Galliford Try Holdings plc (GFRD) Earnings Call Transcript & Summary

Good morning, all, and welcome to Galliford Try Holdings Half Year results to December '21. I'm Bill Hocking, Chief Executive, and I'm here with Andrew Duxbury, our Finance Director. Here's the normal agenda for today. I'll spend a few minutes on the highlights, Andrew will take us through the numbers, I'll give an update on our sustainable growth strategy and then we'll take questions. We've had a good half year. Thanks to the skills and agility of our staff and supply chain and with the cooperation of our clients, we've managed the challenges of inflation of materials and labor and produced a good result. The integration of the nmcn business is going well and we're very pleased with the acquisition and the 900 or so excellent people that joined Galliford Try through it. We're making progress across our suite of ESG measures and we have momentum in the business, which is reflected in the order book, our controlled revenue growth and in the figures you see here. Profit for the half year is GBP 7.1 million, up from GBP 4.1 million in the same period last year. Operating margin is 2.2%, up from 1.6% same time last year. And the interim dividend is 2.2p, up from 1.2p previously. All of these figures demonstrate good progress in the period and we are on track for full year '22 and the longer-term strategy. So over to you, Andrew, to give you more detail on the finances.

Thank you, Bill. Good morning, everyone. So the picture on the screen there as seen Invercannie Water Treatment Works, a GBP 52 million project for Scottish Water that will produce 60 million liters of drinking water each day once it's completed. So let me start with some headlines. As Bill said, we're very pleased with the performance in the half year and the progress that we're making against our strategic targets. You can see that all the key metrics on the slide show improvement compared to the same period last year. In particular, revenue is up 10%, our divisional operating margin has increased to 2.2% and pre-exceptional profit before tax is up 73% and we continue to be very strong on cash performance, which I'll come back to. Our interim dividend per share of 2.2p is 83% higher than last year. So let me go through the results in a little bit more detail. Revenue was up 10% in the period and it's worth remembering that neither this period nor the comparative were disrupted by COVID so that increases real growth. Building's revenue is up 3% as we continue to deliver more across our existing businesses and Infrastructure's revenue is up 25% with increases in both highways and environment. The main driver of the increase is the improvement in the AMP7 revenues in our water business as we anticipated when we reported in September and about GBP 12 million of that growth in Infrastructure so about 7 percentage points relates to nmcn. And nmcn's contribution will be more in the second half year, around GBP 60 million in H2, as that business begins to get back to delivering at full capacity. Operating profit before amortization is up 77% at GBP 6.9 million and the divisional margin improvement to 2.2% is very good, progressing in line with our margin improvement targets. You can see that the margin has increased in both Building and Infrastructure driven by good contract performance. Central costs of GBP 5 million are around half of the last full year figure as you would expect and we continue to focus on cost efficiency across the business. We've reported exceptional costs of GBP 9.7 million as flagged in our January trading update. None of this is contract related. GBP 6 million relates to the acquisition and integration of nmcn and GBP 3.5 million relates to our investment in cloud-based ERP systems. This ERP investment, which is upgrading our previous 10-year-old Oracle platform to the latest cloud version, will continue through 2022 with a similar spend in the second half year and completion around the turn of the calendar year. Our tax rate is lower than the standard due to brought-forward losses. So our GBP 7.1 million pre-exceptional profit before tax translates into GBP 6.5 million profit after tax and into earnings per share of 5.9p. Our strong balance sheet, both our cash and our PPP assets, continue to help us in the market in winning work and engaging with our supply chain. I've said it before and it's worth repeating, we've got no pension liabilities and no debt and that's even more relevant now in a period where interest rate rises are more likely. Our month-end average cash increased to GBP 180 million with period-end cash of GBP 211 million. The PPP assets are valued at GBP 48 million at a blended 7% discount rate were the same as we used at June and that reflects the active market for these assets. And that portfolio contributed GBP 2 million of interest income in the period. Our intangible assets and goodwill increased by GBP 11 million as a result of the acquisition of nmcn and these intangibles will be amortized over 3 to 10 years with an initial annual charge of around GBP 1 million. On the cash bridge, you can see that we had an operating cash inflow before exceptional items reflecting a very strong collections performance in the period. Month-end average cash of GBP 180 million and the daily low point in the year remained above GBP 100 million providing real resilience to the business. And very importantly, our supplier payment performance improved again with now 98% of invoices paid in 60 days and an improved average days to pay of 25 days. As I said in September, working closely with the supply chain and paying them properly is the right way to operate and it's been especially important in these last few months of a tighter supply market. So I'll now just spend a moment talking through our capital allocation framework, the principles of which are consistent with what we said at September. So most importantly, we continue to prioritize a strong balance sheet. So firstly, our balance sheet provides a competitive advantage, which will help us to deliver our sustainable growth plans. It's valuable to our clients who see the importance of financial stability in their contractor and it's also important to ensure we're the partner of choice for our supply chain. On top of that, it allows us to invest in our people, in digital assets, in adjacent markets such as PRS and in other opportunities or bolt-on acquisitions that arise which support our strategy. Our ability to transact with the administrators of nmcn is an example of that agility. Secondly, a strong balance sheet provides mitigation against any future adverse market conditions and provides confidence that we can deliver our strategic plan. As an example, we don't need to chase the wrong terms or the pricing on contracts just to generate cash flow, the sort of short-term decisions that would harm margin and performance in future years. Thirdly, the balance sheet provides us the confidence that we can pay sustainable and regular dividends. We are today improving our annual dividend cover policy from a 2x to 2.5x cover range to a straight twice covered policy so returning 50% of our annual earnings to shareholders as dividends. As we deliver our strategy with revenue growth and margin growth combining to provide faster earnings growth, our dividends will increase accordingly. And we do also continue to review our future cash requirements in the context of the market conditions and outlook. We don't anticipate cash requirements will need to grow proportionately with our revenue growth through the period of our strategic plan and when there is a sustainable excess cash in the business, then we'll seek to return that excess to shareholders. So to summarize, overall we are very pleased with the results we're announcing today. The excellent half year performance, strong balance sheet and the quality of the order book have given the Board the confidence to declare an interim dividend of 2.2p, which is 83% higher than last year. And we've improved our policy such that we now plan this year and going forward to pay full year dividends that are twice covered by pre-exceptional earnings. And with that, I'll hand back to Bill.

Thanks, Andrew. And now it is progress on the strategy. Here's a [ pace ] of our strategy to deliver high-quality buildings and infrastructure in a responsible manner and provide a good return to our shareholders. There are 4 main pillars to the strategy. Culture, safety and people at the top left; responsible delivery, net 0 carbon, social value and so on, bottom left; quality, innovation, digital and supply chain top right; and the resultant good financial returns, bottom right. And I'll cover each of these pillars in a bit more detail later on in the presentation. We have an action plan to grow the business to GBP 1.6 billion of revenue and 3% margin in 2026 as we have previously announced. Part of that growth comes from doing more in our existing markets and part from growth into higher-margin adjacent markets, primarily PRS, retrofit of existing buildings to lower the operational carbon and the capital maintenance asset optimization in the water industry. In PRS, we will develop or codevelop our own projects using our balance sheet to acquire land or options on land, designing and obtaining plan and permission for the project and then selling that project to a forward fund. This locks in a development gain on the project and then we want to construct the scheme on behalf of the buyer. The blended margin from this approach is significantly higher than normal construction margins. NFM, which is a higher margin business in the first place, we look to help our clients reduce their operational carbon by refurbishing their buildings with more efficient heating, lighting, glazing and so on. And in water, in addition to our normal activities of designing, constructing and commissioning water and wastewater facilities; we intend to move into higher-margin capital maintenance and asset optimization of treatment plants. Our acquisition of the nmcn water business adds momentum to this and here is a bit more color with regards to that acquisition. In the first place, the acquisition is very complementary and aligned to our strategy. It provides an excellent geographic fit with our existing water business as there was virtually no overlap between the 2 operations. As a result, we now have a long-term framework with virtually every water company in the U.K. and have gained a portfolio of new long-term clients. The acquisition also brought new skill sets into Galliford Try: a significant design function, offsite build capability and the design software and manufacture of control panels and chemical dosing systems for the water sector, all of which adds momentum to our growth strategy. And of course and very importantly, it brought 900 excellent people into Galliford Try. Our balance sheet strength and our knowledge of the water industry enabled us to move very quickly when the acquisition opportunity arose and the integration is going well with the new bigger business restructured in January and settling down nicely. As Andrew said, there was limited contribution to revenue in the first half, but we'll see revenue and operating profit come through in the second half along with opportunities to leverage our new capabilities across the whole of Galliford Try. As well as the business rationale for the acquisition, it ensured continuity of important water and wastewater projects across the U.K. and safeguarded the livelihoods of a great many people, both in terms of staff and in the supply chain. It is our intention to do a more detailed presentation on the environment business to our investors later in the year. Moving on to the market. We continue to see a robust pipeline of work through the medium term driven by government spending across the U.K. and by private commercial organizations in the regions. And you can see here examples of very significant programs of work in the sectors in which we are very well placed to perform. Our order book has grown by GBP 100 million to GBP 3.4 billion and you can see here the split between Building and Infrastructure and the constituent parts of each sector. 90% of our order book remains in the public sector and at the half year, we had 95% of this year's revenue secured, of which 87% is in long-term frameworks. Very importantly to me, we already have just over 80% of full year '23's revenue in hand, which is a very good position. You've seen this slide before and just to remind you that our risk management process is unchanged and incorporates robust contract selection procedures and project commercial controls and oversight. There's a lot of focus and effort on managing the effect of materials and labor shortages as well as inflation. Our strong order book and cash position supports our disciplined attitude to risk and, as Andrew said, allows us to walk away from the wrong projects and that's really important to us. Our supply chain is aligned to our business. We engage them early and we pay them promptly, which is important in retaining the best suppliers and subcontractors. We allow for risk and current inflation in our tenders and so we're only looking at the differential between what we allowed for in the first place and the actual inflation through the tendency of our projects. There's also a lead and lag cycle in inflation, which tends to balance out over time in my experience. We procure materials early to mitigate possible inflation and material shortages and we have increased our lead times to provide more of a buffer. And most importantly, the culture of risk management across the business is good and our management incentives are aligned. So going back to our strategy. Here are some of the metrics we use to monitor our progress. You'll see in the appendix the full suite of metrics, which we report on an annual basis. Our AFR at 0.07 is significantly better than industry average and notwithstanding that, we always work very hard towards our aspiration of 0. Early careers people make up 6.2% of our staff. Our Considerate Contractor Score is well above the industry average and 93% of our clients are repeat clients. We have a huge focus on people and career development with an emphasis on retaining our excellent people and attracting new high-caliber people to the company. We did our staff engagement survey last year and we're very pleased to get an overall engagement score of 72% with 85% of respondents being strong advocates of the company and 94% of our staff feeling motivated by our vision for the future of the business. We have made good progress towards our 0 net carbon goals in the period, both in terms of general business processes and practical actions. We've resourced up on appropriately qualified people and invested in the tools we need to drive and measure our progress in carbon reduction. On the practical side, we've converted all of our piling rigs and associated equipment to run on hydro-treated vegetable oil, which dramatically reduces their carbon emissions. And our fleet average across all of our cars is down to 67 grams of carbon per kilometer. We continue to invest in the technology that we need to collaborate digitally with our clients, designers and supply chain, which helps us to enhance site efficiency and site safety, reduce rework and capture high-quality data to monitor quality and progress. And all of this drives an excellent financial performance. We've maintained a robust risk position, prioritizing the bottom line over top line growth and we're really pleased to see the progression in the margin to 2.2% on route to our 3% target. Revenue is up 10% and cash generation is good and we're producing a good return for our shareholders. So in summary, everyone, we're in good shape. A strong balance sheet, excellent order book, and we're making good progress against our strategy with improved financial performance across the piece. We're on track for full year '22 and the strategy period and my thanks go to all of our staff and supply chain for their excellent contribution. So that concludes the presentation and I'll hand back to the operator to take any questions. Thank you.

[Operator Instructions] We will now take our first question from Joe Brent from Liberum.

Congratulations on some very good numbers. If I may be greedy and just start with 3 questions, if that's okay. Firstly on nmcn, can you give us an indication of what sort of margins that business is achieving and what it can achieve relative to group? And secondly, given that that looks such a fantastic acquisition, are there other acquisitions that you can make and could you give us some indication of the areas you might -- you're looking to add to? And thirdly, you touched on the very important subject of shortages and inflation. Very interested to hear your perspective on which parts of that are most worrisome. On the inflation side, I imagine your principal issue is labor and on the shortages side, I'm sure it will be certain building materials. So interested in a bit more color on what's going on on the ground in those areas.

Yes, we're really pleased with our acquisition of nmcn. It's settling in really well and on a margin basis, it's on the business as usual stuff so that's the design commissioning and construction of water and wastewater plants. We see the margins sort of typically where we expect them to be 2.5% to 3%. And then they've got some other parts of the business, for example, the Lintott business, where we make the control panels and the chemical dosing systems and so on where margins can be significantly higher. So on a blended basis, they're very supportive of where we intend to be. On other acquisitions, it's certainly been a good experience for us our first acquisition and whilst our strategy doesn't rely on acquisitions, we are certainly open to acquisitions if something sensible comes along. And of course, our balance sheet give us agility to do just that. So we will keep our eyes open, Joe, for the right opportunities, yes. On shortages, things are stabilizing across the piece I think. Inflation has stabilized I think. It's not going down, it's stuck at probably 4% to 4.5% is my guess, but it has stabilized. Labor again has stabilized and again it depends on which part of the country you're talking about, Joe. The labor issue is more general an issue in London and the Southeast than it is in other parts of the country. And the same thing in materials, they are more stable, we are more -- given more predictable supply I suppose and I'd say there are the odd annoyances more than anything fundamentally in the material supply. Looking forward and with the issues happening elsewhere at the moment, there might be further inflation caused by energy prices and so on perhaps. But of course, we price this into our tenders. We forecast what we think inflation will be and we take a view of that in our tenders. And so as we go through the tenders of those projects, we're only looking at the differential between what we thought would happen and what is actually happening.

And just following up on that, can I be interested to get your -- what you are budgeting for energy prices going forward roughly?

Well, we don't budget the energy price per se, Joe. We look at what the impact of that will have on material prices. So obviously if you're looking at steel or glass, there's more energy prices into that commodity. If you're looking at something else like I don't know, timber for example, then that's not necessarily affected by energy.

We will now take our next question from Andrew Nussey from Peel Hunt. Yes.

A question from me. Just in terms of the commercial activity and obviously conscious at sort of about 10% of sort of the order book of the business now. But your thoughts on that end market over I guess both the sort of near term and what you might be sort of seeing in terms of customer hesitancy. But perhaps more interestingly, how you see that and the runway to your FY '26 growth objectives, please?

I think, Andrew, it depends on where you are in the country. So in the regions, we see quite a bit of commercial activity particularly in PRS, student ready and some commercial offices and it does vary by region quite a bit actually. It is variable. It's reliant on individual private companies taking a view on what they think is going to happen. So far we've seen it fairly constant. We've not seen any diminishment in appetite. The pipeline of tenders coming through is fairly constant. And for us it's mainly, as I said, PRS, student resi. The only trend I'd say is perhaps increasing a touch, but it might be a bit early to call it a trend, is the refurb of offices. So you'll see more and more offices being taken back to their structural shell so to speak and then completely recad and refitted internally and part of that is just to modernize them and part of that is to lower the operational carbon and have an office building that clients want to be in because of the green potentials.

Got it. And just sort of a follow-up. In terms of the investment portfolio and sort of the opportunities that you're seeing there to invest. I mean should we think over sort of the next couple of years actually you probably see a degree of net investment in terms of the portfolio moving forward? Maybe that's one more for Andrew. But just curious on how you see the shape of the investment portfolio, investments activity developing in the group.

Yes, of course. Andrew, so the investment portfolio on the books at GBP 48 million, of course, is largely PFI portfolio of assets. So we don't see big. There'll be some movement, but obviously, the PFI market in England is not -- is closed effectively. But what we are doing is, repointing that business into private rental sectors, or PRS. And you'll have seen in the first half year, we got our first PRS scheme planning commissions that will go on to site later this calendar year. So there is an opportunity for us to continue to invest into the PRS space, which will then help us drive some of our margin targets as well as we go forward.

We will now take our next question from John Fraser-Andrews from HSBC.

I'll have 3, please. Firstly, can we come back to the PRS. Do I understand correctly that the -- the investment, the planning permission, the stages before securing the construction of the building, that's undertaken within the PPP business. And then the construction business will then undertake the constructions on behalf of the investor, the forward funding investor? Is that right? So that profit and margin that you referred to earlier, Bill, that's all within the PPP business. So that's the first one. The second is on cash. You've stated that if Strategy '26 plays out, you won't need to commensurately increase the average month in cash and surplus cash will be returned to shareholders. If you could explain some parameters of what surplus cash is, that would be really helpful. And then thirdly and finally, in terms of the pace of margin accretion and Strategy '26, how do you see that playing out? Is that a steady progression? Or do we see a jump in the near term, possibly -- some thoughts on that would be also useful.

Okay. Thanks, John. I'll take the first one and Andrew can pick up the second 2. The PRS market is very much a joint effort right from the off, because what we're trying to do here, John, is first identify that part of land, that's good for a PRS scheme. And then looking to design and build a scene that is easy and efficient and safe to build. So as I always say, you can generally keep the plan as happy by putting any skin they wanted on the outside of the building and change the shape a bit. But the inside of it, the fundamentals should be repetitive, easy, straightforward to build and that makes them efficient and makes it a better and more profitable venture. So it's very much a joint effort from the investment side of the business and the billing side of the business right from the start and making sure that we get those things aligned. And of course, the construction cost has -- is one of the most important things in making sure that you can get these things over the line in the first place. So very much a joint effort all the way through, John. Over to you.

Yes. Sorry. And then -- so on the second 2 questions, John, so on cash. So I mean, I guess the first point is, we're very happy with the level of cash and where our balance sheet is today. So that is obviously the first and most important point. You'll see our average cash balance in the first half year is around about 15% of turnover on an annualized basis. And what we're saying, John, is that as we grow the business from GBP 1.1 billion in June '21 to GBP 1.6 billion by June '26, so 50% growth in revenue that we don't need our cash position to grow that's up 50%. So that's why we see potentially there will be some opportunity for us to return excess cash as we grow the business. What we do, though, John, is we look at that level in the context of the climate, the macro position, the uncertainties in the market and all the rest of it. So it's not a question of sort of putting a precise number out for where we'll be in a year's time or 2 years' time because we just need to obviously look at that in the context of the current market conditions all the time. In terms of the second point in terms of margin growth, so we're very, very pleased that we've moved from 2% in last full financial year to 2.2% in the half year. So that's good progress towards the 3%. We do think there's opportunity for the growth of that margin to accelerate as the adjacent markets part of the strategy comes on board and some of that will be towards the latter part of the 5-year period. So those adjacent markets are margin enhancing. So they will help us increase that. So I don't think we should expect the margin to grow to the 3% in the first half of the period. We'll expect that to grow towards the back end as those adjacent markets come through.

That's clear. Perhaps while I've got your attention, is one further question that's front of mind and that the current building safety crisis, fire safety crisis that the government is wrestling the residential development industry and the building products manufacturers for contributions to remediating the problem. Firstly on that, are [ yourselves ] involved in that? Is there any cost to yourself in terms of past projects? Or is it providing a source of revenue to help be part of the solution?

Well, the first thing, John, is that we're not covered by the residential property tax because we're not a developer as such. That's the first thing. And then the same [indiscernible] that we agree that leaseholder should not have to bear the front of this, it should be in the industry. But we're not covered by the tax, so we don't have to pay it. And of course, the type of work we do and did in the run-up because this goes back a few years, is very limited. So we have a very limited exposure in the first place. But notwithstanding that we did identify a handful of projects after that dreadful night with Grenfell and which has this ACM clearly material on it. And we convened the taskforce the very next day. We identified every building we've built in the last 12 years. As I said, there were a handful of ACM buildings in there. We approached the clients, and we've remediated all of those buildings over the past few years. And from a cost perspective, in some cases, the client paid in some cases, our insurance paid in some cases, the subcontractors paid in some cases, we computed as well. But that was all dealt with as normal business as usual, and we don't expect -- there are a few ongoing inquiries, John, but they're not material. We don't expect them to be material going forward.

Okay. Is it providing work for you in remediating for others? There seems to be that capacity in the construction industry to get the work done seems to be an issue.

On a very small basis, John, yes, we have one of our smaller companies, dry lining doesn't work in this field, and they do retailing of lower-rise buildings where it's appropriate and associated fire protection work. So yes, we will benefit from a little bit of work coming to, but nothing of any substance.

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

It's Greg Poulton from Singer here. Most might have been asked, but just on the labor shortages, I think, Andrew, you said it was more protracted in London and the Southeast. So it'd be good if you could just expand a bit on how you're managing that, if it's of any impact from build schedules and things? And then secondly, on the exceptional charges, I think it was GBP 6 million for the nmcn acquisition integration. Is that the extent of it for the, I think, on the ERP system. You've got another sort of [ struggle to 3.5% ] in the second half. Is that right?

Yes. So just picking those up Greg, so on the exceptionals, yes, so that is broadly with those and integration is, as Bill said, it's progressing very well, very pleased with that. And those costs included some of the downtime costs immediately post the acquisition. So that's broadly that for nmcn. You're right. The investment in our IT systems will continue. So we'll expect more costs on a sort of rate in the second half year. But though, and just to be very clear, that's a positive strategic investment we're making in our IT systems, which 2 years ago, we had to capitalize those costs. We're not allowed to do that anymore. So that's the only reason those are going through as exceptional, but that is a positive spend by the group. Do you want to give a go, Bill?

Yes. So on labor break, as I said earlier on, it's more accentuated in London, Southeast and elsewhere in the country. And it's not across the piece. It generally is specific trains at any one time. So we mentioned dry lighting a minute ago. That, for example, at the moment, is one there is a bit of a -- seems to be a bit of a shortage. But we get around the sense by reprogramming contracts and by giving forward visibility of what's coming up to our supply chain so that they can plan their work. And we generally manage our way through it. So I think it's settled down a bit now. And as I said earlier on, it isn't having a material impact on the business. So we're managing through, and I think it will continue to stabilize person.

We will now take our next question from Alastair Stewart from Shore Capital.

A couple of balance sheet related questions from me. The first is, you mentioned quite rightly that a strong balance sheet is becoming a key differentiator for you and 1 or 2 other companies are seeing similar things. But are your clients kind of looking principally at the net cash, the average net cash are they drilling down these to say, your bonding cover. The reason I asked was, I'm hearing words from the industry that some of the less well-capitalized contractors are cutting corners because of build cost increases and reducing their bond cover. Is that something you're seeing? And have you changed your surety considerations. That's the first question.

Okay. Should I take that one now? I mean so clients obviously look -- you have different client look in different ways. I think the commonality is that the value of a strong balance sheet and the value of a contractor who they've got confidence we'll be able to deliver the projects as required is common, but they will have slightly different ways that they look at it. I'm not seeing that feature, you mentioned the bonding market is not something I see. We've got very good relationships with our sureties. We continue to use surety market as required. And with our clients, that's not a feature that I've particularly seen, Alastair.

Yes. I think just to point out, I have been talking to that section of the industry. And they say it's beginning to happen and storing up trouble potentially sort of weaker companies, but that's an observation. My second question, it kind of follows on from John's question. On capital returns, I'm looking at it from another direction. You said, Andrew, that if your revenue went up 50% you wouldn't need to keep all -- you wouldn't need to keep 50% more average net cash. And you said it's currently 15%. In terms of not looking at it in terms of how much you pay out more in terms of how one should look at adjusting enterprise value, GBP 180 million of average net cash, which is almost your market cap. Obviously, some of that should prudently be taken off of the cash and enterprise value. I mean you mentioned the figure, 15%. Would it be more like 10% before -- even before you consider the sort of operational opportunities just in terms of your prepayments, is there a magic figure in your head that you wouldn't want to go down a percentage of revenue you wouldn't want to go below?

So I think Alastair the point is what we look at all the time is the context of the market and the outlook as we see it. And so -- and the absolute priority for us is maintaining a strong balance sheet. Strong balance sheet for all the reasons that we set out is really important to us. Now the point is that what we don't need is where there is surplus cash, then that's when we would look to return that, but we wouldn't -- is there anything to put a strong balance sheet at risk.

No, I understand that, but is there a kind of just a rule of thumb -- I kind of always thought as being about 10% without any great scientific evidence. But is there some percentage of either revenue or net or whatever that you -- below...

Alastair, I mean, we haven't put a number in the statement because we look at that in the context of. So I don't want to get sort of, if you like, drawn into giving a figure which is, I don't want to say, arbitrary, but which is -- we have to look at it in the context of the market as we find it and that's the context of the lens through which you need to look at.

We will now take our question from Jonny Coubrough from Numis.

Two, please. Firstly, just [indiscernible] if you're seeing any impact to the decision-making process from your building customers as a result of cost inflation, driving up the cost of projects, whether that's potentially delaying decisions or anything else? And then secondly, just a follow-up question, please, on the nmcn acquisition costs. I appreciate there, Andrew, you said that there's been some downtime, but also, it'd be great if you could just give a breakdown maybe of what the GBP 6.3 million was and also whether that was expected at the time of the acquisition?

Okay. Thanks, Jonny. I'll take the first one and Andrew can pick up the second one. Yes, we have seen a bit of slippage in decision making, both in the public sector and the private sector, actually. In the private sector, it's more about inflation where, for example, we might put in a price and win a project. And if it takes the client, for example, a month, you say yes, then the price has gone up in the meantime. So it is an iterative process. We're very upfront with our clients with regard to the impact of inflation and the validity of the prices. And so in a few instances, it has delayed projects only by a couple of weeks, possibly maybe a bit more as that sort of iteration goes around a few times. In all cases, so far, we have arrived at a landing point, which is acceptable to us because, obviously, we won't allow our margins to be diminished to our risk to go up as a result of that process. So we are being pretty robust here. Our clients understand that. And as I say, we've not lost any projects on the back, but some have been delayed by a little long. In the public sector, again, things just seem to take a little bit longer at the moment. If you'd asked me the question a month ago, I probably would have been a bit more frustrated. But in the last couple of weeks, actually, we've had a whole tranche of projects and that we will prefer better on come through to contracts. So it seems to be picking up pace again now. So yes, there's been a bit of slippage, but they seem to come through in the end.

And then one, Jonny, just on the acquisition cost, so yes, we did anticipate there'd be costs. I think we said in October that we thought there'd be some additional costs. And of course, put it in the context of the headline consideration in October was GBP 1 million. So that was always anticipated there to be some additional costs to be spent. The GBP 6 million Jonny, it's a mixture of legal and professional fees. It's got integration costs and restructuring costs in there as well as the cost of the -- the staff cost at the time that sites were closed, and therefore, we were also carried on paying our staff, but they weren't productive in the sense of generating revenue. So it is a mixture of all of those features.

Thank you. That will conclude our Q&A session. I will now turn the call back to Bill Hocking.

Thank you. Okay. Well, thanks all for attending today and for your questions, much appreciated. Just to reiterate, we're in good shape. We're really pleased with the progress we're making towards our target. And we look forward to seeing you again in September. Thank you all very much. Bye-bye.

Ladies and gentlemen, that will conclude today's conference. You may now all disconnect.