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

I'm going to do a very brief introduction, if I may. Steve will then go through the financial and operational review, and I'll come back and talk a little bit about the outlook. Clearly, the last few months, like every other business, we've been dealing with COVID-19 and making all our sites safe and our offices safe for everybody. But before I start, I'd also like to thank all my colleagues who have been very, very resilient to this, and in sometimes, come up with some brilliant ideas on how we can move forward. So a very big thanks to all my colleagues. But I should also thank our supply chain and our customers, [ who all have ] been having to work really close together. And without that, this would have been a lot worse for all of us. Now we've also got a very decentralized business, as you know. And it's that decentralization, which has allowed lots and lots of decision-making to happen where it should be made. So we have the group who have responded to this very, very rapidly and very differently in different parts of the business where different answers were required. Now you've all heard me bang on for the last few years about the balance sheet and the cash position and how important that is. And I'm afraid you're going to hear more about that today because that's made a big difference to us. This enabled us to do the right things in the short term while investing for the long term, and that's absolutely fundamental in any sort of downturn to invest for the long term. So overall, we're in pretty good shape. And I'd now like hand you over to Steve.

Thanks, John. And as usual then, I'm going to do the financial and operational review. So going straight in then with the income statement. And as John said, it's been a period which has been dominated by COVID-19, not surprisingly. Now although revenue was down only 4% year-on-year to GBP 1.4 billion, what this does do is mask the fact that the first few months for us were really very strong indeed. In the box on the right-hand side, for January and February combined, we were up 26%, then started feeling the impact of COVID from mid-March onwards. Q1, we were up 17%, but then fell the peak impact in April when we were down 35%. It got a bit better in May, better again in June to result in Q2 being down 23%. So Q1 of 17%, Q2, down 23% to give revenue down 4% for the half year. Not surprisingly, profit has been hit with operating profit down 52% to GBP 18.1 million. And the margin halved from what it was last year to 1.3%. And it's also worth pointing out here that we've taken the impact of C-19 through our operating results as usual, and we're not treating any of this as exceptional charges or the like. Moving down. PBT is down 57% as is adjusted EPS, and we've passed on declaring an interim dividend with these results. We don't think the time is quite right just yet to reinstate dividend payments. Now I've just said that we've taken the impact of C-19 through our operating results. So what are the main areas where we've been impacted in the period? Well, firstly, additional direct costs incurred on site closures and site remobilizations. And secondly, reduced productivity and efficiency. In the early days of lockdown, productivity was impacted by reduced availability of certain building materials. More latterly is from the implementation on-site of revised safe operating procedures and from social distancing. With so much lost time, contract periods are obviously now longer with additional overhead and support costs now needed to support longer contract periods. We've had a sudden reduction in volumes in Property Services where services were reduced to essential services only. While in the regeneration businesses, we obviously also suffered from lower activity and residential sales completions. Generally, work winning has been slower, and we found converting preferred bidder situations into final contracts has just taken that much longer, whilst decision-making by some of our clients and partners has also just taken a little longer as everyone has had to start adapting to new ways of working. Now I've got a separate slide on furlough later. However, it needs to be pointed out that we access the job retention scheme, and the results here reflect the benefit of GBP 9.3 million from this scheme. So if we haven't accessed it, the results would have been GBP 9.3 million lower. And just finally, there's a higher interest charge in the period. At the initial stages of C-19 pre-lockdown, we took the decision to draw down on our facilities in full to ensure that we had control, just in case. Obviously, with hindsight, this action wasn't required. However, it was taken at the time purely on a precautionary basis, but cost us around an extra GBP 1 million on interest. So hopefully, that gives you a flavor of some of the main themes and the main general areas of impact on our business. And this divisional split shows the results. Now I'm going to cover in more detail each of the divisions later. But just a couple of immediate points to note here. Firstly, once again, Fit Out has demonstrated what a high-quality and resilient business it is with profit of GBP 10.9 million and a margin of 3.4%. And then secondly, within Construction & Infrastructure, the Infrastructure business has performed really well and is set to progress further in a market which is earmarked for further investments, but more on the operations later. Before that, I just want to cover the balance sheet and particularly, cash and liquidity. Now this slide just shows the traditional accounting cash flow statement for the 6 months to June. Now as I said before, it's not really representative of the underlying position and just takes a position on 2 days. But notwithstanding that, there are just a couple of points to flag. Firstly, that the period end net cash of GBP 146 million was up GBP 32 million on the prior year, but obviously, also includes the fact that we canceled the final dividend of around GBP 17 million. And the other point to note is that the cash flow shows a working capital outflow of GBP 42 million. And that this includes a reduction in payables of GBP 78 million. You can see that in the box on the right, and I'll talk more about payables in a slide or 2. Now this slide tells you the real story, though. Every company should have one of these slides. It's basically our daily bank balance for every single day of the period. That's the thick green line. In fact, it goes beyond the end of June and into July and goes up to the end of last week. So what you see then is our average daily net cash for the half was GBP 153 million, up GBP 30 million from last year. The lowest level on any 1 day was GBP 86 million. We never went lower than that. And interestingly, that day was actually pre-COVID. And this compares to our bank facilities of GBP 180 million, which is shown by the red line. And in addition, we got ourselves eligible for the Bank of England's COVID Corporate Financing Facility in the period, just as a precaution. So you can see then from this graph, we've got bags of liquidity and weren't even close to dipping into net debt on any 1 day. Now it's also worth pointing out that we did benefit also from some deferrals of tax payments in the period, PAYE, VAT and the like. With the average daily net cash of GBP 153 million, around GBP 22 million of that was as a result of us deferring such payments. So in a way, the real underlying average daily net cash was GBP 131 million. Note also that on the 30th of June, you can just see on the graph that the bank balance dropped significantly. This was a payment of around GBP 40 million of PAYE deferrals due on that date, and we paid it on that day, too. As of 30th of June, the only deferral left going into the second half is around GBP 21 million of VAT payments, which are due to be paid in March 2021. Everything else is completely up to date. So cash-wise and liquidity-wise, we're in really good shape. And based upon where we are now on our plans for the second half, we expect the average daily net cash for the full year will be well in excess of GBP 100 million. Now I mentioned our reduction in payables across the period a few slides ago. The group's relationships with its supply chain partners are of strategic importance to us, and our actions and behaviors during these challenging times, we think, will play a big part in our future success. Now this slide shows our formal payment practices reporting for the last 6 months to the end of June for our larger trading divisions. So this covers the whole of the C-19 period, April, May, June. And what this shows then is opposite to stretching our creditors, which some might do when their cash is tight, we've actually gone the other way around and made some significant strides forward in improving our payments. Particularly here, our draw-out Construction & Infrastructure, where in the last 6 months, we've reduced the average time taken to pay invoices by 5 days, now down to 27 days and 98% paid within 60 days. Note also here Fit Out pays its invoices on average in the low 20s and has done so for quite a few periods. Now I'll come back to this later when I talk about Fit Out in more detail, as this is a key part of why that business has been so resilient throughout the C-19 crisis. So in summary here then, we've taken the opportunity of C-19 to accelerate our payment to the supply chain as fundamentally, we believe there is a real business benefit gain to be had by doing the right thing in these current times. And then finally, the balance sheet. As I said, we've got good cash. Said it before, no pension issues and tangible net assets of GBP 181 million. So a really good position to support us as we move forward. So what about the divisional performances then? Now this slide shows the operational impact of C-19 on each division, where we were at the peak of the impact, where we were as at the 30th of June, and effectively on the far right, where we are as of today. So for Construction, you can see here that at the peak, 69% of its sites remained open, which had increased back up to 100% by the end of June. So all sites fully operational again. However, a slightly lower productivity compared to pre-COVID levels, with this due primarily to new safe operating procedures incorporating social distancing and the like. As at the end of July, we assess, and of course, it is a subjective measure, that we're now back operating at around 95% of pre-COVID productivity levels. For Infrastructure, many more of its sites were closed at the peak. However, this was mainly for much, much shorter periods of time while clients and ourselves reassess new safety procedures before reopening. We're also operating here the best part of all of infrastructure sites again now with productivity improving, now estimated to be up around 90% of pre-COVID levels. So financially, though, within Construction & Infrastructure, we've had contrasting performances. Infrastructure has fared well, while Construction has been impacted quite heavily. For Infrastructure, it's had significant volume growth. Revenue up 26% and margin growth, margin now up to 2.1%, giving a profit of GBP 10.3 million, up 37%. So a really strong performance from Infrastructure. Most of its work comes through public sector frameworks or regulated bodies, and clients have been generally very supportive of maintaining activity through the period after these initial closures for safety assessments, which I referred to. The one negative on Infrastructure was at Heathrow Airport, where all work effectively stopped immediately with little prospect of anything next year either. For Construction, revenue was up 2%, but got hit by the additional cost of closing sites, productivity issues and delays to program. It's remained profitable, though, for the period, but its margin is down to 0.4% and a profit of just GBP 1.2 million. Now for Fit Out, the same slide. You can see a very resilient performance. At the peak, more than half of its sites were closed, but on average, this was for a short period of time. It's now back up and running with all sites active and operational again, with productivity also now getting back to close on its pre-COVID levels as we adapt and find new ways of doing things. Now financially, I think this really does demonstrate the high quality of the Fit Out business, a profit of GBP 10.9 million and a margin of 3.4%. And what we've benefited from here are empty buildings. So what -- when we've been able to restart our sites, we've been able to accelerate programs with unfettered access to sites, making social distancing and new safe operating procedures much more straightforward to implement. Now I mentioned earlier that Fit Out pays its supply chain on average in 21 days and has done so around this level for a while. Now having such preferred relationships with its supply chain in this way has really come into its own in the last period, with the supply chain responding to reopening sites and to new ways of working in a fast, efficient and highly flexible way. It really does give us a business benefit and a major competitive advantage here. Property Services, very different here, where almost overnight, most of its activity on its response maintenance contracts dropped down to essential repairs only, whilst activity on many contracts just stopped completely. Now we're currently in the process of remobilizing effectively most of the business again, and we're expecting full activity to be restored on all contracts by September, October time. Financially, though, and probably not surprising, we made a loss in the period of GBP 0.5 million. Now we currently have a business here with critical mass and volumes of around GBP 12 million per month and obviously have an overhead to support that level of activity. For the first 2 months of the year, we were 37% ahead of prior year. And the loss then, quite simply, is just the inevitable consequence of the volume reduction against the higher level of overhead. But just to reiterate, we're expecting full activity to be restored back to near 100% of volumes by October at the latest. The Partnership Housing effectively stopped completely at the end of March, following the U.K. housing industry and its supply chain. At the peak, over 90% of its sites had closed. However, again, you can see here, we're now fully operational. All sites open, sales offices are open. And we estimate that we're now achieving around 95% productivity when compared to pre-COVID levels. So again, here, you can see we started the year strongly. Revenue up 11% in Q1, then falling by 60% in Q2 to give revenue for the half, down 31% to GBP 165 million. For the half year, mixed-tenure revenue was down 15% with 16% lower unit completions, while contracting revenue was down 43%. Now it's worth noting that the profit result also includes a small GBP 2 million not in cash impairment of a little JV. So if you exclude this, the underlying margin of 3% is actually higher, slightly up on last year. Now as with others in the U.K. housing market, post-lockdown demand is strong. And with our ongoing commitment to invest in this area, we expect the average capital employed in the year here to be around GBP 165 million. Now with Urban Regeneration, it's slightly different. As it's a developer and a developer only, the sites which are referred to here on this slide relate to its developments, which are run by third-party contractors. The construction progress is obviously important to Urban Regeneration as it generates development management fees in line with construction activity. And any delays on its schemes will ultimately impact on the overall scheme returns and on the timing of scheme completions. All this then added up to a profit of GBP 2.1 million for the half, which is down 75% on last year. But admittedly, it was against what was a very strong prior year comparator. The really good news here is that we've been able to make positive progress with the regeneration portfolio in the period, albeit a little bit slower than we'd have liked, but specifically signing up 2 major forward-funded deals. This is a real coup in the current climate. And then Investments, it's similar to Urban Regeneration in not -- it's a developer and suffered similar delays to its schemes. It made a loss of GBP 3.2 million in the period, but we mustn't forget here the strategic rationale for the division is to continue to create long-term work streams working with its partners to deliver future work for group companies. So that's it then, all the divisions. In summary, operationally, you can see here at the right-hand side of the slide, we're now operating again at broadly full capacity, all sites open and reaching very good productivity levels. All except Property Services, that is, which as I've said, should reach full operation again by October at the latest. Now I mentioned furlough earlier and the fact that we've benefited by GBP 9.3 million in the income statement in the half year. At the peak, we had around 1,900 employees on furlough, about 20-odd percent of the total workforce. As of now, we still got around 200 people on furlough primarily in our Property Services and Infrastructure divisions. Now we took the decision at the time to claim through the government job retention scheme because, quite frankly, we didn't know where this whole C-19 thing was going with our business. Where we are now is, as you've just heard, that we've remained financially strong and secure throughout the whole period. In fact, we've increased our average cash position and not gone anywhere near dropping into debt on any 1 day. And on this basis, therefore, we believe now it's been the best long-term interest of all our stakeholders that we'll return all furlough monies received to date and that no further claims are made. And obviously, no claim will be made on the job retention bonus either. Now we look to do this during the course of the second half, and the cost of this will be taken at the center and shown through Central costs in the segmentals. So that's it from me. In summary, financially, operationally, we've had a very strong first quarter. Revenue up 17%, but thereafter, not surprisingly, significantly impacted by C-19. The good news is that the vast majority of our sites are now operational again, and productivity is at high levels and still increasing. The balance sheet has strengthened, cash is good, and we expect the average daily net cash for the year will be well in excess of GBP 100 million. We're going to repay all the furlough amounts because we believe it's in the best long-term interest of all our stakeholders to do so. But we still think it's a bit too early to declare an interim dividend with these results. But the Board will actively consider resuming dividends when we get further clarity over the economic outlook and over future business interruption risks. So that's it from me. Thank you, and let me pass you now over to John.

Thank you, Steve. I would like to talk a bit about the outlook. But before I go into the detail of the individual businesses, I'd like to talk a little bit about group strategy. As you can imagine, over the last few months, we, along with everybody else, have been looking very closely at everything we do to be reassured that our strategy is the correct one. And clearly, business plans, short-term plans have changed dramatically, but we're sticking with the same strategy. We feel that all the spaces that we operate in are spaces where elsewhere in the world are less fragmented and that the trend is towards having less fragmented businesses in the U.K., which are properly financed and actually at the cutting-edge of those businesses. So we are in the spaces that we want to be in, and we see our growth of being organic growth and self-help and just making our businesses better and better but with the stakeholders. We also see it's fundamental that our business model has average daily net cash, and that will not change for the foreseeable future. Our order book is encouraging that it's gone up 5%, but equally important, our [indiscernible] situation is very strong and our enquiries on the whole are very strong. Of course, an order book number doesn't mean anything really on its own. What really matters is the strength of that order book. And we will not compromise on the strength of the order book because, otherwise, it gets a route to no win. I'll now talk, if I may, about the individual businesses. Construction is a -- we've got a very, very good Construction business, but it's probably now in the toughest market of all the businesses that we're in. We are concerned about the local authority funding going forward. Having said that, we have a very good order book, 8% up on the year-end, and we actually feel pretty good for next year. For this year, 2020, the margin will be no less than 1%, but we do expect a much better year next year. By contrast, the Infrastructure market is very strong. With the exception of aviation, there's lots of activity happening everywhere. And we have a very strong Infrastructure business. Order is up 13% in the year, really give us confidence going forward. I think this year, we expect to make progress towards our target margin of 3%. We expect the margins also to be good next year, but the turnover could be a tad less. I think Fit Out is a business where it is so robust, it's not true. We've got very strong level of enquiries at present and an order book pretty similar to what we had last year. Our confidence going forward, I think, is two things. One, there's a lot of large pre-lets being completed in the next couple of years. I know some of those that our clients are sort of putting it on hold, deciding what to do, but the vast majority still intend to fit out those offices. And indeed, several have been signed since COVID came about. So we're feeling pretty good. Also, it's important to remember that our average job size is only 2 million, which means we have to win a job every day. So actually winning new business and going through a change is really in the DNA of this business. It's quite different to any other construction type of activity. It looks as if our turnover for the second half of the year is going to be very similar to last year. So we actually see a profit this year to be up towards circa GBP 30 million. And there's no reason to think that next year should be any different. Property Services is a very interesting business for us. The clients are looking for more and more sophisticated solutions, and we here are really a disruptor in the industry. We're disrupting the industry by our use of data, which is actually giving clients a better service at more economical rigs. The order book was slightly down at the half year. But since then, we converted half of the preferred bidder, and we expect to convert the other half into firm order by the end of the month. So we do expect to gain market share in this business. We will get back to the normal run rate by Q4 of this year and make a modest profit for 2020. But thereon, this is going to be a very exciting business for us. I think if we look at Partnership Housing, I think you all know this is one that hasn't been our best performer over the years. So a lot of what happens here is based on self-help as well as the market. This is a business where we will be investing more money, and we see it as a fundamental part of our growth going forward. The market at the moment is strong for people looking for partnerships. And currently, open market sales are strong with prices holding up. And clearly, like everybody else who's in the market of selling houses, we are looking very carefully to see how that develops in the autumn, where a lot of people are saying it's going to get worse. And so that's possibly going to be the case. But the order book is up, a stonking 13% since the half year. And we got another GBP 600 million in preferred bidder. So we expect profits in 2020 to be up towards from what we did last year. And we expect to see this business continuing to grow over the next few years. Urban Regeneration is sort of being slowed down because decision-making is taking longer. It's taking longer for people to want to take new space. But there is a lot of demand for partnerships again in Urban Regeneration. So we actually see our order book is going to grow quite dramatically over the next couple of years. But we do expect in 2020, the profit and the ROCE to be well below last year. In fact, we don't really think 2021 is going to be a brilliant year either. But on the schemes that we have already signed up, '22 and onwards is looking very good indeed. So if I sort of could summarize, the size and the quality of order books really gives us confidence going forward for 2021 onwards. We talked a lot about the balance sheet, but we mustn't underestimate that, that does allow us to make all the right short-term and long-term decisions. Of course, we're coming into a weaker economy, and that is going to have some impact on our business. But as I mentioned earlier, we do see the spaces that we're in becoming less fragmented, and we certainly intend to increase our market share in those spaces. So we're now seeing more clarity in our businesses, so we're reinstating guidance for 2020. And that is that profit is expected to be in the range of GBP 50 million to GBP 60 million after the repayment of all furlough monies. So overall, I think we're coming out of this situation with everything being thrown at us from COVID in a pretty good position. Thank you.

All right, folks. This is where the fun and games potentially start. So far, so good. I think the slides managed to match up well with the voice. So that's not a bad effort. If I could ask anybody on the video to -- who would like to ask a question, just to press the button, and I'll just do it person by person, if I may. So if I can start off with -- the first person to come up is Stephen Rawlinson. Stephen, could I ask you to unmute and ask the question to John?

Can you hear me, guys?

Yes, no worries.

Just set me right. I mean, it's a good story. I get all that. But just can you talk to me about some of the threats that might persist in the business? I think, firstly, in and around the issue of the supply chain and any issues you've had there with company's viability, liquidity and so on and so forth. And what measures you've taken to help with that. And secondly, around the discussions that you've had possibly with your customers. And I'm thinking particularly around Fit Out now with regard to how demand might alter in the future, given what we're hearing about the [indiscernible]. No doubt that these are sort of important elements of the business in the future, not recognizing there that the margin in the first half in Fit Out was pretty good. There are 2 questions there, if you don't mind me asking.

No, I think they're both for John as well, if I may.

I think as far as the supply chain is concerned, we expected minimal failures that we have seen so far. We have been working closely with them, particularly the smaller supply chain, but we're not finding it an issue at the moment. And with Fit Out, clearly, clients will be changing the way they use their offices. It's difficult to -- probably now is not the time to have that sort of debate. But I think the offices will need to be much more attractive, much more engaging and much more reflecting the culture of businesses, even if people are taking less square footage. So we see a 2, 3, 4 years of rapid change, which will be good for the business.

Could I ask Anand from HSBC to come on and unmute?

Yes. I need to apologize as well, I'm having an extension built. So you may hear some drilling in the background. So forgive me for that.

With a construction work, always good to see. So [indiscernible] going.

Yes. I've got a couple of questions actually. So I'm going to ask them one at the time, if that's all right? What does taking advantage in the current environment look like in practice? So we generally wouldn't expect any M&A from you guys. So can you give us any practical responses you have where you can -- you're on the front that we see balance sheet and you can actually use that?

Yes. I think a good advantage would be we can win some work now because of our balance sheet, and supply chain are much keener to work for us and indeed staff are very keen to join us. All these things help us grow organically.

Okay. And then I was a bit surprised to see that it's actually the Construction & Infrastructure order books that have grown the most. Could you touch on that? Is it surprising that construction mandates is still coming through? Or is that -- did they came through in Q1 and less so in Q2?

I think that's one for you, Steve.

Yes. I'll take that one. Yes. The construction -- interestingly enough, a lot of the construction is conversion from preferred bidder. So we came into the year with quite a significant amount of preferred bidder so it is just a natural evolution. Now admittedly, some jobs have taken longer to move from preferred bidder into final contract as a result of COVID. But the improvement and increase in the Construction order book is just a natural evolution of conversion of jobs and all, obviously, high-quality jobs. As John said, we've got best part, 100% of the Construction order book now is derived through to stage work or frameworks or negotiated work. So it's all really high-quality stuff. And Infrastructure, there's quite simply lots going on.

Yes, yes, yes. No, I got you. It's a bit early for people to change their sort of procurement processes. But have you seen anything? Or do you expect government to change how it procures or what characteristics they're looking at from bidders?

Well, we would always like government to be very rational and look at balance sheets before giving the big orders to people.

And do you think -- are you starting to see that come through, do you think?

I think as you rightly say, it's very early days, and it's going to take time for any change in that direction.

Okay. And then I've got 2 sort of final nerdy questions, I think, for Steve. So I want to calibrate the amount of net cash on balance sheet, and it's obviously really important. Has the current environment sort of changed your rule of thumb as to how much cash you think it's appropriate to hold? And then secondly, just about intangible write-downs. I saw the GBP 2 million in Partnership Housing, but there's obviously none elsewhere. At face value, it seems quite encouraging. Was there anything that you think was close to the CGU value that you think you might need to look at?

In terms of cash, quite frankly, we've been -- I've taken the -- over the last period and over the last 3 months, the cash -- my rule of thumb's being get as much of it as you can, simple as that. Now -- so thinking about sort of long term, what's the right level for cash holding, to be honest, I've not really thought about that at the moment, being very honest. It's been dealing with the operational and financial impact of COVID has taken everything. Now going forward, I think inevitably, with a downturn coming, with a very big downturn coming, balance sheets and robustness of balance sheet become ever more important. So in the sort of the medium, longer term, I think there's going to be a requirement to hold greater cash balances than there probably was 6 months ago. I think that's definitely the direction of travel. And in terms of sort of little impairments, the short answer is no. No. Johnny from Numis. Can I bring you in, please?

John and Steve, can you hear me, okay?

Yes, no worries.

Great. Well, 3 from me. So perhaps the first one would be looking at Partnership Housing. You're saying that you'd expect full year profit up towards last year result, which implies H2 profit up to about 30% higher than H2 last year. I was wondering what you'd expect the likely drivers to be of that growth.

I think as I mentioned earlier, this is a business which have we haven't done as well as we should have done, but a lot of our sales help is beginning to come through.

Yes. It's basically, we were starting from a low base in any case. So yes, it might sound a big percentage growth, but in reality, it's not.

Understood. Okay. Brilliant. And the second one would be on Construction & Infrastructure. With average time to pay suppliers continuing to come down, it also appears the other side is that you've also seen customers in Infrastructure be good payers. Is that better relationship with Infrastructure customers something you'd expect to be a permanent change?

Well, I think a lot of the payment has been directed by government to get money out into the supply chain, and we see that as a sort of rather temporary thing, but we would certainly hope that payment terms would improve as a result in the long term, but perhaps not to the level that they are now.

Okay. Brilliant. And the last one then for me is on the furlough payments that benefited profit in H1, which you're saying will come out of Central costs in H2. Are you able to give a breakdown of how that benefited at the divisional level?

Well, not off the top of my head, but the main users were obviously Partnership Housing because, as we said, 90% of the sites show overnight. So they were the main users. Infrastructure were a main user. So you can almost sort of relate it to the amount of sites that were closed. But what we've tried to do in taking it centrally is take that -- this is a group decision that's been taken for the best long-term interest of the group. And we encourage the operations to continue to operate in the ordinary course of business. So -- and that's what we're doing. So you need to judge the performance of operations, I think, in the market conditions that they're faced with, and that's what we're doing. That's why we're sort of not going to start reach -- we can recharge whatever you want to realistically. So -- but we don't intend to do and start recharging out the divisions. It just becomes a sort of a futile exercise, I think. I think we've exhausted now the video questions. Can I ask anybody to -- who's on the phone, if they want to ask a question to -- I don't quite know how to do this, but just shout, maybe?

It's Andrew Nussey here. I don't know if you can hear me.

Yes, we can. Yes, Andrew.

All right. Okay. Just looking at the Urban Regeneration, and to some extent, Partnership Housing over the next sort of 2 to 5 years, have those longer-term return on capital aspirations changed at all because of what you've experienced through COVID-19? And what sort of you may be able to get in terms of forward-funding arrangements, et cetera?

No. I don't think they have changed, but I think with Urban Regeneration, it may have gone out a year or 2.

I think I've got -- is it a video from Andy Morris? I've got a hand raised, whether that's a hand raised in error.

I can see Joe Brent, Steve, with a hand up.

Joe, do you want to come on the line, please?

Can you hear me okay?

Yes, no worries.

Very good. A couple of questions, please, an easy one and a harder one. The easy one, could you just talk through the thinking behind repaying furlough? Was it a moral decision or a business decision or a bit of both? And then the harder question on COVID costs, you talked through the philosophy of kind of how it impacted your business. Other companies have actually tried to quantify what the cost of COVID were. Could you give us any indication at all what you think the extra costs were from COVID?

Well, I'll take the easy one, Joe, if I may and leave Steve to do the harder one. As you can imagine, we had a very good debate at the Board as to what is the right thing to do as far as the furlough money is concerned. It was considered because our balance sheet was holding up. We actually -- the correct thing to do for all our stakeholders was to repay it, and that was a basis that it would be a good long-term decision for our brands.

In terms of the costs, I genuinely think it's now unimpossible to start differentiating what's the COVID cost and what isn't. And quite frankly, Joe, you could come up with whatever number you wanted to try and support any story you wanted to give. So I don't really adhere to the -- trying to dissect what's the COVID cost and what's the non-COVID cost. It's just -- this is the climate we're in. This is what you've got to deal with and put up with it. If I'm trying to be -- put some sort of quantification in terms of impact on [indiscernible] profit, GBP 36 million we did last half year. We were looking at x percent growth on that. As you saw for the first half or the first quarter, we were flying pretty high. So we were looking to be ahead of that. Think of a number, north of 40 for the first half, minus 15, that's your impact. That's as scientific, I think, as you're going to get because I really don't want to spend time trying to sort of go through line-by-line and start claiming it's a COVID cost and put it as an exceptional. That's -- as you know, that's not what we do. There's no point.

Yes. I guess the relevance is how we project the forecast because hopefully, COVID won't be here in a year or 2's time. But...

Well, I think just to answer that, we've said we're going to do 50 to 60 for the full year. And that's after repaying the furlough. So the 15.7 becomes -- the first half becomes effectively GBP 6 million after repaying furlough. So that means that the second half is between GBP 45 million and GBP 55 million profit run rate. That gives you an idea of where we're at now. And anybody else would like -- hopefully, I've not missed anybody. I might do a radio phone-in show on this. Anybody else on the line? If there aren't, then all I would like to do then is thank you very much for your time. It is much appreciated. Obviously, you know where John and I are. Feel free to contact us at any time if you got further questions or whatever. But for the time being, thank you very much and appreciate your support and interest. Thanks.

Thank you, everyone.

Bye.