Keller Group plc (KLR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the results, the interim results presentation for Keller for 2024. Welcome to our new presentation facility as well. It's a new fresh for us. Talking of which, in terms of housekeeping -- pardon me. First of all, you would have noticed I came in with some walking stick. So I'll be sitting and presenting from here today, but David will be making use of some exercise and actually move in the elective. In terms of mobile phones, I'd appreciate it if you could all switch them to silent as we go through. I mean there's no program fire alarms. So if the alarm does go off, I ask you to make your way through the first gate through the door there and then there's an exit to the left. And so it must point directly to outside. Okay. In terms of our agenda, it follows our normal agenda today. I will be top and turning it with a summary and an outlook at the end. And David, as usual, will do the, carry the heavy load I've actually explained in detail in the middle of the presentation, which I'm sure you'll find us some very rich detail in there as he works its way through it. Moving on to the summary. There's a lot -- this is lifted directly off the R&S, as you'd expect. And there's some really good positive features in there on pretty much every single variable that you look at. Now I'm not going to go through each of those individually. I mean you can see all of those and David will explain the moving parts in a little while. But what I do want to do is to impart to you what I think are the three key messages of the presentation today. The first one is the fact that in the first half of 2024, we've had an absolutely outstanding performance from the company. And if you look at it in terms of operating profit, margin, free cash flow, earnings per share, all of these have moved significantly ahead. So much so that in 1 half year, we've achieved a performance that, frankly, we used to achieve in a full year. And that is really, really pleasing to see. And there's new resemblance behind that. And as I say, David will explain that in a little while. The second thing, and this is really important to us. The second thing is, evidence is very clearly that the improvement that we did in 2023 in terms of operating and financial performance, that step-up and is sustainable and that we can do it as noncore, and it's here to stay. And that is an important thing to prove to ourselves. And in terms of us moving forward, is the new starting point as far as our corporate performance is concerned. And then finally, the third item, given the momentum of the first half, given the strength of the order book, which I will talk to a little bit later on. We reviewed the forecast for the full year as a Board, and there's some further investigation we did. But in the end, it was actually quite straightforward to actually come back and do a material upgrade for the full year performance in '24. And that, I think, is driven by those two things, the momentum so far as you go into the second quarter, the second half, and also the strength of the order book. And with that, I'm going to hand over to David, who will take you through the detail.

Thank you, Mike, and good morning, everybody. So in the financial results section, the key highlights to watch out for the outstanding underlying operating profit growth, and I'll share the year-on-year movement. Following from that, the very strong free cash flow generation compared to last year and the resulting reducing leverage rate. And finally, the look-ahead modeling considerations for the rest of 2024. Okay. Let's start with the P&L. This is the full P&L, showing underlying operating profit of GBP 113.2 million, nonunderlying of GBP 7.3 million with the resulting statutory operating profit of GBP 105.9 million, a very impressive increase of 87% versus H1 2023. This builds on the performance we recorded in the second half of last year. Let's look at underlying first. So looking at revenue, we have solid revenue growth of 4.6% on a constant currency basis. Volume was up in North America by 4.2%, driven by growth in foundations, offset by Suncoast as a result of the residential downturn and RECON due to lower levels of activity on LNG projects. Europe and Middle East increased revenue by 6% despite the market conditions in Europe and the drop-off of revenue from the NEOM line project in H1 2023. APAC increased revenue by 3.4% despite the reduction in Australia infrastructure projects following a stellar period in 2023. India and ASEAN continued to show steady growth. It is very pleasing to report an underlying operating profit increase of 75.5% on a constant currency basis and our margin rate increasing 300 basis points to 7.6%. I'll bridge that operating profit performance in the next slide. Net finance costs have decreased by GBP 2.9 million, driven by lower average borrowing levels due to strong levels of cash generation. Taxation of GBP 26.7 million is at an effective rate of 26% that has increased since last year due to the higher mix of profits coming from the U.S. The underlying earnings per share has increased to 85% to 103.3p driven by the improved underlying profitability with lower finance costs contributing to the higher growth level compared to underlying operating profit. The Board has increased the interim dividend of 16.6p, rebased following the 20% increase in the 2023 full-year dividend and a proportionate with an anticipated full-year dividend increase of 5%. We now move on to the operating profit bridge slide. So moving from left to right, starting with 2023 H1, underlying operating profit of GBP 67 million, there's an FX impact of GBP 2.5 million due to sterling strength against the dollar. So coming to the North American division first, which is up GBP 42.7 million versus the half year last year, much stronger than expected. Foundation's volume relates to growth in comparison with the first half of last year, driven by busy markets in the South Central and Northeast business units in particular. The foundation's margin block of GBP 32.9 million is made up of a few elements. Firstly, a storm in Q1, given the business of the markets and with little or no impact from the usual bad weather we would expect. Secondly, the continuing impact of sustained improvement in underlying contract performance as a result of improved project execution and focus on commercial discipline that we saw coming through, particularly in the second half of 2023, that the old order book was chewed through following the actions we took in 2022. And finally, our buoyant market in South Central business units, where schedule and program, are more important to clients, which results in robust pricing and higher and tighter, more effective utilization of resources. RECON is down following the postponement of an LNG project on the Gulf Coast as a result of an amendment of regulatory requirements in respect of energy projects. Conspicuous by its absence is a block related to Suncoast. The negative residential volume reduction did occur but was offset by resilient pricing management by the local team. Now turning to Europe and Middle East, where it was GBP 8.7 million down. The European businesses performed well, increasing profitability driven by a large infrastructure project in Germany. The market conditions in Europe do, however, continue to be tough. Middle East, including NEOM, is negatively impacted by a prior year comparative benefiting from the work on the line at NEOM. The Trojena project at NEOM commenced at the start of the year and has encountered ground condition difficulties resulting in a loss reported in the period. We are in discussions with the client to remedy the contractual position. The APAC division was up GBP 15.2 million, predominantly driven by the turnaround in Austral with monthly profitability against losses in 2023. The rest of APAC has performed well with the expected drop-off in profitability in Australia being offset by continued growth in India and to a lesser extent, ASEAN. Moving to the next slide, I will cover off nonunderlying items. Again, the income statement, but this time focusing on the middle column, nonunderlying items. We continue to take no definition of nonunderlying across the business. The analysis book shows the items that make up to GBP 7.3 million, down from GBP 10.4 million in the half 2023, which we have split between cash and noncash. We continue to invest in the ERP program. And the restructuring costs related to the group finance transformation program that was launched in H1 with the setup of two finance shared service centers, one in Kuala Lumpur and the other in Warsaw, servicing the APAC and EME divisions, respectively. The plan in respect of North America will be developed in the second half. The loss on disposal relates to the sale of the South Africa business to local management. Noncash predominantly relates to acquired intangible amortization and the GBP 0.8 million contingent consideration credit relates to the GKM acquisition, where deferred consideration is no longer payable. I'll now move on to talk about cash. This page shows the summary net debt flow from underlying operating profit down to net debt. The levels of free cash flow generation that we achieved in the second half of 2023 has continued in the first half of 2024. We have generated free cash flow of GBP 88.6 million against an outflow of GBP 9.1 million in H1 2023 and GBP 100 million for the full-year 2023. Working capital outflow was minimal as the growth of payables and receivables aligned. And net CapEx levels are reduced given the spend on NEOM assets in H1 and higher levels of disposal proceeds in H1 2024, some of which related to properties in the U.S. Other callouts, cash tax is lower than half year 2023 because there was a higher payment in H1 last year as the 2022 liabilities payments slipped into 2023. The GBP 4.9 million outflow on disposal relates to the sale of the South Africa business. In the bottom box on the right, we highlight the reconciliation of net debt on an IAS 17 covenant basis to GBP 100.7 million. Leverage on a lender covenant basis is 0.3x already outside our target range of 0.5 to 1.5 halfway through the year. More on net debt later. Next slide is the summary balance sheet. This slide shows a summary balance sheet with comparators for December and June '23. For reference, we set out the movements in the boxes, which are pretty standard, but no particular callouts so we'll move on. The next slide shows more detail on the net debt profile during the year. The cash generation from operations has driven the reduction in net debt. Looking at the trend, you can see the reducing profile of the second half of 2023, has continued into 2024. The increase in June '24 is driven by the payment of the final year dividend. The group's multicurrency syndicated revolving credit facility was refinanced in the period, increasing the facility from GBP 375 million to GBP 400 million with no change in the related covenants. The revolving credit facility was undrawn and along with cash at period end, gives us headroom of GBP 650 million, a very robust position as we look to the future. There is covenant detail on the slide, and we are well within our key metrics. Our leverage rate is now at 0.3x, and we will gravitate towards zero towards the end of this year and into Q1 next year. We will continue to assess the optimal capital allocation options in the second half. The next slide shows some look-ahead modeling considerations for the second half. On North America foundations, continued sustained improvement with the market buoyancy tapering off, resulting in more normalized margins. Suncoast pricing will normalize, so the associated margin levels of H1 will not repeat. On Europe and Middle East, the market will continue to be tough in H2 in Europe. Austral, we expect a full year of profits. On phasing, H1 has been exceptional with a very strong Q1. We do expect normalized margins in H2 such as we have a H1 weighting exacerbated by an FX headwind. On cash and net debt, we will continue to gravitate towards zero net debt on an IAS 17 basis, with capital allocation options to be considered. That's it for me. Thank you for your attention, and I'll now pass you back to Mike, who will take you through the business performance update.

Thank you, David. Okay. I'm going to start the business update with safety and well-being. And as always, John Raine and his team and he did the whole of operations continue to make really good progress on this particular agenda. You can see there that the AFR, the accident frequency rate, is what stable and the TRIR, the recordable is slightly down. We've actually -- and this has been encouraged by the Board, we're actually beginning to move to from lagging indicators to leading indicators. And the idea for this is to add additional impetus to try and get ahead of incidents and events before they occur. And that's something which we're increasingly putting emphasis on. And you'll see that perhaps in some of our future presentations. But it is, again, another, if you like, an encore, another impetus to try and actually make further progress in what is a tremendously difficult agenda item. You'll see that some of the key actions which we've taken. We've got the safety week coming up in September. The theme this year, again, trying to be preemptive, the Global Safety Week is to distance yourself from danger. And that actually take yourself away from the dangers on and out of the line of fire before you actually start to work. And by doing so, de facto, you will prevent accidents. And that's something which we're focusing on. It's not always going to be possible, but it's something in terms of a mindset is something which we're going to be encouraging and focusing on for a week, trying to reinforce that message with people. Some of the other items down there. Second bullet point is really about mental health. Mental health in construction is a key factor for us all. It is an area which young males in particular, are particularly vulnerable. It's a very mature industry. It's a very industry where people bottle things up. And we've got to try and unpeel that a little bit and actually make people open up and actually, again, get ahead of some of the issues there. And the final one I'll pick out is telematics, particularly automotive in North America, and this is common to all sorts of different industries. Auto accidents in North America are always a big issue. We have now installed telematics in all of the Keller owned vehicles in North America, and we're using the just culture within safety to reinforce good behaviors for people call them out and get them to improve. And we just started that program, and it's quite pleasing because people are responding and the you're holding -- effectively holding a mirror up to them and saying, Look, do you realize you're at work, put your seat belt on. You're not -- you're speeding you're taking corners too quickly, you're breaking too fast. As soon as you start monitoring, the majority of the people that work for us are responding and responding reasonably well. I don't doubt that we will have some challenges as we get through to Christmas with people who don't respond. But so be it, that's what we have to do. Next slide, please. Second item in terms of our sustainability agenda is our carbon performance. And this is -- again, it's one of those items which you just have to tenaciously pursue. I'm very pleased to say that Scope 2, which is the one we started with, we are confident that we'll get below 50% of our baseline of 2019. That puts us well on track for achieving Net Zero by our target of 2030. And I think that -- my expectation is we'll get there before then. But it is getting increasingly difficult when you start addressing properties and facilities, which we don't own that we have to actually influence our landlords, which in some countries is easy and in some countries is more difficult. In Scope 2 and Scope 3, these are much, much bigger parts of our carbon footprint and are tremendously difficult to address. But nonetheless, the team are coming up with some pretty innovative and pretty sound, I think, ideas as to how we can move forward. Scope 1 in particular, they're doing some very good things in equipment and some practical things that we can -- you can make a difference on. But it is a much longer time frame which we're dealing with. And certainly, in terms of things like CapEx and the way we reinvest, it's right up there in terms of the things which we are looking at. I think these two we just talked about two elements of our sustainability agenda. Our sustainability agenda is much broader than that and is maturing rapidly. And one of the things which is -- I'm pleased to announce today is that we've appointed to the Ex-Comm our first Chief Sustainability Officer, who's actually in the room, Kerry Porritt with us today. who is a very long-standing member of the Ex-Comm team actually ideally placed to pull all of these activities and these strands together, make sure that we leverage the experience across the group and make sure we share best practice. And frankly, we drive best practice as well. And that for me, indeed, for the team is a very exciting appointment in a very -- something which I think is going to be worthwhile. And I hope we'll see more of as we go forward, we'll share more with you. Moving on. Another exciting thing. I've got loads of exciting slides today. The order book. This is actually, when you quietly sit and look at it, is tremendously pleasing. You've got a number of -- at COVID times, 2020, that we started around GBP 1 billion. And we thought that was quite good back then. But since then, it's slowly year-on-year increased. And it's -- there's been a few ups and downs in terms of key items. But overall, we stand here in 2024 with a record of GBP 1.6 billion. So a significant increase in 2020. There isn't anything particularly big in the GBP 1.6 billion. It's geographically well balance. In terms of time frame is pretty well balanced. And in terms of quality, it's pretty good. It's better than it was in the GBP 1 billion market. So in all of those quotients since you move forward, things have improved over time. And from my perspective, that's just evidence is the way the business is moving forward and has been progressively getting more and more into a growth mode. And is that, frankly, it gave us the confidence as we go into the second half to actually make the upgrade announcements which we've done. Moving on to North America. Clearly, an absolutely brilliant improvement year-on-year. And David has already taken you through a lot of the detail, but I'll just reiterate a couple of items here. Clearly, the market in North America has been fairly buoyant and that has offered us both volume and also to a certain extent, pricing opportunities where program has been more important than price. And the team has actually been quite careful and controlled and managed about exploiting those sorts of opportunities, which I think is good because it shows the organization is maturing. There's also been improved operational execution and be that operational in the field and the use of GPTs and some of our operational expertise, that has been pleased to see. But also, this is more [ pleasing ] with me, people being more tenacious contractually, and more aware contractually, chasing change orders more, because that means that we are getting value for the work which we are completing. And there's more work to be done there to make sure it's fully embedded and that will always be something which we're always pursuing. It's a bit like every sole self-improvement project. And then finally, higher levels of utilization. This plays absolutely square into our strategy. The areas where we have local markets where we have higher levels of market share, we get higher levels of utilization of both our equipment and our people and our yards. That's where we make more margin. So actually acting smart, concentrating, that's where we'll make a difference. Napoleon once said, God is on the side of the biggest battalions. That translates to our strategy, too. If we're local, we will always win, we want to. Suncoast, puts and takes there, down on volume, but again, maturity in the way they've addressed the pricing regime, which is pleasing to see. And then RECON, RECON down slightly, but frankly, that I think is a timing thing because of the LNG prospects and the market there being delayed into 2025. But it will come back. I'm confident of that. And when it does, we'll be there to take the opportunities. And overall, strong order book. Moving on to Europe and Middle East. This is almost a game of two halves. Europe, in contrast to North America has been a very, very tough market. Because the interest rate has been so high, residential has been tight, because residential has been tight. Everybody has been looking for market share in other sectors. And that has led to margin compression and people fighting over the same piece of market share pie. And that's been pretty much general across most of Europe. Despite that, I think the team overall has done well. In particular, Central Europe. In the German market, some people have really suffered. We've done quite well. And some of the other markets we've done reasonably well. We've had some very good projects. We've had some challenging projects. But overall, and the progress in Europe has been reasonably pleasing. And there's more to come there. It will take longer to access, but there is definitely more to come. And you can see that as you go around. In the Middle East region, including NEOM, I think that really -- again, there's several moving parts in there. And David talked earlier on, the biggest move year-on-year is the unfavorable prior year comparator from the line elements of NEOM. Again, we've got some good projects within there, and we've got some challenging projects. We've heard earlier on to Trojena. We've also had some very good projects. And in the Emirates, where we've had some very good steady state vibro compaction and dynamic compaction jobs, which for us is good work. It's technically pretty straightforward, and we are good at it. We're very productive at it. We can beat the competition. So again, there's a bit of a mix. And overall, the order book is nice to see that it's steadily moving slightly onwards. And then finally, Asia Pacific. Asia Pacific, if I was to work from east to west, and Keller Australia, it's actually had a good year, not as good as it did last year. But last year, in the first quarter, we had a couple of really big intense infrastructure projects on the back of COVID. So they've had a good year, but it's not quite as good as it was last year. And they're actually getting a reasonable steady state of medium-sized infrastructure and other orders coming through, which is -- again, it's good to see that business in a steady-state mode now. Austral, Austral is a big mover year-on-year and the move from loss-making last year to a steady profit state this year, is particularly pleasing. The turnaround that in that business and the work that the team has done is paying off. And we're now in a state where they are quoting within their capabilities and living within their limits. And it's also pleasing to see that there's no loss makers in that business. They are actually managing that business quite well and smartly. They're not taking on too much. They're doing what they're sticking to what they're good at. And then India and ASEAN, just quietly moving forward. India is a great market for us. It's purely organic over the last 20-odd years, and it's just steadily moving onwards year-on-year generating cash. It's a very, very good business for us. Moving on to Group's strategy. This slide, you'll all be familiar with. It's basically the strategy we established in 2019. And as has been guiding our decisions and our stewardship decisions for the last -- since that time. And increasingly, you can see it coming through in terms of the benefit evidenced in the results. If you look at the progress we've had in 2024, and there's clearly some further refinement of the portfolio. We disposed of the South African business to a management buyout. That was actually quite a, I would say, a difficult transaction. It took a little while to get to the end of it. There are several moving parts in that. I mean there were several parties interested originally. But I think we've done right by both the local management and also we exited it with more value than I thought we were going to get at the outset. So I was quite pleased by that. We will continue to refine the portfolio as we go forward. There are still businesses on the fringe where if you step back, you think, well, are we going to get market leadership positions in these markets. Is there a reason why we should be staying here for a particular reason. And if there's not, then frankly, we will look for ways to exit those businesses for maximum value and with the least risk, and that's what we will continue to do. In terms of performance, you can see the benefits of this coming through, particularly in the North American results, but also elsewhere, be it on the operational side of things, exercising best practice, be it on the technical side, seeing things coming through in the GPTs, you can see more and more of that evidence as you go through the management results. And frankly, if you look at the strategic priorities for the rest of the year, it's going to be more of the same. We're going to continue to focus on refining the portfolio. And given where we are in terms of our balance sheet, that was likely also to be more and more in terms of potential additions rather than just disposals. But I'd reiterate, as I've said before, that we're looking for things which will accelerate and derisk our strategic execution, and we're not in a rush. And to that extent, we're not going to get bounced into doing something that is specific simply because we've got the resources available to do so. We will maintain that discipline, which I think is absolutely important to M&A is the same way as it is in project execution. I'm talking of project execution, we'll continue that focus on performance. And finally, summary and outlook. I'm going to basically finish with the same three messages that I started with. We've had an outstanding first half performance, profit margin, free cash flow, EPS, leverage, all of these things are going in the right direction and purposefully so. It's not by accident, I mean these things are being done by design. We've had a little bit of help here in there, but the vast majority of it is by the team doing what they do well. And the second item is to reinforce the fact that this is sustainable. This half year results evidence is the fact that the step-up in '23 and is here to stay. I'm sure there will be ebbs and flows in terms of markets. But in terms of our ability to execute and our ability to actually manage this business, we are moving forward. And then finally, the strength of our momentum and the strength in the order book, which I talked about earlier on and the quality of that but the breadth of that order book has given us the confidence to increase -- materially increase the full-year '24 expectations. And with that, I will draw the presentation to a close and open up for questions.

Aynsley Lammin from Investec. Just two for me, please. You spoke about the kind of looking at optimal capital allocation in the second half. Just wondered if you could give us a bit more color around kind of thoughts and priorities, dividends, share buybacks, M&A? And just in that context, I guess, if the U.S. has now seen the big margin uplift, is it more about kind of revenue and growth going forward? And are there any obvious gaps within North America market regionally or technically you'd see as being obvious? And then secondly, just on the trading outlook in the U.S., particularly, obviously, election coming up, some kind of recent patchy macro, just interested in your thoughts, when would you first see any signs of change in the market, what you're currently seeing? Any color there would be grateful.

Do you want to talk about capital allocation, and then I'll talk about M&A and the economics.

I think as I said in the presentation, we are gravitating towards zero in terms of our net debt on an IAS 17 basis. And I think we're keeping our options open really in terms of what we will do with that. I mean our priority is financing the business properly in terms of CapEx, dividend, and then M&A. And we haven't done much M&A over the last couple of years, and we're always on the lookout for the right types of opportunities. And I think beyond that, I think it's a conversation which we do need to have. We haven't felt the need to have it, to be honest, with the Board to date. But as the cash generation has been what it has been over the last 12 months really, I do think it is a conversation which we'll have towards the back end of this year. And whether that turns out to be share buybacks or special dividends, I think is or, frankly, just going to net cash, which isn't a bad option -- isn't a bad option either.

In terms of M&A and filling in spaces, there are some good opportunities for us. If you take Europe or North America and pick those because that's where the majority of run rate businesses. We are present in some key areas, but we don't provide all of the services in every location. So there are opportunities where we can infill. And from an M&A perspective, it's actually from a risk perspective amongst the lowest risk M&A you can do because we're already present in the location. We know the clients. We know the economics. We know the labor force. It's just that we haven't got or we've got a smaller subset of that particular technique, which we use somewhere else in the group. So we understand the technique. It's just not in that location. So from that point of view, that sort of activity in terms of M&A is attractive. We have had, in the first half, a number of things we've looked at, specifically in North America, which have fitted that mold and I believe have had the potential to give us increased market share. But frankly, the expectations of pricing have been too high. And what I don't want to do and what we will not do is get stucked into something which a form point of view looks good, but in terms of substance, buying at the top of the market, you have to be very careful. Which brings us on to North America and the economics. I mean the last 48 hours has been fairly volatile to put it fits that. I don't think what's going to happen. We've got our full order book. We've got momentum going to the second half. I think our result for 2024, I'm pretty confident about. We might see a few projects slip into 2025, but there's enough for us to be getting at the 2024, I feel pretty comfortable about. I'd also say that at the moment, the level of tendering, the level of activity at the front end of the business is also pretty, pretty robust, it's reasonably good. Now clearly, as we go through the autumn, we'll have to take stock as to whether the last 2 days have been a bit of a blip or there's something more substantive there. And as we do, we will evaluate what that means in '25 and beyond. I would say, though, it does highlight the strength of the business though because our geographical diversity, at the moment, North America is doing well. Europe has been doing not so well. There'll be ebbs and close there because as I said earlier on, there's more that we can extract out of our European business, which plays to our strength in terms of our diversity.

Rob Chantry, Berenberg. Thanks for the presentation. Three questions, all on North America. I suppose, firstly, could you just give a sense of what is super normal pricing at the moment given the point to the market? So putting it in the context of historical price increases, how big a delta have you seen that reflects that buoyancy? Secondly, in terms of market share, in North America, are you gaining now it's by local market? Or is it a riding type lifting all boats? Have you got any anecdotal numerical evidence on that? And then thirdly, just in terms of U.S. industry structure, I think you're probably 10%, 12% market share in North America overall. I mean how much consolidation do you see among the long-tailed businesses? Are there other active consolidators that you see more and more? Or is the relative structure quite consistent?

I can do the first one. I think the super normal pricing, it's very difficult to actually pinpoint just how much of the margin improvement is down to the fact that it -- we can robustly price because in those particular regions, the client is more interested in schedule and timing rather than the cost or whether we are just driving better performance in terms of we're not allowing bad bids to come in. And we have tried to look at that. But I think it ends up being a bit of a thumb suck. But without a doubt, there is an element in there where we are seeing some margins if you go in the fullness of time, either the competitors are catch up with us or the clients will turn in terms of cost. So we do expect that to actually start to come off in the second half of this year. It was very hard to actually put a hard number on it in terms of how many margin points it actually makes a difference to it.

That's tremendously difficult from the point of view of no two projects are exactly the same. So you can actually say cost of a widget versus cost of the widget because it's just completely different. In terms of market share, this is, I think, tremendously variable depending on where you are in North America. In certain parts of North America, we do already have significant market share, and that's been earned over the years. And that's simply because we've performed well. Clients have appreciated that when there's been an encore, they turned to us in preference to anywhere else. And that could be logistics. It could be servicing. It could be because it's technically difficult. Good for instance, for that, for instance, is we've just done the deepest ever CFA pile in Miami. Now if you've got particularly deep excavations and that's the technique that you want to use, then given that you're on the seafront you're going to look for people who have done it before. That means that there's only two of us can do it, and we happen to be the best at it. So if that's important to you, that's what they will do. These are the circumstances where that's less relevant. So it all depends on where you're at. I think the more interesting thing is that from my perspective is that -- and this comes back to the execution of the strategy, more and more our business unit leaders are realizing, hang on a minute, I've got X percent. That means somebody else has got 100 less X. How much of that do I want? And there are some big markets out there, which, frankly, we should have a bigger share of. And that, to me, is really interesting because the fact that management are beginning to think that way. And don't get me wrong. We're not buying it for the sake of just volume. They've got to be quality, and they get that too. But increasingly, that's what we're going to be getting after. In terms of industry and consolidation, North America, most of our competition like us, are doing reasonably well. And that's because the market as a whole is doing reasonably well. And because of that, there's very few people who are in distress and there's no big impetus to consolidate in that regard. I think in contrast, Europe, I think there might be an increasing emphasis in consolidation. Some of our competition are in stress and distressed. And I've said before, the U.K. market is ripe for consolidation and frankly, several of the other European markets. So I think it's where the market is actually under compression where you'll see more of that. But we'll wait and see.

Joe Brent from Panmure Liberum. Three questions, if I may. Firstly, on the U.S. margin, what do you think now is a sustainable level, maybe a range if you have one? Secondly, can you give us some indication of what do you think the performance in Europe will do '24 versus '23 from an EBIT point of view? And thirdly, can you give us some sort of comfort on the range of outcomes on Trojena and kind of what the second half might look like at Trojena?

You can deal with the first one.

Yes.

We're not going to answer the second one. And I'll answer the third one.

So in terms of sustainable margins, I think we still are not stepping away, I think, from what we've shared in the past in terms of the sustainable margins on North America. And we would hope actually that from taking out all the short-term timing and the abnormal margins we're getting that we would be able to secure a margin between 7% and 8% through the cycle in respect of North America.

Okay. In terms of Trojena, Trojena is quite an interesting one. I mean it's -- in some respects, it's a classic contract for us. We've given a particular characteristic of work to quotas, which we did started work, and the workplace which we turned up to and the conditions in the environment which we turned up to weren't exactly as we described in the books to begin with. But like most of these contracts, vast majority and they have a [ Nike ] clause in there that basically says you will take reasonable instruction from the clients and carry on and carry on working as much as best as you possibly can, which is what we have done. And program time for them is very important. So from that point of view, the endeavor to actually keep works going has been important. I'd expect, as David said, the geotechnical circumstance, which we turned up to has been different. So we've been working with them on a different solution, which has different elements of contribution from us and indeed other subcontractors and being that we are prudent in our accounting, anything which is extra contractual even if we've completed the works, unless the client is fully signed off a VO, we have not taken any revenue from it. Hence, the fact that it's the job to date, there's a loss. Now I have no doubt that we will get some of those VOs claimed and certified, probably not all of them. The client is in a world of pioneer as well. But nonetheless, we will make progress. And indeed, the last few days, we have our PM there has been working with their PM from Bechtel to rescope and reschedule the works in such a way that it is deliverable in a way which is technically appropriate. And as reconfigured our works, we're effectively in the process of renegotiating what we're doing, which is important from our point of view, I don't think, I don't think we'll get any worse than it is right now. In fact, there should be potentially upside if we do it well.

So is it reasonable to assume sort of breakeven in the second half from Trojena?

Yes, yes. On engagement accounting perspective, it wasn't, we would have had to take a bigger loss provision.

Is there any other questions?

Excellent. Well, thank you very much for making it today. I know today is a very, very busy results day. And I know that several of you got to run off to other people's results. It's been a real pleasure to host you. And thank you very much indeed.