Kier Group plc (KIE) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us today. I'm Andrew Davies, Chief Executive of Kier Group, and I'm joined today by Simon Kesterton, our Chief Financial Officer. There's the disclaimer, and if we move on to the results. Today, we will walk you through our interim results for the 6 months through December 2020 as well as an overview of the past 2 years since I joined. At the end of the presentation, there will be an opportunity for questions and answers. So this slide sets out our key highlights for the period. It's been a very strong half year, both financially and operationally despite the impact of COVID-19 in quarter 1. It also details the significant progress we've made on all of those actions I outlined in our June 2019 strategic review. And finally, it outlines the final piece of the jigsaw with the proposed equity raise. We have returned to profitability, which has been reported at GBP 29 million, with a margin improvement to 2.9%. This profit has converted into GBP 19 million of free cash, even after GBP 29 million of COVID-related tax payments were paid back following the deferment from last year. Net debt was GBP 354 million and has benefited from significant progress made from the actions I set out in our strategic review in 2019. Average month-end net debt is the same as that for the FY '20 period at GBP 436 million. We've agreed to sell the Kier Living business for GBP 110 million, and our self-help cost savings program is now expected to deliver GBP 115 million in cost savings, which is up from the GBP 105 million announced in January. The final step to recapitalize the balance sheet is that we're proposing in the next few weeks to announce an equity raise of between GBP 190 million and GBP 240 million. And so today, we are setting out our medium-term value creation plan to deliver GBP 4 billion to GBP 4.5 billion worth of revenue at circa 3.5% margin, delivering a 90% cash conversion, a net cash balance and a sustainable dividend policy. I'll now hand over to Simon for the financial results.

Thanks a lot, Andrew. Morning, everyone. So moving on to Slide 6. This shows a high-level income statement. Our top line revenue is down 13%, and that reflects the simplification of the group through management actions, a completion -- successful completion of some Smart Motorways contracts and, of course, a continued drag from COVID. Adjusting operating profit is up by 1.9% to GBP 47.6 million, reflecting the management actions. And an adjusted operating profit margin of 2.9% is achieved. Looking below, adjusted items, clearly, the material items behind us now, at GBP 7.5 million, and I'll walk through everyone a slide on those later on. Statutory profit of GBP 7.1 million, so reflecting the group's return to profitability. Net debt at GBP 353 million is in line in terms of an average net debt position of GBP 436 million, as Andrew mentioned, with last year's financial year average. Slide 7, a revenue bridge. It starts with last year's half 1 revenue at just below GBP 1.9 billion. We look at construction, GBP 87 million down. That's roughly 50-50, a combination or drag from COVID and also the management actions as we exit certain revenue streams. Infrastructure, GBP 110 million down, reflecting the successful completion of 2 Smart Motorway contracts. Property, as everyone knows, we've been allocating capital in a very disciplined minute -- manner to property, lower capital invested, lower revenue and then a small reduction from other of 3 gives you this first half revenue of GBP 1.6 billion. Moving forward, an adjusted operating profit bridge. Starting with last year on the left-hand side again, GBP 46.7 million. We then look at the impact of the lower volume, GBP 15.8 million, and lower capital invested in property of GBP 1.1 million. As ever, there's a small impact of inflation that can't be passed through to our customers of GBP 1.2 million. And then you see the next bar, the management actions, GBP 22.9 million coming in, more than offsetting those previous 3 bars. You then see the holiday pay accrual. So this will be a normal cadence. I think going forward, you'll see hardly accruals utilized in our first half and then building up again in our second half. And then COVID costs, so as well as the drag on the top line, we're still incurring some direct costs as a result of COVID. That said, we have learned to live with the pandemic. And then a small amount of other items gives you the GBP 47.6 million first half adjusted operating profit. If we continue forward then to adjusting items. You can see now the majority of those is just the noncash amortization of acquired intangibles, GBP 11.3 million of the GBP 18.8 million. The balance there predominantly relating to cost-saving programs of GBP 6 million. But as you can see, financial year '20, GBP 156 million, the bulk of those material items behind us, which is a real positive message now. What's the impact of that investment in our cost saving programs? You can see that here. So you see then a further breakdown of the costs, the GBP 6 million predominantly severance-related restructuring our regional construction business. On the right-hand side, what are the savings? We're increasing our savings now to at least GBP 115 million, and you see the breakdown there. Modest savings from outsourcing our IT and fleet, some footprint savings and the bulk of them coming from wages and salaries. Again, I'd just reemphasize that the costs to achieve that are now materially behind us. Free cash flow then, moving on to Slide 11. We can really see the impact of the positive actions within the business here. Adjusted EBITDA of GBP 71.7 million. Working capital, a modest inflow, and that's really good when you especially consider there's a further reduction of KEPS in the period of GBP 16.1 million. We're paying even quicker, so 38 days, down to 34 days. And of course, you have got still a modest impact from COVID in the top line. Net CapEx appears high at GBP 20.6 million, but the bulk of that is really down to IFRS 16. If you look at what real CapEx is in that number, it's actually about GBP 1 million. So as expected, we're staying well on top of that and allocating capital in a very disciplined manner. You then got the JV dividends less profit and a small amount of other gives you operating cash flow of GBP 58 million. Interest and tax, the GBP 10.3 million is predominantly interest. No cash taxes during the period. That GBP 10.3 million gives you a free cash flow of GBP 47.7 million, and that would be on our adjusted conversion calculation, 110% conversion. COVID, an impact of GBP 28.9 million, and that's just a repayment to HMRC of deferred taxes. There's still another million GBP 49 million -- GBP 49.9 million worth of those deferred taxes to go to pay as we move forward. What does that mean in terms of net debt? You see the opening net debt position of GBP 310.3 million on the left-hand side. The free cash flow of GBP 47.7 million I talked through. And the COVID impact, that payment to HMRC, GBP 28.9 million. We then see our pension deficit repayment plan, so GBP 26.5 million paid in the first half. That is actually the number for the full year, this financial year. And going forward, we've agreed a new plan, which will mean payments of GBP 9 million on an ongoing basis per annum. Adjusted items, GBP 27.1 million, predominantly related to the restructuring activities that I talked through earlier. And then you've got a small investment in our living business of GBP 6 million. It's worth noting that if that GBP 6 million is still there at the time of completion, it will be paid by the buyer. Small other, GBP 2.5 million, predominantly FX, gives us our closing cash debt balance at GBP 353.5 million. In terms of balance sheet structure, where are we? Net debt, GBP 353 million, as I mentioned. The average of that is GBP 436 million. So you can see much less volatility now in our working capital movements. Covenants, obviously, successfully cleared. And then with regard to our lenders, we've agreed an extension to September 2022. And then on completion of the equity raise that Andrew mentioned earlier, those -- some of those facilities would be extended out to 2025. Okay. Thanks, Andrew.

Okay. Thank you, Simon. So I'll now talk you through the operational update. So significant work has been done to turn the business around and address the legacy issues of the old Kier business, around poor business culture, poorly executed acquisitions, lack of cost control and central functions, loss-making contracts and poor cash management, all leading to a stressed balance sheet. These are being addressed through decisive management actions. Firstly, management changes. Over the past 18 to 24 months, we have significantly refreshed the senior management team. Secondly, operational improvements. My strategic view, which was conducted in April 2019, highlighted key legacy issues and the need to put in place a performance excellence framework, instilling a culture to ensure better contract tendering processes and a move away from the sales revenue-focused approach to contract tendering. We have reset working capital practices, reducing KEPS, as Simon said, from GBP 180 million in FY 2018 to GBP 109 million in HY '21, and expect to have generated over GBP 115 million in cost savings from a bloated central cost base. We have a new financing package in place with our lenders to give us a strong platform to deliver growth and have renegotiated our pension contributions. The success from the operational improvements enacted is reflected in both the half 1 results and also the resilience of the business throughout the COVID pandemic. And finally, portfolio rationalization. Kier is now a simpler business and we've gone back to basics. We have a core business units that align to our strategic objectives and core competencies. We've agreed the sale of our living business, limited the capital invested in property and have wound down the environmental business and exited a number of facilities management contracts. Our focus is now strongly on the infrastructure and construction markets, and our strong core sectors are supported by long-term procurement frameworks and will benefit from government infrastructure spending commitments. So if we look at the construction business. Construction revenue reflects the pace of contract awards and the deliberate focus on margin through the exit of low and loss-making contracts. The adjusted operating profit reflects the better quality program of work underpinned by a culture of performance excellence. We continue to win high-quality work with places on frameworks worth up to GBP 11.5 billion; wins in our key health and education markets, including a new surgical center for NHS Somerset; and a GBP 64 million Fitzalan school in Cardiff, which has, together, ensured that we have 91% of second half revenue secured. Our Construction segment now also includes Kier Places, which was formerly known as Specialist Services, and includes the Housing Maintenance and profitable Facilities Management contracts. Bringing together our Facilities Management and Housing Maintenance capabilities is entirely logical as we pursue a strategy to manage built environment assets through life, the housing association, local authority and government clients. Moving on to our Infrastructure Services business. Within the Infrastructure Services, the revenue reflects the successful handover of 2 Smart Motorway projects on the M20 and the M23 and the conclusion of local authority highways contracts. And these combined had a total impact on revenue of GBP 90 million. Adjusted operating profit margin reflects the focus on the mix of higher-margin work. And within the period, contracts have been awarded in our highways business by Transport for London worth GBP 200 million to maintain their road tunnels and pumping stations. In our Utilities business, we're appointed as a partner by Openreach to build new broadband infrastructure. And in our infrastructure business, we're appointed to deliver a GBP 59 million major project at Sellafield. Also in infrastructure, our work on the C2 and C3 section of HS2 has started. And looking forward, 84% of our FY '21 revenue is now secured. And finally, Property. In our 2019 strategic review, we identified the need to introduce new disciplines to capital allocations and therefore reduce the capital allocated to the Property business. Its revenue in this period reflects these capital constraints. The capital employed is now down to GBP 139 million. Adjusted operating profit margin reflects the mix of development projects. And over time, we expect this to return to normalized levels as we recycle that capital is employed in the business. If you look at our order book, the order book has remained resilient at GBP 8 billion as the group continues to win high-quality work in its key markets and across a range of sectors. 62% of the FY '22 revenue is secured, as COVID has slowed down decisions -- decision-making from clients. The order book has been significantly derisked over the last 24 months, and 51% of the order book is under target cost or cost reimbursable contracts, with most of the other awards having been made under frameworks, with an average order size of GBP 9 million. This is an entirely appropriate level of contract and counterparty risk given the nature of the clients, the risks to contracts, one-off frameworks and the contract size. We have an increased focus on government contracts, which the group considers to be less risk of high WIP balances based on past experience of government contracting. This increased order book, coupled with the shift towards lower risk contracts, provide clear visibility over the medium-term targets. If we look at now our ESG building for a sustainable world. The group has a long history of delivering on our ESG goals. And to date, we have reduced our energy consumption under our 30 by 30 program. We've achieved a 54% reduction in carbon emissions intensity, also known as Scopes 1 and 2, since 2014. And we've achieved a 35% reduction in construction waste volume since 2015. We've become a founding partner of the Supply Chain Sustainability School and achieved 99% spend with SMEs on a number of public sector frameworks. The health and safety of colleagues is paramount important to us, and this is reflected in our long-term safety performance, with reportable accidents down 38% and lost time accidents down 43% and over the last 4 years. We have now introduced also a new severity-based metric focusing on the wider health and safety performance of the business, a leading indicator. If we look forward to building a sustainable world, our new framework, we've committed to achieving net carbon 0 across our own operations and supply chain, also known as Scopes 1, 2 and, importantly, 3 by 2045. We will have eliminated single-use plastics by 2030. And we will provide support, opportunities and training to local communities to help tackle inequality. During the period, our businesses have concentrated on achieving their framework, reduction targets, which they are all well on the way towards. We're also developing our pathway to net zero with interim targets, annual carbon budgets and limits on carbon offsetting. The pathway and budgets will be published later in our annual report, with the refined social value targets later for FY '22. We've been engaging with our clients to help them achieve their sustainability goals. And we've undertaken carbon footprint analysis with the MOJ and Carbon Trust to determine science-based targets and giving us the blueprint to improve the designs and reduce carbon across the PRISM program. And moving forward, we're delivering St Sidwell's Point, the U.K.'s first Passivhaus standard ultra-low carbon leisure center in Exeter. It's been designed to save up to 70% on annual energy costs. Passivhaus provides our clients with an energy-efficient project, which is value for money over the longer term. And within the social leg of ESG, we are proud of our year-on-year increase in our apprenticeship numbers. And by the end of half 2, we will have developed 965 apprentices during the year, taking full advantage of the reimbursement of all of those apprentice levies we pay under the apprentice and CITB levy scheme. We've developed and launched a new employee health and well-being strategy as well as appointing a new Head of Diversity and Inclusivity to develop a new group D&I strategy. Finally, as part of performance excellence, we've launched our project management Life Cycle System to ensure continuous improvement through our operational assurance statement as well. We move now to the investment case. Our core business proposition fit into Infrastructure Services and Construction segments, and we have an attractive market position across the industry. Within Highways, where we are the #1 provider of strategic highways, we've established relationships with strategic clients on long-term frameworks lasting typically for 6 to 10 years. Our embedded expertise sits within the design, construction and maintenance of strategic and local road networks. And highways is expected to grow 11% in 2022. In Utilities, we're a top 3 contractor in the water and energy sectors. We install and maintain connections in water, energy, telecoms and rail. And the majority of our contracts are delivered under cost reimbursable contracts. Expected market growth is 46% for utilities. Within infrastructure, we deliver complex, high-value infrastructure projects across nuclear, energy and rail. An example includes HS2, where we're a delivery partner in the largest section of the project. The sector is expected to grow by 52% by 2022. And in Construction, we provide project delivery in England, Scotland and Wales across key sectors, including education, health, justice and defense for public and private customers, with 78% of projects for repeat customers. And this sector is expecting 12% market growth by 2022. If we look at the U.K. government spending commitments. U.K. recently announced initiatives to stimulate the economy which is the most radical reform since World War II. There's a commitment of GBP 600 billion over the next 5 years as part of the national infrastructure strategy and initiatives within this include GBP 27 billion of investment in roads under the RIS2 program, GBP 32 billion committed by private and public sectors on 5G infrastructure by 2027 and GBP 37 billion to GBP 53 billion spend on HS2 Phase IIa and IIb and GBP 138 billion investment by energy infrastructure by 2028. We are, therefore, well positioned to win our fair share of this work. And if we look at the equivalent construction spending commitments, accelerated funding into our core sectors has been announced. Within education, over GBP 1 billion will fund the first 50 projects or a new 10-year school rebuilding program and a GBP 1.5 billion further education program has also been announced. Within health, there is GBP 1.5 billion for hospital maintenance and building and GBP 3.7 billion for the new hospitals program, which is set to be delivered by 2025. In defense, an GBP 8 billion capital expenditure program over 10 years has been announced. And in justice, a GBP 4 billion spend over 4 years with 18,000 new PRISM places required. We anticipate increased opportunities through our established positions on frameworks. I'd now like to hand over back to Simon.

Thanks a lot, Andrew. I alluded to the message on Slide 27 earlier, and it's a key message. The financial performance issues are resolved. So going forward, there will be no material working capital outflow as we dealt with payment practices coming down from 57 days to 34 days, and we've dealt with the overuse of supply chain finance. In terms of net CapEx going forward, the discipline will continue, and we've seen net CapEx down really as low as GBP 9 million over the last 18 months. In terms of pension deficit repayments, a burdensome repayment plan has been renegotiated and a revised repayment plan that effectively just GBP 9 million per annum for the next -- over the next years has been agreed. And in terms of adjusting items, as I mentioned earlier, the material one's behind us. Going forward, they're really de minimis, and we're targeting a 90% operating free cash flow conversion as we move forward. What are the drivers? On Slide 28, behind the medium targets, if you look at our revenue, here, you can see 2019 illustrated on the bar chart. Clearly, there is a drag from COVID relative to that period that we'd expect to reverse. And management actions have effectively exited us from some businesses, and that will be a permanent reduction. You've then got the growth drivers. Andrew has just talked us through them, which are quite material, and which should take us up to that GBP 4 billion to GBP 4.5 billion revenue within the medium term. And then on the right-hand side here, you can see what's going to impact the margin. So if we look there, the bar chart reflects full year 2020 pre the management actions. You then got the management actions that we've talked through and have been implemented. COVID, of course, is dragging on the margin and that continues for the immediate term. And then you've got basically the drop-through from the extra revenue, should take you to the medium-term target of circa 3.5%. So finally for me, on Slide 29, just a summary of those medium-term targets. Revenue, GBP 4 billion to GBP 4.5 billion; circa 3.5% operating margin; 90% cash flow conversion. And that should lead us to a sustainable net cash position with the capacity to invest and a sustainable dividend policy of around 3x through the cycle. All of this should be facilitated with the equity raise we mentioned earlier, between GBP 190 million to GBP 240 million. Thanks, Andrew.

So the summary and outlook. I'd like to summarize by saying that we've seen an excellent half 1 performance, with the strong trends continuing into half 2, in line with where we expected to be. Underpinning these results were significant progress that we have made on my strategic imperatives announced in June 2019, the last of which was the announcement of the sale of Living for GBP 110 million last week. The final step is to recapitalize the balance sheet with a proposed GBP 190 million to GBP 240 million equity raise in the coming weeks. And once we capitalize, this will allow us to achieve our medium-term value creation plan to deliver GBP 4 billion to GBP 4.5 billion of revenue at circa 3.5% margin with a net cash balance. And if I go into the outlook. In terms of our outlook, we're well placed to benefit from U.K. government spending. For example, from the GBP 27 billion investment in roads to the GBP 1.5 billion further education program. The positive trends we've seen in half 1 are continuing into half 2, and we're confident of further progress this year, in line with our expectations. And once we've recapitalized, we'll be able to achieve the medium-term value creation plan. I'd like now to open up the meeting to questions and answers.

[Operator Instructions] First question we have from the phone line, it comes from Joe Brent of Liberum.

Three questions, if I may. Maybe take them one at a time. Firstly, could you give us some indication of the trajectory of revenues and profits on HS2?

Yes. So that program is just starting to ramp up now to volume in terms of trajectory, Joe. So in the medium term, you could probably expect revenue -- incremental revenue of a couple of hundred million rolling into our numbers.

And when would the profit impact of that?

Profit impact will be in line with revenue.

Okay. Secondly, can you give us an indication of what the medium-term expectation is for average debt and the interest rate?

Yes. So average debt, Joe, I mean, I think in the medium-term plan, if you look at consensus adjusted for living, net debt at the end of this year would be around GBP 300 million. And if you look at the combined proceeds from both selling living and the capital raise, that will be between GBP 300 million and GBP 350 million. So in terms of a reported basis, you'll be very close to a net cash position at the end of this year. And with positive cash flow the next year, you would be at that. And in terms of those positive cash flows, and you look at the difference between our average and our reported net debt, which has narrowed somewhat, you'd expect us to be in sort of an average net debt position within 2 years after the equity raise.

So average net cash position within?

Yes.

And sorry, the interest part for that, will you still get a charge despite having cash?

It's possible there would be a modest charge, but it would be really modest. We haven't got a lot of cash that is actually outside of our sort of main facilities.

And finally, could you give us an indication of what your plans are with KEPS?

In terms of KEPS, it's already down to GBP 110 million. I think that's not very far away from where we'd expect it to be. We're quite happy to use that where customers or supply chain partners find it a benefit, albeit we don't want it to be a primary source of capital. And I think that's where it is. Could you see it come down a little bit further? Yes, you could. But I think materially, it's where we want it to be.

The next question we have comes from Jonny Coubrough from Numis.

Two questions from me, please. Firstly, on the construction margin in H1, which looks like it was at a high level. Just wondering what the drivers were here and what your expectations are for the remainder of the year? How that should progress? And then also, with the benefit of productivity improvement into 2022, how kind of sustainable that high margin is? Also wondering whether that was helped by the holiday payable accrual release. And then the second question would be on the impact of cost inflation in H1 and the impact that, that's had? What your expectations are for cost inflation in the second half of the year?

So can we just take the first part of the first question. So just on the margin, Jonny, on the construction. So it's at the upper end, I think, of expectations of that type of business. But I think that's reflective of the type of business it is, with very strong frameworks, very strong repeat orders, as I said in the presentation as well. And it's benefiting from the cost reductions which we've taken in the business as well. So I think that's the explanation as to why it is at the upper end of expectations around that. I think going forward, that will probably sort of moderate a little bit. But I think the quality of the business will be maintained going forward.

Yes. And it's worth noting, Jonny, that holiday, that vacation accrual does benefit it slightly in the period. And sorry, what was the second question again?

Cost inflation.

In terms of cost inflation, yes, I mean you must remember, most of our contracts are effectively cost reimbursable contracts, so it gets passed through. And that's why you see a small impact in the half. So we're not overly exposed to cost inflation. In terms of cost inflation, we see the trends that everyone else sees in the market that there's a slight upward pressure on that.

So with the holiday pay release, was that predominantly all in construction?

No, not predominantly. I think it would be across the board, yes, and including overheads as well.

We now have another question from Andrew Nussey from Peel Hunt.

A couple of questions from me. When we look at the medium-term revenue aspiration and in particularly the Infrastructure segment, if we reverse out the benefits of HS2, what would you sort of see as an optimal mix between capital projects as opposed to the longer-term maintenance activity?

Do we take that one now, Andrew?

Yes. Go for it.

Okay, fine. I just thought you're going to give us a few more. Okay, fine. So yes, HS2 is clearly quite a dominant factor in the project side of the Infrastructure Services business. There's no doubt about that. But the -- as I said in the presentation, the high double-digit growth rate we're expecting across the board in the energy sector as well as the transportation sector and the nuclear sector as well, I think that will sort of balance out as we go forward. The balance between the service-orientated businesses like our utilities and highways business and the infrastructure business is probably going to be 2/3, 1/3, I think, going forward. That's the basis it is now. I can see that continuing. Because some of the projects, obviously, are in the water domain, in the energy domain and also in the highways domain as well. So it's probably 2/3, 1/3 balance.

Got it. And in terms of the construction aspirations, what sort of views are you forming in terms of the shape of the commercial-led activities over the next few years?

Sorry, can you just repeat that? I didn't quite catch that one, Andrew.

Yes. I just -- so in terms of the medium-term revenue aspirations within the construction sector, your thoughts on the shape of the commercial activities versus the government and...

Okay. So look, very strong weighting towards government and government frameworks, both national frameworks and regional local authority frameworks. That's been the emphasis of the Kier construction business, sort of circa 70%, 80% orientated towards that. Clearly, some of our regions are a little more orientated towards the commercial market. And there will be sort of a tempering in those regions. But overwhelmingly, the group will continue to pursue a strategy where it focuses on long-term frameworks and relationships in health, education, defense, justice with governmental counterparties. And commercial is a useful adjunct, with slightly more emphasis in 1 or 2 of the markets we operate in. So we don't envisage it. It's impacting us perhaps as it would other peers. We've got more weighting towards commercial.

[Operator Instructions] We now have a follow-up question from Jonny Coubrough of Numis.

Could I ask a third question on the medium-term margin target. And the fact that you set that out alongside the target of getting to a net cash position. Just keen to understand your thoughts on the importance of having a net cash position in order to achieve that level of margin and the importance of that [indiscernible]?

Yes. I don't think if we're not at a net cash position, we won't be able to achieve that margin. I think it's possible to achieve that margin as long as we've got a stable balance sheet. And we can see ourselves moving towards that net cash position.

We now have another question from Joe Brent of Liberum.

I didn't want to let you off that lightly. Three again, if that's okay. Firstly, can you give us some indication of what the likely trajectory of COVID costs are? Or put another way, what do you see is the '22 benefit over '21 when assuming no cost in '22?

Yes. That's a good question, Joe. I mean you see in the first half, we had GBP 7 million. So we're running at an annual rate, if you just times it by 2, at around GBP 40 million. Possibly, there was a little bit of a weighting there towards Q1. So it's probably a little bit lower than that at the current run rate. And then it really just depends on how the pandemic develops. And I think it'd be difficult really to speculate on that. So it's everybody's assumption on when that ends. I wouldn't see it just stopping overnight some time this year. I think that's very unlikely. And this could drag on for an extended period still.

Okay. And secondly, you say that the cost to achieve the cost savings is substantially behind you. But could you give us a reminder what the cash costs of restructuring are going forward?

I think really minimal, Joe, but it does depend on the actions, of course, that we take. So Andrew hinted at it, I think, earlier. We've got quite an extensive lease property portfolio that we use, and we're reviewing that. So depending on what savings we could extract from that, there might be some further charges, albeit those would be mostly noncash base because they'd be lease impairments. And then you've probably got some sort of finer tuning around the sort of outsourcing activities and maybe the headcount, but these are really immaterial.

And the final one for me is, the emphasis was a lot about property. Could you tell me what the likely outlook for that business is in terms of what you're going to do with it? And also what the targets ROCE and margins should be in that business?

So the business is strongly and always has been strongly aligned with the other businesses. It deals in regeneration activities with local authorities, many of whom we have relationships with in our utilities and, in particular, in our highways and construction sector as well. Many of our clients are looking for help and participation in realizing value out of assets they may have, and there's a skill set within that business that can help there. As well as using in a negative capital -- working capital world, it can use certain of that capital and deploy it. So it's focused on sort of government or quasi government activities, and that gives it the alignment with the rest of the business. That does mean there's a slightly probably lower return over the fullness of time on return on capital than it would perhaps get in a pure commercial sense. But it will deliver what we think is a useful enhancement of returns. Simon, do you want to go add anything?

Yes. And then in terms of capital employed, we've stated the range there, haven't we, Joe, between GBP 140 million and GBP 170 million. Clearly, if capital is not as constrained, you could see a little bit of capital being allocated sensibly to that business. And returns, a sort of 15% return on capital employed would be a sensible figure.

15%. So pretax?

Yes. Pretax, yes.

[Operator Instructions] We have had no further questions at this time. So we'll hand back over to you, management.

Okay. If there are no further questions, thank you all very much for your time this morning, and we'll draw stumps there. So thank you.