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

Well, a big welcome everybody for our full year results of December 21. I'll do a brief introduction. Steve will then go through the financial and operational view. And finished that, he will do an update on ESG. And then I'll do the exciting stuff, which is our medium-term targets, which are being upgraded. So look, we've had a very good year. Obviously, profit significantly higher than our record year 'in '19. But actually also for profit upgrades there during the year. I wouldn't want you to think that is because of the work we have done during the year. It is because of the work we've been doing over several years, sticking to our strategy, and it's the execution of that strategy that has got us to where we are. Now we would not have done this without the unbelievable help and energy and expertise from all the people within the group. And I'd like to thank everybody who's made these results possible. A big thank you for everybody in the group. So -- but it is to say, a result of several years just sticking to the strategy. This time last year, we reset our medium-term targets, and it's fair to say we've done better than expected. So today, we're going to go through some detail later, the upgrade of those targets. But in any way, we enter the year in a pretty good position. I'll now hand you over to Steve.

Thanks, John. Good morning all. As usual, I'm going to cover the financial and operational review. And then after, as John said, I've got a few slides on our ESG performance. Now the slides are slightly busier this time around because as well as showing last year's comparatives, I've also included here 2019's numbers pre-COVID, as they probably give you a better reference point against which to measure our progress. And so what we've got in the income statement here, we've got 5 columns. I'm just going to focus on the first column in green. And then the last column in purple, which is the movement against 2019's numbers. So as John said, it's been a really good year for us. Revenue is up 5%, operating margin up to 4.1%, and profit before tax of GBP 127.7 million, up 41%, all going strongly in the right direction and a record year for us as a group by a long way. EPS was up 40% and our total dividend for the year of 92p per share represents a significant increase and a dividend cover of just under 2.5x. Now this slide just gives you the divisional split of the results. And again, I'll just focus on the comparison to 2019's numbers. I've got a few more slides on the operations later, but a few immediate standout points worth noting. Firstly, very strong performance from Construction & Infrastructure, profit up 80% on 2019 and a margin of 3.8%. Fit Out, again, as demonstrated what a high-quality business it is with a profit of GBP 44.2 million and a margin of 5.6%. And then also worth noting, Partnership Housing really starting to deliver to its potential. And as we said before, this division, we think is the biggest growth opportunity for the group going forward. On to the cash. And you can see here the operating cash flow for the year showing operating cash inflow of GBP 117.6 million. Now there's a few moving parts between a couple of the columns, but nothing that changes the operating cash, which equates to about 90% of the adjusted operating profit. What we have then, again, demonstrated here is a business which delivers high-quality cash-backed profit. And then this is our usual slide. You'll be familiar with this. It shows our daily bank balance for every day of the year. That's the thick green line for 2021. Our average daily net cash for the year was GBP 291 million, up from GBP 181 million last year. Now within the average daily around GBP 39 million of it was as a result of the VAT reverse charge. So in a way, the comparable underlying average daily net cash was around GBP 39 million lower. But importantly, the lowest level on any 1 day was GBP 227 million, the highest day was GBP 365 million. That's the swing we have in our business. Net cash at the period end was GBP 358 million. And again, this included some VAT reverse charge benefit to the tune of GBP 66 million at the year-end. And this was then subsequently paid out at the end of January. So cash wise, we're in really good shape. And based upon where we are now, we expect the average daily net cash for 2022 will be at a broadly similar level to that which we've just reported for 2021. Now just a quick note on our payment practices to the supply chain. Some good progress here with all our divisions now paying over 95% of their invoices within 60 days, and that's on the far right-hand column. For our largest division by volume, construction and infrastructure we've improved on what was already a top quartile performance by paying on average in 25 days with 98% paid within 60 days. While Fit Out remains at around 22 to 23 days on average, and it's been there for many years. Property Services has improved across the board as has Partnership Housing, but we just need to keep focused here. I've said it before, but it's just worth reiterating again, our supply chain relationships are of strategic importance to us and maintaining the highest quality supply chain helps give us a real competitive advantage. Briefly on the balance sheet. I've talked about the cash, no pension issue, so a really good platform to support us as we move forward. And on to workload at a group level, the total order book was up 4% to a very healthy GBP 8.6 billion. Now within this, the construction order book is up 16%, while the regeneration order book is down 7%, both measured against the last year-end position. More important than the headline number, though, is that we've kept our discipline. We've not compromised on quality, not compromised on our expected returns' hurdles. We've maintained the right risk profile for us. And with this high-quality order book, we feel well set up for the future. And just a few moments on dividend. Now our total dividend for the year of 92p represents a 51% increase on last year. And this slide shows our dividend growth since 2015. And you can see here that the dividend has more than trebled since then with a compound annual growth rate of 21% over that period. As a group, we do recognize the importance of dividends, and I think that graph -- this graph shows that. So those are the group headlines and strong profit growth, strong cash, strong balance sheet, high-quality workload and an attractive dividend profile. So on to the divisional performances in a bit more detail. Firstly, though, just to touch on inflation. Where we're no different to everybody else. We've had to manage the same challenges in terms of materials inflation, wages, energy costs and the like. The key takeaway for here though is that all this has been manageable. We've been able to minimize the operational disruption and mitigate the financial impact through a number of routes. And this is also an area where our strong and preferred supply chain relationships have really counted in our favor, further evidenced as to why our payment practices and supply chain are really so important to us. Cost inflation has caused some issues with client project budgets, particularly in construction, which has delayed some decision-making. While in urban regeneration, construction cost inflation has inevitably put additional strain on the viability of some of its development schemes. And this isn't going away quickly either. But although we expect inflation to be around for the foreseeable future, we're also confident that we can continue minimizing and mitigating the impact on us, both operationally and financially. So in Construction & Infrastructure, then a really positive performance, profit up to GBP 58.1 million and a margin of 3.8%. On the construction side, which you'll see in the green boxes on the left, we're doing very well. reflecting the benefit of us keeping focused on operational delivery and disciplined contract selection. With revenue up 4%, its operating margin was 3.2% for the year, giving a profit of GBP 21.9 million, both well ahead of pre-COVID levels. Construction's order book is up 58% from the year-end to GBP 810 million. This is a really strong performance for us, and it's all good, high-quality work with the right risk profile. Much of the growth has been the conversion into final contract of work where we were previously preferred bidder. But that said, we've also replenished the preferred bidder coffers with another GBP 540 billion worth of additional projects also now at precontract stage. On the infrastructure side, which is on the right-hand side, it's been a really strong performance for us for operational delivery and contract performance. Although revenue was down 15% on last year, just as a result of project timing and mix, its margin grew to 4.4% and profit was GBP 36.2 million, well over double that of 2019. On the order book front, Infrastructure's order book is long term and tends to come in big chunks, mainly through frameworks and the like. So there's no concerns about a 6% reduction in the year. It's around GBP 1.9 billion. It's still a very sizable workload. To Fit Out, well, an excellent result, profit of GBP 44.2 million and a margin of 5.6%. In the blue boxes on the right-hand side, you can see the analysis of revenue by type of work, sector and geography. Now I've seen a gradual return to more normalized proportions of commercial office work following the pandemic at 76% of the total, while the middle blue box shows that revenue from the regions, that is, outside of London, increased its share to 42%, up from 31% last year. Now in itself, this is quite a significant movement and shows the strength of Fit Out's regional presence and capabilities. However, that said, we do expect this balance to normalize back towards London again this year. But the big news from Fit Out is the size of its order book, which at GBP 897 million was another record year-end position for the division. Now this was over double the prior year-end position and gives us great confidence looking forward as it includes some larger contracts, one in particular, which span across a number of years ahead. Of the secured order book, GBP 528 million is for this year, which is 36% higher than at the same time last year. So the market for Fit Out remains very, very active indeed. Property Services. Now you might remember that Property Services was probably the division, which was most impacted by COVID in 2020. Well, its response maintenance contracts have now all remobilized with the division back up to full speed other than just some delays on planned maintenance programs. Revenue was, therefore, well up on last year and also up 17% on 2019 and gave operating profit of GBP 4.1 million. The division's order book is long term, with contracts tending to be up for 10 years or so in length and at GBP 945 million, down 3% on the prior year-end, with over 85% of it for 2023 and beyond, we've got some really good long-term visibility of work streams here. One recent win worth noting, a good one for us, is with Moat Housing Association, a 10-year contract with an estimated total value of around GBP 200 million. And this isn't yet in the order book. as we haven't yet signed the contract. So we expect this to drop in during the current first half of this year. On Partnership Housing, a very strong year with good levels of market demand. Revenue here was up to GBP 572 million, driven both by the mixed-tenure side of the business, which was up 16% and the contracting side, which was up 27%. Now those of you who have followed us for the last 5 years or so, we remember that this business back then was an underperformer, well, it's getting -- now getting back to form. Its margin was up to 5.8%, which is evidence of real progress. And similarly, for ROCE, at 21% last year, a significant improvement. And we're also making some good strategic advances in developing and formalizing our partnerships with local authorities and housing associations, all of which will form the basis for future growth ahead. The order book at nearly GBP 1.5 billion, up 4% on the year-end gives us confidence that we're moving quickly in the right direction with real momentum. And it's also worth pointing out that the order book does not yet include anything from our recent appointment as preferred bidder to a joint venture with Suffolk County Council. This one is a really good win for us. Adding all this up with all the moving parts, we expect the average capital employed in Partnership Housing to increase in 2022, up towards around the GBP 190 million mark. And we've had a much better time in Urban Regeneration too, with profit up to GBP 12.1 million. And I mentioned on the slide earlier about the potential impact of inflation on the viability of development schemes. And this is 1 factor which contributed to us taking a noncash impairment of GBP 5.6 million against one of the schemes in the Bournemouth JV. Now if we were to add this GBP 5.6 million back, the underlying ROCE for the year would be 19%. And this probably gives you a better indication of the underlying performance of the business. Profit was generated across all sectors and all geographies. And the order book which stands at nearly GBP 2.6 billion is long term. Average capital invested for 2022 will be around GBP 110 million mark. So in summary then, on the financial, these are a record set of results for the group. All divisions are on good form, and we have a high-quality visible workload. The balance sheet remains strong with the average daily net cash in 2022 expected to be broadly similar to 2021, give or take some. And all this plus an increase in the total dividend of 51% to 92p per share. So ESG. Now where are we then on ESG? Well, hopefully, this is -- this slide is familiar to most of you. But just to recap, in Morgan Sindall, we refer to our whole responsible business agenda in terms of our total commitments. These provide the framework for a common strategy, which is focused on all our stakeholders and is a framework we've been using since 2008. These commitments for us fall into these 5 headings, and you can see -- or categories, if you like, and support the UN sustainable development goals, which I noted on here. Now each of these total commitments has a range of KPIs used to measure progress and performance over a number of years, and we formally report against these every year, whether they're good or bad. And details of these, just for the record, are there for all to see in our annual report and on the website. And just as an aside on this, taking our performance across all our total commitments together. It's just worth noting that we were awarded a AAA ESG rating by MSCI recently. But firstly, on environmental then, how are we getting on. Well, hopefully, you'll remember this time last year, we laid out our net 0 strategy in detail what it meant to us, what's in, what's out and the road map to us to get there. Well, progress through our science-based targets pathway is tough. But we're moving ahead. We maintained our A rating CDP leadership score for the second year, which is no mean feat. And our 2021 data, which has been independently audited by the way, since 2010, shows us having reduced our Scope 1, Scope 2 and operational Scope 3 emissions by 37% against our 2019 baseline. Our internal carbon tax is also now well embedded in the organization and is helping drive some really encouraging behaviors. All good progress there. However, I think it's fair to say that there's still plenty of hard work ahead of us in this whole area. Early days. And then on the social side then. Well, the sort of 2 aspects to this is the internal and there's the external. On the external, social value is increasingly becoming a more prominent factor in bids with clients asking more and more what else do you bring to the party. Social value is there for a work winner as well as being the right thing for us to do as an organization. But how do you measure it? Well, it's actually quite hard and has historically all been a little bit subjective. What we've done is we've developed a tool internally in conjunction with Simetrica-Jacobs, which tries to do just that, measure social value, which we've called the Social Value Bank. Now it's aligned to the Treasury's green book and measures in monetary terms, the social, economic and environmental value we add to the local communities in which we operate. Now you can see in the green box here that we use the bank on 112 of our construction projects in 2021, and it calculated that we contributed 71p of social value for every GBP 1 spent. Now our job now is to increase the rollout of the usage of this tool across more and more of our projects, but it is a start and to increase that 71p for GBP 1 of spend. The internal aspect to social value is about making our own business better. Now I've already spoken about our supply chain, very important to us, which is 1 facet of this. Looking after our own people is another. And on this, health and safety stats are a very established clear and tangible set of measures. Now this is one area where we disappointed in 2021, with our reportable accidents increasing last year after many years of continuous improvement. And this is evidence if we ever needed any that this is one area which requires our absolute relentless and continued focus. In terms of making our business better diversity of minds in all its forms and inclusivity, in particular, of business imperatives. And we don't shy away from what are on the face of it, quite poor headline diversity stats, they're there for all to see, which you can see. We still have a really long way to go on this. So hopefully, this just gives you a snapshot. It's a wide-ranging area, but ESG is important to us. We aim to be open and transparent in what we do, how we do it and what we're trying to achieve. And as I mentioned, you'll be able to see a full suite of our ESG KPIs in the annual report, which gets published in March. So I've covered the past numbers, operations and ESG. Now John is going to cover the way forward. Thanks.

Thank you, Steve. What I quite like to start by just reminding everybody of the group strategy, which is unchanged, and it's been the same for many years now. We're in the markets we want to be in. We believe all these markets have strong growth potential. And we see that growth coming through organic growth, not by any sort of corporate activity. We are looking in all of our businesses for long-term work streams. And each of our businesses would have a different strategy to ensure that they get the long-term work streams. . I guess one thing that really differentiates us from a lot of our, sort of, competition is, we are a very highly decentralized organization with empowered teams making decisions at the coalface. Now we think this means quicker decisions, able to employ better quality people and just to move a lot faster. Well it's a very simple strategy, but that's the easy bit. It's the persistent execution of that strategy over many, many years, which gives us a high quality of earnings. Back in last August, we talked about capital allocation. And again, this has not changed. We believe a business like ours should have significant cash at all times. And we have a framework which comprises these 4 points. We believe that cash is important to enhance our competitive advantage. This is particularly the case when we're looking for long-term work streams. Clients want to know -- clients and partners want to know that we are going to be around to deliver and that we have the cash to invest in their schemes. So it's absolutely fundamental. The other thing, of course, is downturns happen occasionally. We want to make certain that when the next downturn is there, we're not short of cash. And we can actually continue to invest for the long term but often it's in a downturn that those investments are even better than they are in a good market. We also need to know that we've got the money at all times to invest in our organic growth strategy where required. And of course, as Steve mentioned earlier, maintaining an attractive dividend policy and having the cash for that is also fundamental. I guess no presentation today would be complete without talk on cladding. Now I think we're relatively lucky in as much as we haven't done many high-rise buildings and the high-rise buildings that we have done have been in recent years. So the big picture, I think, is it's manageable. But it probably breaks down into 2 things. It's the jobs that we have done which we are dealing with as we go along and expense it in a normal way. And you probably won't need to hear anything about that. We also have, of course, the industry-wide solution, which is the GBP 4 billion that [ Gabe ] is asking for, from house builders and suppliers of all sorts. It's really difficult for us to know what that impact is going to be. And of course, alongside the rest of the industry, we're paying the residential property development tax from the 1st of April. Now if I could go again to the individual businesses and just talk a bit about the medium-term targets and our thinking behind it. With Construction, we've introduced for the first time a revenue target of GBP 1 billion. But we kept the operating margin between 2.5% and 3%. You may see what we did 3.2% last year, why are we only seeing 2.5% to 3%. That is because we think the 3.2% was a very, very good result, and it's more realistic to see we're going to be between 2.5% and 3% in the long term. Now of course, we've also said but margin is so much more important than turnover to us. So if the market does get tight, we will reduce our turnover to hold on to the margin. So the margin target is the key one for us. But having got the margin now to a decent amount, we believe we can now grow the turnover in this business, but we will only do so by managing the risk as rigorously as we have done to date. The market is pretty good, but the balance sheet now really matters to a lot of clients. And we are finding -- we are winning work now because of the balance sheet. I would say in construction, the headwind is pressure from inflation. But we believe that's very manageable, but there is still that pressure, particularly in construction. So if we turn to the outlook, we expect the margin to be within the range in 2022 with a higher turnover, and we've got the order book to give us the confidence for that higher turnover. If we look at infrastructure, again, we've put a target now for revenue of GBP 1 billion and an operating margin between 3.5% and 4%. Now that is higher than the 3.5% that we had back last February. So we have up there. Again, we made 4.4% and you might say, well, are we being optimistic enough. But again, we think that 4.4% was a particularly high margin and it's more realistic to be 3.5% to 4%. We've also made it clear that we don't like JVs. So we actually find that we're more successful when we're working on our own rather than working with other companies. So we're probably only going to do JVs if there's a very clear competitive advantage. This is a business where we think in an industry where we think there's a lot of operational efficiencies we can all work on to actually improve our long-term margin. So the market here is fairly strong, and we see it being strong for several years to come. Although there's some pressure from inflation in infrastructure. It's much less than in construction. So we look at this year, we'd expect slightly lower turnover than in '22 -- sorry, slightly lower turnover in '22, but we expect the margins to be in the range. If I move on to Fit Out, here, we're upping the medium-term target to operating profit of GBP 40 million to GBP 45 million a year average through the cycle. And this is up from around GBP 35 million that we set this time last year. We think the Fit Out market is going to be strong for several years to come, and we have a very good business in Fit Out. It's fundamental for us that we maintain our market share of the commercial office market, and everybody in the Fit Out business is going to have to work really, really hard to keep our position as it is. The average job size at this time last year was sort of GBP 2 million. It's grown to about GBP 4 million, and we expect it will probably grow a little bit more. So I think the office Fit Out order book, as Steve said, is up dramatically. A lot of that is because clients are now looking at their space and getting the space ready for the new world. And we think this is going to give us quite a lot of work for some time to come, plus there's several large buildings which have been pre-let, which is going to give us work as well. So here, we have a record order book. What we particularly like is we've got greater visibility than we used to have going out years 2, 3 and 4. So therefore, we expect this year profits to be in the middle of the range, but happy that we've increased our medium-term target. Now Property Services, we're now seeing the medium-term target is an operating profit of GBP 15 million a year. And this is up from in excess of GBP 10 million a year. As Steve said, this is a business that was affected most by COVID. But in the last year, we've seen the business really mature and really come on. The key thing for this business is not to win too much work to win the right work, which potentially has 10 years plus in the contracts and to set those jobs up brilliantly to take on too much work here would be the worst thing. So we want to build this up so that we have a really good long-term business, which we can rely on very steady profits. It is a large market. The barriers to entry are increasing balance sheet again matters now as does technology. The headwind in this business is probably labor shortages, getting the right operatives when we set up new contracts. But we expect the order book to grow in 2022, and we expect real progress towards our target profit. Partnership Housing, as Steve said earlier, this is a business a few years ago that was not doing well. And if it was our school report, it would be -- could do better or even stronger. But this business is now really coming of age. We've now increased the operating margin medium-term target to 8% and a return on capital up towards 25%. We're going to do this by having more schemes and bigger schemes. We're going to increase our geographical coverage, and we're going to have more mixed tenure schemes. So currently, the open market prices and values are strong. Who knows what's going to happen to volumes and house prices as the year goes on. It's possible it may soften. But what we like is there are a lot of these large schemes like Suffolk coming out to the market. and we are very well set up to win these schemes. Our order book here and visibility are at record levels. So we definitely expect a higher profit in 2022. Urban Regeneration, we have our 3-year rolling average ROCE, up towards 20% as our medium-term target. Key things for us here are larger schemes. So we're using the same overhead with bigger turnover, more efficient use of capital. And again, we're looking to increase our geographical coverage. At the moment, we are strong in the London area and the Northwest and the Northeast, but the Midlands is an area for us to look at. Here, we have a situation where the demand side is currently strong, but construction inflation is really challenging the viability of schemes. Now some of those schemes might not happen, some may be delayed, but we have to find new sources of funding in order to make those schemes viable. But again, there are a lot of large -- there's a large number of long-term opportunities available. And increasingly, a lot of these long-term opportunities have an element of the scheme, which is ideal for our Urban Regeneration business and our Partnership Housing business. And where that is the case, we have real competitive advantage. So we expect this year that the ROCE progress, there will be progress on the ROCE, and we also expect a higher profit in '22. Now this slide here sort of just brings together everything that we've spoken about. And as you can see, the medium-term target has been upgraded for everything, except for Urban Regeneration. And this is the framework that we will use when we're talking about how we're doing in the future over the coming year or two. So if I sort of summarize we're in great shape. We're not changing our organic growth strategy. We're just going to really, really keep persistently driving that strategy. The medium-term targets provide a framework for the next stage of our organic growth. That strong balance sheet is fundamental to us, and we really need that to make the right long-term decisions. So we now expect a result in 2022 to be slightly ahead of previous expectations. Thank you, and we are ready for questions.

Adrian Kearsey, Panmure Gordon. No surprise free from me. First one, with Property Services, what kind of margin target are you thinking of for the medium term? The second one, you talk about cash and the importance of balance sheet. When you look down to your supply chain, how healthy is the supply chain at the moment insolvencies are currently at relatively low levels, but there's mutterings of concern in April and May that, that may change. And I'd be sort of interesting to, sort of, get your, sort of, take on that. And then with capital employed within partnership, you're talking about larger projects and looking at a 25% return on invested capital, given that's quite in excess of your weighted cost of capital, is there perhaps not the temptation to go for even more growth, but a lower return? It'd be just interesting to see what your sort of -- what you're thinking of why go for 25%, not go for sort of keep it for 20% and go for more growth.

I'll answer the last one first. I think the key thing for us is winning and finding enough schemes that will give us that ROCE rather than anything else. They're not there just to keep pulling off the shelf. They do take time. We are worried about the supply chains, how weak it's going to be because we do think there's going to be more liquidations. We think things are going to get a bit tougher. And we think we may well, in some cases, have to help the supply chain. So it is a concern.

Yes, it's an area of constant vigilance that. And I think we're on high alert, to be honest. In terms of the Property Services margin, yes, spot on we delivered in part 1, that was deliberate. GBP 15 million, we will reach that target by a combination, obviously, of revenue growth and margin. I think underlying these sorts of businesses, I might regret saying this should be doing 5% net, 6% net that sort of area. Now what we're trying to say is, look, we don't quite know how we're going to get there. It might be a bit more turnover in the margin. There's going to be a combination. But I think the key thing, as John said, is that we don't take on too much work, that we mobilize these contracts in the correct way and those sorts of margins should be achievable. If we just take on anything and get the wrong stuff, then that's when we will get a dilution of the margin. So it's a deliberate sort of a mission. I'm sure you though that.

Stephen Rawlinson from Applied Value. Can I ask a few questions, please? Just help me out a bit on a few things. Firstly, on the cash level. So if I look at the midterm targets, they imply an increase in revenue. And I don't know how you would look at a net cash to revenue as a ratio and what you might expect the cash to be needed in the future might be. Obviously, you know you've generated decent free cash flow during the course of last year. But clearly, I'm looking across the piece and seeing net cash to turnover. I'm wondering whether that's a valid ratio and what you might see is the right one for the future given the increases in turnover you outlined? Secondly, on Partnership Homes -- Partnership Housing. I get what you're saying, but it's becoming quite a remarkably competitive field with 1 or 2 of publicly quoted companies also expanding in this area. Could you give us a sort of comment on your thoughts on that? Obviously, I can see the projects you've won, but nonetheless, it is becoming quite a competitive area, and you've got a margin ambition in there. And just finally on sort of a couple of pieces of washing up, if you don't mind. On the Amec GBP 9.9 million asset, I mean, you acquired Amec up 15 years ago. So can you just sort of give us a very quick look at that and assure us that there are no other similar things. And on cladding, you sort of haven't made a commitment to cover all of the costs there or give us a number. Is there anything more color you could add to the thought process around what you see in that? For example, how many buildings might be affected that you've been responsible for over the last few years. Just to sort of help us out there. So 4 questions, forgive me, but I don't know if I'll get the mic back.

Well, I'll take 2 of them because other ones are row down. Cash to revenue ratio, it's a bit of a difficult one with a business like ours because you've got different drivers. That's relevant question and a relevant metric to the construction businesses is totally not relevant to something like partnership housing. So you've got all these different drivers and different pressures. So I don't look at cash to revenue ratio. It's not one of the things I look at. I look at it on an individual, divisional basis, but on a group, it really just depends upon timing. And I think what we're saying on the medium-term targets, they aren't all going to happen in 1 year. There's going to be some which are racing ahead, some lagging behind, et cetera. So I sort of hear what you say, but it's not something that I look at. On the GBP 9.9 million, it's an error. I can't -- we hold our hands up. It goes back many years, and you've seen from the note, it is an error. It goes back to 2007. And back to the Amec. It's something that's been on earth. So I can't say any more than that. It's disappointing. I forget what the others were.

Yes. I think on the Partnership Housing, I think the -- there's obviously a couple of public companies, and it's all quite sort of clear to everybody in this room what they're doing. But I would say on the whole, historically, it's been done by quite a lot of regional contractors. And I think there's a bit of consolidation going to happen. So it's going to be bigger players doing bigger schemes. And of course, it ties in with the housing associations who are also consolidating and becoming bigger and they're having bigger geographical coverage whereas in the past, they perhaps were much smaller and just worked in single geographical areas. And the fourth question?

Steve, you're going to have me out. I keep forgetting what was the last one.

Cladding.

Cladding. That's John's.

So look, I think cladding, it's a tricky one. Obviously, we're putting right in everything that we're involved in. And we're just doing the normal course of business as and when it turns up.

Yes. But analysts love numbers. So is there a metric around sort of how many buildings might be affected? Or...

We have very few, very few.

So we're just going to take it through operating resource as we go forward, and it will be included in the forecast. So we don't see it as being sort of the specific words, so we don't expect it to be material. That said, any big sort of solution industry-wide that they're talking about, which might mean legislating for you will contribute that sort of outside what we're saying. It will be what it will be at the end of the day. But what we know about at the moment through the investigations, we don't expect it to be material. And we'll just take it over the course of as and when it comes and just take you through operating results. Does that -- hopefully, that answers that one. Yes.

Jonathan Coubrough, Numis. I mean firstly, congratulations on what are excellent results. A few questions from me, please. Firstly, on Urban Regen. You pulled out the -- excluding that impairment in Bournemouth that would have been 19% ROCE that suggests that cost inflation isn't really impacting across the board, but it's more isolated in its impact within the division, but you have flagged that you expect it to be ongoing. So is that something you expect to maybe impact a bit more across the division this year? Or are there certain schemes where you see there could be the potential for further impairments? The second one would be Fit Out. And the average project size doubling in the year. I mean it seems like that's probably been driven in quite a large order by the very large order that you booked this year, but it seems that's also something you're seeing as more of a general trend. Is that being driven by structural changes in the office markets and maybe more shelling core fits out or just keen to hear what's driving that? And then the third one would be on Partnership Housing, where clearly mixed-tenure has grown pretty consistently through the pandemic over the last couple of years, but contracting took a step back in 2020 then rebounded. Just keen to hear on what's behind that dynamic in terms of why mixed-tenure has proven to be more resilient in contracting?

So I'll do the first one. I'll do the first one on impairments. I've got to say, no, we're not expecting any more impairments. Otherwise, we would have done it. I think the one individual situation, there is a whole range of factors and construction cost inflation is only one. It's a unique set of factors in that particular scheme, which has led us to do that. And I think it's also fair to say, we're not giving up on it. This may well come back, but it's just the right thing to do at the time. What construction cost inflation do and it's obviously putting when you're doing an appraisal, it's impacting on new returns. So what's incumbent on us, as we've said, we're maintaining our discipline. We have to go and find funding elsewhere to make up the difference. So things might take a little bit longer. But it's not so -- it is a stress and strain on the business, but it's not sort of -- we're not expecting the business to sort of really suffer as a result.

Now Fit Out is a really interesting situation because it's such a specialized business. What is actually -- the biggest problem we have is having enough people who really understand that specialization, really understand our culture and can really deliver for the client. Because this is an industry, if we don't deliver 100%, we will start to lose the brand. So we have to limit how many jobs we can do. And so it seems sensible to do slightly bigger jobs rather than smaller jobs because it's people who are really good, that is the constraint in that business. I think as far as level is concerned, the change in mixed-tenure is part of our strategy of increasing mixed tenure as a percentage.

Alastair Stewart from Shore Capital. Three questions, please. First is on Construction & Infrastructure. You said there have been an element of final account -- proposed final account settlements in infrastructure, in particular. Is it possible to quantify how much of the overall 3.2% Construction & Infrastructure margin was helped by that? And is this more of a one-off? Or could this be an ongoing case that you continue to get positive final accounts? So that's the first question.

So I'll just take that one straight on. Look, final account settlements are just part of the normal course of business. What we're trying to do is explain why the second half margin particularly was strong. And I guess it goes down to our prudent accounting as we go along, we sort of leave a lot of the upside to the end. It really is as simple as that. So there's nothing sort of one-off element to it. It's just -- but what I would say is that the 4.4% in infrastructure and 3.2% in construction, as John said, are really top performers. The underlying, sort of, more or less ongoing performance is will come back this year. We -- everything went right, and it won't always all go like that, as you know.

So 0.5% overall between spread between the 2 divisions. So probably too much to take off.

I don't think I would take off much at all, if anything.

And then on Urban Regeneration, you mentioned that there is an element of viability issues there. Can you give a very rough idea of the percentage of your -- the jobs you're looking at, how much roughly is it a quarter or fifth, tenth that might come off because of those? That's the second question.

I mean key thing for us, of course, is if inflation of rents is higher than inflation on construction. We don't have a problem. At the moment, construction inflation has been so high and much higher than the rents and capital values. So these things sort of obviously change over time. And I would say we're talking on the whole delaying schemes rather than schemes being canceled. So it's schemes going to the right rather than what's happening.

10% for less than that just to get a very rough idea, a few more than anything.

I mean you could argue that turnover might be 10% more this year if we didn't have that issue.

And finally, on cash, it's a sort of follow on from Steve's question, but probably from a different angle. You said that your high cash balance is a USP winning work -- construction work. Are the clients telling you that they're taking a sort of scientific approach to that, for instance, they look closely at a percentage -- cash percentage of revenue? Or is it just GBP 300-odd million that will do nicely? Is it that uncertain I think.

All clients look at it differently, and they have different ways of measuring it. But very often, it's not the clients who are concerned, but the client funders that are concerned because they don't want to lend money to the client, if it's going to be a contractor who could go bust.

But do they -- is there a sort of benchmark -- and I know you said that broadly, they look at a difference. Is there a sort of level that you wouldn't be happy getting down to in terms of keeping the overall client base happy?

The trouble is every client is different. If we're signing up with a local authority for 30 years, they obviously look at our balance sheet much more carefully than on a smaller job.

I think what we will say is that we're happy with it as it is. We've never put a bottom limit on because you wouldn't expect us to. But I think it's great as it is at the moment. It's doing -- it's giving us the ability in the market to have that competitive advantage. It's the right level, I think, the right level.

Anand from HSBC. A couple of questions here, please. So the medium-term targets introduced a bit more sort of growth agenda. Can you remind us how you incentivize the divisional MDs and their tenure, how you keep the culture the same? And maybe start there and I'll do the other after.

Well, the culture is what I'm really, really interested in, and we're fighting that every day because if we say that you look at something, there's a rational reason to centralize something. But then if you put all those restoral reasons together, you have a centralized organization. So the culture is really, really key. The divisional MDs are rewarded both on the profits that are in division and an LTIP on the profit of the group.

Okay. And then on Fit Out, it's clearly going well. Just curious as well about the higher order size. Are bigger customers more price conscious? Does it mean the length of projects is longer, so you get a bit better visibility? Any more delivery risk on bigger projects?

To be honest, the bigger projects, I would say, are no more price sensitive. There are less people who can do them and do them well. And of course, there are usually not many of them around, but they're more around at the moment than normal. And that's why our average job size has gone up.

And then lastly, sorry, on Property Services. Triage stuff seems to sort of come back because it sort of has to. Do you guys have a view on when planned maintenance, that feels like there's a huge buildup of it. Do you have a view on when that might release?

Well, we're starting to see that coming back in January, January, February. So it's sort of starting to happen. As I mentioned, last year, we saw very little planned the response activity were sort of almost back to full levels. The plan was very, very slow, starting to see already, January is probably a little bit slower on the plan, but the intention is there. And so it's sort of happening now. So we expect famous last words this time next year to be sitting if saying actually planned maintenance is done all right.

Could you tell us how big that bolus of work is?

I couldn't tell you. I couldn't tell you. I don't know.

Any other questions from the room?

We do have one more which is Andrew Nussey from Peel Hunt. He asks the medium-term targets for the regeneration businesses partially rely on growing scale as well as the number of sites or projects. Does this change the risk profile of the group and predictability of ROCE?

Not necessarily. It all depends on which -- what jobs we take on and what the cash profile of that job is like to be and whether it's schemes which are pre-let or not pre-let.

I guess a difficulty with giving our capital employed target is always such that we would always look to fund things smarter. And if we don't have to spend our own cash and look at other people's cash of investing, well, that's -- I prefer to do that every day of the week. We'd get higher ROCE, but of course, you're not going to see any capital employed number. So it's one of those. We always got to have a fine balance between putting a capital employed target and a return on capital because of the interaction. So I think the proof will always be in the delivery on this one. I think we -- what we've said is we're very clear that we're keeping our discipline, not compromising our return hurdles. And if we don't get to 190 or if we don't get to 110, we'll get to the ROCE in a different way just by being smarter. I don't know if that answers it, Andrew?

Any other questions from anybody or ...

That's it?

Well, thank you very much indeed for coming. It's good to see so many of you in the room when there's other news on today.

Thanks.