. Other financing costs of GBP 2.7 million reflect the purchase of treasury shares to fund our employee share schemes, an increase in the first half driven by both increased share price as well as volume of options and awards. We expect to see this continue in the second half as the first of our SAYE schemes for a number of years vest at the end of the year. We expect that adjusted free cash flow will increase in H2, reflecting the typical second half weighting of adjusted operating profit. And we expect our FY '26 year-end net cash position to be around GBP 170 million after the step-up in purchase of treasury shares I just mentioned as well as enhanced shareholder returns in the form of the GBP 20 million share buyback program and significantly higher dividend payment. The net cash position at the end of half 1 comprised of Costain cash balances of GBP 94.8 million, cash held by joint operations of GBP 69.6 million and borrowings of 0. The chart illustrates the maintenance of a significantly stronger balance through H1 when compared to FY '25 and H1 '25. The group's average weekend net cash balance in the period was GBP 177.3 million, a GBP 25 million increase on H1 in the prior year and GBP 28 million on the full year of '25. In the first half of the year, we paid 97% of invoices within 60 days as we have done in previous periods. You remember at the full year presentation, I confirmed that in 2025, the group successfully concluded negotiations with its bank and surety facility providers to refinance the new 4-year agreement of those facilities to September '29. Comprising a revolving credit facility of GBP 100 million and surety and bank bonding facilities totaling GBP 295 million. Further to this, in May '26, Costain exercised a one-year optional extension clause, and this agreement was extended by a further year to September 2030 and the RCF facility remains undrawn. So our continuing strong financial performance, robust balance sheet and cash position and the agreement reached with the trustee of the defined benefits pension scheme to remove the constraint of the dividend parity arrangement has enabled us to significantly increase returns to shareholders. The graph shows the year-on-year increase in shareholder returns, having resumed returns in '23. The board undertook a review of its options regarding dividend and on the 10th of March '26 confirmed its intention to pay a final dividend for FY '25, in line with its target dividend cover of 3x adjusted earnings. The board regularly reviews its capital allocation policy and following its latest review, the group has adopted a new target dividend cover of 2.5x adjusted earnings to be paid approximately 1/3 H1 and 2/3 H2. Based on the new target dividend cover of 2.5x and the completion of our GBP 20 million share buyback program this year, which will be our third share buyback program, we anticipate doubling shareholder returns in FY '26 to circa GBP 34 million compared to GBP 17 million last year. As of the 12th of August '26, the group had purchased a total of 6.1 million shares for an aggregate consideration of GBP 12.1 million under the FY '26 share buyback program. We shared this slide before at half year and full year results presentations, but I think it bears repeating. The effective management of risk in our portfolio continues to be central to how we manage our business. Over recent years, we've invested in strengthening our processes, controls and assurance activities. We've invested in our systems, and we've invested in key capabilities across the business. This approach has applied to the opportunities we bid and win all the way through to delivery on site and through to completion of our works. And this approach has driven improvement in the quality of the forward work, the right risk profile, the right contractual terms and hence, the right conditions for a predictable delivery of results. It's this focus that's driven the path to higher margins as demonstrated by our continued margin progression over the last few years. Costain continues to secure further significant strategic program awards and extensions to existing contracts and enjoys good visibility on future work. We've maintained our record forward work position of GBP 7 billion in the first half of the year. Our forward work position is greater than 6x our FY '25 revenues, and we've seen a year-on-year increase of 25% and an increase of 67% over the last 6 years. This forward work position is built on long-term programs that enable us to deliver a high consistency, continuity and quality of work for our customers. As at the end of H1 '26, the forward work comprises order book of GBP 3.5 billion and preferred bidder book of GBP 3.5 billion. It includes no single-stage lump sum contracts and is predominantly target cost contracts where the scope, design and cost are developed with and agreed with the customer. This disciplined approach to contract selection ensures that our forward work consists of the right risk profile, underpinning our predictable delivery results. We also continue to transform the balance of our contract portfolio. Reliance on central government spend shown in the light blue, has reduced significantly with the proportion of forward work falling from 64% to 29%. This is mirrored by increases in private and regulated forward work from 30% to 48% and devolved government from 6% to 23%, all proportions, of course, of a much larger figure. The diversity of our forward work position continues to build with additions in H1 '26 coming from target growth segments such as electricity transmission with National Grid, reservoir program management work, Thames Water and Anglian Water, devolved authority Rail with TfL and port infrastructure with Port of Dover. We continue to experience higher win rates than we have historically achieved, which combined with a strong pipeline of bidding opportunities across all sectors gives us confidence that our high-quality contract portfolio will remain balanced and resilient going forward. This slide importantly illustrates the increased visibility for FY '26 and FY '27 revenues. The forward work position is comprised of GBP 1.9 billion of revenue across the second half of '26 and FY '27, GBP 1.7 billion over '28 and '29 and a further GBP 3.4 billion beyond that. The result is 91% of consensus revenues are already secured for both 2026 and '27. Circa 50% of the forward work will convert and be delivered over the next 4 years. This visibility allows us to plan resources and supply chain to support the anticipated growth. The bar chart also shows a broadly equal split across the two divisions over the next 4 years, supporting growth over all of our sectors. So we're on track for another -- for a sixth year of profit growth. High quality and volume of our forward work together with growth on existing frameworks gives us good visibility for the future and profit visibility of circa 90% of our consensus for '26 and '27. We're delivering industry-leading margins and have an ambition to deliver margins in excess of 5%. Our balance sheet continues to strengthen with net cash of GBP 164.4 million, and we expect the FY '26 year-end cash to be approximately GBP 170 million after those enhanced shareholder returns. I'll hand you over to Alex.

Right. So thanks very much, Helen. I'm now going to provide you sort of a brief update on the strategy and then cover sort of the operational performance and business outlook. Look, our growth in revenues, operating profits, industry-leading margins, cash generation are derived from how we're expertly delivering the clear strategy we've got for the growth and value creation of Costain. We're focused on those markets where strategic long-term essential investment needs to be made. So that's around Transport and creating greater prosperity and growth for the business, Road, Rail, aviation, ports, Water, Energy, and Defense. And we explicitly choose to only work for customers who want to work with their partners in strategic long-term partnerships where Costain has the chance to maximize the value that we can add to those customers. And we enhance the value that we bring to customers by ensuring that we provide services that basically engineer pretty amazing solutions for them and expertly deliver them, whether that be as a construction partner or as a consultancy partner. This strategy with our strategic focus on growth in strong markets, predictable best-in-class delivery, building that resilient customer mix building a meaningful consultancy service and being admired in everything that we do is what is delivering a step change in our growth in revenues, operating profits, industry-leading margins and will further enhance returns to our shareholders. I've talked about it being a really exciting place infrastructure. The market focus -- our market focus is built on the very clear visibility that we have on the investment that's going to be made in infrastructure, building on the government's infrastructure strategy that they launched last year to turn around and spend GBP 725 billion over the next 10 years on infrastructure. Our chosen markets represent the U.K.'s critical economic infrastructure, those essential national needs where the largest amount of nondiscretionary investment is being made. And our chosen customers in our markets, as I've said, predominantly operate through 5-year business plan regulated periods, really strong, clear visibility of what infrastructure. And many of them select to work with us on those 5 years or longer periods, and we do have contracts where we have 15 years' worth of work visibility ahead. As Helen has outlined, we continue to demonstrate a proven track record of winning more than our fair share of the work in these positions, and this drives the growth in the business. Having outlined the sort of strategy that we've got and talked about the scale of investment that's been made in infrastructure, in the full year results for 2025, I set out a case study that brought our strategy to life around the energy -- our nuclear energy market. And I'm now going to share with you our Water market as an example. Just to talk you through how we have uniquely differentiated ourselves in the market in how we access that Water market. Firstly, the market investment in Water is incredibly -- is significant in scale, as you can see. And it's increased significantly to GBP 104 billion for this regulated period. And today, the regulators announced another GBP 3.4 billion, GBP 3.2 billion for our customers to support the growth in data centers, et cetera, to support economic growth. So huge investment in this market. And what is driving that investment is the urgent need to maintain and optimize what is a very old aged asset base for us to meet even tighter regulatory standards by reducing water abstraction from rivers, but also to improve the water quality in the natural habitat. For them to respond to the challenges of climate change, perfectly timed for today. It's pretty hot out there. And so we've either got high levels of rainfall that we can't deal with or we've now got two years' worth of extreme drought and a shortage of water with higher temperatures. It's also to support the growth in demand. That GBP 3.4 billion is to support data centers, housing, et cetera, that is driving that growth. It's also to ensure that we meet the 25-year plans to have a sustainable long-term supply of clean water for the U.K. So it's a pretty important sector. Now operating in the water sector requires you to have a differentiated expertise. You need to have an intimate understanding of the water industry, the water process and the expertise. It really benefits to have really mature relationships with the customers who operate in this place. And positively, that's why the customers choose to work with their partners in those long-term partnerships, 5 to 10 years. Through our unique strategy, we've successfully positioned ourselves in all 3 of the critical market elements. We're involved in maintaining the existing infrastructure, optimizing its performance and repurposing it to meet the changing needs of the customer. And trust me today, the phone calls we get, they've got very changing needs of how they can produce as much water as they can. The contract we've got with United Utilities, we are delivering a wide range of replacement, refurbishment, asset upgrade services across their whole estate in the Northwest of England. We secured the contract originally in 2019. We've since had two further extensions that's now taken it through to 2029. That's going to be a 10-year partnership. And we're obviously working to expand this across the other water companies. But at the moment, United Utilities are the only people buying this type of service. Moving to the regulatory capital delivery programs. We're working with the five major water companies across England, Northumbrian Water, Severn Trent Water, Southern Water, Thames Water and United Utilities. Interestingly, GBP 3.3 billion of this GBP 3.4 billion worth of investment. So this is where the significant investment is being made. And we work in designing and coming up with pretty incredible solutions to meet their needs and then expertly delivering large programs of capital programs for them. We're also the technical assurance partner for Yorkshire Water. Now as a result of our expertise and reputations, we've worked with all of these companies on multiple regulatory cycles. And the current contracts we've got for United Utilities, Southern Water and Northumbrian Water go into the next decade. So they're pretty long in nature. And some of the relationships we've got span more than 30 years of a proven trusted partnership. Now we're also coming to the third one, we're also a key partner building the U.K.'s future strategic water assets. As you know, we've just completed the Thames Tideway project, a pretty major strategic infrastructure asset that's going to allow the U.K.'s capital to grow and expand and flourish in a sustainable way. And we're already a partner to Anglian Water, delivering their Strategic Pipeline Alliance, which is to take water from some of the wet areas on the East Coast to some of those areas where there is not a lot of water. And we've been doing that. We won the original contract began in 2020, and it's now been extended to last until 2030 as we drive further capital investment. And the market, as you'll have seen, is now preparing for a long-awaited period of significant investment in reservoirs, 15 years too late, but we're getting on with it. And we've already secured an important role in this market. We are already the enabling works partner for Anglian Water and Thames Water on their reservoir scheme, supporting the development of what is going to be a GBP 50 billion market investment. Our focus on this critical investment, our markets, our customers and service has resulted in Costain building the strongest ever breadth and scale of water service that exists. This case study, again, shows how we position ourselves under our strategy in our markets and is typical of all the markets that we operate in, and I believe underpins the strength of our strategy. Now I'm now going to talk about each of the divisions. Transportation has been an incredible successful journey over the last couple of years. We've now built a very broad Transportation business. We're exposed in the roads market on the strategic highway and the local and devolved highway networks. We're involved in rail, right across from the strategic infrastructure on HS2 to supporting Transport for London upgrade their rail infrastructure. We've broken into the aviation market where we now work for all three of the major airport operators, Heathrow Airport, Gatwick Airport and Manchester Airports Group. And we're also now we've broken into the ports market that we're beginning to see expand as it supports trade with the rest of the world, but also to support the offshore wind market. So huge success. And in roads, we've completed a number of contracts, but we're now mobilizing those two strategic highways on the M5 and the M60 as well as some of the devolved work that we've got. And on rail, the HS2 contracts, just to remind you, we've got three contracts for HS2. We're in the middle of delivering the major civils program at the moment with two tunneling machines making their way to Euston as we speak at great pace. And we've also got the two systems contracts, one for the HV power upgrade that's going to power the whole of HS2 and the second one, the tunnel fit-out from an M&E point of view. But we've also had a breakthrough contract with Transport for London, which has been great because we've been working with them on roads, and they told me that we were doing an all right job, actually said that we were doing a good job. And now we've broken through into their rail, and we've won a leading position on upgrading their stations and the step-free access program that they've got running there. And also in local roads, we're making good headway. And then from an Integrated Transport, I've talked about the aviation, and I've talked about Port of Dover already. It's really pleasing to see us making this progress. And if I look at the pipeline in transportation, it's incredibly strong. The future opportunities right across this broader business that we've built are very strong, and we see a very positive outlook for Transportation. Natural Resources is clearly benefiting from strong delivery performance and significant investment right across Water, Energy, Defense and Nuclear Energy. In Energy, we're focused on future-proofing the existing gas network, supporting gas capacity resilience and now growth of the U.K.'s electricity network. Our performance for Cadent Gas has continued to be excellent, and we're progressing the delivery of BP's landmark great carbon capture and storage project in Teesside. Importantly, we've also broken into the electricity transmission distribution market in the first half, targeting those substation upgrade programs. And in Defense, which again, on the back of the strategic investment plan for defense where the CASD program investment has been ring-fenced. We're now actively continuing to deliver the AWE program and Devonport upgrade. And there's a strong pipeline of opportunities that have come straight at us on the back of that, which present huge opportunities for us in defense where we have a great position. And in nuclear energy, we've won the work last year, huge amount of work working for Sellafield, Urenco, and NRS, who are part of the decommissioning and how we're driving growth in that market as well. Again, there's an outstanding pipeline of future opportunities across all of our market segments in natural resources, and we see a positive outlook for this division as well. So in final summary and to close, the quality and balance of our contract portfolio and broader customer and service mix is delivering growth in revenue, operating profit and strong cash generation. Our strong balance sheet is increasing the net cash position is allowing us to increase returns to shareholders via dividends and share buybacks. We will continue to benefit from the committed growing investment in target markets that we've chosen to operate in and have demonstrated our ability to enter new growth market segments and expand our serving offering with existing and new customers. As I've said before, our record forward work position of GBP 7 billion, over 6x our annual revenue gives us excellent visibility of the future revenue and underpins our future growth that we've been talking about. Bringing this all together, as Helen has said, we're now at that key inflection point as a business with growth coming in the second half of this year, a step change in 2027, followed by a period of continued growth thereafter. The business is in great shape. It has a team who pride themselves on solving the most complex challenges and delivering them to best-in-class standards predictably. We have a growing momentum, and we continue to take advantage of the significant opportunities ahead. This is a very exciting time for the U.K., and it's a very exciting time for U.K. infrastructure. So thank you very much. Finally, as I hope you're aware, we'll be hosting a Capital Markets event on the 19th of November here in London, where we're going to discuss more some of these growth drivers and bring that to life in more detail. And I hope to see as many of you as you can attend that event. Thank you very much. We'll take your questions. But first, we're just going to move and sit over here. Charlie, are you going to hand the mic out?

It's Ed Prest from Berenberg. I seem to have sat in the best seat. I seem to have sat in the best seat. Three from me, please. Firstly, you note that Costain continues to achieve higher win rates than it has historically. From your perspective, what's driving this? Is this down to a broader change in market dynamics? Or is it a change in the perception of Costain from customers? Secondly, consultancy, you note in the statement that at 18.2%, that's an increase on where it was last year. Do you have an optimum level for consultancy revenue in mind? Is there still further increase to go? Or do you expect some normalization to come? And thirdly, Energy Transmission. Are you able to talk about the competitive dynamics here? How difficult will the incumbents be to compete against? Or does the massive growth in the sector represent an opportunity that you're able to capitalize on?

All Right, if I take those three.

Absolutely.

Yes. So look, what do I think is behind the higher win rate? I think a massive part of that is the insight that we have in the customers because we've worked for a lot of these customers for a long time. And we really -- we get to understand their business. I think we work really hard on really getting underneath what is it that they want? What's their ambition from the investment? What do they need? And then I do think we're really good at coming up with solutions. We talk about ourselves as an infrastructure solutions business. We've got amazing people that come up with faster, more efficient, better solutions than and we work really hard on that. And therefore, the value we add, and we put a lot of hard work into it. I was asked on a media call earlier, do you ever turn work down? There is a lot of work we turn down every single month. We're very selective on what meets our risk appetite, but also where do we think we can win. If we don't think we've got a reason to beat someone else, why should we bid it? So we're pretty rigorous on that. So I hope that answers your first question. Second one, optimal volume of consultancy. I think we're going to say more about that at the Capital Markets Day definitely. Look, if we look at the decision-making tree, it isn't just about growing consultancy. It comes down to where can we have the best position with the customer, where can we maximize the value and therefore, the return that we can get out of it and how best should Costain position ourselves. And that's how we drive it. So we're certainly growing our engineering and design that is -- grew 60% last year. And that's going to grow because we actually think we're a better designer than the traditional designers, and that's something that we're investing in to grow. But in terms of the delivery partner and some of the other services, there's that decision to make whether we go for a capital program or whether we go for consultancy, and that's based on where do we think is the best position to go there. So I wouldn't give you a fixed percentage at this stage. But as I say, we'll say more at the Capital Markets Day on that. Energy Transmission, look, every market is competitive. I would love it if they weren't, but they're not. They're competitive. And I think we've got a great offer. We've got a great proposition, and we've certainly been successful so far on a couple of opportunities, which we'll certainly say more again at the Capital Markets Day. But yes, look, competition is strong and healthy as always.

Aynsley Lammin from Investec. Just two for me, please. When we look at the visibility and secured work for next year, you've got 90%. One, just kind of how unusual is that? What's driving that visibility? And also, if we think about the margin, if there's a bit of cost inflation, how well protected you are in terms of contract terms to pass on and deliver the margins you expect? And then the second question, just on kind of share capital returns. Obviously, you reduced the dividend cover to 2.5%, a bit more around your thinking there. Is it the share price had a good run? Does that mean there's less kind of chance of share buybacks? There's going to be more dividends? Could that go down further? Just any color or insight there.

I'll take the first one, you take the second one, you're all right with that.

Yes.

So look, in terms of visibility, I think what's great around the visibility is we've won the framework. We've now spent 18 months doing a lot of design work, preparation work and we're now into starting the delivery. And then so we've had long-term visibility of this work. And it's one of the points that Helen makes. We get asked the question about do you have the capacity to be able to deliver all this infrastructure? Well, because we've been able to see it coming for three years and sometimes longer, we're able to plan because we've done that work, one of the great things is that we codevelop the solutions with the customer. So we can identify risk, we can eliminate risk, make sure we're not carrying that risk. So effectively, the design is complete. We're then able to deliver it. So we're in that phase now of now going to site and delivering a lot of that work we've spent the last 18 months, and that's what gives you that visibility and that confidence. Just coming back to your cost inflation point, look, I mean, the big drivers on cost inflation are the same thing that affects everyone at the moment. It's energy prices and energy-intensive industries. We have as do our clients, actually, we have protection from inflation and our clients do as well in their budgets. So we're seeing that come through. But we don't just sit back and accept that happening. We work really hard with the clients to determine and go, okay, well, what are we going to do? Because at the end of the day, they've got to try and manage their cash flow and their budget as well. But we have got protection. And at the moment, it is limited to energy prices.

Yes. So share capital allocation -- capital allocation rather in the divi versus share buyback. I mean, obviously, this has been the first year that we've been able to be unconstrained in how we've returned -- how we plan to return to shareholders. We have the dividend parity removed in January that we announced. So this has been the first year where we've been able to set those levels without constraint. Obviously, a GBP 20 million buyback program this year, GBP 10 million previous year, GBP 10 million before that. I think the 3x policy was set way back when we did the capital raise before I joined even -- even before me. And looking at the market, looking at the level of returns we want to make, we felt 2.5x was a sensible progression. I guess you could say it's a sign of our increasing confidence. Obviously, we've got the cash balance to back it up and the growth is coming. So it's -- you should really view it as a sign of that confidence. How are we seeing that capital allocation going forward? I guess, Capital Markets Day, we'll talk a bit more about that. That's not easy to say. But I think we have got still the same policy. We're still investing in the business. That's really important. but we do recognize the importance of those returns. We have talked a bit about M&A in the past, and we're actively looking at that. We won't rush into anything, but we're well set to consider all of those elements of our policy.

Max Hayes from Cavendish. Just two questions. So you've spoken about AMP8 contracts moving from design to delivery during the second half. Just looking at the wider portfolio, how should we think about sort of the timing of other projects in other verticals, similarly moving from design to delivery over the next few years? And then as they move into those larger delivery phases, just how you continue to build margin?

Yes. Look, thanks, Max. So look, AMP8, I've talked about, as you said. So the M60 is another classic example. We've spent four years working on the design, consenting. It's a project that's going to be delivered in a lot of people's back garden or right next to people's back garden. So it's taken a lot of planning. So we've completed that. And it's the same with a number of the nuclear energy projects. A lot of work has been in the design phase. So we have this and this is what we've got to look at. You have this period within the regulatory period that you get allocated the work, you then start designing and develop solutions and then you spend. And that's why you always see that curve is sort of like a wave, which actually the customers are now going to help flatten out that we get that. And it's the same for Gatwick. We've just been -- we've won the contract. We're spending the time at the moment. But next year, we'll go into the delivery phase of those contracts. So it's a pretty similar message right across the book, if that helps. Just how do we -- the really important thing about how do we drive margins is really getting value out of that Stage 1. The fact that we spend so much time to spend four years on the M60 really working through the design, what's the best way to deliver it, how do we assure it? How do we make it predictable, means that when you get to the delivery phase, you've eliminated the uncertainty. You haven't got design challenges. You haven't got ground conditions, you haven't got procurement challenges. You've done all of that work, which sort of means that you just go and execute it and we call it assembly now. You just go and assemble the solution. So that's really what is going to drive the margins. Helen has a great phrase.

I'll just build slightly, and then I'll give the magic phrase. I will...