Kier Group plc (KIE) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us for our half year results presentation for those of you here in person. I'd like also to extend a warm welcome to those joining us by the webcast and audio as well. So I'm Andrew Davies, I'm Chief Executive of Kier Group and I'm joined today by Simon Kesterton, our Chief Financial Officer. So this morning, I will talk you through the highlights of the last 6 months to 31 of December 2023 and then I'll hand you over to Simon to talk through the group's financial performance and this will be followed by an operational review, an update on ESG and we'll finish off with our outlook. Then there'll be an opportunity for questions and answers at the end and we'll start, if that's okay, with questions in the room and then we'll go to see if there's any questions online as well. So if we move through the disclaimer and the results summary highlight and we talk to, on Slide 4 now, the half year '24 highlights. So the first half of the year has seen the group delivering a strong set of results with increased orders, revenue and profit. We delivered revenue growth of 23% with strong performance across the business. We achieved an adjusted operating profit of GBP 65 million, an increase of 13%. We continued to deliver an industry-leading adjusted operating margin of 3.4%, despite the continuing inflationary pressures. As our performance tends to be second half weighted, we expect full year margin to be in line with our medium term target. The group's net cash position at 31st of December was GBP 17 million, and that's materially better than the GBP 131 million net debt position we had at the half year 2023. And that's due to our free cash flow generation, which itself has been driven by increased volumes, particularly in our construction business. And this strong cash generation has allowed the group to materially deleverage. The group's average month-end net debt for the period improved by GBP 106 million to GBP 137 million average net debt. The future prospects for the group also remain strong with the group's order book increasing by 6% to GBP 10.7 billion, reflecting contract wins across our business and providing multi-year revenue visibility. So 97% of our FY '24 revenue is now secured and we therefore continue to have a high degree of certainty against a backdrop of wider economic and political uncertainty. Significant effort has been made to improve the quality of our order book. And as a reminder, since 2019, we've exited low and loss-making contracts. We spent a lot of time derisking the portfolio. And we focused on winning work within the U.K. government and regulated authorities with negotiated terms and appropriate risk profiles. Our order book is supported by long-term framework positions and frameworks are our route to market. We've maintained and grown our central and local framework positions. However, we exclude long-term framework positions from the order book number I've just mentioned, and therefore these represent an additional pipeline of opportunities to us. In September, we completed the acquisition of substantially all of the rail assets of the Buckingham Group and the HS2 contract supplying Kier's HS2 joint venture EKFB for a consideration of GBP 9.4 million. The acquisition was an excellent cultural fit and was an opportunity for us to accelerate our rail strategy. And the acquisition, I'm pleased to say has been successfully integrated into the business. In February, we successfully completed a refinancing of our facilities. We issued GBP 250 million of senior notes and extended our revolving credit facility. These revised long-term debt facilities completed the last stage of the group's recapitalization and provide us with both flexibility and optionality going forward, whilst we continue to deleverage. At our FY '23 full year results, we committed to recommence dividend payments, once we had a clear line of sight of a sustainable net cash position alongside an appropriate longer-term debt structure. I'm therefore absolutely delighted to be able to declare an interim dividend of GBP 1.67 per share with Kier rejoining the dividend list. And lastly, the group was notified last week of our admission back into the FTSE 250 after 5 years. This is a great achievement and a testament to the hard work and commitment of our people who have enhanced our resilience and strengthened our financial position in line with the objectives set out in our medium-term value creation plan. And I'd like to thank the entire Kier team for their dedication and contribution to the group's performance. And with that, I'm delighted to hand over to Simon, who will take us through the detailed financial results.

Thank you, Andrew. Good morning everyone. Turning to Slide 6, this slide sets out high-level income statement. Revenue in the period, as Andrew mentioned, is higher than half year '23 and reflects volume growth in both infrastructure services and construction, which I'll cover in more detail on the next slide. We delivered an adjusted operating profit of GBP 65 million in the period despite continued, albeit lower, inflationary pressure. The group achieved an adjusted operating margin of 3.4%, which, when considering our usual second half weighting of earnings, is in line with our medium-term value creation plan. Statutory profit before tax is 6% higher than the comparative period [Technical Difficulty] increased rates were partially offset by material reductions in debt. We achieved adjusted earnings per share of GBP 0.087. This represents a 2% growth when compared to the GBP 0.085 achieved in half year '23 despite corporation tax rates rising to 25% from April 2023. Net cash is significantly better than prior period at GBP 17 million compared to GBP 131 million worth of debt for half year 2023, as operating cash flows from volume growth translates into working capital inflows, reductions in adjusting items and pension scheme payments. As expected, the group materially delevered. This has resulted in average net debt reducing by GBP 106 million to GBP 136.5 million. Turning to Slide 7, starting on the left-hand side, we start with half year 2023 revenue of GBP 1.5 billion. Infrastructure services revenue increased by 16%, primarily due to the continued ramp-up of capital works on HS2 and the successful Buckingham acquisition. Construction revenue increased by 29% as the strong order book we entered the year with converted to revenue. We also saw small growth in the property revenue and these all resulted in the growth of the group's revenue of 22.5% in the period to GBP 1.9 billion. Moving now to the adjusted operating profit bridge, we start with the previous half year's adjusted operating profit at GBP 57 million. Volume mix and price changes resulted in an increase of GBP 6.1 million. We have achieved management actions of GBP 5.4 million during the year. We continue to see inflationary pressure given the macroeconomic environment, but also continue to manage and mitigate this. Over 60% of our order book is made up of target cost or cost reimbursable contracts, and if we do choose to give price certainty to our customers, it will be done after key risks and opportunities are understood. The result is an increase in adjusted operating profit to GBP 65 million. Adjusting items excluding non-cash amortization and interest amounted to GBP 9.5 million in the period and are broadly in line with the GBP 9.1 million costs in the comparative period. The main item remains related to fire and cladding costs, which are GBP 3 million higher than the comparative period. Given the nature of the construction projects we typically engage in and following regulation change, we estimate our net exposure to this could be between GBP 10 million to GBP 20 million. As a reminder, the amortization of GBP 11 million relates to acquisitions and has increased as a result of the Buckingham acquisition. The additional amortization is provisional as acquisition accounting is for 12 months and we estimate will be circa GBP 4 million per annum for the next 1.7 years. Of the smaller legacy items, legal legacy claims in the year relate to the disposal of Kier Living in May 2021. The other costs include some Buckingham costs in connection with the acquisition. The interest relates to IFRS 16 where leased office space has been exited. As previously guided, we haven't incurred any restructuring or related costs. Moving on to free cash flow, the results of all the hard work done over the past 2.5 years with the group achieving significant operational and financial progress can be seen very clearly here with a material improvement in operating cash flow despite the usual seasonal working capital outflow. Looking at the detail, we can see that adjusted EBITDA in the period grew to GBP 92 million. We then have GBP 46 million of working capital outflow, a significant improvement when compared to HY '23 outflow of GBP 79 million, as expected, due to the growth in construction, which started at the end of the last year. This includes an improvement in our supplier payment days by 1 day to 33 days. CapEx in the period amounted to GBP 26 million. However, GBP 19 million of this relates to payments made under leases now capitalized under IFRS 16. Net interest and tax increased by GBP 2 million in the period due primarily to corporation tax payments restarting on the group's return to profitability. This results in the group materially improving its cash conversion from minus 122% to plus 19% as we generated a small cash flow of GBP 12 million in operating cash, significantly better than the usual H1 outflow, further demonstrating the plan is delivering a meaningful improvement in the cash position of the group. Turning over the page, we have the net cash bridge. We start on the left-hand side with closing cash of GBP 64 million at the end of June 2023. We then see a small free cash outflow that I've just talked through of GBP 8 million; we had adjusting items of GBP 16 million, which includes the payment of items accrued for in FY '23; pension payments of GBP 5 million. As previously mentioned, we paid GBP 9 million to acquire certain contracts of the Buckingham Group, which are performing well. We then have the purchase of Kier Group shares. This is in respect of the group's employee benefit trust, which acquires Kier shares from the market for use in settling long-term incentive plan share schemes when they vest. The net cost of this was GBP 4 million. The other GBP 5 million relates to deploying capital to the Property segment. This will help drive future returns as the current market is affording some great opportunities. This results in a net cash position of GBP 17 million. Moving to Slide 12, this slide is now a pleasure to talk to as we move through 2024, as it really demonstrates the significant progress made by the group in reducing our net debt. If we look at the last 18 months, we've reduced our average month end net debt and debt-like items by GBP 149 million with GBP 80 million of this being reported net debt. For HY '24, we have seen the operating cash generation lead to material deleveraging. The GBP 136 million achieved across the period is GBP 106 million lower than the comparative now that free cash flow generation is almost entirely devoted to paying down reported average month-end net debt. A key part of the medium term plan was to generate cash and strengthen the balance sheet. The previous slide demonstrates the material improvement in the cash generation and reduced debt. This success provided the opportunity to put in place a long-term capital structure to support our strategy of de-gearing business whilst retaining flexibility and optionality to deliver future growth. In February 2024, after the period end, we secured long-term financing of the group through the issuing of a GBP 250 million 5 year bond and extending the revolving credit facility to 2027, both strengthening our debt maturity profile and diversifying our funding sources, an important step in the delivery of our medium-term plan. This slide shows the details of the debt structure and the changes we will see over the next few years. As at 31 December, we had committed debt facilities of GBP 548 million comprising of a GBP 475 million revolving credit facility and GBP 73 million of U.S. private placement notes. Previously, these were due to mature in January 2025. Following the completion of our GBP 250 million bond issuance, our GBP 548 million of facilities now comprise of GBP 250 million of bonds, GBP 261 million of revolving credit facility and GBP 37 million of U.S. private placement notes. The next key date is January 2025 when all of the U.S. private placement notes and GBP 111 million of the RCF mature and this will leave our facilities comprising of a GBP 250 million bond and GBP 150 million revolving credit facility, which mature in 2029 and 2027 respectively. The maturity profile is reflected in the chart on the right-hand side of the page. Slide 14 sets out our order book position. As you've heard from Andrew, our order book is high quality and has further increased by 6% to GBP 10.7 billion compared to June 2023. We secured 97% of our 2024 full year revenue, as we continued to win work in our chosen markets. Significant effort has been made to continue to improve the quality of the order book. We're focused on winning work with U.K. government and regulated authorities. We continue to focus on managing risk and reward when bidding negotiating and delivering work. 60% of our order book is under target cost or cost reimbursable contracts. Our infrastructure business has nearly 100% of its contracts agreed as target costs or cost reimbursable and is important to balancing our risk and reward profile. Within our construction business, the majority of our contracts are fixed, but circa 95% of these are fixed following a 2 stage process to identify and mitigate the risks involved. Our average order size in the construction business is only circa GBP 20 million. This relatively average small order size results in us regularly repricing contracts. The order book continues to be underpinned by significant long-term framework agreements. Our long-term framework positions are excluded from the order book. These represent further opportunities for the group. Moving to capital allocation. We're focused on optimizing shareholder returns. Accordingly, as we generate cash from operations, we expect to deploy that in a number of ways. CapEx is expected to continue to be minimal. Further deleveraging; as you're aware, we're targeting a sustainable net cash position. We plan to invest further in our property business in order to generate consistent returns over time. We will continue to do this in a disciplined and controlled manner. We have previously targeted a range of GBP 140 million to GBP 170 million of capital employed in the property division. The range has recently been under review and has increased to a range of between GBP 160 million to GBP 225 million, given the growth of the group. We're targeting a dividend cover of around 3x earnings through the cycle. With regard to mergers and acquisitions, the group continue to consider value accretive acquisitions in core markets where there is potential to accelerate the medium-term plan. We've always recognized the importance of dividends to our shareholders and reinstatement of one is an important facet of the medium-term value creation plan, which we launched June 2021. We said that we could deliver a dividend cover of circa 3x by adjusted earnings over the cycle. We expected that we would pay the dividends as approximately 1/3 as an interim dividend and approximately 2/3 final dividend. The results presented today show strong operating and financial performance and we have seen a material deleveraging in the period. The significant improvement with the strength of the order book and future prospects of the group allow us to declare an interim dividend of GBP 0.0167 per share. This represents a dividend cover of approximately 4x as we've progressively moved to the medium-term target of 3x. It's very pleasing that the results of everyone's hard work at the company are now being shared with our shareholders who have been extremely supportive over recent years, and as Andrew said earlier, I'd like to thank the whole Kier team for being able to deliver these results. And now I'll hand back to Andrew for the operating review.

So, many thanks Simon. And if we now turn to Slide 18, and we'll look at our infrastructure services' operational review first, so our infrastructure services segment saw a significant growth of 16%, largely driven by additional High Speed 2 capital works activity. And just as a reminder, as part of the Eiffage Kier Ferrovial BAM or EKFB joint venture, Kier is delivering the longest section of civil works, 80 kilometers from the Chilterns to just south of Warwick. We have the lead on project management and program integration in the project venture and the contracts also acquired through the Buckingham acquisition have contributed to this revenue growth on HS2. Our adjusted operating profit increased 30% to GBP 44 million and adjusted operating margin remained strong for the infrastructure services sector at 4.7% as the volume growth translated to profit. We also had positive momentum in the order book with a 16% increase to GBP 6.7 billion compared to the prior period. In terms of significant awards, our natural resources, nuclear and networks division was appointed to the GBP 3 billion SCAPE Utilities Framework aimed at delivering utilities, civils and infrastructure transportation services work, and we're 1 of 2 contractors that were awarded a place on that framework. And with 96% of our revenue secured for FY '24 with our recent wins, we can see an underpin to our future revenue in infrastructure services. The business is well positioned to benefit from anticipated increased opportunities afforded by the new water spending cycle AMP8 as well as opportunities in the rail, energy, and environmental sectors. If we just turn to the next slide, the rail asset acquisition, just an update on that. On 4th of September '23, during the period, we acquired substantially all of the rail assets of Buckingham Group as well as their HS2 contracts supplying, as I said, Kier's HS2 joint venture, EKFB, and we did it for a consideration of GBP 9.4 million. The acquisition provided Kier with new rail clients and increased our capability across the U.K. It also bought 180 employees with expertise in the rail sector, further enhancing Kier's talent pool. And as part of the acquisition, Kier achieved positions on various frameworks and projects, including the Control Period 6 or CP6 North West and Central framework for Network Rail, Transport for Greater Manchester Framework, Transport for Wales Framework, West Midlands Combined Authority, the Willenhall & Darlaston Project, and East Midlands Railway: Etches Park Project, and Nexus' Whitley Bay Project. And the acquisition accelerated Kier's multi-year rail strategy. And just as a note, the historical contractual liabilities prior to the completion date were not acquired as the rail assets were purchased out of administration. The acquisition has been successfully integrated into the group's transportation business and is performing ahead of expectation compared to the time of the transaction. If we turn to construction, our construction business comprises regional build where we construct schools, hospitals, prisons, and defense projects for the U.K. government. It also includes our strategic projects business and Kier Places, our housing maintenance and facilities management business. Construction volumes increased 29% to GBP 915 million, which reflects the volume growth in our regional build business. Adjusted operating profit increased in absolute terms by 1% to GBP 33 million. The business delivered an adjusted operating margin of 3.6%. The period-over-period reduction in margin was in line with expectations and driven by a change in mix as well as the increased overheads to support the additional site starts as a result of the growth. And despite the reduction in the first half of the year, the 3.6% margin remains industry-leading. Within construction, our Kier Places business saw volume growth across facilities management and housing maintenance, and again, as a reminder, the facilities management work is predominantly for the Ministry of Justice and the Home Office. The housing maintenance business delivers repairs and maintenance services for local authorities, and we continue to grow our capabilities and customers in this area with a focus on decarbonizing social housing through retrofit opportunities. The order book in this sector remains strong at GBP 4 billion and we continue to win work in our chosen markets, and the order book now is more normalized level, following the initial increase previously. In the first 6 months of the financial year, we've been awarded 5 education projects worth circa GBP 182 million; 4 healthcare projects worth approximately GBP 81 million as well as a new Category A prison for the Ministry of Justice at HMP Elmley, worth over GBP 100 million. Examples of the type of projects we are winning include our appointment by the Department of Education or DfE to redevelop Bournemouth and Poole College's Bournemouth campus, aimed at a range of students from school leavers to adult learners. Within healthcare, we've been appointed by the Sussex Partnership NHS Foundation Trust to deliver a GBP 60 million in-patient mental health hospital in Bexhill with 54 beds as part of its redesigning in-patient services in East Sussex program. Our construction business has 99% revenue secured for FY '24. If we move to our property business, our property business invests and develops primarily mixed-use commercial and residential schemes and sites right across the U.K. The business is well established in the urban regeneration and property development sector. We largely operate through joint ventures both to manage risk and opportunities. As expected, operating profit slightly fell due to reductions in property transactions due to the difficult market conditions, which have continued from the prior year, but we continue to take advantage of market opportunities where possible in terms of land acquisition, timing of build and selling. And we do so within our disciplined approach to capital, as Simon mentioned. At the end of the year, Kier's capital employed in the property segment was GBP 163 million excluding third-party debt and fair value gains, and this reflects Kier's cash investment in the property segment. And given the group's increased operating cash flows, the benefit of building out certain projects such as 19 Cornwall Street in Birmingham and market conditions showing tentative signs of recovery, we can see a number of attractive buying opportunities. And we've previously targeted a range of GBP 140 million to GBP 170 million capital employed in the property division, and the range, as Simon has mentioned, has recently been under review and has increased to GBP 160 million on the lower end to GBP 225 million on the upper end. And again, as a reminder, the property division targets a return on capital employed of 15%, and we also recycle the capital from our property transactions and therefore these provide a source of future capital to us. We believe that this will generate a return for our shareholders over the next few years, especially given the timing of the deployment within the cycle of the expected market recovery. As we mentioned before, the property division does have synergies with our wider business model with the cash generated from our construction division being redeployed to generate higher returns from our property division, thereby smoothing the returns profile for the overall group. We believe it takes time to selectively invest in sites, season that capital and then transact, and over the longer term, we expect to deliver a more consistent performance from the property group. And similar to the rest of Kier, the property segment has performed well in terms of activity and highlights include our joint venture with the Housing Growth Partnership, acquiring a development site in Royal Tunbridge Wells and selling a logistics scheme in Whiteley in Hampshire. If you move to sustainability now and our sustainability framework, so last year, following our success of our first sustainability framework, we introduced -- reinforced our commitment by issuing a refreshed framework. New framework better aligns our activity to our major customer, the U.K. government, and this evolved framework focuses on 3 pillars; people, places, and the planet. As a reminder, our purpose is to sustainably deliver infrastructure that's vital to the U.K. As a key supplier to the U.K. government, ESG is fundamental therefore to our ability to win work and secure positions on long-term frameworks. And U.K. government's contracts above GBP 5 million require net 0 carbon and social value commitments. In order to help achieve these goals, we are targeting our work firstly to build a workforce, which has the relevant skills and capabilities to deliver these goals, ensuring, where possible, everyone receives equitable treatment and that our people reflect the communities in which we serve. Secondly, we want to leave a legacy, a positive legacy, in the communities through the projects we deliver and the people we employ within them. Alongside this, we aim to further tackle inequality. And finally, as the stewardship of the planet is vital to all of us, we plan to reduce our carbon usage and support our customers with their infrastructure requirements as they manage climate change-related events, and at sites, we're aiming to protect and preserve biodiversity as well as the efficient use of resources on our projects. If we move to environmental progress, we see carbon reduction both as an obligation and an opportunity. So we aim to ensure that we do the right thing and operate as a responsible business, and from an obligation perspective, Kier has had its carbon reduction plan recognized by the Science Based Targets initiative, including our target to achieve net 0 carbon across Scope 1, 2 and 3 by 2024. In addition, our infrastructure services and construction segments are now PAS 2080 certified, the leading standard for carbon management solutions in buildings and infrastructure. And this demonstrates our commitment to designing and managing out carbon from the lifecycle of U.K. infrastructure projects that we deliver for our clients. And from an opportunity perspective, in February, Kier was awarded the London Stock Exchange Green Economy Mark. This is awarded to companies who can demonstrate that more than 50% of their revenues are generated by procuring green products and services. And in FY '23, 64% of Kier's revenue was generated from green activities. The climate change has led to increased opportunities in Kier's and -- Kier's end markets, and for example, the demand for green buildings, green bridges, green tunnels, nuclear, rail and water infrastructure as well. The combined achievements really are a key milestone in Kier's ESG strategy, and it's great to see that this work is being recognized now externally. On the social side, Kier is and has always been committed to investing in training programs to upskill our employees with a view to addressing the requirements of the Industry 4.0 key skills. Kier is a people-based organization and our performance depends on our ability to attract and retain a dedicated workforce. And during this past period, we had over 720 apprentices participating in programs and that represents circa 7% of our workforce. In addition, circa 9% of the workforce are on a formal learning program. As part of our drive to recruit diverse talent, Kier has placed 23 prison leavers and 8 released on temporary license or ROTL candidates in employment either within our business or within our supply chain partners in the first half of the year. Kier also remains committed to offering employment opportunities to those who have served in our armed forces and has hired 24 veterans in the same period. And finally, if we move to the summary and the outlook, our order book has remained strong at GBP 10.7 billion, and provides us with good multi-year revenue visibility. Contracts within our order book reflect the bidding discipline and risk management now embedded within the business. And I'm particularly pleased to report that the group significantly improved upon its year-end net cash position and significantly lower average month-end net debt and has confidence in sustaining this momentum going forward. The second half of the financial year started well and we're trading in line with expectations. Group is well positioned to continue benefiting from the U.K. government infrastructure spending commitments and we're confident in sustaining the strong cash generation achieved over the last 18 months, allowing us to continue to delever the group. And we remain committed to delivering our medium term value creation plan, which will benefit, we believe, all of our stakeholders. And with that, I would like to open up the meeting to any questions. And we'll take the ones in the room first and then maybe go on to line if there is any there later.

Jonny?

I'm Jonny Coubrough from Numis. Could I ask firstly on the property division, what investment opportunities are you seeing and how long is the investment cycle in these assets? And then also how much of the portfolio is currently ready to divest if market conditions present opportunities to do that? Secondly, are you seeing much inflation in OpEx? And then thirdly, has peak debt within the year, has that reduced in line with the reduction in average net debt?

Shall I take the first one, Simon?

Yes.

So investment opportunity, we do see a lot of investment opportunities. As I said, we think the market is now beginning to turn like that. We've got real skill sets in urban regeneration, in particular. So a number of our joint ventures are with local authorities, which is the obvious synergy we have with our operating businesses. And we do see the sort of the opportunities, as I mentioned, coming out of the climate change opportunity. A lot of offices now are moving to Cat A offices, and therefore, if you're not into Cat A office in many of the regions, there's an opportunity to redevelop that. And we are seeing opportunities to acquire those offices with maybe residual rentals and then redevelop them for mixed-use purposes. So yes, that's the sort of the primary opportunity space. On top of then the pre-existing opportunities we see in last mile logistics, we're seeing that continue as well, and then the more traditional office space in the larger conurbations. So we do see good opportunities now emerging and that's why we wanted to increase the capital available to the business, should they wish to use that. Your second question, Jonny?

[Technical Difficulty]

About 30% if you really. Yes, I mean, but you obviously miss the opportunity on the upside then. [Technical Difficulty] Yes. OpEx inflation, we've probably seen running at about between 3% to 4.5%. And peak debt, yes, peak debt has moved pretty much in line with average reduction.

Joe Brent at Liberum. I might ask one at a time if that helps. So the first half revenues of [ 23%, ] clearly a big number. Have you got any sense of how that splits between volume and price?

Do you want me to take it or you want to take it?

You go for it, Andrew, and then I'll correct you.

The answer is both. Okay. So we have seen a lot of volumes. You recall we had a lot of growth in our order book a couple of years ago as Kier recovered its position, strengthened its balance sheet, did the equity raise, sold Living et cetera. Then a lot of the clients did move back towards Kier, their natural home was operating with Kier. So you saw a lot of then volume increase, but obviously that then came at the same time as inflation. We've always said the inflation did put a little bit of delay into that process of getting that order book converted into spades in the ground and the revenue coming through. So there is a little bit of inflation coming in there in terms of that volume growth, but that was always in the assumptions as well. It may have been slightly higher, but what we didn't see is a decrease in the volumes coming through because of the inflation. We just saw slight delays coming through. So a specific number, Simon can probably give you, I can't, but there is a mixture of both.

Yes. I think there's a mixture of both, but it'd be very difficult, virtually impossible to go through it because along with the delays that Andrew mentioned, the inflation pushed all of these projects up, but then what would happen is the customer couldn't get the budget. So you typically then had to value-engineer it out. So I don't know how you want to articulate that. So there's a price benefit, but there's a volume reduction because of the fact that you had to value-engineer out a lot of the content of the projects to get back into the original customer budget.

Secondly, on working capital, you helpfully give the supplier days. Could you talk through what's going on debtor days?

Debtor days remain very good, typically about 14 days.

And finally, on the order book, you've talked about, I think, 60% being cost plus and target cost, cost reimbursable. The balance 40%, could you give us a sense of what the composition of that is?

The 40% that's fixed?

Yes.

Yes. So the 40% that's fixed is 95% of it's fixed on a 2 stage process. So whilst it's fixed, it's fixed after you've been working between 6 to 18 months, sometimes longer with the client, and sometimes you won't even fix all of it out. You'll have provisional sum within that.

The point is, the route to contract is a negotiated route. There's no single stage. 95% of it is through a 2 stage process. Negotiations, you identify the risk, identify the contingencies you need to put in it, allocate the risk. As Simon said, some are just left with the client on provisional sums within those contracts. And then also remember, the average size of those contracts is circa, I think, GBP 30 million, Simon?

[ GBP 20 million. ]

Okay. Circa GBP 20 million. So the repricing that goes on in those types of contracts is on a frequent basis. So if you are in an inflationary period, you can quickly reprice them for the next contract that comes along. So there's many mitigants to that, but it's -- the route to contract is the key to this. And as Simon said, it's 2 stage negotiations for those. And the ones you can't get to a fixed price contract, as we said, overwhelmingly, in the infrastructure, you'll have cost reimbursable in those.

Okay. There's one at the back. Right at the back.

It's Rob Chantry from Berenberg. Thanks for the presentation. Three questions from me. Firstly, just on the competitive environment in construction, how do you feel you're getting on in terms of are you winning more than your fair share of work or in line with market? Secondly, obviously really good progress in the revenue kind of progression. Could you help us think about the 5 year view plus on Kier, given progress towards those medium-term targets at the revenue line has been very good in terms of how much risk appetite you'd like to take and the kind of the medium-term thought process around that? And then thirdly, I guess, relating to Jonny's question on ambitions in property, are there any parts of the property division you'd look to scale more quickly, namely urban regeneration, affordable housing contracting et cetera, particularly thinking about housing -- how government targets could be delivered on a multi-year view and the focus on new skill set and affordable housings et cetera?

Right. I think I've got them all down.

Don't worry. I can [ go back if you ] need.

So competition first, how do we think of our competitive position? I think our competitive position is good because I think the actions we've taken over the last sort of 4, 5 years right at the beginning of sort of sorting our cost base out, sorting our balance sheet out has positioned us very well. And as I said, a lot of the clients, after we did many of those activities, did want to return to Kier and they have returned to Kier, and then we've seen -- despite the delays caused by inflation and everything else, we've seen they're getting spades into the ground through those 2 stage negotiations in particular, we're now seeing that revenue come through. So I think our competitive position is good. I hope our GBP 10.7 billion order book would support that. But the other point I'd make, and I'm thinking here of the sort of publicly listed companies who really do compete with, the people -- I mean, there's all -- in all those companies as I see is a disciplined approach to contract management. They're all entering through the similar sort of process of cost reimbursable contracts on the larger riskier contracts in infrastructure and then where they can fix out contracts, they're doing so through sensible 2 stage negotiations off the frameworks, very similarly to the frameworks we're on. We have a lot of common positions on those sort of frameworks. So I do think we're well positioned because of the actions we've taken, but I also think the market is still very, very attractive in these sectors, in which those public companies work for. I can't speak to the commercial markets. We don't really operate there in that sort of sense. So we do feel pretty good about our competitive position. And I think all the metrics do support that. In terms of revenue progress, I mean, I think the question was next 5 years. I mean, we -- again, I think it's similar sort of answer I gave, Rob, because I do think whatever happens politically, there's a requirement in the country to recapitalize schools, hospitals, roads, to take the opportunities afforded by climate change, as I've mentioned, in terms of water, water management, flood alleviation, et cetera, nuclear build program, et cetera, et cetera. So I do think there's an awful lot of opportunities. I think our growth will more normalize going forward because we have had this slight recovery in the position that's come through. So I do anticipate normalized growth going forward, and that's pretty much what the outlook sort of says. And again, to the competitive position, I think we're well positioned in all of those key markets. And there's probably one additional market which I think probably both parties will turn to or main parties will turn to and that's affordable housing in the main, and we're very well exposed to that either through our property business in the urban regeneration activity, where we do a lot of property in the affordable or social sector as well as in construction, contracting it out, and then obviously in our maintenance business, places in the social housing maintenance. We feel we've got a good exposure to that. And I do think that will be a really good swim lane going forward. Property, I think I've given the answer. We do see good opportunities and that's why we're positioning property, in particular in the mixed-use regeneration capabilities. We think there's real opportunities there. Just take our joint venture with Network Rail, the Solum joint venture. I mean, much of what we're doing is turning sort of slightly redundant land around stations, in particular in the southeast where our relationship and our JV is, into affordable housing for key workers, for example, in -- Guildford's a great example, where we've just done it and we pre-let it and sold it to Grainger, who then take it and do what they do with it. But that's all for key workers, all social housing, all PRS type activities. So we do see property -- good swim lane for property in that sector. Andrew?

Andrew Nussey from Peel Hunt. Two questions left. First of all, could we turn to Buckingham and give us a feel for what the contribution was in the period, and more importantly, how the business is faced going into sort of CP7 and what sort of growth rates you think the business could deliver and equally the sort of potential timeline to getting margins up towards sort of infrastructure type averages? Sort of the first question.

Yes. So Buckingham, Andrew, with regards to Buckingham, yes, you'd get less than 3 months in the period, obviously. So the turnover would be about GBP 20 million that's in there, and the margin would not be dissimilar to our infrastructure margin.

And sort of the positioning going to CP7, getting those frameworks moved on from CP6?

I think we're well-positioned. We're the incumbent. We're building out a lot of capability as -- with the Buckingham acquisition. So yes, we -- I think we would be well-positioned, but we will wait and see.

And sort of looking at the supply chain, clearly, there's a lot of hiatus there. Can you just give us an update on the strength and resilience of your supply chain? Have you faced any issues and how you're looking to sort of mitigate those moving forward?

At the macro level? No, I think it's settled down. I think the supply chain that we operate with, don't forget, is quite a regionalized supply chain, in particular in the regional build business where we are devolved out into the regions. So we have very strong long-standing relations. We have a great order book. They find that very attractive, as we do. They want to work with us. So we get, to a degree, first choice, and we obviously have contingencies in place. At the micro level, you'll always get 1 or 2 issues coming up and we do have 1 or 2 issues, and part of that is to manage it through the risk management processes we have in place. But at the macro level, no, we're not seeing issues affecting us. I can't again comment on the -- sort of the other sector, the commercial sector, which I think is probably a little different, but that hasn't spilled over and affected us. Adrian?

Sorry. Adrian Kearsey, Panmure Gordon. Two questions, one going back to property, and the other to talking about the talent pool within Kier generally. On property, you've given us a flavor in terms of what kind of projects are sort of giving the growth, giving the opportunities. How much within that enlarged capital pool will you apply to any specific projects? And within that, perhaps to give some detail about what kind of relationships you will go for within joint ventures.

We tend to do in joint ventures and there's a number of reasons; manage the risk, manage the acquisition of debt into those things on a normalized basis in a disciplined way, market-to-market all times et cetera, et cetera. That's just a technique, I think of it. But our preference, although it's not absolute, but we do have a preference, is working with synergistic clients, the local authorities, Network Rail. These sort of people who we talk about in the operational businesses and we also talk to in the context of doing JVs with them in property because we understand them, they have a need, which is both political and financial, to put sort of land and get land to use to start to generate revenue. If they're -- a lot of the local authorities don't have the skill sets to do it, so they look to us to facilitate that. But the great thing about that is the variability in the economic assumptions tends to be the valuation of the land that goes into it. So that's why it's attractive. It does mean it takes a little longer, it does mean the ROCE is a little lower than you would have in the commercial sector, but that is a very attractive market to us. But it's not overwhelmingly where we operate. We do operate in last minute logistics as well. We do operate in direct office, Cat A office buildings, as we said, and Cornwall Street is a classic example, in Birmingham. So there's no absolute allocations and then obviously we do, as part of those regenerations with the local authorities of Network Rail, we do affordable housing as well as PRS, et cetera, et cetera. So we don't have any direct allocation of that GBP 50 million. We haven't said, well, we're going to spend on this, this, this and this, but we are looking at a range of opportunities, which we believe are available to us, but we'll only do so in a disciplined way. So that's...

And in terms of the talents in the past, you've sort of highlighted the very large number of very skilled individuals that you have within the group. What's the ambition in terms of, is that something you're going to keep stable or you increase, and what's the project opportunity with having that investment?

So the core business, we'll always upskill and we'll always try to train our own and bring our own in. So 720 apprentices in the period, 250 graduates, et cetera, either through the Kier Graduate Scheme with Sheffield Hallam University or coming in as cognitive graduates and we're training them up, into various roles, operational management, surveying, whatever it is, so we always -- and we always have taken absolute maximum advantage and full use of all the levies we pay to CITB and the apprentice levy and getting that sort of reimbursed through the active training programs we have. And we've got a fantastic team led by Ian Dickinson, who does that for us in making sure we get the maximum bang for the buck, but it comes from our commitment to training in the first place, not our commitment to getting the money back. If you don't train, you don't get the money back, as simple as that. We want to train because we want our own skill sets, our own culture, et cetera, et cetera. So there's a lot of replenishment. We then have a lot of, I think, quite imaginative ways we do try and help our clients. And I mentioned in the piece, the prisoners released on license, the veterans, et cetera. We will try and attract talent where we can, and we're a real believer that there's plenty of talent in all of these places since a lot of people needs a second chance in life and that's what we do afford to them. So that's the sort of basic business, but you will increase your workforce in a lot of the maintenance contracts. So for example, Somerset Council, we've just taken on, I think it's a 4 or 5 year, I can't remember, contract with them to look after their regional roads, and you'll TPL a bunch of people across with that. So you will increase your gene pool by doing that type of activity in one-off TP transfers in [indiscernible] where it does increase markedly on those types of contracts. But the base core business, we like to produce our own. And right to the top of the organization, we are trying to get a culture where we continually replenish even the most senior positions on ExCo from people who've come through the organization, most latterly, Louisa Finlay as our CPO. Hi, at the back.

Lewis Roxburgh from Investec. First one technical, more general on the second. So just what are your expectations on full-year working capital? And just more generally, how do you intend to manage that alongside deleveraging the investments into the business and now the resumption of the dividend payment? And then the second one, just obviously great progress on sustainability metrics. I just want to sort of get more of an idea for the opportunity of green infrastructure and what constitutes green infrastructure.

Yes. So working capital for the full year, I mean, you typically see this seasonality. So activity will ramp up in the summer and we'll get a meaningful working capital inflow in the second half of the year, which is why if you look at consensus, it'll be around GBP 150 million worth of net cash at the end of the year.

And on green infrastructure, I gave a bunch of examples, I mean, the general sectors in which we're operating in and which are being triggered by the government's policy and strategies, national infrastructure strategy, et cetera. You look to the nuclear program in the first instance; you look to the rail, the various rail programs, they're sort of promoting; you look to energy distribution programs; you look to water management programs, flood alleviation programs; all of these are generally being driven by climate change or the sustainability agenda, and they're all in sectors in which we operate. And then within those sectors, we're seeing more and more now schools being built to Passivhaus Standards, and we've got a good pedigree in that. Just down the road at Mulberry Dock, we're building a Passivhaus school. We've built St Sidwell's sports center in Exeter to Passivhaus Standards. In Scotland, we're building 2 large schools to Passivhaus Standards as well. So it's a skill set about how you methodically build a building and evidence that you're building it to those higher Passivhaus Standards which meets then to all the energy standards. So there's a raft of sort of macro stuff building nuclear energy facilities through to the methodology for building schools as well through Passivhaus Standards. And it has cost implications in terms of the first cost, but through life, it easily pays itself off. So that's the trade-offs and the complexities which a lot of our clients are having to go through now as to how they trade off the through-life decreased costs, decreased carbonization through the increased cost of building a Passivhaus school in the first place. But no, we're seeing this is the obligation piece as well as the opportunity piece. They do really go hand in hand, and Kier has, I think, really got that message that this is more of an opportunity than an obligation. And that's what we're chasing. Are there any more questions in the room? Perhaps I'll ask if there are any questions then online. I'm not sure...

We currently have no questions on the phone lines. [Operator Instructions] Currently we have no questions on the phone lines. I'll hand back to the team.

Okay. With that then, I'd like to thank you all for coming, those of you in-person. Thank you for those of you who are online. And have a good day. Thank you very much.