Galliford Try Holdings plc (3WC.F) Earnings Call Transcript & Summary

Hello, everybody, and welcome to Galliford Try's Full Year Results for the Period Ending June '25. I'm Bill Hocking, Chief Exec; and I'm here with Kris Hampson, CFO. Here's the agenda for today. The photo you see here is of Guildford Crescent, our first PRS or build-to-rent scheme down in Cardiff, and we'll come back to this as a case study a bit further on in the presentation. We've had another really good year with revenue up 6% at GBP 1.9 billion. I'm very pleased to report that we've achieved a divisional operating margin of 3%, 1 year earlier than our strategy envisaged, and with adjusted PBT up 28.6% to GBP 45 million, a really good performance ahead of expectations, which produces earnings per share of 34.4p and a total dividend for the year of 19p, which is made up of the half year dividend of 5.5p and a final dividend of 13.5p. Cash performance was excellent with average month-end cash of GBP 179 million, up 15% on the same period last year and whilst paying our supply chain in 26 days on average. On the back of this performance, we're announcing a further share buyback of GBP 10 million. Our strong order book stands at GBP 4.1 billion, up GBP 300 million in the same period last year with 93% repeat clients and 92% work already secured for the current year. These figures are a reflection of the 4,300 excellent people in Galliford Try, our culture, robust risk management and performance on the ground. The continuing momentum that we see in the business and in our chosen sectors gives us confidence in the outlook for the business. So you can see from our results that we're making good progress towards our 2030 targets of at least GBP 2.2 billion of revenue and 4% operating margin, and really pleased with our 3% operating margin 1 year ahead of program. So those are the highlights, and over to Kris for more detail on the numbers.

Thank you, Bill, and good morning, everybody. It is amazing how quickly my first year at Galliford Try has passed, and I'm delighted to be able to take you through a second set of annual results. In the image on this slide, you can see maintenance work being carried out on a control panel by a colleague from our AVRS business. The fostering of our high-margin specialist businesses is a key objective in achieving our strategic goals, and Bill will talk you through the 4 key building blocks to our 2030 targets later. So let me first take you through the numbers for 2025 in more detail. We are pleased to deliver another strong set of results with the group growing revenues by 6.3% to more than GBP 1.875 billion, with good growth across both our core divisions of building and infrastructure. The revenue performance in the second half continued the theme of the first half with a very strong runoff of AMP7 continuing and with progress on our highways projects being boosted by the dry winter and spring. Alongside the 27% revenue growth in 2024, this means we have grown by more than 1/3 in 2 years with a CAGR of 14% since 2021. This accelerated growth is ahead of our trajectory to our 2030 targets with an anticipated slight flattening in 2026 as we transition from AMP7 to AMP8. This transition will allow us to access the higher volumes that can be seen in our record infrastructure order book with more to come as AMP8 scales up. 2026 expectations remain ahead of our strategic targets and 2027 and '28 are looking really good, as Bill will explain later. Adjusted operating profit rose faster than revenue, up circa GBP 10 million to GBP 40.6 million and representing an increase of more than 1/3. This was driven by our disciplined execution of our robust risk management model and on-time delivery of high-quality construction projects. Net interest received was GBP 4.4 million, down GBP 1.8 million, reflecting the nonrepeat of corporation tax interest of GBP 0.8 million in the prior year and RCF implementation costs of GBP 0.5 million in 2025. Underlying interest was down slightly, therefore, reflecting lower PPP interest, higher IFRS 16 interest costs on our growing business, partially offset by interest on higher cash balances. Adjusted profit before tax, therefore, increased by 28.6% to GBP 45 million, more than doubling in the last 2 years and a CAGR of some 50% since 2021. This year's adjusted effective tax rate of 23.9% benefited from deferred tax asset increases, and we expect the rate to revert towards U.K. standardized corporation tax rates in future years. The growth in profits drives adjusted basic earnings per share up by circa 16% to 34.4p per share, more than doubling 2022 adjusted EPS. Alongside these very strong results, we are pleased to announce a final dividend for the year of 13.5p per share, bringing the full year dividend to 19p per share, up 22.6% on the previous year and in line with our full year dividend policy of 1.8x cover. Based on our strong performance, we are also pleased to announce a share buyback of up to GBP 10 million, reflecting this year's strong performance, our record order book and confidence in our trajectory and cash generation to 2030. Moving on now to the segmental analysis. We can see strong revenue generation in our core divisions of Building and Infrastructure, and further profit growth across all the divisions. We are particularly encouraged by the 42 basis point margin improvement in divisional adjusted operating margin to 3%, delivering our previously announced 3% margin target 1 year early. The improved margin continuing the trend of the last few years alongside the transition to higher margin AMP8 in the current year gives us confidence in delivering further margin and profit growth in 2026, as we make further progress towards our 2030, 4% margin target. Moving on to the Investment business. Bill will shortly outline the positive progress we are making here. As we've said before, this business is lumpy by nature, in the prior year included the financial close of our first private rental scheme at Guildford Crescent in Cardiff. Through careful management, the investment business net losses were reduced to GBP 0.4 million, and group overhead costs are up in line with revenue, largely reflecting inflationary impacts and long-term incentive costs. We are reporting a noncash prior year adjustment following a technical change to the group's application of IFRS 15 contract combination accounting on a handful of acquired water frameworks with the resulting associated reclassification of material losses on one of these frameworks of circa GBP 11.7 million as an exception cost in the prior year. Under the application of our existing audited IFRS 15 combination policy, the group had previously combined some contracts within these specific water framework agreements, which has subsequently been deemed to be incorrect. And as a result, the group has restated reported statutory profit before tax and associated tax and working capital items in the 2024 financial statements, reducing revenue and increasing cost of sales by GBP 11.7 million in aggregate. Following the change in IFRS 15 application, management have reviewed and are now reporting material historical project losses as an exceptional item under one framework agreement that had previously been combined within the framework as we would have always have done. This specific framework, which was acquired with the nmcn water division acquisition in 2021, with highly unsustainable terms and conditions was positively renegotiated in 2023, and subsequent projects are now trading profitably. Importantly, no restatement has been made to the previously reported adjusted PBT in 2024 or earlier periods and no exceptional losses have been reported in 2025, reflecting the improved performance on these frameworks. The nmcm frameworks and associated subsidiaries were acquired for GBP 1 million in October 2021 out of administration. Since the acquisition of nmcn, revenues of more than GBP 750 million have been delivered, and given its strong market positioning and long-term water contract relationships, the group is forecasting further revenues of more than GBP 1.5 billion on the acquired nmcn businesses through the strategy period to 2030. Margins are in line with target trajectory and the business is performing ahead of the pre-acquisition investment case. We've added 2 new slides this year to give you more of an insight into our core divisions of Building and Infrastructure, and to demonstrate the progress they are making over time. Building increased revenues to circa GBP 965 million with consistent demand in the education, custodial and defense sectors. The record order book, diversified across our chosen sectors is prudently measured at GBP 2.4 billion. The order book is up more than 7% on a year ago, and the division is well placed for 2026, with 92% of work secured. The pipeline of new works can be seen in the defense project at RAF Digby, and we've also had significant wins in custodial at HMP Moorland and HMP Wakefield. Profit performance has been very strong with margins rising 36 basis points to 2.9% for the full year, resulting in adjusted operating profit up 17% or circa GBP 4 million to more than GBP 28 million, and excellent performance with more to come. Moving on to our Infrastructure division, which comprises our Highways business and our Environment business, including our higher-margin specialist and capital maintenance businesses, revenue grew by circa 11% to more than GBP 902 million, a robust performance from our Highways business, as can be seen in the images of our projects in Carlisle and on the [ A47 ], and an excellent runoff result from AMP7 were the drivers of the growth. The record forward-looking order book is up more than 9% to nearly GBP 1.7 billion, reflecting both the early strength of the AMP8 frameworks and progressed in our specialist services businesses. The transition to AMP8 is in progress with good new design work coming through, which will convert into construction work in the coming years. In Highways, we've had good contract wins such as the Banwell Bypass in North Somerset, and we have expanded our entry into the energy sector with our place on the civil engineering lot of the National Grid, GBP 59 billion high-voltage framework. Overall, the division delivered very strong profits with margins up 50 basis points to just over 3%, driven by improved operational delivery and operational leverage. The division delivered adjusted operating profits of GBP 27.4 million, up GBP 7.3 million or circa 36% versus 2024, another great result. Moving on to the balance sheet. The strong trading profits and continued discipline and balance sheet management have driven uplifts in both net assets and cash. Year-end cash rises from GBP 227 million to GBP 237 million. More importantly, average month-end cash rises to more than GBP 178 million from GBP 155 million in the prior year, up nearly 15%, demonstrating our continued robust focus on cash delivery each and every month. In the second half, HMRC advanced our quarterly VAT payments, reverting to a historic pre-COVID pan. The change meant circa GBP 70 million of VAT payments, previously scheduled for 2026 were made in 2025, as you will see on the upcoming cash bridge. This change has no impact on the overall amount of VAT cash flows. Making payments in earlier months causes a technical reduction in the average cash metric of circa GBP 8 million in 2025, already included in the average shown for the year and will cause a further [ GBP 80 million ] reduction in the average cash KPI in 2026. The rebased 2025 average cash metric would therefore have been circa GBP 161 million if the pattern change had occurred before the start of the financial year 2025. This technical [ KP ] impact, as further explained in the appendices, has no impact on the proven cash generating ability of the group. Our public private partnership portfolio valuations have reduced as a result of the higher interest environment on our discount rates and expected loan repayments. There remains a strong secondary market for such assets, and the annuity income of GBP 3.6 million continues to provide a stable, lower-risk cash income within our trading profits. Under our current strategy, our intention is to hold on to these assets for the foreseeable future as they provide a recognized differentiator in the strength of our balance sheet. Further, the low-risk PPP interest is given back to shareholders in full each year and supports our dividend policy of profits giving 1.8x dividend cover. We continue to have no drawn bank debt and no pension liabilities, and our strong trading and cash management means our balance sheet has been strengthened even further. This chart explains the movement in year-end cash and cash equivalents, which have risen sequentially by circa GBP 10 million to GBP 237 million. Operating profits have converted like-for-like into cash from operating activities, and tight cash management has driven a small GBP 2 million outflow in working capital alongside the aforementioned VAT phasing impact. On the 14th of August 2024, we received the cash for the prior year corporation tax refund accrual of GBP 10.4 million and return that cash to our shareholders through the completed GBP 10 million share buyback. We returned GBP 17.5 million to our shareholders through our progressive dividend policy. Pleasingly, we have therefore returned a total of GBP 27.5 million of cash to shareholders in the financial period. The net of tax, interest and other items delivered a net inflow of GBP 1.7 million. Finally, our high-quality supply base is of key importance to us, and we continue to pay our suppliers promptly with average days to pay of 26 days, flat to the prior year. And we are pleased to be one of the first Bronze members of the New Fair Payment Code. As we progress through the 2026 financial year, our focus on balance sheet strength and allocating our capital most efficiently remain unchanged. We have long been clear that the strength of our balance sheet provides competitive advantage, which helps to deliver our sustainable growth plans. It is valuable to our clients who see the importance of financial stability, and it ensures that we are the partner of choice for our supply chain, and it is ever more a differentiator in recruiting the best colleagues. Our balance sheet also allows us to invest in future growth by investing in our people, in innovative digital assets and when appropriate, bolt-on acquisitions in higher-margin adjacent markets. We have completed 4 acquisitions since 2021, delivering annualized revenues of GBP 124 million at acquisition, and we also continue to make operational investments such as the water operations center and manufacturing facility in Paisley that supports our higher-margin specialist services strategy. Where acquisition opportunities do arise within our pipeline, we will assess these opportunities in line with our clear strategic priorities and agreed capital allocation thresholds. We have previously stated that our targets do not rely on acquisitions and are deliverable organically. Our strong balance sheet also gives us confidence that we can continue to pay a growing and sustainable dividend covered by EPS at 1.8x, in line with the policy implemented in 2023. Where we have excess cash and it makes the right financial sense, we will return it through special dividends or share buybacks as we've done in the recent past and as we are announcing today. Over the last 5 years, we will have returned GBP 108 million to shareholders in the form of standard and special dividends and through our [ free ] share buyback programs. And this equates to roughly 1/4 of our current market capitalization in the last 5 years. Our rigor and capital allocation decisions is only matched by our disciplined risk management and contract selection framework, and we recognize both of these are crucial to our wider stakeholder communities. In summary, 2025 has been another year of wide-ranging progress for the group, a year where we grew revenue and margins to deliver our 2026 margin target 1 year early, delivered strong cash conversion and reported a record order book for the future. As Bill stated earlier, it is the fifth consecutive year of revenue and profit growth, delivering both strong growth CAGRs since 2021 and TSR of circa 350% over the same period. Moving into 2026. We expect to make continued progress, and we are confident in delivering another year of margin expansion and increased profitability, in line with the required trajectory to get to our 2030 targets. We continue to believe there is a simple and compelling story of sustainable returns generation through to 2030 based on the disciplined delivery of our proven model in our attractive chosen sectors. Bill will now take you through the operational side of this strategy in more detail. Bill, back to you.

Thanks, Kris. Here's a photo of our Woodham Academy project in County Durham for the Department of Education, another successful project in our education portfolio. This slide shows the philosophy of how we run our business. We started at the core of the company, our 4,300 excellent people who have a culture of discipline and risk awareness supported by good processes and aligned incentive mechanisms. Being selective about the work we take on leads to a high-quality order book, which we can deliver reliably and which underpins our margin targets. Most of our order book is in long-term frameworks with repeat clients and so we get good visibility of the forward order book and can align our people and our supply chain accordingly. This leads to a good operating performance, which further strengthens our already strong balance sheet. On the right-hand side of the slide, we have disciplined risk management processes at the preconstruction stage, and once in contract, we have robust commercial and project controls and a regular system of cross-business peer reviews and project health checks. We are targeting revenues of at least GBP 2.2 billion and an operating margin of 4% in 2030. As I said earlier, we're very pleased that our target of 3% operating margin in 2026 as a waypoint on route to that 4% has been achieved a year early. The [indiscernible] of our strategy is shown on the top of the slide. We continue to grow revenue and margin in our 3 big operating businesses of building highways and environment, and the outlook very strongly supports this. We grow our specialist higher-margin businesses in adjacent markets, both organically and through further bolt-on acquisitions and are making good progress. In the year, we've set up our third fabrication facility in Yorkshire following the Paisley facility, which we opened last year. This new facility will also have the capability of producing pipe specials, which are in high demand across the water industry and is a good example of further organic growth in the business. We reentered the affordable homes market and are continuing to secure places on the main frameworks in the sector. Please remember that our definition of this market is mid-rise block of flats for [ resident ] providers and local councils. Finally, we leverage our geographical framework and client footprint across the whole of the U.K., selling more GT services to existing customers and sectors. The higher-margin specialist businesses augment the margins in our core business to produce the 4% in 2030 target, continuing our trajectory of growing shareholder returns over the long term. This slide is to explain in more detail how we will progress on 3% to 4% adjusted operating margin. There are 4 main drivers of our margin progression as you see here. Firstly, growing the business and getting the efficiencies and overhead leverage that comes with that. Secondly, a better contracting environment with more equitable, sustainable contracting terms and conditions. Thirdly, the operational efficiencies we get through better use of digital tools, off-site manufacture and the associated improved quality and reduced cost rework, which comes with that. And finally, higher margin work through our specialist businesses and affordable homes. I'll go through each one of these in a bit more detail. There continues to be a robust long-term demand across all of our sectors, driven by aging social and economic infrastructure, which needs to be repaired, improved and replaced to cater for a growing population, the effects of climate change and to underpin and enhance the U.K.'s productivity. We have leading positions in the sectors and frameworks that are responding to these challenges and see a solid pipeline of opportunity well into the future with Galliford Try part of the solution. All of our sectors are underpinned by the government's growth priorities and capital spending allocations. Our excellent position in framework gives us long-term access to these markets. You can see on this slide, the enormous programs of work across the public and regulated sectors in which we work. The key thing here is that all of the public sector spend supports the government's growth agenda and is funded from CapEx budgets. We welcome the visibility that the government's tenure infrastructure plan brings and we're very confident of the market going forward. I get out and about in our sites whenever I can. And every time I look at the existing infrastructure across all of these sectors, I'm struck by the enormous market to maintain, refurbish and replace these assets. We have an excellent order book at GBP 4.1 billion, up GBP 300 million in the same period last year. We came into the current financial year with 92% work secured and 93% repeat clients. Kris took you through the building and infrastructure order books in more detail earlier on. So the important thing for me to point out on this slide is the 75% of work already secured for full year '27. This is the best position we've ever had looking forward and demonstrates the points I've made on the amount of opportunity out there in the market. Full year '27 and '28 already look very strong in support of our 2030 strategy. These are the frameworks we have at the moment, and you can see the excellent forward visibility of work that we get through our framework positions across all of the sectors. We expect a high renewal success ratio as frameworks end and are reprocured, which is represented in the lighter color to the right. We target frameworks for this excellent long-term visibility and the ability to have long-term collaborative relationships with our clients in which we can continuously improve our offering, our service to our clients in a sensible risk environment. I've repeatedly said that investors should be encouraged by the fundamental improvement in industry procurement methods by public regulated and private clients. The construction playbook, in particular, has driven a more mature sustainable contracting environment with an emphasis on quality over price and equitable allocation of risk. The combination of this more mature attitude decline procurement alike to strong risk management helps us to drive margins in the right direction. You can see on the left that 99% of our order book comes to some form of negotiated route, be it 2-stage, target cost, cost reimbursable or direct negotiated work. This slide shows the benefits of early contract involvement in our project. The top of the slide shows the old-style model of contracting in which the contract had very little or no input into the design, and after some sort of prequalification exercise, the bid would land on your desk and you'd have a really short period to tender the work before winning or losing it. The bottom of the slide shows what is now the norm with most clients. We get appointed and involved at a very much earlier stage in the process where we can bring our expertise to bear on the project scope and to design the project to be efficient and safe to build and maintain, which significantly derisks the whole process for all parties. As I've already mentioned, the left-hand boxes remain the mainstay of margin growth. Then there are a host of operational and process efficiencies, which work together to further enhance our margins, modern methods of construction, off-site manufacture and digital tools that allow us to construct a project in virtual reality and identify improvements, which then improves the quality, safety and efficiency of the physical build. On the right-hand side, our work mix will change over time with a higher proportion of higher-margin work and the continued growth of the business will make the overhead more efficient. Here is a video of our Guildford Crescent project in Cardiff to demonstrate to you how these things come together to produce really good quality, safe, profitable contracts. Our teams make it look easy, but we shouldn't underestimate the enormous attention to detail and meticulous design, planning and expediting that underpins this whole approach to building, which is just as applicable to other sectors such as single living accommodation for the military and prisons. [Presentation]

We have a pipeline of [ PRS ] projects, following on from Guildford Crescent. And as you can see here, we are preferred bidder on 4 further schemes, 2 in Milton Keynes, 1 in Nottingham and 1 in Leicester, with a total gross development value of GBP 360 million. We have 3 independent permission on the Grafton Gate scheme with the other 3 projects due to follow, and a further pipeline of 8 prospective schemes. We've been working with all the U.K.'s major water companies for an average of 18 years and have an unparalleled overview of the water industry in the U.K. through our 55 current frameworks. The photo you see, bottom left, is [ Shield Hall, ] which is a large wastewater treatment [indiscernible] just outside Glasgow. I was there a few weeks ago, and you can see in the photo, 2 back-to-back Lintott panels that we designed, built and installed. These panels are huge, something like 20 meters long. And this is a really good example of how we're replacing aged control infrastructure with new controlled infrastructure, a requirement, which is replicated across the country. Here, you can see that as with the main design build part of the business, we've built a really firm foundation of long-term frameworks to support our growth aspirations and higher-margin work in capital maintenance, water technologies, FM, security of national critical infrastructure and affordable homes. And this strong framework base will stand us in good stead as we grow the higher-margin specialist businesses. So I hope that, that gives you better granularity as to how we move from 3% to 4% operating margin through a combination of volume and leverage, a better more mature contracting environment, operational improvements through digital off-site manufacture and so on, and then growth in revenue of higher-margin specialist work and affordable homes. In summary then, we've had another really good year and are pleased to have achieved our 3% operating margin a year ahead of program. We're in very good shape with a strong balance sheet, growing high-quality order book, no debt and no pension fund liabilities. The outlook for the future is good with strong government and regulated demand in our chosen sectors, which gives us a high degree of confidence in the outlook through to 2030 and the confidence, of course, to announce our third share buyback as we continue to grow value for Galliford Try shareholders. We have momentum in the business, and my thanks goes to our 4,300 excellent people and our supply chain partners for their contribution to the strong set of results. That concludes the presentation, and I'll hand back to the operator to take any questions. Thank you.

[Operator Instructions] We'll now take our first question from Andrew Nussey of Peel Hunt.

Bill and Kris, a couple of questions, if I may. First of all, on the highway side, Bill, can you just remind us of the mix of business between local authority and national highways. And allied to that, obviously, with [ RIS3 ] coming up next year, just any insight that you think or you might be receiving in terms of what that might look like for Galliford. And secondly, on modern methods of construction. Obviously, you referenced -- or the video referenced lower cost. Is that lower absolute build cost or lower whole life cost? And equally, from a Galliford perspective, obviously, it's supportive of improved margin. But can the overall value still be developed on these modern methods of construction type programs, please?

Okay. Thanks, Andrew. Over the last few years, we've been changing the nature of the highways order book. So Infrastructure broadly 50-50 national highways and local authority highways which, of course, are spread all over the country. In addition to that, we're seeing a few other markets like [ MG ], for example, coming in and housing, where you need access roads into new nuclear power plants, for example, or new wind farms or new housing developments. So we are diversifying the type of clients and the type of work we do within the highway sector. On [ RIS3 ] itself, we see the nature of the work changing in [ RIS3 ] to more -- to smaller schemes, print points, junction improvements, things like that, reservicing of concrete roads, things like that, which is really straight right up our street. So the type of work in the street will be very well aligned to what we do in Galliford Try. And actually, our order book in highways is, I'd say, full for the next 2, 2.5 years as we speak. On nonmetal construction, in terms of whole life of build cost [indiscernible], it's both, I think, Andrew. So as you saw on the video there, we spent a lot of time designing a building that's easy to build, straightforward to build and therefore, actually more profitability to build and, of course, to maintain because we'll build a thing in 2 years or so, but it's going to be there for many, many years thereafter. So the long-term maintenance costs are really important, and we design those efficiencies into our buildings. So our clients get the benefit of that to the whole life of the job. So the short answer is the sort of approach to building, I think it's profitability and quality in the build stage and long-term efficiency and maintenance.

And we'll take our next question from Joe Brent of Panmure Liberum.

Two questions, if I may. Firstly, can you update us on your thinking on your guardrails in respect of capital allocation? And secondly, as part of your capital allocation, you mentioned acquisitions. Could you give us an update on what that pipeline looks like?

Yes. Thanks, Joe. [indiscernible] I'll probably take this in reverse. So yes, as we said in the presentation, we do have a pipeline we are building there and are slightly more front-footed on that. And as you'll see in the appendix, as we said before, we've got clear strategic threshold and financial thresholds. So we screen things before they go on the list to make sure they are absolutely in the spaces and the type of [indiscernible] we want to play. Of course, then you have to do the [ DD ] and the vendors have to be ready to sell. So it takes a little bit of time for that to come through. As we go to the DD, we'll work out whether we like it or not, whether we'll make a turn. So we've got a clear view what we'll do there and give out a [indiscernible]. On the guardrails, we've long said, as we grow the business, without growing the average job size as it goes, as we grow the business, we think that we will lower the guardrails. The guardrails are based off revenue, growth revenue, therefore, implicit answers of maybe the [indiscernible] goes up. But we don't see risk increasing, and therefore, we think we'll lower those over the next 12 months.

We'll now take our next question from Edward Prest of Berenberg.

I've got 3, I think, please. Firstly, in relation to margins. You're expecting to hit your 4% target for 2030. How do you expect this to pan out? Do you expect a reasonably linear progression through to 2030? Or is that now sort of lumped in the way and thinking potentially margin uptick with AMP8 or adjacent services come through? It would just be interesting to see how you see that panning out. Secondly, on order book. Obviously, at the moment, it's well diversified between second contracts, that's a clear strength in terms of allocating in terms of exposure to anything in particular. With the pipeline, as you see it coming through and the opportunities available, is it going to be -- is it reasonable that this stage is very well diversified? I'm sort of wondering if [indiscernible] risk be coming over to a larger share. And then thirdly, on affordable housing. We obviously very recently have a new holding minister, and it's possibly too early to say, but has there been any change in tone from government since he took office?

Okay. Kris takes the first one. I'll take the second, Ed.

Yes. Ed. Thanks for the question on margins. Yes. So Bill's laid out the building blocks in this section on the presentation this morning. And if I take you back to the Capital Markets Day that we did 18 months ago, we said that it would be slightly tail-ended so there would be a little bit of a faster rise to the end. That was driven by the fostering of our specialty services, higher-margin businesses as we build those to scale than the mix impact of those on the overall number. As we've also said, we're a little bit ahead of target, hitting the 3% margin 1 year early. By definition, sort of factors, that's the curve a little bit. So we continue to make progress. We said we expect margin expansion in 2026. So we think we'll continue to make margin improvements year-on-year, but still remains a little bit faster rise towards [indiscernible] specialist where business has come through.

Okay. Thanks, Kris. On the order book, Ed, and the share of [ water ], well, what we've seen over the last few years is infrastructure growing faster than the building part of the business. Our Building is [indiscernible] I think 52% of revenue this year and Infrastructure 48%. It will probably carry on evening up over the next year, 18 months, I suppose. And a little bit further into the future, infrastructure will probably mildly overtake building. So we do see that moving slightly as we go forward. But we'll make sure that we maintain a very diversified portfolio. We're not going to become overreliant on any one sector. And whilst [ water ] is a huge market and will grow, we will operate within the sensible bonds, we won't bite more than we can chew. So we will manage the order book to make sure we maintain that very healthy diversity, that's still some good stead over the last few years. On affordable housing, I think there is a subtle change of tone, Ed, although that's pretty recent. There's a well publicized issues with regards to delays through planning, delays through the building safety regulator. The funding became clearer earlier in the year, which was good. And I think that the long jam, I suppose, that we see currently, specifically to the building safety regulator, I think, is showing signs of starting to improve. I was on a call just last week with the new head of the building sector regulator, and I was really impressed, very pragmatic, sensible, down to earth person. So who's got some very clear ideas of how we can get things moving. So I do expect things to improve, and let's hope that we're correct in that. But I sense that there's improvement coming in, yes.

And we'll now take our next question from [ Max Hayes ] of Cavendish.

Congrats on the results. Yes, just 2 for me. So just seeing more chatter, I guess, from government on private public partnerships. Do you see any more scope for opportunities here in your PPP portfolio? And I guess the second is you've just seen with a lot of your peers recently temporary working capital outflows in recent results, but you haven't seem to have this. So just wondering how you've managed that?

Actually, there's a little bit of talk about PPP coming back. It is still sort of working up in Scotland under the NPD model and the macro-based level. But there is a bit of talk coming on what I'd call lower tech type of buildings. So we're talking here about portfolios perhaps of schools or portfolios of care centers and doctor surgeries and things like that. And of course, we've been very successful in those markets before and we still retain our team at the front end, our PFI team who currently involved the more PRS front end at the moment, but are well versed in PPP. So I'd say early days. But there are a few signs that PPP might come back onto the agenda. Of course, in the water industry, it's called direct procurement, [ DPC, ] direct procurement, something like that. But it's the same thing. It's PPP in the water industry. We've not gone there yet because the current schemes are not really up our street, they are sort of enormous schemes, what huge water transfer pipelines and things like that. But again, in water, there is more talk of the water companies possibly using some form of private financing to advance specific areas of their portfolios. So we will set both in terms of our track record, our team at the front end and our balance sheet to have a look at this if it becomes reality, yes.

Yes. I'll answer on the working capital question, I think I'll just sort of draw 3 things out of some of the points Bill made earlier. Whilst order book is diversified, it also is in sectors that we know how to do and that we've long been done. So we build projects that we know how to do. That reduces risk. And we build those projects well. And so ultimately, there's no real argument for our clients not to pay. So I think given the clients no reason not to pay is the most important thing. It is that more mature procurement environment that Bill talked about. So they recognize the stable, viable, sustainable businesses is the most important thing. So it is in there, also the best answer for them to pay us as well. So that's important thing so we make sure we build those relationships. And also, we talk about 18 years relationship on average that we have long-term relationships, and we do. And finally, Bill referenced the incentivization point. So our colleagues are incentivized on cash every month of the year. So it isn't -- there isn't a mad dash on line, and they have to deliver cash every single month, and that's what they did. So the combination of those things, those 3 things in our model is why we think we continue to deliver strong working capital deployments.

We will now take our next question from Greg Poulton of Singer Capital Markets.

Two for me, please. Can you just talk a bit on Partnership Housing? Can you just talk a bit about the pricing environment? And then specifically on affordable housing, some reports that the central government funding still taking a while to slow down to local authorities. Can you just talk about whether you're seeing that? And how are you seeing affordable housing contract progress in that environment?

Well, what I'd say, we set out -- as you know, Greg, we were excluded from this market following the sale of the [indiscernible] business to [indiscernible] for a few years. And as part of our strategy, which we launched in '24, it was to reenter this market. So what we've been doing in the intervening period is getting on to quite a few frameworks that support growth in affordable housing, and we've made really good progress towards that and continue to win place further frameworks. And then we've started to bid some schemes, which we're bidding at the moment. But you're right. So what I'd say is in our evolution, we've not been necessarily adversely affected to date, albeit that the market is slower than with progression, I suppose, overall is slower because of the points you make, central government funding and some of the points I made earlier on about planning, the commission and the billing sector regulator and so on. I do understand as well that [ central ] government funding is finding its way to right to places now. And the other thing that we didn't really talk about, Greg, is that lots of the residential -- the [indiscernible] providers and counsels and so on have been spending a lot of those funding on upgrading their buildings in terms of existing [indiscernible], in terms of fire and in terms of quality and mold and things like dealing with those sorts of things. And I think that, that has started to tail off now and their attention is now moving back to new build. So as I said earlier on, it has been a bit slow. There's lots of things being in the way, but I do sense that we had a bit of a turning point. And hopefully in the next 6 months or so, we'll start to see some action.

We have no further questions in queue. I'll now hand over to Danielle for webcast questions.

Thanks, Laura. We do have a couple from the webcast. The first one coming from Stephen Rawlinson. Are there any large-scale contracts in the order book or current workload?

Thank you, Danielle, and thank you, Stephen. I think I just -- I touched on it a little bit in my answer to Joe's question earlier about the guardrails. And you can see it on the building side that we put in the deck, sort of the average job size in building is between GBP 19 million and GBP 20 million. It's been around there for a while. It's creeping up with -- it's creeping up with inflation, those costs go up slowly over time. So we've seen quite a lot of stability in that, particularly in the building sector. So no particularly big jobs there. In environment, the jobs could be very -- it could be a lot smaller. So probably in the low to mid-single-digit millions in terms of the average jobs in water. There are a few water clients that are bigger. And then in roads, we have some -- highways is where we'd have the bigger projects. I think this project is in [indiscernible], and we've probably got 3 or 4 that are over GBP 100 million, not very many. So there are only 1 or 2, but they're naturally a little bit bigger, but there's no real dependence on any one job revenue stream.

Yes. And I'd make the point that all of those big jobs are on a [ top to-customer basis. ] So the risk profile is very different.

Our next question is from [ Chris Smith. ] How is Galliford Try addressing the skills shortages within the industry and its impact on current and future project delivery, looking ahead to 2026 to 2030?

Okay. Thanks, Colin. Well, I mean, we've been talking about this as an industry all of my career, I think. There's 2 things that are really important in this for me. That is to retain the existing 4,300 good people in Galliford Try, and then to bring new people into Galliford Try to sustain our growth trajectory. On the retained side of things, we did a huge amount of work on, obviously, on training and career development, making sure that Galliford Try is a nice, welcoming place to work where people can advance their careers. We survey the staff every year and really pleased this year that 87% of our people are strong advocates of the company and would recommend us as a good place to work. So we're having good success in attracting good people to Galliford Try, and we intend to become a destination employer. Our churn rate, our voluntary churn rate is 10.6%, which is good. And so that's where we are. And I think that our reputation, results like this, our balance sheet are all things that attract people, good people to Galliford Try. And then to the supply chain, of course, we encourage our suppliers to recruit apprentices and more people themselves by giving them continuity. I spoke about that a little bit in the presentation, continuity of work and the opportunity to have long-term work with us, profitable work, safe work. So that does attract a good supply chain and allows them to invest, which is obviously really important to us as well. And further and more broadly, we support sort of the industry trading schemes like [ CITB ] and the members of the 5% club, which means that we undertake at least 5% people in some sort of training scheme. And we actually had more than double that the amount, it is 10.1% [indiscernible]. So we did a huge amount of work here, and it's really good to get some nice feedback. If you go into -- which I don't, but I get a feedback occasionally from things like Glassdoor and Indeed, websites that people use, we get good feedback as a company, which is nice to see. And external rating agencies, we were at #1 for [indiscernible] last year. So really pleased with that. So overall, the shortages, I would say are constant with what I've always seen, but we have to have carry on and work really hard to make sure that we can have sufficient good people to sustain our growth.

Thanks, Bill. As there are no further questions on the webcast, I'll hand back to you for closing remarks.

Okay. Thanks, Danielle. All right. Well, thank you, everybody. Really pleased with our results, and thank you all for joining the call. And we'll see some of you on the road show. Thank you very much. Bye-bye.