Morgan Sindall Group plc (MGNS) Earnings Call Transcript & Summary

Well, good morning. It's very good to see a packed house this morning, I must say. The agenda is I'm going to say a few words. Steve will then go through everything that happened last year. I'll then talk a little bit about strategy, medium-term targets and 2020 outlook. So we think we've had a pretty good year. And in fact, it's another record year. This would not have been possible without all the hard work of all of our teams up and down the country. And I'd like to thank everybody in the business for these results, and particularly for making our businesses better and better and better for all the stakeholders. Our strategy is the same. It's organic growth, construction and regeneration, we're in the spaces we want to be in. Cash and balance sheet makes a huge difference, just enables us to make the right long-term decisions for the business. And we've got great momentum going across the group. I'll pass it over to Steve.

Thanks, John. Good morning all. As usual, I'm going to do the financial and operational review. So in summary then, as John said, 2019 has been a good year for us, and you can see the big headlines here are the numbers in green. So revenue is up 3% to GBP 3.1 billion; profit before tax, up 11% to GBP 90.4 million; GBP 109 million of average daily net cash, which was up GBP 10 million; and then there's an 11% increase in the total dividend for the year. Those are the headlines. So just going straight into the income statement. And this really does show the benefit of us focusing on operational delivery and improving the quality of earnings. So we've got the operating margin growing by 10 basis points up to 3.0% and operating profit up 9%, all of revenue of GBP 3.1 billion, which was up 3%. With lower interest in this period then, profit before tax is up 11% to GBP 90.4 million. Earnings per share is up 6% to 161.2p. And as I just mentioned then, we've increased the total dividend by 11% to 59p per share, which is in line with the growth in profit and represents a very comfortable 2.7x dividend cover. So if we just look briefly at the divisional makeup of this result. Firstly, Construction & Infrastructure, another period of margin improvement. Its margin is now up to 2.2% and an operating profit up 20% to GBP 32.3 million. Fit Out did well, revenue up 1% and profit of GBP 36.9 million and a still very, very healthy margin of 4.4%. Moving down, Property Services has really started to get some momentum, with its margin up to 3.7% and profit up significantly to GBP 4.3 million. On the regeneration side, Partnership Housing has shown some good signs of operational improvement, profit up 50% to GBP 18.3 million. And then Urban Regeneration has had another strong performance. Lots of activity going on in its development portfolio, leading to profit of GBP 19.4 million and importantly, a return on capital of 19%. Investments lost GBP 2.4 million. And then with Central costs of GBP 15.7 million, this all then adds up to the group operating profit of GBP 93.1 million and a margin of 3.0%, which, as I just mentioned, is up 10 basis points from last year. Just straight on to cash, and you can see here the standard operating cash flow for the year, which shows a cash inflow of GBP 35.4 million. Just a couple of points to draw out on here. Firstly, the cash flow shows a working capital investment in our regeneration businesses of around GBP 33 million, which I've shown separately in one of the columns. And then secondly, of the total working capital movement of GBP 61.9 million, this includes a reduction in contract liabilities of GBP 42 million. And so what this effectively means is that at the year-end, we have less cash upfront on construction than we had at the previous year-end. Now specifically, in relation to payables and trade creditors, one way of illustrating any underlying trend is to look at our payment practices reporting for the period. This table on the slide here shows the details for our construction activities only, and this is as formally reported for the second half of last year. So it's the 6 months ending December 2019. The numbers in green, you can see, green and red are the movements compared to the first half of last year. So green here is good, an improvement, while red is not so good and a deterioration. So what you'll see here, improvements in Construction & Infrastructure, which is our largest division by revenue, where we're now showing the average time to pay invoices is 32 days, with 97% of them paid within 60 days. It's still not top of the class, but it's moving in the right direction. Note also here that Fit Out now pays its invoices on average in 20 days. We do what is necessary here to maintain our market-leading position. Now there's always room for improvement on payables and payment days. And of course, there is. This is a continual, continual process. But hopefully, what this slide shows is that we're on with it. We're improving, and we are getting better. And in those areas where we're not, we're identifying those areas, and we're addressing the issues because we take our supply chain relationships very seriously indeed. Anyway, as you know, traditional cash flow statements just measure cash point-to-point and are determined simply by the cash balances on 2 days of the year, one at the beginning and one at the end. To me, they're not at all representative of the true cash position and miss out completely what goes on in between. So as we've said many times before, much more important is our average daily cash position, which, in 2019, you can see on this slide, was up GBP 10 million to GBP 109 million. And this graph here, which you'll recognize, now shows our net cash balance for every single day of last year. That's the big thick black line. The green line here shows the net cash of every day for the previous year, 2018, and the gray line is for 2017. So as I say, what you've got here is our cash balance for every day for the last 3 years. Nothing to hide. It's all there. You can see it. So interestingly, this shows a fairly consistent profile between years, with H1 tending to be slightly higher with cash that may be dipping in Q3 at the beginning of Q4, only then to climb back up towards the end of the year. Again, you can see on the slide, our minimum net cash position on any one day of last year was GBP 63 million, about sometime in May. The highest was GBP 207 million in January. That shows the extent of our swing in the business. It's all there. Importantly, at no time in the year did we go into a net debt position, as you can see, far from it. And going forward, as a group, we're committed to maintaining an average daily net cash position for the foreseeable future. And then on top of this, our bank facilities remain at GBP 180 million, which is shown by the light blue line at the bottom of this graph. These extend out to 2022. So this gives us plenty of financial headroom and plenty of financial security. And what this does is it allows us to make long-term decisions in the best long-term interest of the business rather than just short-term decisions based upon short-term cash considerations. So if we look ahead to 2020, based upon our current plans and our current timing through investment, particularly in Partnership Housing, our best estimates at the moment is for average daily net cash to be in excess of GBP 60 million for the year. Now what this guidance effectively does is put a floor on our average daily net cash position for the year. In reality, we expect to improve on this as the year progresses, as for example, we may choose to fund developments in more efficient ways, but we won't know until we get there. So the message here is expect us to do better than this on net cash, and we'll obviously keep updating you with this forecast as the year goes on. Anyway, all those various cash movements in the year then translated into an overall very healthy cash position at the year-end of GBP 193 million. And then so also in the context of the last few slides on cash, our balance sheet is in good shape. Net cash, no pension concerns, tangible net assets of GBP 173 million, all of which stands us in good stead with our customers, our suppliers and, importantly, our own people. On to the order book. We've also had a really good period of work winning, with our total future workload now up 14% to GBP 7.6 billion. Now we've had a slight change in terminology here, which is just worth a few moments explaining. The total workload here is split into 2 components: the secured order book for our construction-type businesses, that's Construction & Infrastructure, Fit Out and Property Services, shown on the left; and the secured order book for our regeneration-related businesses, Partnership Housing, Urban Regeneration and Investments is shown on the right. Now it's the same prudent definitions for both as we've used before, so they only include orders or agreements where we have a signed contract or a signed letter of intent. No preferred bidders or prospectives are included. It's a high hurdle rate for inclusion in our order book. But what this does is it enables us to budget and plan our business accordingly. So the secured order book for our construction businesses grew 17% from the year-end, up to GBP 3.7 billion. And this was really the aggregates of various divisional movements, which I'll come on to later. On the right-hand side, the regeneration secured order book was up 11% to GBP 3.9 billion. Now the only difference in definition here is that it also includes our share of the gross development value of secured development schemes. And just to remind you, secured schemes here are development schemes which we've won or already signed up. And again, it does not include preferred bidder or prospectives or any other items. So at GBP 3.9 billion, what this does is it gives us good visibility for the long term, with around 80% of its value being derived for 2021 and beyond. So that's really the group headlines: strong profit growth, strong cash, strong balance sheet and a high-quality workload. We're in good shape. If we now just look a bit closer then at the divisional performances. Start off with Construction & Infrastructure, and again, a much improved performance. On the Construction side, we had a really good year with continued margin progression, reflecting the benefit of us focusing on operational delivery and disciplined contract selection. With revenue in Construction up 4%, the margin grew to 2.8%, up 40 basis points from last year. On the Infrastructure side, we saw strong revenue growth, up 16%. However, the margin was slightly disappointing. At 1.8%, this was held back by the underperformance on a few jobs. Quite simply, a few jobs just didn't go quite as well as we would have hoped for. Now as you can see here, the overall divisional order book at GBP 2.3 billion is up 18% from last year. But within this, we've got Construction's order book up 27% and Infrastructure's order book up 16%. And it's all good, high-quality work. For Construction, going into 2020, we also have around GBP 675 million of preferred bidder work, work at preferred bidder stage, which we'd expect to convert into the order book into full orders during the year. Regarding Infrastructure, most of its work is through frameworks in excess of 90%, in fact, and has the best part of all its revenue secured already for this year. Construction & Infrastructure to us is all about discipline. It's disciplined bidding. It's disciplined operational delivery. And it's disciplined risk management. There's plenty of work out there in the market for us to win. We just have to keep our heads and keep our discipline with what we take on and how we deliver it. And that is exactly what we're doing. To reiterate here, the overall strategic focus for this division remains firmly on quality of earnings and quality of work. Now although Fit Out's profit is down year-on-year, it has performed expected against a very strong prior year comparator. With a profit of GBP 36.9 million, this is still a really good result. During the year, we've seen a general tightening in overall market conditions, which is as we expected and predicted, but this has translated into the lower margin. However, again, we do just need to keep this in perspective. With its market-leading position and strong project delivery, the margin at 4.4% remains very healthy indeed. Now the order book at the end of last year was GBP 480 million, which was an increase of 2% from the last year-end and up 3% when compared to the half year position. And of the total order book, GBP 419 million is for the current year 2020. So a very encouraging position then to start the year within Fit Out. In Property Services, revenue was up 15% driven by new contracts and -- from increasing the scope of existing contracts. Good news here is that the impact of this revenue increase and the improving operational and contract efficiency has really started to drop through to the bottom line, with profit up to GBP 4.3 million and a margin of 3.7%. And there's some great work going on in this division. And we've won some good contracts, which were mobilized in the earlier part of the year, which should also grow in scope as we move forwards. With the order book of 25% from last year-end to GBP 904 million, there's also still plenty of work to go for here. Partnership Housing, we've seen a much better performance. Still not quite where it needs to be, but this result shows that we're moving in the right direction. Profit was up 50% to GBP 18.3 million, and the margin improvement of 120 basis points was driven by the improvement in operational delivery across the piece, both on the mixed-tenure side of the business and the contracting side of the business. Now this division and its market remains a significant opportunity for us, and the key priority for us has been to reset our approach to work winning, which is an area where we've fallen behind others in previous years. And we've seen some good signs of success here, with the total workload increasing 6% to GBP 1.1 billion, this after a number of years, as I mentioned, where the order book had declined. But on this, just let me reassure you, there's been no compromise at all in the quality of work we've taken on, and there's been no loosening of our returns hurdles simply to win work. Again, we're maintaining our discipline in all areas for long-term success. Now the average capital employed for the last 12 months was as planned, GBP 152 million, which was an increase of GBP 37 million on the prior year. And it's this increase in the capital employed which has meant that the return on capital for the year was only slightly up on last year at 12%, and this being despite the big jump in the profit. For 2020, specifically, we're expecting capital employed to increase further, up towards around GBP 200 million. And therefore, again, although we're expecting higher profit in the year, this higher capital estimate will obviously, again, limit the progress we make on the return on capital measure, simply the math. On Urban Regeneration, it's had another good year and one, again, which absolutely reinforces our regeneration strategy. Profit was GBP 19.4 million and is really indicative of the high level of activity across its entire development portfolio. This profit was generated across all sectors and all geographies. And the order book, which stands at GBP 2.3 billion, was up 9% from the year-end and reflects its diverse spread. The average capital employed for the last 12 months reduced slightly to GBP 102 million at the year. And for the year ahead, based upon current scheme profiles and our funding plans, we expect the average capital employed to reduce to around the GBP 90 million mark. Now the return on capital over the last 12 months was 19%, which is right up towards where it needs to be. And on a rolling 3-year basis, the average return has now increased to 15%. So good progress all around there at Urban Regeneration. For Investments, although as expected, we made a loss in the period. Positive progress was made across its various joint ventures and in developing new opportunities for construction work across the group. Good news in the year with the division winning its fourth local authority property partnership, this time with Brentwood Borough Council, plus further development of the division's later living and extra care development business. And both of these should provide good opportunities to deliver significant future value to the group. So that covers the divisional performances. I just want to spend a few moments actually on an area which is of equal importance to us as the numbers are, but one which hasn't really taken center stage recently, and that's our obligation to be a responsible business, or now it's more commonly referred to by investors as ESG, environmental, social and governance. I just want to briefly cover this area. So Morgan Sindall, we refer to this whole area as our total commitments. These provide a framework for our common strategy, which is focused on all our stakeholders. And this is a framework which we had in place since 2008. So this is not new for us. You can see here on this slide, these commitments to us fall into 5 headings, or categories if you like, and these are derived from the UN Sustainable Development Goals. Now this is a really busy slide, and you can read at your leisure. But each of our total commitments has a range of KPIs, which we use to measure progress and performance over a number of areas, and we formally report against these every year. And I want to briefly just touch on 2 of these commitments, which were perhaps as topical as any at the moment: improving the environment and enhancing communities. But before I do, I just want to draw your attention to one such KPI on here, and that's our gender pay gap. Now you can see here, it's 31%. Not great in itself, but the main issue for us is it really hasn't shifted at all over the last few years. As an organization, we simply have to increase our diversity. And that's diversity in everything we do. It's gender, ethnicity, it's all of it, all diversity. But there's not a quick fix at all to this. It will take time. And despite lots of good work and lots of good initiatives going across the group, we do acknowledge that we still have a long, long way to go to get to where we need to be on this area. So in terms of our commitment to improving the environment, we see climate change and waste management are the 2 key areas for us as a focus. Just carbon emissions specifically, we've had our data independently audited since 2010 and have reduced our carbon emissions by 57% since that time, despite our growth. But looking ahead, besides from meeting our own carbon targets, the biggest impact we can have going forward is to focus on reducing our indirect emissions. It's those generated by our supply chain on our projects and those generated by the end users of our buildings. And then under enhancing communities, we see community engagement and opportunities for young people of the key areas of focus for us. Just worth noting on this slide are our 2 existing social enterprises, one in Cumbria and one in Basildon, where we work with clients and local partners to help people back into work through training in trade skills and general employability skills. And we're able to set up such enterprises due to the long-term nature of our contracts and the long-term nature of our client relationships. Now as you'll appreciate, total commitments in ESG in general are a huge subject, and I can't possibly do justice to all the work we're doing across the piece here. But what I hope I've done is just to give you a little flavor and demonstrate that we are alert to this area. We are alert to the challenges of operating as a responsible business in the world today, and it's high up on our agenda. So finally then, back to the results and just by way of summary. 2019 has been a good year for us with a strong set of numbers. As an organization, we're in good form, really good form. Profit, balance sheet, cash, all in good shape. We're also very well placed for 2020. How well placed? I'll let John tell you in a moment. But sufficiently confident that we've also increased the dividend for the year by 11%. Thank you, and let me now pass you back to John.

So I'll just talk a little bit about the group strategy, which is broadly unchanged. We're in the business segments that we want to be in, and we're not looking to move into any others. We're looking very much at growing those businesses organically rather than acquisitions. And of course, as you can see, some of our businesses still need some self-help in order to get to industry-normal margins. What we're also looking at is very long-term work streams. So we are particularly interested in work streams that go on for 10, 15, 20 years. So you will find that our order book will be growing faster than our turnover, and we think that gives a better quality of business long term. We also think it's really important that a business like ours has average daily net cash. So we see that remaining for the foreseeable future and is very much a part of our business plan. It was 3 years ago now that we set some medium-term targets for each of our businesses. So we think it's now time to sort of revisit those and give a bit of an update on what's happened at that time. So if I could talk first about Construction. The strategy here is very much about being really disciplined and only pricing for jobs where we can really do a brilliant job and really, really do a great job for clients. So there's a lot of work that we don't do. And if we don't do -- if we do work that we can't do well, it really doesn't take us anywhere at all. So a lot of the work we do is 2-stage tenders and frameworks. It also gets quite a lot of its work from our Investment business. When we set the medium target 3 years ago, we said 2.5%. We're now upping it to 2.5% to 3%. And of course, we made 2.8% in this part of the business last year. So going forward, we see the profit growing by turnover increasing rather than further increasing the margin. So with Infrastructure, which concentrates on rail, roads, airports, nuclear and energy, again, here, we're looking for very, very long-term work streams, and that's increasing dramatically all the time. So what we really want are multiple jobs with the same clients rather than being on the big prestige jobs. We're actually also a bit concerned that the JVs between various contractors seems to be a default position for a lot of these jobs. We think that's very often not the right way to go about it and only want to enter into JVs where we think there's a real compelling reason to do so. With JVs, we lose quite a lot of control, and quite a lot of our people go into JVs and don't feel part of the mother ship. We also want to question whether it's the right thing for a lot of clients who have sort of a multiheaded organization to deal with. So we would expect to see less JVs going forward. 3 years ago, we said that our target was a 2.5% operating margin, and we upped that to 3% last year. Looking forward to 2020, we would see a very modest increase in turnover, but we'd expect the margin to be much closer to our target margin of 3% than the margin it was last year. Fit Out, where we're the market leader, it's all about maintaining that market position and maintaining the earnings. So it's all about being -- making certain we are 2, 3 or 4 steps ahead of everybody else in delivering great client service because service here, it matters so much. We also expect the business to expand more outside of London, where we're already strong. 3 years ago, we gave guidance of -- a target of GBP 25 million to GBP 30 million. We then upped that to GBP 30 million to GBP 35 million. And we're now saying let's expect circa GBP 35 million profit. For 2020, we got an order book and a pipeline that looks pretty promising. So we're pretty confident we're going to meet that target in 2020. Property Services is all about discipline, going for the right jobs and setting them up properly. And we find the right jobs are jobs which are near other jobs, so we can have a hub of jobs and actually get some economies of scale and able to give better service. Here, IT and our leadership position in IT is fundamental, and we have to keep that. And we have to continue to focus on social value, which is very, very important for this business. 3 years ago, we said that we expect to make a profit in excess of 3%. We're now saying we're looking for an operating profit in excess of GBP 10 million a year in the medium term. So next year, we expect to move forward, both in terms of revenue and margin towards that GBP 10 million. Partnership Housing is the business that probably has the furthest to go. We gave -- we got -- here, we have national coverage. We've got a great name, but we've probably been punching a bit below our weight. We're now investing heavily in the business. And as you can see, it's already showing signs of improvement, but we've got a long way to go. Our medium target was 20% that we set 3 years ago. It's still in excess of 20%, but we've introduced also an operating margin of 6% because we think the 2 are needed really to assess what this business is doing. So in 2020, we certainly expect the profits to increase, but the ROCE probably won't increase because we're investing more money. Urban Regeneration. This again is very, very, very long term. So in our internal 5-year business plan, we don't have anything in that plan where we don't already have a signed development agreement because from winning these jobs to getting on-site can take many, many years, but then we can be on-site for 10, 15, 20 or 25 years. So very, very long term. What we have done here, we had a target of a ROCE towards 20%. We now think a better way to judge this business is on a rolling 3-year ROCE because by definition, it can be just a little bit lumpy. So we're now up to about 15%. We expect next year that 15% to move closer towards 20%, but we expect the profit to be down because we will have just a little bit less money invested. Investments. This is all about what it can do for other group companies and what work can they win, which is very, very long term that the companies cannot win on their own. We did have -- we introduced the target about a year ago on a ROCE, but we actually think much more important to us is their ability to get work for the rest of the group. And we would expect them over the next -- in the medium term to win another 3 further local authority partnerships. Now these partnerships last a long time, typically 10, 15 or 20 years, and are worth typically several hundred millions each. So this can actually make a huge difference to the group. And next year, we see the focus on winning more high-quality work for the group, but we still expect a small operating loss. So in summary then, with Construction, we expect 2.5% to 3% operating margin, but the growth will come in increased turnover. With Infrastructure, we expect the growth in profit to come from moving towards a 3% operating margin with modest increase in turnover in the short term. Fit Out next year, we're pretty confident it will do circa GBP 35 million on what we can see so far. And Property Services, we expect to see moving further towards its operating profit of GBP 10 million. Partnership Housing, we expect the operating margin to improve more than the ROCE next year. And Urban Regeneration, we expect to see the 3-year average ROCE, again, moving towards the 20%. So if we look at them all in total, we expect the group profits to grow with a combination of increased margin and increased turnover, but relatively modest increase turnover. So I guess if I just summarize that we feel we're in good shape. We've got some real momentum in the group. We've got a great order book. We've got a balance sheet which enables to make the long-term decisions, and we feel pretty good about life. Thank you very much. Any tough questions for Steve?

Andrew Nussey from Peel Hunt. A couple of questions, if I may. First of all, in the Construction division and taking on board the comments around margin should therefore mean focus on top line growth, how can you reassure us in terms of your ability to secure the supply chain, to deliver that, particularly in an environment where it's certainly suggesting that there's going to be more activity out there? And secondly, in Infrastructure, the 3% margin target, how much is that dependent on the market as opposed to your own self-help actions?

I think on Infrastructure, we've got a great order book with some very good margins in the order book, and it's about self-help and making certain that we do the job very, very well. On Construction, we don't think we're going to have a huge problem with the supply chain.

Stephen Rawlinson. Can I ask 3 questions, if I may, please? Just firstly, with regard to -- I mean so the numbers sort of speak for themselves. So we're sort of more into sort of more general questions about the market, if you don't mind, in this particular case. But just 3 things. Firstly, with regard to investments in Fit Out. And clearly, over the last 3 to 4 years, there's been big changes in demand for retail and office accommodation in terms of the start of it and in terms of the locations of it, and you've touched upon it yourself with regard to Fit Out in London. I suppose the question is, has that led to any sort of meaningful changes in the way you're approaching things and an increase in costs? Secondly, with regard to margin development. One of the internal developments that you perceived and it threaded throughout the statement is with regards to your design and build contribution. And is that something that you are developing? Obviously, you've had BakerHicks for some time. Is there some way you could help us understand how the margin improvements are arising from your greater involvement in design? And is that a Morgan Sindall thing or is that a customer-led thing that they want you to be more involved at an earlier stage in projects? And finally, just with regard to one specific area. I was just looking at the Investments piece. And you obviously talked about strong growth in later living. Could you just talk to us a little bit about how you are minimizing the risk? Because you're building extra care homes, care homes and the reassurance that actually -- you're actually just building them rather than necessarily getting involved in the future upkeep or about the care side of life or the maintenance side of life. Just talk a little bit about that, please, if you don't mind.

Yes. I'll take the last question first. What we're doing is we are building them, developing them and then selling the investment on and have nothing to do with the operation. And it's a relatively small part of our business. The Fit Out market, it surprised us how strong it's been over the last 2 or 3 years. You've got to remember that our average job is only 2 million, and a lot of that is almost redecorating something. And we see that market being very strong going forward.

And it hasn't caused any major upheavals in terms of what's going on in retail and locations of offices that cause a meaningful change in your plans there?

I think it's always a dynamic market, and it's always changing, and our job is to adapt to whatever is changing and we feel we're adapting pretty well.

And on the contribution of design to your own margins growth in the future. And something in terms of perhaps a number of people involved in that particular area would be helpful, just so we can understand the nature of the business and what you're doing there.

The design business, you asked about whether it's client-led or Morgan Sindall, it's a bit of both, really. I would say it's predominantly Morgan Sindall-led now. We historically ran it as an integrated part of the division. It's now got a separate identity. As you said, it trades under the name of BakerHicks. It turns over about GBP 80 million. It doesn't make design-type margins yet. It will have its day. We're doing some great things there. It does do internal work for the infrastructure, sort of the traditional infrastructure bit part of the business. And that's why the numbers now are sort of part of the Infrastructure. When we say split Construction and Infrastructure, the BakerHicks design part is part of Infrastructure because, generally, that's what the design is related to, but only a small proportion of its business is actually into divisional stuff with the Infrastructure activities. It does have a significant external customer base.

A couple for me, if I may. One on Construction, then one on Partnership Housing. So really starting on the hook, Construction & Infrastructure, and that is the sort of the working capital movements you'd expect going forward because clearly you've got a couple of moving parts in here. One is you alluded to the fact that your payments are good and getting better, but you're looking to do more on that less advanced payments. But clearly there is a higher workload out there as well. How do we square the circle out? Would you say that this is an area that would be working cap positive or negative against those 2 different factors? And I'll come on to Partnership in a minute, if I can.

I still think it will be working -- the construction model of running a negative working capital model still remains. It might just, going forward, might be less so. And the sort of work that we tend to go for, which is the 2-stage, which takes a lot longer, doesn't have the sort of on -- as a general statement, doesn't have this sort of initial big cash boost that some of the sort of -- I guess the single-stage-type procurement contracts can give you. So I would say going forward, less so, less so. But in our forecast, we've accommodated everything that we're planning on doing, in payments, in payables and et cetera. It's all in that number. Just hard just to sort of dissect that it's due to that, it's due to that. As a general statement, less so.

Okay. Okay. And then second on Partnership Housing. You alluded to the fact that capital employed moves up to about GBP 200 million. What's the -- what do you perceive is the natural size of the business? Because clearly, this is sort of direct delivery-type stuff, therefore, there comes a ceiling to that. Is that the right size for the business? Or can you get bigger than that? Because I'm obviously conscious of the fact you're changing the shift on the business -- there's a shift mix on the business as well.

It's clearly a journey, and we expect it to get bigger. And we'd expect in 5 years' time for it to have a lot more money invested in it.

Right. So GBP 200 million is not the top you can give on going on it about?

I think the good news is that there are opportunities there identified and in our control that allow us to invest that level because you've got to assume -- and we said we'd be keeping our discipline, and you've got to assume we're going to get good returns out of these investments. We're not losing our hurdle rates. So with increased capital employed, it's really good news, but it's certainly not the limit of our ambitions, but it will be on a case-by-case basis. We certainly won't compromise on quality just to get the capital in there at all.

Okay. Actually, sorry, can I just -- one quick one? Property Services. Have you seen a major change in terms of the competitive situation? Because there have been quite a lot of changes in that industry in terms of the players. I don't know if you've actually seen that need affects your sort of win rate. But just thoughts on that?

I think price is less important, and actually, really giving unbelievable service is really important now to our clients in it. So I think it is changing. I think much more professionalism, much more IT-based, treating more like a logistics business. The business is changing dramatically.

I think it's worth also pointing out that John, on his slide, there was a bullet saying social value. This is a real advantage, competitive advantage that clients are increasingly looking for in this whole area. It's not just about can you get a person at the right place at the right time. I think what else could you add to the community, and that is really important, particularly in this business.