Kier Group plc (10I.F) Earnings Call Transcript & Summary

All right. Good morning to everyone who has joined the Kier call today, you are in the right place, and we'll give it just a moment for everyone to join and then we'll look to get underway. Right. Well, I think everyone has now come through from the waiting room, so we'll get underway. So good morning, and welcome to the Kier Group call today following the half year results released on Tuesday last week. My name is Robert Irvin, and I'll be hosting the call. And with me from Kier are Andrew Davies, CEO; Simon Kesterton, CFO; and Rory Elliott, Director of Corporate Development; Stuart Togwell, who's the CEO Designate is on his way, he's having technical moment, but he will be joining us shortly. Before handing over to the team, some housekeeping points: There will be a brief overview first, and then we'll be taking questions after that. [Operator Instructions] You should all have the link to the presentation on the reminders. If you don't, please shout out, and we'll send it across, but it is on screen as well. I'd like to hand over to Andrew. The floor is yours.

Okay. Robert, thank you. Good morning, everyone. So Adam, if I could perhaps just start. We'll start with Slide 11, if you have the deck, we put on the screen, just to give you an overview of where we are with the government sort of policy on infrastructure and where we see the market and our access to that market. So this slide has a couple of data points you may find useful. Firstly, the government has committed to GBP 725 billion infrastructure reinvestment program in the U.K., and it's issued a pipeline against that. Now that pipeline won't be definitive, it will always change, it may get delayed. It's unlikely to be canceled in any material extent, but there will be changes to it. And indeed, you may have seen yesterday on the Northern Powerhouse, there's been a slight delay in publication of that by way of an example. And that's to be expected. But across the broad range of activities in government, we think this is a very positive activity because it's given real visibility so we can start to allocate resources as appropriate to that pipeline. More tellingly, they've also issued a 3-year spending commitment that underpins it. So the first 3 years is funded within that pipeline. But again, it's subject to those sort of potential delays, as I said, or recrafting of it, but that's good news in the spending review that the Chancellor did allocate that pipeline. And it will all be delivered under the auspices of NISTA as well, which has now been brought in as part of Treasury, who was originally part of Darren Jones' role as Chief Secretary. He's obviously moved on, but he remains a treasury function that overseas next the sort of gatekeeper for infrastructure investing in treasury. So the access to that funding is via frameworks. And as you see in the middle of this slide, there's GBP 156 billion addressable market, which we have access to. And that's the advertised framework positions, we've won positions on. And they cover a whole range of activities, you can see from health education, housing, water, roads. Not all of it obviously is government funded. The rail sectors, some of the nuclear sectors in the civil sector are all privately funded money as well. So we've got a good range and breadth of framework accessibility to that pipeline, that GBP 725 billion pipeline. And the important point is, as I said, you do get ebbs and flows and delays in certain sectors and that will be compensated in other sectors. Hence, the position Kier has and the scale of Kier and the range of accessibility to markets via these frameworks gives us quite a buffer against any potential changes that may happen, and that's proven to be the case as perhaps we can touch on a little bit later in terms of our ability to meet our targets on a consistent basis over the last 4 years. That pipeline then in the frameworks that drives the order book. The order book is made up of contracted income, mostly of those frameworks and also our probable income. So we define or Simon defines probable income as that income, where we're potentially going to win a contract because we're in a 2-stage negotiation with a client on a funded program on an exclusive basis. So almost certainly, it does go through and does become contracted income. So it's quite a conservative figure that our order book. What we don't do is include factored framework positions. Some of our competitors do, we don't. So by way of example, on water, we've won positions on 17 frameworks, which we can touch on later, I think worth GBP 15 billion. We will only include the first year, 1.5 years, depending on the visibility of those opportunities within that order book, notwithstanding that we believe in AMP8, the water companies are accelerating their expenditure and that expenditure indeed will almost certainly go through to AMP9 as well. So it's quite a conservative position. We don't extrapolate forward any of the framework positions which we have. We just include contracted and as I said, probable income. So we just, Adam, go on a slide, what does that give us in terms of coverage? This is the important factor. So we have 91% of coverage in FY '26 and we have 70% in FY '27. That's a very comfortable position, confident position, which we find ourselves in, and certainly for this financial year, I'll be very strong. So you do expect normal growth out of existing framework positions and other opportunities. And as you see in the 2 graphs at the bottom, our order book obviously secured out for 2 years, but underpinned for 5 years, really gives us a lot of confidence that we will have a good quality order book for 5 years, indeed, a very strong visibility of the pipeline up to 10 years as well. And that's what you'd expect to see in an infrastructure multiyear contracting company as well in a strong position which we're in. So the market, I think, despite a lot of the sort of varying news you get out of government, et cetera, we think the market is very strong. I think the key point, as we say, is a point in our strategy. We do infrastructure that's vital to the U.K. So it's not discretionary or optional. So take defense. U.K. has a posture of deterrence, that deterrence is provided by the nuclear submarine program, that program requires a seismic dock, we're building those docks or converting those docks in Devonport by way of example. So it's nonnegotiable. We believe housing, a lot of the housing, a lot of schools, a lot of the social infrastructure around sort of prisons and hospitals is also nonnegotiable. Indeed, much of that is already contracted. So as a matter of strategy, we have focused very much in areas which we think are vital. And then in the private sector, clearly, the water industry because of the environmental issues, public sentiment as well as an aging infrastructure and the need to sort of recapitalize and maintain it. We believe that's a very strong pipeline for us as well. So if we go back to Slide 4, I think, please, Adam, and therefore, just take you through why we believe we can convert that very strong market position into good revenue, profit and most importantly, cash. This is the FY '25 highlights. So we did, as I said, have a record order book of GBP 11 billion, giving great visibility in FY '26 and beyond. Good revenue growth, 3%. Profit levels ahead of the initial expectations. And indeed, we're beginning the year trading slightly ahead of the Board's expectations as well, which is positive. Now we've driven free cash flow out of our business last year of GBP 155 million, and that's allowed us to continue our strategy of deleveraging of the company, but also the balance sheet strength, which we now have from that cash conversion really is allowing us to have a disciplined capital allocations policy and that means increased shareholder returns. So we've increased our proposed final dividend to 5.2p giving a total of 7.2p for the year. That's a 38% increase, but more tellingly, what it is, is we now achieved our 3x cover target, which we said we were aiming to get to. We've done GBP 10 million out of the GBP 20 million share buyback. We deployed beginning in January this year, and we've increased the property in -- sorry, the investment in property shade under GBP 200 million, which fundamentally recapitalize that business and puts the liquidity into it, which allows us to really sort of take advantage of the synergies it has with the rest of our business and also providing a pool of capital should we need it at a point in time. And we're on track to deliver our 15% ROCE target by FY '28, maybe at the back end of FY '27 on a run rate basis. So we're pretty pleased with where property is at the moment. And as Robert said, I will be stepping down on the 31st of October. I feel I've done my bit in Kier. I've had a fantastic time, and I have an outstanding team below me. And so Stuart will be taking over as CEO on the 1st of November. And obviously, Simon will continue as well. So I think at that point, Robert, perhaps I'll open it up for questions.

Thank you, Andrew. I think we also now have Stuart on the line as well. So hopefully, you can hear us. Can we hear you, Stuart?

Good morning, everyone. And just picking up from what Andrew said, I'm incredibly proud to be taken on the role and really looking forward to being the next steward of this brilliant company. In terms of saying about me, I've been in the industry now for over 39 years. The last 6, I've really enjoyed myself, I've been working closely with Andrew and Simon, in particular, ensuring that we brought in the risk management and discipline that has helped to transform the business and rest assured that we're not going to stop continue doing that stuff because it's really important that we have that control over the sectors that we work in, and we sign up to the contracts on the right terms and conditions. The last 2 years, I've been the GMD of the Construction business and also being sat on the board with Andrew and Simon. So in terms of moving forward, very excited about the opportunity that Andrew has laid out in front of you this morning from the -- whether it's the GBP 725 billion opportunity in front of us, the fact that GBP 500 billion of that has been -- is now identified on the construction infrastructure pipeline and the positions that we have which are in all the right sectors and all the frameworks and very positive and confident alongside Andrew and Simon, about the future for Kier. And very happy to take and help take any questions from anyone now.

Thanks, Stuart. As mentioned, we'll now open for Q&A and repeat my earlier instructions on how to ask a question [Operator Instructions] And perhaps if we open with the first one, which is: the government is under pressure financially, what are the risks to the spending envelope that you're engaging with?

Well, it is under pressure. But I think as I said earlier, the strategy we've had really for 6 years now, have been very much about dealing with infrastructure that is vital to the U.K. in many ways, that's politically vital, socially vital or operationally vital. So the prison programs has been fully funded pretty much. We're well through that. Stuart perhaps can touch that a little later. As I said in defense, there has been an increased commitment to defense because of the transatlantic relationship position. What has traditionally happened in defense is the equipment program sometimes has been funded at the expense of the estates program. The equipment program now is going to benefit from that increased funding, which means the estates program will be protected. And indeed, much of the estates program was deemed in defense as sort of nonnegotiables and witnessed the issue on the deterrent and the need to build the docks at Devonport and all the facilities of Faslane to support the new boats coming into operation as well as then the single living accommodation programs which I think, again, defensive is to meet its recruiting targets is deemed again essential to do in which we've got major positions in the southern part of England and also at RAF Cranwell. So I think then you move into the private sector, I mean, that is going to be ring-fenced by the water companies. in AMP8 and probably through to AMP9. And again, in Civil Defense, it's EDF, clearly are being regulated and invested in by the government, but that again is a settled position. So what you will see is occasionally, you will see deferrals, you'll see sort of elongations of programs in which we're seeing probably in Northern Powerhouse. But again, the prudent nature of which Simon has always sort of driven the forecasting is the group is we don't assume that we're going to get all of these contracts on the time which they initially advertise them. And the portfolio effect of the group means that certain areas may be deferred or disinvested in other areas won't be. And overall, whilst we do take contingencies at the center at a group level, it generally covers off any such delays. So I think the combination of our strategy, our performance, our outstanding order book and visibility in the frameworks and then the prudent levels of assumptions we put into those orders and their translation into revenue means that we think we've got a very secure plan. The final point I'd just say on HS2 is obviously has been topical. Again, the spending review has funded the main civils contractors through to completion. And we've been allocated because we're in the key area in the center of the trace, which on the critical path to getting rail systems in place and also, therefore, testing commissioning in place, which is politically important. So we've been fully funded, and we'll take that through to the next sort of couple of years. And whilst that will come off in probably 3 years' time, the speed with which water is down mobilizing in particular, but also other transportation activities as a result of RIS3 and CP7 that being published, we're very confident in our growth trajectory of the group because of those, again, portfolio factors.

Super. And then there's another question on the order book. But perhaps if I could ask you first, because you talk to frameworks. So there's different levels of knowledge on the call. Could you expand on frameworks, please, what they are, how important they are and then also if they're funded as well?

I'm just looking -- I think we've lost Stuart again, unfortunately. I don't know if you are on, Stuart. I think we lost Stuart. So frameworks, they do differ. We're on -- I would say we're on all material frameworks we need to be on with very few exceptions. You can have national frameworks. So for the Department of Education, the education funding agency as was they will issue national frameworks. Ministry of Justice has issued national frameworks on alliance basis for the large prisons, for the medium block and small blocks, et cetera. There's many different varieties of frameworks you can have. And generally, there are sort of 4, 5, maybe 6 years; 4, 5, 6, maybe even 10 contractors, it sort of depends on the framework issuer. But the essence of a framework is you pretty agree certain aspects of it before getting into then mini competitions and contracts. So much of the framework activity translates into these 2-stage negotiations I mentioned earlier. And once they down select you for that 2-stage negotiation, as I said, you will get into contract. But the point is, if you're not in the framework, you're not in it, you won't win it. It's as simple as that. So again, on the frameworks, you have to then usually book pre-auth that sort of rate -- run rate, rate decks and pricing and assumes a prelims, they're all negotiated through the 2-stage negotiation. But you also have an emphasis now in government on procurement notices relating to the sort of qualitative aspects. So it's not a question of anyone just being able to rock up on the framework and say, well, I'd like to be on your framework. They've got to demonstrate their payment profile to SMEs, they've got to demonstrate their carbon reduction credentials, they've got to demonstrate their capabilities in the area, they've got to demonstrate their community engagement and social engagement, they've got to be able to demonstrate how much training they do in the organization, et cetera, all the things which Kier for many, many years has been extremely strong at, and which we just continued or accelerated. So those are qualitative factors, which are just as important as quantitative factors. And indeed, some frameworks, the entry point is not the lowest cost wins. It's actually a median point and the highest and the lowest tend to get eliminated. So they're very much designed to get the best quality contractor, which means the way we look at it, it's a good chilling bar, it's a high chilling bar, and we're very happy with that. And if government wants to continue to increase these qualitative aspects, that's okay with us because we believe a contractor of Kier's quality is best able to support government in these types of activities. So frameworks are -- yes, and then the funded framework is a methodology for delivering a funded program, that's what it is, as simple as that.

So Andrew, I'm back again, I'm enjoying your explanation. If you go for the department frameworks, they're funded because they're back in terms of their 1-year or 3-year commitment. You have other frameworks which provide a route for public bodies to procure contractors through. They tend to be non-funded, but quite often, again, will restrict the competition and it goes through the same route in terms of pre-agreed, overhead and profit and allow quality of selection process. And they tend to be regional type framework. So local authorities who may not have procurement expertise, can use the outsourced to these framework providers to provide work? And we have a mix of those. And our success rate on getting frameworks in particular, the construction business is around 98%. So we do see them as a lifeblood in providing that access to the addressable market that Andrew spoke about earlier.

Great. And there are a couple of other questions in this area, which is: Firstly, the GBP 11 billion order book is about 7% of the GBP 156 billion addressable market. How high could that wallet share go? What are the constraints, whether internal or customer (government)? And what's your desire to diversify partners?

Yes, a nice step. So 7% in terms of the market is a good position to be had. That's my first point, I'd say, it's an enviable position. Others might be around about 3% of the addressable market. It varies because you often find you get ebbs and flows in the particular sectors. So there'll be some sectors that we'll be running at the moment where we'll be over 10% of the addressable market. MOJ was one of them. But as you come to the end of the spend of the capital program, particularly in the MOJ in terms of the new prisons sales they've been producing, you then look in terms of where is the other sector that we need to go into. And that's one of the strengths that Kier has that we have referred to pivoting our human capital from markets that we can see that are coming to the end of the capital spend into areas that we see that are picking up. So we've got 2 great examples recently. We foresaw that the highways were going to be a little bit sticky for a period of time as government just came back in and looked at the risk-free in terms of making sure they were satisfied in terms of the new risk-free coming out, which it now has. But during that period, we moved our human capital over to the water sector because we were encouraged to go into the regulated body. They wanted Tier 1 contractors to bring capability of running large capital programs rather than more usual sort of maintenance programs. And we moved over to that with a high level of success, as I'm sure we'll touch on later. The other one in terms of the MOJ, we saw that the approach to framework alliance working and rolling out things at scale across the country was a really good fit in terms of where the defense sector in terms of DIO were going. So we pivoted very quickly into that sector to get ourselves into their frameworks in terms of [indiscernible] and the single living accommodation, and we see that as an ability to replace the MOJ work. So 7% is a good area of coverage that we've got, and then we then look to make sure that we harvest the sectors that we're in as hard as possible to have individual growth within those sectors, whilst others may be turned off during the period of government.

Great. And the next question is around revenue growth, which is considering the size of the addressable market. Are you disappointed with the level of year-on-year growth? And perhaps another question goes on to talk about is 3% to 4%, what we should expect in the future, but perhaps if you can talk about the medium-term plan as well, that would be helpful?

Yes. I mean we also talk about the fact that don't overtrade. So it is quite easy to win work in this market. You just go in incredibly cheap. But history tells you in terms of those sort of contractors and competitors that have done that. ISG was probably the more recent one there. There are some real challenges that if you look for growth too quickly because you can't just back it up with the skills and capability and the span of controls that you need. So we are careful that we look to go into the sectors and then maximize our revenue through those chosen sectors that we have. Yes, we can see if the government meets its pledges in terms of spend coming through, we can see opportunity for us. And we certainly have got a mindset that we will be growing, not retracting in terms of where it is, and we're careful about areas where we don't believe the works that come through meet our approach to risk taking. So at the moment, we're very careful around data centers because they're quite risky work, although there's a lot of spend that's coming through it. And we're also very careful around high-end residential, so in terms of the issues at the moment around planning, delays and also the Building Safety Act Gateway 2, which is really stagnating that marketplace. And we've held back from that until that's all been resolved because we need revenue from our people, which means we need projects to go rather than people sitting in their offices, doing pre-contraction work.

I think I'd just draw your attention to Slide 5 in terms of what Stuart has said and how Simon has sort of prudently managed everything here. If you just go to Slide 5, it's a track record. It's an important slide. There's a track record of consistent delivery. So you'll see, actually, over the last 5 years, we've had 5% compound annual growth rate, and some of that has been recovery. There's been recovery in markets, as Stuart said, where we will make money as opposed to previously when we were on the 4 sort of -- here was GBP 4 billion. It was in probably GBP 1 billion of market that, lost considerable amounts of money. We've exited all those as part of the turnaround of the group. But more telling if you look at all the other sort of statistics as to how we've managed this company. We have avoided the temptation to run after contracts. We've gone after quality on frameworks in our chosen markets with our chosen clients via frameworks with the high chinning bar. So you see adjusting operating profits increasing 12%, earnings per share 20%; free cash flow, 14% on average, and that's produced a monthly average month end net debt from GBP 582 million back in '21 down to frankly, nothing given where we're trading at the moment. And we've invested, obviously, in shareholder returns quite rightly and in our property business as well. So we've got this business through cautious growth in sectors where we know we can make money and bring relevant skills and translated that into profit and most importantly, cash, which then returning benefits to the shareholders. So we're not going to chase market share, that's fool's paradise, that just will not happen. And there are sectors where we have relevant skills, but where we don't foresee at the moment an opportunity to get into sort of the top 3 position in those markets. And so we're not going to play in those unless we feel we can get to those sort of positions because you're a follower otherwise.

Great. And then probably the last question in this area, which is do you have a feel for in the order book what percentage is nongovernment funded and which -- and how much is directly government related?

So what is it -- is 70%, is it same, Simon, government or is the...

Yes. I mean usually, we're roughly about 70% government, 15% regulated. Obviously, that's 85%, and then the rest is private.

Yes. And that private then will include, don't forget, things like Sizewell and Hinkley in the civil nuclear side. Our private exposure to the development market is really just through our London construction business and certain elements of the other construction business, but that's tightly controlled by Stuart. We have a very clear strategy that will only pursue blue-chip operators with long-term pipeline aspirations and through 2-stage negotiations.

Great. And the next question is on HS2, but perhaps I round it out a little bit, and you touched on it earlier. Can you just remind us of where you sit on HS2, the runway on that project? And then also whether where you're exposed on the southern end towards Houston?

Well, not is the answer towards Eastern. We have no exposure down there. That's SCS, which is a consortium of Skanska, Costain and STRABAG. So we have no exposure down there at all. We built north of -- or south of Southern, which is a strange way of saying it, and North of -- help me here guys, what's against you? No. Where does the tunnel come out on the North portal. Where's Mark [indiscernible] -- he's on the call, he'll tell you. So look, we've got 32 kilometers roughly of this. It is, as I said, it transcends east-west line at Calvert. That's where they'll start to build out the rail systems. That's where they'll start to do the test regime once rail systems and people have sort of delivered that. And the funding, as I said, has been cleared through for the main work civils contracts now. So we anticipate and indeed, we're enjoying a run rate, which supports the program through the next 2, probably 3 years' time before we complete that. We don't see that changing. I think there will be a renegotiation with government. They've talked about reset. We've willingly offered to sit down and talk to them about how we can get a degree more certainty in their program, take some cost out, do things cheaper and better. That's absolutely normal. That's what we do. And we've offered that to the previous government. We offer that to the existing government. And I suspect we will get into a discussion over the next sort of 12 months or so as to how we can do that. And that's nothing to be afraid of because they've been very clear with us that if there is a degree more certainty and fixation of costs in the program, there will be an increase in incentives to deliver that. That's in everyone's interest. So on HS2, we're feeling okay.

This old oak comment, Andrew.

Yes. We don't start there, though, Stuart. We start well north -- it's the North portal. I just can't remember the name.

Moving on to nuclear. Can you talk about your involvement in the nuclear space overall? And then also any involvement in Sizewell C?

So 2 sides to nuclear. One is defense, one is civil, starting with the defense stuff I said, we are -- our infrastructure and Natural Resources business is down in Devonport in JV with BAM. We're building out the nuclear dock for the next generation of submarines. That program is going well. Down there, it's probably got another 3 or 4 years to go, and then there'll be further work surrounding that as well. We also are an ECI contract with AWE, building a new facility for the next generation of weapon system to go on that submarine. On the quasi nuclear side, we've been very successful in Sellafield, building out a medium-term storage facility. All of those are strong nuclear credentials. They're all involving nuclear capable build techniques and strategies. So it really is there if you want to participate in those programs, you're going to have suitably qualified experienced people on those types of programs. On the civil nuclear program, which is Hinkley and Sizewell, Hinkley, we've been in partnership with BAM. Sizewell, they want us to join in our own capacity. We're bidding on Sizewell, and we've delivered probably over GBP 1 billion worth of work on Hinkley. So again, we're not involved in the nuclear island. That's led by the French EDF design and then Bouygues build. That's entirely to be expected. That's the same consortium that builds these facilities in France, but we're heavily involved in all the ancillary infrastructure, which runs into many, many tens of billions of pounds. So we're starting out Sizewell, and we're well through on Hinkley.

I think the other bit to add, Andrew, on nuclear is it slow?

Yes.

But what we are seeing is anything that's linked in terms of defense nuclear will go ahead of it. And that's what we're seeing in terms of Devonport in terms of Clyde, AWE.

Yes. The deterrent program is protected.

Super. And then perhaps if we move on to water. Can you talk about the outlook in water? Where your exposures are across the -- across different AMP cycles?

Yes. If you just go to -- there's a slide, let's take a quick look, Slide #21, that's the one. Just someone has very kindly said it's great missing to Southern. That's our HS2 track. Thank you, Andrew [indiscernible]. So if you look at Slide 21, this is our water exposures. We've obviously bid as part of the AMP8 rebid like everyone else did. We had preexisting relationships with Anglian, in particular in Southwest Water, where we did a lot of integrated maintenance with them. To a degree, we're indivisible from their teams in an alliance structure and their long-standing relationships. But the AMP8 is really recapitalizing the infrastructure as well. And so we've been heavily engaged by the water companies in their frameworks for new CapEx. So the new clients we've got and on positions with United Utilities, Wessex Water and Southern Water. Now we've won, as you say, one positions of sort of circa GBP 15 billion in total on 17 frameworks in varying capacities. But we've also reenergized frameworks with Severn Trent in particular, where a couple of years ago, we were doing sort of single-digit millions of pounds worth of work and now we're probably moving to an excess of GBP 100 million, including the recently announced Wanlip recapitalization in Leicester GBP 140 million project. So it gives you an indication of what the water companies are now committed to. Thames obviously have their own particular issues. But again, our relationship with Thames is quite intense. It goes all up to CEO level. I regularly talk to Chris Weston. Stuart will take on that relationship. Simon is getting engaged with their financial people to make sure that we have appropriate terms given their circumstances at the moment, but they have probably the biggest program of all of these water companies. So what they've been doing is they've been moving towards Tier 1 contractors and Kier has positioned itself very carefully to be at the front of that team very successfully as well. So we anticipate, given that the AMP8 revenues are double AMP7, there's no reason our revenues in water won't double commensurate with that. And we also anticipate that AMP8 will go into AMP9. These are long-term programs. They're talking about multiyear programs. So we think it will be maintained protection. This is a 10-year recapitalization program. So we had a very strong position in water, and we're mobilizing well.

Super. You touched on Thames but there is a very specific question around does exposure to Thames create a risk for the group and how are you managing that?

I mean, Simon you can add to this, but you have a risk when you talk to everybody, and we always carry some WIP. In any contract, you will, you can't get paid on an early basis in that sort of sense. So you agree, but the management of it is very tightly controlled. I don't know if you want to add anything, Simon to that.

Yes. I think, Andrew, you're right -- and we're typically depending on what part of the month during it's GBP 3 million to GBP 5 million. So it really is in a box, and we've been clear, I think, to Thames that we're happy to grow alongside them, but we're not happy to grow that exposure until they've sorted out their balance sheet issues and they understand that.

And the other point is that in terms of any decisions about new work comes to the 3 of us to sign off. So we've got tight control over the business as well.

That's very clear. And then perhaps this is a good place to put there's a question on labor here and obviously a lot of growth coming through water. So operationally, how much of a challenge is it to find appropriately experienced labor?

So I think Kier has always been a very strong culture of training people that predates my own tenure here, and I hope it post-dates as well. So we've got circa 600 people in apprenticeships at any point in time. I mean I personally sponsored the senior leader courses as well in the group where we train up our next generation of senior leaders and potentially even ExCo members as well. And we've got over 10% people in sort of earn-as-you-learn schemes. This is just fantastic, and we're generally regarded the benchmark is 5%. So we are a platinum standard in these things. We really are. So self-help on resourcing begins at home. That's our attitude to it. And we take full benefit then of the apprentice levies, CITB levies, et cetera. We make sure we maximize our returns, and those levies we're required to pay. So I think pretty exemplary, and again, I'm not going to particularly claim credit for this, but I'll claim credit for continuing it. But I think Kier has always had that reputation as a good employer of people. We also look after our people well and the culture surveys, which we do given 80% positive engagement in our engagement indexes, that's a fantastic performance right the way across the group. We look after our supply chain very well. They obviously rock up 25,000 people circa a day. And they come to us for a variety of reasons, one of which is our attitude to their welfare, their safety, their health and their welfare conditions on sites, et cetera, et cetera. So all these things add up to enabling us to mobilize contracts pretty effectively. And also our geographic disposition means that we're not focused in 1 single area or the maybe shortages. The fact that we have national coverage, in particular in construction, means that whilst we may have national frameworks, we operate locally. So we think nationally, where we operate locally. And that means that if you've got a strong pipeline, you advertise that strong pipeline and you do all the things I said you do, you pay supply chain, you train your people, you look after you, it means you get good access to the premier labor markets in any particular area. So we're not immune from any resource constraints, but I say I would argue that we manage it as well as anybody and indeed, it's always there as a risk, but I would not -- sometimes you listen to other industry parties and we don't experience it. We just don't.

No. I'll just add 2 other points. One, the ability for us to pivot our human capital across the sectors. And finally, we don't overtrade. So we are very confident we have the skills and capability and the relationships, as Andrew set out, to deliver the GBP 11 billion order book. And that's another reason why we don't just win any work at any cost because we're very constant in terms of we need to make sure that we've got the backup skills and the capability to do it. The other bit that we have that we haven't really touched on yet is our in-house design capability. So that we've got 700 designers. Andrew, I don't know if you picked up the point that we have now sort of 23rd largest consultant in the country in terms of design house. That allows us to derisk these projects so that we can be very efficient with the use of resources on the job, which definitely helps us.

Great. And then we've got a few questions here on property, but perhaps if we start with a wider one. Can you talk about the approach to property, please? How does it fit in the group? What are the aspirations and how long will it take to get there?

Simon, do you want to take that one?

Yes, absolutely. So property are very synergistic with the group. So I'll just explain the business model a little bit. And there's some really good documentation from our Capital Markets Day that we did a few months ago, so people want to go through that, that's got some real life examples in it. So property, we focused on 3 sectors: we look at mixed-use urban regeneration that we do in partnerships with our existing customers and existing clients and our other businesses. We look at last mile logistics, and we look at environmental offices. So the 3 sectors that we focus on, so we don't bundle risks. It's not a traditional property development model. So we typically only deploy small amounts of capital per project in order to keep the portfolio very liquid. So you shouldn't think about large, lumpy investments. You should think a bit on average between GBP 4 million, GBP 6 million investments in between 30 or 50 projects ready to running at any one moment in time. The model is -- it's a 3-year model really. We don't hold assets. So we will get control of the land, and I'll explain a little bit more about that in a minute. We will then change of use, get planning permission, build out, find tenants and then sell the property, and that's typically where we take the revenue and the profit of the project. In terms of gaining access to land, this is where the synergistic model comes in. So we -- commercially, we're working in joint venture predominantly with the customers in other businesses. So local authorities that want to redevelop a town center as an example, the department for transport network rail, where they want to free up space and regenerate a train station will be a good example, and they want to fund that and they can fund that by using the land we build a car park. We put some residential properties on it, so they get a benefit like that. So they will put the land in, and we don't pay for the land until the project makes a certain return. So it's a very capital-light model. And of course, they look that. So great commercial synergies. Operational synergies are clear there. If you're redeveloping a town center, redeveloping a train station, we obviously -- a road might be part of that project, a building might be part of that project. We're working on the rail. So of course, we can bring our design, our operational capabilities to either self-deliver or keep a delivery partner honest. And then finally, there's a financial synergy. So our contracting businesses typically will get paid in 15 days by the customer and we'll pay our supply chain in just over 30 days. So we get as we grow a working capital inflow. And on a project-by-project basis, that working capital inflow is going to flow out again at the end of the project, cash and profit equal the same number. But if you continually grow, you obviously continue to get this working capital inflow, which you have seen from our cash flow statement. So we can take that capital, which is effectively free capital. We deploy it into our property business, [indiscernible] that enhance returns. And then if you should shrink at any moment in time, you can extract some of that capital and use it to satisfy any working capital outflow. In terms of numbers, which I think is also part of the question, we've just come through a period where we were capital constrained. So that took the capital employed in the business down to GBP 122 million. And that meant for 5 years, as we'd effectively sold 8 projects and acquired just 2 on average per year. So the portfolio was too small. So it wasn't liquid enough to generate 15% return every single year on a consistent basis. So we said we've got to recapitalize this business. We need GBP 170 million to have enough projects to consistently deliver 15% return on capital employed. And we want to allocate another GBP 55 million, so going up to GBP 225 million. So we can extract some capital should we ever shrink in any one period going forward. We're currently at GBP 198 million capital employed. So we've done most of the work from getting from that low point of GBP 122 million to GBP 198 million is behind us. You saw last year, we made GBP 12 million operating profit. So clearly, that's not 15% return on capital of GBP 200 million. So over the next couple of years, this is going to be a great driver to profit growth, and we anticipate exiting FY '27 at that 15% return on capital employed. So we'll see that coming through in 2028.

The other point for the future, Simon, is that we have previous experience of PFI funding and contractual experience that sits in that property division. So at some point, I can see that the government is going to have to come up with a solution in terms of how it's going to fund its aspirations. So we're particularly well set that we have that capability in-house. We do have access to either own funding or external funding we can bring in. And of course, we then have the ability to build and maintain anything that could come through that opportunity. So it gives us another potential revenue stream in the future.

Great. And then there's 3 questions around different sites, perhaps or different aspects of the business. And the first one is, could you talk about the development JV to intensify the uses around railway stations, please?

Go Simon.

Okay. Yes. I mean yes, fantastic JV with Network Rail is called Solum. And yes, so a good example would be Twickenham Railway Station, where effectively we've built a multistory car park. And so you don't need so much parking. We've done a tender in residential and those residential apartments have effectively paid for a brand-new station. And that's a typical model. I think Network Rail and of course, that Department of Transport would want to follow. They've got lots and lots of land that's there. And of course, there's targets in terms of house building as well. Stuart, did you want to add something?

I'd say in terms of Solum's delivered over 1,200 units to date, and Network Rail is setting up an in-house development company called Platform 4 which is an aspiration to build out 40,000 new homes over the next 10 years. So as Simon said, quite often, these are complicated sites with adjacencies, and that's where our civil engineering capability really helps them to unlock the value of these areas around either stations or just adjacent to tracks.

Great. And then the next question is, can you talk about the Watford scheme a little bit, please?

Yes. So Watford is a great scheme. Again, this is in our Capital Markets Day, actually it was nice to be able to detail that project in. This is a huge area of redeveloping part of sort of Watford Town Center. It's an old people's home, a car park, a road as part of it, potentially some work on the hospital and a lot of residential units as well. Now that's that, and it was in total over GBP 500 million gross development value. Now you would think there's a huge amount of capital that you have to put into that. But if you actually look at how we do it and we build it out in stages, with the maximum capital we ever deployed into that was GBP 12.5 million. On average, it was GBP 6 million and the IRR we've made so far across that project is 25%.

Yes. And just the other bit on that, Simon, is that because we're not just a housebuilder when we have schemes like the JV we have with Watford, we can help them also if they need care home, hospitals, commercial units, industrial units. So we can give them the full spectrum of assets they're looking for, which is why quite often they prefer working with us rather than the traditional housebuilder.

Yes. And the other thing, I mean, it's a great example, Stuart, as well there. Jarvis Homes actually went bankrupt in the middle of us building out the residential properties. And our construction business stepped in and continued that build, any other property developer would have been completely stuck.

Yes.

Great. And then the last, specific one is, do you still own Tempsford and are you involved in plans for the new town there?

We do. And no doubt, we will be.

Excellent. And then last one I have on property is in the property business, how are you finding the market to sell completed assets into at the moment?

Yes, great question. It's been a bit of a sticky market for a long time, to be honest. I guess we're kind of -- we're used to it. But having said that, because of our model, I mean, I think we've got pretty good visibility. So if you noticed, last financial year, there was quite a material step up to the number of transactions in the prior year. So while it's not the best market, that's not giving us any concerns about our objective about getting to 15% return on capital employed by FY '28. And I'd say that sticky market. I mean, we've been buying. So we've been buyers during that market, recapitalize it. So we'd probably rode the cycle very well.

And Simon, just to give them some foresight, the work we've got, how much has got planning approval at the moment?

Yes. So we've got GBP 3 billion gross development value unbelievably with access to that and of that, 60% has got planning commission already. And I think in 18 months, we'll have about 80% of planning permission. So yes, we are in really good shape to deploy that capital at the best moment in time on the right projects.

Great. There's a number of financial questions coming up, but perhaps last one that will be useful just now is -- to what extent are you adopting AI? And will AI application provide material contribution to margins above 4%?

Yes. Another great question. We're using it a reasonable amount already. So we use it in the back office. We've got robots that do automated processing. I don't think we're using it that extensively on the sort of front of house at the moment, which is where perhaps the biggest opportunities are and you would expect a reasonable amount of cost to come out of that. Obviously, it can be used in design, it could be applied to how you actually build out the project where you're building it. The computer is building for you and managing your logistics for the material flow. We've got health and safety and bottlenecks. So eventually, you'll probably have Tesla robots helping you build it. So there's a massive opportunity going forward with sort of AI and data development. However, in terms of increasing your margin, I expect others will be able to adopt that. We're not -- we haven't got any intellectual property, no doubt in that IP, in that sort of AI IP. We're not Microsoft. We're not ChatGPT, unfortunately. So it's going to be probably quite difficult but that will meaningfully increase your margins compared to competition. And of course, they will adopt it as well. Having said that, if you can stay one step ahead, maybe just create a small tailwind to the margin as we go forward.

Then the next question is tremendous progress on the balance sheet. Looking forward, what feels like the optimal level of cash to carry?

Yes. If you look -- I mean, Andrew looks at Slide 12, and that's trying to give a big strong message really. We've got 90% of this year's revenue covered and approximately 15% of revenue doesn't touch the order book. So in effect we've got poor visibility on this year and 70% on the next year. And then the frameworks show us the size of our addressable market. So you can see whether that market is increasing or decreasing over the next 5 years. So that means the working capital outflow is very unlikely over the next 5 years. Obviously we're getting to that GBP 225 million and that GBP 225 million in property means you can extract a reasonable amount of money and still deliver 15% return on capital employed. So really, we think plus/minus zero is absolutely perfect. You've got capital that you've deployed into property that you could extract. And you've also got -- we've got GBP 0.25 billion, so GBP 250 million bond and the bond market is very happy with us. So probably a little bit too happy, which gives us potentially another opportunity. And we've got a very supportive bank that's given us a GBP 150 million revolving credit facility. So we've got lots of liquidity. We've got assets on the balance sheet where we can extract capital if needed. So we're not going to have to need to put hundreds of millions of pounds of cash on the balance sheet as some of our peers do. If you look at the peers, most of them are different. One of them needs -- has got about GBP 600 million of sort of like cash, which they can't pull so they need to fund that. Another big competitor would have a fit-out business where you've only got 5 months visibility. That's probably half of their business. And then other competitors would be too small to really access the debt capital markets in a meaningful way. The GBP 250 million sterling bond is probably the minimum you need to access that market efficiently.

Great. And then there are a couple of questions effectively around capital allocation. So I don't know if perhaps you can talk about your capital allocation framework and in particular, around the shareholder returns and how you think about the balance of dividends versus buybacks in the first instance?

Yes. So capital allocation is on Slide 17. If people have got access to the deck. Our CapEx is always #1 in the list, but it's a very CapEx-light business model, our business model. Most of the CapEx goes on what we're talking about, just like AI, data, digital solutions that we can help provide solutions to the client in a more efficient and effective way. You've then got our dividend. Andrew touched on it earlier. We've increased that this year. So we're at our targeted cover of 3x through the cycle. So that's great to tick that box. And 3x is still very cautious. So I expect as we look at our capital light allocation policy going forward, we continue to generate cash. It continues to evolve. There will no doubt be downward pressure on that cover number. And the higher your share price is rated, the more that I think that pressure will come through. Then you've got property. We've talked about that. It's a core part of the business model, and it's really related to your contracting businesses. So if your contracting businesses grow, then you're probably going to allocate a little bit more capital to your property business because there's more of a risk that you could shrink and have a working capital outflow. Then you've got M&A. It's not a core part of the strategy. We don't need to do M&A to deliver on our strategy, but we'll be opportunistic with bolt-ons as we were with Buckingham, which was a great success, recent success. So very well integrated and proved out that our teams to negotiate diligence and integrate what albeit a small acquisition value, GBP 9 million was actually quite a reasonable sized business, GBP 150 million turnover. And then finally, we started share buybacks in January. So we've got GBP 20 million away there. We're about halfway through that share buyback, GBP 10 million left to complete. We're aiming to complete that by the end of December. And then clearly, as we're continuing to generate cash, if there's no sort of bolt-on opportunities, we've done most of the investment in property. I think there is the opportunity there for a further buyback. But clearly, we've rerated and the ratings increased, then you're looking at well, further buybacks or is there more pressure on the dividend and increasing the dividend by reducing that cover, which is very cautious.

Great. And another question on buybacks, which is why are the shares purchased through the buyback program being held in treasury as opposed to being canceled?

I mean it's -- we -- obviously, if you're going to grow and you need to issue shares, it'd be pointless canceling them and issuing them. So it's just a very efficient way of storing them. And also, we do issue share -- well, we do need shares for share save, and share buybacks and it doesn't necessarily match evenly. It's very difficult to balance your buying on the exact same day because of rules at the time you need those shares. So it just gives you that flexibility to move the share count up and down a little bit. That's all. But in terms of your earnings per share, shares in treasury do come off your weighted average share count. So that's important to realize. It doesn't impact your EPS.

Exactly.

Right. And then a couple of questions here, which I'll push together, which is, can you talk about the benefits the Board attaches to being a public company? And if the company were private, how do you think the government would view that as opposed to being a public company?

Well, it gives you access to capital markets, which has been fairly crucial in delivering our strategy, point one. And point two, the government says entirely negative.

Very clear. And then the last question, I think we're going to have time for -- before we wrap up, which is the year started slightly ahead. Where have you seen the positive surprises at?

Yes. So I think the positive surprises, Robert. If you look at property for one, I don't think the market listened to us or believed us necessarily. So obviously, you can see in our results that we presented that confidence coming through in the actual result. And we can see that this year should build further on that. So firstly, property and then how the water growth is coming through. So that water sort of Severn Trent is a perfect example. If you go back 18 months, we were running at less single-digit millions turnover per annum with that client, and we're now running at a run rate of about GBP 100 million per annum. So to deliver that kind of growth and mobilize that and do it so well, that's giving us quite a lot of confidence too.

Super. Well, that concludes the Q&A. I don't know if I can hand back to for any concluding remarks before we wrap up.

Thank you, Robert. And thank you, everyone, for coming on and being so supportive over these last few years of our strategy. It's hugely appreciated. And it's good to see now the value really is beginning to come through in the shares. But what we've delivered over the last 4, 5 years is that consistent performance when you put that performance and operational performance together with what we see is a strong market positions that Kier has with its government and regulated and private sector, we see that opportunity to continue in the future as well. And the management team is strong in this company. We spend a lot of time and energy making sure that we do have a good pipeline of management. And I'm delighted that we're handing over the company in good shape to Stuart to be CEO; and Simon continuing in his role as CFO as well. So those are really the concluding headlines. But again, once again, to thank you all for your support over the years.

Super. There was 1 technical question we didn't answer. We haven't noted that, and we'll come back to you directly on that. But otherwise, thank you to the team. Thanks to everyone who attended and for your questions. There is a short questionnaire as you exit the call, and we really appreciate it if you were able to take the time to fill that in. And the last thing to say is [ David Dairy ] which is -- there is a provisional date for trading update on the 13th of November, along with the AGM. That concludes the call today. Thanks very much.

Thank you.

Thank you, all.

Thank you.