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

Two please. First one, inflation. Has that been a factor in the results? I mean, clearly, you've guided to the top end of consensus, so a plus-20% PBT. So you seem to have taken it in your stride, but has it had any impact on margins? And how is that inflation, build cost inflation evolving more recently? So that would be the first one. And then the second one, the build-to-rent end markets, I understand there was a bit of a hiatus in -- after the mini budget, but has that started to pick up now? And what are you seeing? And what's the update on your projects in that area, please?

Okay. Thanks, John. So firstly, with inflation, as I said before, the majority of our clients, we're very sensible about inflation, how we dealt with it. In some cases, we ring-fence part of our projects to say that that's the price, for example, we've attributed to steel or whatever it might be. And if that price moves up or down, you need to pay more, you get a rebate, one of the two. So we've done it in many different ways. We've got some parts of index link. So the impact of inflation will hit the project. But then three months later when the indices catch up, that will be squared away. I think the most important thing for us to see, John, is in that period of high inflation, we were really, really disciplined about not taking on any work until we were happy that we had everything buttoned down. And that's a bit of a drift to the right as we've signaled before in terms of some of our projects, but that discipline is paying dividends now, insofar as we don't have any big issues with inflation. Might have the result been a bit better? For the [indiscernible], possibly, I don't know, but I think we've handled it really well. And all of the projects we have and have taken through that period are in good shape. And I think that's the main message. In terms of current inflation, it's flattened out for sure. It's -- if there are any advisers, they signaled well ahead generally, there are some prices that are falling. But I would say on the whole, it's flattened out and it's more stable. It's not going down would be my overall view. On the build-to-rent market, yes, there was a hiatus of the mini budget. And what we've seen is that the BTR companies and investors are reappraising the -- the interest rates, obviously, are going up, the yields and so on that to get back on their rents will also go up. So overall, the feeling is that those investors are coming back into the market. There will be some views being taken on what you can rent these things for and how much they're going to cost in the future. But on our own scheme in Cardiff, we're making good progress. And I know we've said this before. But hopefully, we'll have some good news fairly soon in terms of getting that first one over the line. And then we've got two more that are following the teams are wanting not to come but further behind in its gestation period. But so what we've seen is quite good interest coming back into the market at the moment on the build-to-rent schemes here.

Ladies and gentlemen, [Operator Instructions] our next question comes from James Lowes from Hambro.

It's James Lowes from [ James Hambro ] . Two questions this week, if I can. Just firstly, perhaps you could extend your comments on water, to what we can look forward to in AMP8 where there's going to be a clear increase. So just what you think that could be versus AMP7 with your new footprint, including the acquisitions you talked to? And then secondly, there seems to be quite a lot of change in the highways area in terms of how Highways England are procuring work and also delays in funding and pushbacks. Can you just talk about whether you're on the right side of those structural changes and what you're seeing in terms of the allocation of funding in that area?

Yes, sure, James. So first in water, you're right, AMP8 is going to grow very significantly from AMP7. And we positioned ourselves well, in my opinion, but I would say that in terms of the so -- from our perspective, quite a bit of our work will roll over from AMP7 to AMP8. So there'll be no reprocurement in probably, I'm going to say, 60% of our work would be off the cuff. So those contracts will roll over and we'll continue to perform for those clients through to 2030. And then there's other AMP7 frameworks that we at the moment that have to be reprocured because they are the time. So typically, these things run for 5, plus-5 years. So with that 10 years, then they have to be reprocured. So there are a few of those that we have that will be reprocured. And we're being quite choosy about which ones we're going to go from which we won't. And I think the key thing here in the MPAT design and build type form exchanges is not to bite off more than you can chew. So we will be looking at growing into AMP8 for sure. But not going into the areas where we don't think the work suits our capability. So that's the first part. The second part of AMP8 is getting more of the capital maintenance, asset optimization part of the pie. And there, our acquisition has really come into play. All of them, Lintott, MCS and Ham Baker are, as I said earlier, integrating well and have a big part to play in AMP8, particularly in terms of plug-and-play-type technologies like phosphate removal and things like that, ozone treatment, where we can build these things in the factory, take them on the site, plug them in and [indiscernible] and the water instruments is very key on those sorts of interventions. And then another growing market in AMP8 is going to be water quality monitoring. So on the back of all the news we hear about sewer overflows and combined storm overflows and so on, its going to be a far higher degree of monitoring of what we call the upstream and downstream of wastewater treatment works. And that is a market, again, that we're going into. And this is more about data, really, than anything else. This is about connecting data on whole catchments in substitute rivers and sewers and all the rest of it, to understand the way a catchment behaves in a storm situation and the various interventions that defer the environment agency of the water companies can put in place. So it's a big market and it's an amount of both in terms of construction and in terms of more high-tech data-driven type solutions. But the key thing for us, James, is that we're not going to bite off more than we can chew. We're not going to overtrade. On highways, we've seen quite a bit of noise about highways recently in the press. Our inexperience is pretty good, actually, apart from the delays that we've seen. So on the A47, we've got two schemes ready in the blocks to go. And actually, just last week, the judge overturned one of these -- what's word I'm looking for -- legal transit that have been put. So that was a good step in the right direction. And I'd like to think that on both those A47 schemes, we will be on the ground probably in the new year. We're not that exposed to national highways now. We're probably 50-50 between national highways and local authority schemes. So you would have seen, James, we won the Carlisle job at GBP 140 million. A few months back, we won Melton Mowbray, GBP 80-odd million. And we're busy working on a few other local authority schemes. So we're probably 50-50 local authority and national highways. But not to send that national highways will always be a big and important client to us. And we're busy talking to them about what [ Roose3 ] looks like and how do we procure and all those sorts of things. And I would say that the early indications are that [ Roose3 ] is going to be good for us in terms of there'll probably be fewer big road projects and more smaller sort of bottleneck schemes and the improvement scheme. So that's going to play to our strengths, actually. So yes, we've seen what's happening in the highways, but it hasn't really affected us and what we're doing, James.

Our next question comes from Alastair Stewart from Shore Capital.

Couple of questions. First one, I imagine for Andrew. It's -- in terms of your average net cash, it went [ nose dive ] A bit but still obviously extremely good. But you have the buy back, you have the digital investment, working capital impact of the acquisitions and possibly the supply chain, paying them quicker, I imagine given the circumstances. Do you think some of this will result in a working capital cash inflow in 2024? And -- so that's the first question. The second question for Bill, I suppose, a bit more color on not so much the quantum of AMP8. But looking back at previous change of some programs. They always seem to be big hiatus, things to want to get started and so on. And it used to cause quite a lot of short-term pain for the supply chain. Is that getting any better, and why? And if you've got any examples of that, that would be great.

Okay. Let me take the first one. I'll let Bill talk about AMP7 to AMP8 transition. So yes, in terms of -- Catherine, you flagged some of the points there around buyback, obviously, around the investment in digital assets, around the investment in the acquired businesses' working capital. Remember, when we did the acquisitions, they were for very low consideration, and we said that there would be some working capital to go it out, which is what we've seen. So those, if you like, are issues that won't necessarily flow back. The other thing that we have flagged in the statement is, obviously, that there were some delays in starting new contracts in through 2022, and that's probably just softened the average cash a little bit compared to where it would otherwise have been. The flip side, of course, of that, that will come back. And the flip side of that is that carry forward of new work into FY '24 at 92% revenue secured is, I think, a record position. So actually, what we've seen, and we said at the half year that we were seeing some delays there. We weren't seeing projects being canceled. We were just seeing things moving to the right. And that's been the case, which is why our confidence going into FY '24 is so high, because we've got such a really good, strong position going into that new financial year. So that's a little bit of cash which will then start to come back through as those projects come through into the books also.

[indiscernible] In short, there's more risk on the upside to average cash than on the downside. Is that a reasonable assumption?

Yes. So the additional investment finishes imminently. Obviously, the work capital we've put into the acquisitions, that as of -- so -- and then you say as we grow the business, that's what you'll see.

You're right, that traditionally there's been a bit of a hiatus between cycles, and we've been lobbying for decades to get that flattened. But the water companies are listening. And I think in this -- particularly in this AMP7 to AMP8, what we've seen so far is the water companies are actively looking to secure a good quality supply chain in good time for AMP8. So they recognize that there are going to be some constraints in the supply -- their supply chain on the back of this big increase in work. And therefore, the intelligent ones are locking in a good supply chain now. So that means that sort of a hiatus should be much -- well, I would say will go able to get [ Alastair ] , but it should be far more sort of moderate, I think, this time around than normally. But in any case, we've got a really flexible workforce. So if one water geography turned down a bit, we could redeploy those people the same to another one. So I don't -- it doesn't worry me at all, that. It doesn't worry me at all.

We currently have no further questions, so I would like to hand back to the management team.

Okay. Thanks, Bruno. Okay. Well, thanks everyone for dialing in. Just to reiterate, really pleased with our performance in the year, and looking forward to see you in September. Take care. Keep safe. Bye-bye.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.