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

Well, welcome, everybody, to our half year '25 results. But before we sort of go in and talk about what is another record first half, I'd very much like to say a big thank you to all the teams in our businesses all over the country who've actually made these results. Kelly and I are just here to report on them. Big thank you, everybody. I'm just going to say a few words with highlights. Kelly will go through the financial and operational review. I'll then come back and talk a little bit about markets and outlooks. And then the main show of the day will be Steve Coleby talking about Partnership Housing, the MD of Lovell; and Phil Mayall, the MD of Muse, talking about mixed-use development Muse. I'll do a quick summary and then straight into questions and answers. So if we look at the group highlights, turnover up sort of a modest 7%, but more importantly, the profit is up 37%, which actually gives us a gross profit margin of 4%, a full 80 basis points up on last year, and that's a really important thing for us. Order book and preferred bidder up 24% since this time last year. And we've been able to put the dividend up 50p. As you see, the cash is broadly neutral as we've been reinvesting retained profits into the Partnership business. Now we're always looking forward. We're always looking long term, but I thought it's just worth putting a graph up to actually show what's happened over the last 10 years. And because we're a company that's always looking long term, I think very often the way you should judge us on what we're doing for the long term. So obviously, over the last 10 years, we've had to deal with things like COVID and a couple of other things, but we still had a sort of compound growth of 18% a year, up and on the PB -- on profit before tax, and obviously, just over 16% on the dividend. I'd now like to hand you over to Kelly.

Thank you, John, and good morning, everybody. So look, today's results continue to represent our strong track record in delivering growth over the long term. So no apologies for reemphasizing some of our key financial highlights, and I'll go into some of the detail in a short while. So revenues were up 7% to GBP 2.4 billion. Operating profits rose 40% to GBP 91.8 million, accompanied by a margin at 3.9%, up 90 basis points when comparing to this time last year. Now that's been followed by a continuation in our elevated interest rates on our strong cash balances, resulting in a net interest income in the period of GBP 4.1 million. Equally, that's led to our profit before tax and amortization increasing by 37% to GBP 95.9 million with an equivalent PBTA margin of 4%, up 80 basis points compared to this time last year. Now based on these strong financial results, we have today announced a 20% increase to our interim dividend rising to 50p per share. So look, in summary, a really good set of results here. In fact, very strong financial result, underpinned not only by our significant growth, but also margin expansion. So let's take a quick canter through our performance by division, and many of you will know, I'll go through the split of it in a little bit of detail shortly. Once again, Fit Out has delivered a significant contribution to the group's results. Profits up 41% to GBP 58.1 million. But that's been followed by strong contributions from Construction, Infrastructure and Partnership Housing despite the slow recovery in the housing market. In Mixed Use Partnership, it's recorded a small operating loss in the period as it's had fewer projects on site this period. And in Property Services, we've returned a modest profit in the first half as it's continued to stabilize its business activities in the first 6 months of this year. So overall, operating profit at GBP 91.8 million with an operating margin of 3.9%. We've also enjoyed substantial growth in our secured order book, increasing 39% to GBP 12 billion at the end of the period, and that's been followed by almost a further GBP 6 billion of work at preferred bidder stage with growth coming across our entire diverse portfolio. What this also leads us to is a collective total of GBP 17.8 billion of work, 24% up compared to this time last year, providing us with an incredibly strong platform to deliver our future revenues over the short, medium and long term. Now many of you will know that the full length of our frameworks and indeed, the future phases of our development agreements are not included in either the order book or our preferred bidder positions. It's only when we've got much more clarity and visibility of our capital projects that fall within the frameworks or when we've got planning at a suitably advanced stage for our development agreements. Do they then fall into these numbers. So let's just switch lanes a little bit. If we look at our net cash at the start of the year, we opened with GBP 490 million -- GBP 492 million. If we wind forward now to the end of the period, you will see that there's GBP 102 million net cash outflow, resulting in a net cash position at the end of the period of GBP 390 million, completely aligned in terms of the outflow to the capital allocation strategy in hierarchy, which you see at the bottom of this slide. But a few really important observations to note. Firstly, our operating cash outflow in the period was GBP 17 million. That compares to GBP 36.1 million this time last year. Some of you may well spot secondly that the working capital movements for our Construction services and Fit Out businesses may seem a little low, but it's entirely aligned to the seasonal profile that these businesses experienced in the first half of the year. Thirdly, we have invested GBP 128 million into our Partnership businesses to drive long-term growth. And finally, we have returned GBP 42 million to our shareholders by way of the 2024 final dividend. Now if this slide, which many of you know, really represents what goes on in the business on a day-to-day basis when it comes to cash, you'll all be familiar, the dark gray line really charts that day-to-day position all throughout 2024 and the green line sets out the first 6 months of this year. Big takeaway here, it's broadly similar. However, our daily -- our average daily net cash has dipped slightly to GBP 354 million compared to GBP 372 million this time last year, but that really is a function of the continuation of our investment in Partnerships. But what I find particularly interesting is when you look at the highest point of our cash, it's GBP 499 million at the start of the year, the lowest is GBP 270 million in May. But what that really signifies is in a really short period of time, how significant the cash swings can be for a business of our size and scale. And so therefore, continues to underline the importance of us holding substantial levels of cash at all times to ensure that we are able to make the right decisions for this group for the future. If we look forward to the end of this year, we expect the guidance for the average daily net cash to remain unchanged, so it will be still in excess of GBP 330 million as we continue to strive forward with our strategy to invest in Partnerships. So in summary, strong growth in profit before tax, a strong cash position enabling us to continue with our journey to invest in Partnerships, a strong and growing and high-quality secured order book, followed equally by a strong preferred bidder position. So let's take a little bit more of a look now at our businesses. So starting with Partnership Housing. This division has continued to strengthen its long-term partnerships with the public sector in the period. And notably, that's been evidenced through the award of 2 long-term partnerships: the first being with Cardiff & Vale of Glamorgan Council, and the second with Barnet's Council. Collectively for these 2 schemes, we expect to build and deliver around 3,500 homes over the next 8 years. Revenues in the period grew steadily by 6% to GBP 405 million, whilst demand for contracting work for the public sector continued to be robust and strong and increased by 21% in the period to GBP 311 million. Now despite the revenue mix profile being once again weighted towards contracting and against the backdrop of a slowly recovering housing market, this division has continued to deliver strong profitable growth in the period. Profits rose by 13% to GBP 13.2 million, but we also saw margin expansion by 20 basis points with its margin rising to 3.3%. With a secured order book of GBP 2.2 billion, with a further GBP 2.8 billion at preferred bidder stage. We remain confident and excited about the medium- and long-term growth prospects for this division. If we look forward towards the end of the year, the average capital employed is expected now to be in a range between GBP 400 million to GBP 430 million as we are expecting to continue with our investment journey in this division. For Mixed Use Partnerships, I mentioned earlier, it's reported a small operating loss in the period of GBP 1.5 million. But notably, that includes around GBP 6 million of investment costs relating to secured schemes which have yet to start on site, and therefore, not yet generating return as well as supporting those schemes that represent future opportunities for this division. To put a little bit more color and context around this, at the end of the period, the division had 6 projects on site. By the end of 2026, we expect that to be closer to 21. But the division has been busy. In parallel, it's continued to build upon its prior year successes through the conversion of 5 schemes, which were previously at preferred bidder stage and are now signed development agreements. At the end of June, the division had a secured development order book of GBP 4.6 billion. That's 150% up on this time last year and with a further GBP 700 million at preferred bidder stage, where it's one-on-one. Again, if we look forward to the end of the year, its average capital employed is expected to be between a range of GBP 115 million to GBP 125 million. Now, Fit Out has delivered a standout significant market-leading performance for the first 6 months of this year. Its revenues increased by 33% to GBP 838 million. Its profits rose by 41% to GBP 58.1 million, strongly influenced by exceptional volumes and operational leverage, which resulted in an operating margin of 6.9%. But underpinning the strong financial result is the division's tenacity, its laser focus, its attention to detail when it comes to quality, operational delivery, and of course, the customer experience. It finished the period strong with a secured order book of GBP 1.4 billion, 19% up on this time last year. In Construction, the division has continued to maintain its strategy around its approach to strong risk management, starting right from the project selection stage through to operational delivery through to final project handover. And it's this foundation that has enabled the division to deliver strong profitable growth in the period with a real quality to its earnings. Profits rose by 14% to GBP 16.1 million with a margin of 3.1%, but it's been busy. In the period, it's continued with its strong momentum of winning new work. At the end of the period, it had a secured order book of GBP 1.1 billion with a further GBP 1.4 billion of work at preferred bidder stage, bringing its collective total to GBP 2.5 billion of work to deliver in the future. Now many of you will know 90% of its work is for the public sector and education continues to remain one of its strongest subsectors. But in the period, we have seen increasing exposure, positive exposure to subsector spaces such as judicial and defense work. In Infrastructure, it's continued to manage and deliver complex projects, whilst retaining a strong discipline on risk management. In the period, it's commenced a number of projects, which are going through the early planning and design phases, very much linked to the significant work winning activities of last year. As a result, we have seen a slight dip in our profits for this division, down 7% to GBP 18.4 million, but nonetheless, a significant contribution to the group's results. We also saw a slight margin expansion by 10 basis points, up to 3.8%. It finished the period strong in maintaining a very solid and robust order book at GBP 1.9 billion with a further GBP 600 million of work at preferred bidder stage. And in Property Services, after its successful conclusion of its business remediation program in late 2024, it has continued to stabilize its business activities in the first 6 months of this year, resulting in a modest profit of GBP 0.5 million. It's also continued to rebalance its portfolio, moving away from reactive maintenance work and moving much more towards planned maintenance and decarbonization work, characteristics very much shared with our construction activities. As a result, from the 1st of January 2026, we will be fully integrating Property Services into the Construction division. However, until then, until the 31st of December 2025, this division will continue to remain a stand-alone division, but still be under the leadership of Pat Boyle. So this concludes the financial and the operational review. We will now move on to markets and outlook. John?

Thank you, Kelly. If we look at our markets, as you can imagine, we have sort of headwinds and we have tailwinds. I think overall, it's a net positive set of conditions. If you look at Fit Out, we've certainly got some tailwinds. More and more people are returning to the office. More and more people are now having to make their office better to attract people back. And in many cases, they're finding more people coming back to the office than they've got seats for. So we actually think the market there is going to be favorable for some -- for a little time. If we look at the spending review, the GBP 16 billion for National Housing Bank is very positive for us. That is actually government investment rather than government spending, and that is money that they're looking to spend quite quickly or very quickly by government standards in order to get a lot of sites going that would otherwise be unviable. So very positive for us as indeed was a 10-year rent settlement, which actually gives a lot of stability to housing associations to be able to plan their future incomes or indeed to borrow more money if required. And clearly, the headline that everyone is talking about is the GBP 39 billion. But the reality is that over a long period of time, it's not really new money, and most of it is in the next parliament anyway. So although it's nice to have, it's not that exciting for us, but I thought I should mention it. Obviously, the extra spend for Construction and Infrastructure, very helpful for both the construction company and the infrastructure company because they're 2 spaces that we are particularly strong in. Now with Partnership, there's a lot of partnerships out there in the moment that we are pricing, negotiating, and there's quite a lot that we see coming. So that is actually really good news for us. But I think there's going to be times when there's a lot of partnerships coming on to the market and times when there's not going to be a lot coming on to the market. But because our partnerships go for so long, you could have 2 or 3 bad years, but we're not seeing that at the moment, just the opposite. Our planning reform is clearly important for all of our group companies, infrastructure, construction as well as obviously housing and development. And although we've seen a modest impact to date, the sense of direction is really helpful, and we think the government really is going to improve it over the next 2 or 3 years. So if I talk about headwinds, clearly, the housing market is not as strong as we would like or indeed as strong as we expected at the beginning of the year. And that is no different to what we'd be hearing from the normal housebuilders. Interest rates not coming down as quickly as we hoped is definitely another headwind. Not only does that affect the housing market, but it affects the viability of a lot of schemes, which leads to construction, infrastructure or indeed development work for Muse. GDP growth is really important for our type of business. And the fact that GDP growth is less than perhaps we hoped for is another headwind. But definitely, overall, we got a net positive conditions. So we're feeling okay. So if I look at the medium-term targets, and you might remember, we upgraded 4 of them in February when we had our full year results. I'm pleased to say that perhaps quicker than we expected, we're upgrading another 2 today. Fit Out was previously GBP 60 million to GBP 85 million, and we're upgrading it to GBP 80 million to GBP 100 million in the medium term. With Construction back in February, we increased the margin aspiration in our targets. We're now increasing the turnover from in excess of GBP 1 billion to in excess of GBP 1.5 billion. Now clearly, probably half of that is because Property Services is going to be incorporated into construction from the 1st of January, but the other half is definitely an improvement in our expectations of what Construction can do over the next few years. So if I move on to the outlook by division. So Partnership Housing, we do expect solid profit growth this year, but the ROCE is going to be just slightly less as we're continuing to invest. Mixed Use, again, another business we're investing heavily in, and that will be close to breakeven this year. Now with Fit Out, we're not changing our expectations on the profit. But even so, the profit that we're already expecting is going to be higher than the top end of our revised target range. So I think what we're saying is that although we feel good about Fit Out going forward, it's probably -- the market now is very choppy and it's still going to be a good market, but probably not as good as what we're experiencing at the moment. So with Construction, the margin is going to be the middle of its range with revenue in excess of GBP 1 billion. Infrastructure, again, margin to be in the middle of the range with revenue below GBP 1 billion, just slightly below GBP 1 billion, and very modest profits in Property Services. Before I hand over to Phil and Steve, I'd like to just talk about the differences between our Partnership Housing business, Lovell and our mixed-use partnership business, Muse. What they do is quite different. How they go about it is quite different and how they make their money is quite different. And increasingly, they are coming together to work on schemes where, quite frankly, what we have to offer is very, very strong indeed. So the big difference is Lovell makes its profit from selling houses and contracting. Muse makes its profit from its share of equity and development management fees. Lovell is a developer and a contractor, whereas Muse is a developer only. Often using Morgan Sindall to do the building work, but not necessarily far from it. In fact, it's probably only about 20% is done by Morgan Sindall. Lovell has the minority of its schemes forward funding because it's predominantly selling individual houses, whereas the Mixed Use, the majority of what they do is forward funded. I think it's interesting that the order book and preferred bidder is pretty similar between the 2. But because the Muse schemes last longer, it will have less capital employed. I'd now like to hand you over to Steve from Lovell, Managing Director of Lovell.

Thank you. Good morning. As John mentioned, Steve Coleby, Managing Director of Lovell. I've been in role for 7 years now since joining the business back in 2018. So as John mentioned, Lovell works in partnerships with local authorities and housing associations to deliver affordable homes, both as a contractor and as a developer. And over the last 4 years, we've seen a considerable transformation to our business. If you go back to 2021, our combined order book, which included preferred bidder status projects was at around about GBP 2.8 billion. At that stage, we had an average capital employed of GBP 156 million. We built 3,100 homes from 8 decentralized regions. Now if you move progressively forward to 2024, the change has been quite significant. Our equivalent order book then was at GBP 4 billion, and we've increased the number of our operational regions to 11. Now this allowed our geographical coverage to be extended to virtually all parts of Great Britain. But importantly, it gives us the capacity for future growth. The size of our active sites grew as did the number of them, which increased by around about 40%. Collectively, this allowed us to build a little over 5,100 homes in the year. So 2024, of course, was a year where there was a continuation of the softness in the housing market, and we saw this as an opportunity to continue to invest selectively. Both the medium-term and the long-term fundamentals for growth in Partnership Housing remain very, very strong. So this resulted in our average capital employed increasing to GBP 338 million at that point. And if we look back at this period of sustained growth and an investment, our CAGR for revenue and for profit was equally strong at 18% and 22%, respectively. And then as we head further into 2025, we finished the half year point with a combined order book of now GBP 5 billion. And in addition, we have a healthy pipeline of future phases, which come from our existing established partnership arrangements, which have not yet been included in that headline number. We'll only do so, as Kelly mentioned, once we have increased visibility and once we have greater certainty on planning. And I guess that's an important point to pick up why are we now at the GBP 5 billion? Well, first to note is we've got relatively limited national competition. I think you'll have seen that our brand has become very strong, and we are respected -- we have a respected reputation. Morgan Sindall's balance sheet has never been more important to the Lovell business. First of all, it funds us. But for our clients, it is a huge, huge comfort to them, and they place a big value on that when placing orders. So over the next few minutes, I'd like to illustrate 3 of our partnerships, which will start delivering homes in the near term and in the medium term. And it's worth also pointing out that all are expected to deliver returns on or above our medium-term targets. Let's start with Barnet Council. So this follows a successful tender in 2024. It's to regenerate Phase 1 of the existing Green Park estate. It involves the demolition of the 60s and 70s buildings you'll see there and replacing it with 500 new build, social rent, shared ownership and open market sale homes. Importantly, the partnership also allows us the opportunity to become development partner with Barnet Council on future sites. And already at this early stage, we have visible prospects within the 10-year arrangement of around about 1,200 homes. That would generate a GDV of GBP 500 million, around half of that would flow into Lovell's books. At this stage, again, keeping our prudent reporting, only Phase 1 of the Green Park estate has been included in our order book. Preferred bidder status was granted in 2024, and we expect to make a start on site some 3 years later in 2027. Now that 3-year gestation period is fairly typical of what we would expect to see in a normal partnership scheme within our business. And of course, once on site workload is secured for several years to come. So in 2022, we formally joined forces with Suffolk County Council to form a development alliance. The aim there is to build around 2,800 much needed homes that meet real local needs. The developments are built on council-owned land over 5 separate locations, those being Lowestoft, Mildenhall, Backton (sic) [ Bramford ], West Row and Newmarket. Two of those sites will make a start this year. The remaining 3 will make a start towards the back end of next year, and they will run through to 2039. As typical, this arrangement includes an option to bring in more sites during the 10-year framework. And then finally, earlier this year, Cardiff & Vale of Glamorgan Council has appointed us as their preferred bidder for a large-scale housebuilding program. The partnership aims to build 2,300 homes. It's across 24 council-owned sites and it has a GDV of over GBP 500 million, all of which flows through into Lovell's books. Half of the properties that we build will be retained by the councils for social rent and for shared ownership purposes and the balance will be sold on the open market. With planning permission already in place for a few of the initial schemes, we expect our first start on site to happen this year. As with most of our partnerships, the 10-year arrangement can be extended and additional sites may also be added. Thanks, and I'll now hand you over to Phil.

Thanks, Steve. Good morning, everyone. I'm Phil Mayall. I'm the Managing Director of Muse. A little bit about me. I've been in the business just approaching 20 years, starting at the most junior level, working my way through and I've been in this particular role for approaching -- just approaching 2 years. So as John and Kelly have outlined, as I'm sure you're aware, we are a national Mixed Use Partnership business. Everything we do is in partnership, and we develop property across the range of sectors. And we've been in business 40 years. So we have an incredibly strong brand developed over that time, a really strong track record and coupled with the Morgan Sindall balance sheet, as Steve has already mentioned, which is really powerful for us, too. We have a real reputation for delivery. So going back a couple of years, 2023, we decided that it was time to really start to leverage that brand and that position. Nationally, we don't really have a direct competitor. So it was time to leverage that. So we decided to refocus on larger opportunities. The reason we did that is, one, again, the balance sheet gives our partners comfort that we can deliver over a long term. Our 40-year existence showed that we always stay in schemes. We do everything that we say we'll do. And again, that's a huge comfort to our partners. And what it also allows us to do is a lot of schemes have fixed costs regardless of size. So it allows us to spread that capital more thinly across individual projects that come out of those schemes. It also means that as markets expand and contract, we can bring forward a different range of sectors on one single plot -- on one overall scheme. So it allows us to react to the market as the market is moving back and forth. And finally, what it does is those types of schemes are very attractive to institutional investors who see them as long-term opportunities. All of that coupled together really allows us to focus on hitting that medium-term target we have at 25% return on capital employed. This slide really starts to illustrate for you the beginning of that strategy. So if we have a look at the top line across the top line there, you can see the increasing size of order book. And that's been a couple of things. Firstly, as I say, it's been a focus on larger opportunities, but it also reflects an investment we made starting in 2022, but firmed up in 2023, where we opened in the Midlands, which we thought was a really strong market for us, and that's been proven and that we've already secured 4 developments under development agreement. Again, very much along the lines, as Steve has described. We limit the amount of phases that we include in the order book. We're very conservative around that. And we have a team of 14 people that are already helping us to deliver. On the second line, you can see the number of projects we have on site is dropping, and that's simply a result of us transitioning out of those smaller schemes and investing in new schemes. Now it takes around about 2 years from inception to bring a project forward. And as Kelly outlined, at the moment, at the year-end, we'll end up with 6 projects on site end of '26, we expect to be moving towards 21. Now that isn't from a start today. Money is already being invested in those schemes, Kelly outlined, already GBP 6 million is being invested to bring those schemes forward and our longer-term pipeline. And you can see that in the capital employed. So the capital employed is staying relatively steady, but the projects are dropping because that's where we're putting money into new schemes. Obviously, there's an impact on our return on capital employed in the very short term as returns are dropping as we finish schemes, capital is going in, but we expect that then to start to move towards our medium target. Now what I'm going to do, like Steve, I'm just going to talk you through 3 schemes just to illustrate what we do and how these fit into the strategy. These are all schemes that we've secured relatively recently. And they show the breadth of work we do across sectors. So the first scheme is a development agreement with Durham County Council, Aykley Heads. This is just up the hill from the mainline train station. We're very keen on developing our own transport hubs because you get to benefit from that transport infrastructure that's already been committed. It will be an innovation zone, an innovation district of around 400,000 square feet. We like this type of work because -- there are specific occupiers that will take it, and they tend to be the sort of occupier that will fund and own it. So therefore, we invest the capital at the beginning to get the scheme moving and then they come along and fund the buildings as they get built because they want a greater say in the specification and how they work. But here typically as well as a kind of illustration of our model, we actually start work -- it will be starting in 2027, maybe late 2026. And that starts demolished -- by demolishing an existing council facility for which we get paid development management fees. John mentioned on the comparison slide, we earn money from fees as well as profit. And the next project and I'm going to outline is Mell Square in Solihull. So this is one of the projects I referred to earlier that we've secured through our Midlands office. And much like many of our towns and cities, this is a place that's really focused on what's happening in its town center going forward. Now Solihull, if you're familiar with it, is a relatively affluent town in the Midlands. And so in terms of its actual retail offer, it's relatively well populated at the moment, but the council is taking a long-term view. And there are 2 very large shopping centers, which clearly will not sustain in the future. So they brought Muse on board to help redevelop one of them to a more mixed-use location, which will drive footfall into the other center, but critically also will deliver new leisure facilities, retail facilities and residential. And it's the type of residential that we deliver for build-to-rent owners and occupiers and -- but with some potential open market sale in there to mix the community up some later living, some key worker housing. And the reason for that is it will help drive local economy. So you've got Jaguar Land Rover nearby and some high-growth companies. And Solihull is keen to ensure that it retains and attracts the high-quality workforce that's needed to support those. And finally, a very large scheme that we're developing in Slough. And this is one we're developing through 1 of our 2 national partnerships. So when I refer to partnerships, I'm either referring to a partnership at a local level to a direct development agreement or a strategic national partnership. And this is being delivered through our English Cities Fund partnership, which is a 20-year partnership we've had with Legal & General and Homes England. And this is a development, again, capitalizing on transport infrastructure. So right at the end of the Elizabeth line in an identified growth location. So it's a mixed-use development of 200,000 square feet of Grade A offices, around 1,600 homes across multiple phases. And we're going through the master planning phases at the moment. We expect to start on site in early 2027. And the initial phases will finish in sort of 5 to 6 years after that. But it is a long-term project. Again, the same with Steve's team, we're very conservative in what we include in our order book, and then we add as we go along. That's it for me. Thank you.

Thank you, Phil. So I'd just sort of summarize where we are. So we're on organic growth quick story, and that's not changing. We might do minor bolt-ons if they sort of add to that organic growth. But just think of it, there's more organic growth, and we've got a long way to go. That strong balance sheet and substantial cash is absolutely fundamental to our core, and we want to hang on to that. I'm pleased that we've been able to increase the medium-term targets for both Fit Out and Construction. Following 2 profit upgrades this year, we're on track to deliver results for '25 in line with our current expectations. And any hard questions for the team?

Aynsley Lammin from Investec. Just two for me, please. Just on partnerships, obviously, some in the sector has been some kind of mixed results, should we say, on the Partnership side. And with the new government kind of announcements around that, does that increase your kind of expectations for you to put more capital employed in that business? When do you actually expect to see the kind of demand coming through on the ground to bump that division?

Are you talking Partnership Housing?

Partnership Housing, yes.

So first of all, John touched on the spend and review. We see the rent, the rent settlement 10 years, 1% plus CPI has been a real advantage to partnership homes. It's making housing associations have a much firmer footing on the ground. In terms of Lovell's partnership model, and I think we can only talk about ours, it's obvious to see that the contracting aspect of it has helped us out significantly in what's been quite a prolonged difficult period in the housing sector.

And just on Fit Out, obviously, you had the kind of disruption in the competitive landscape. Just wondered if you could provide a bit more color on how that's settling down. Is the order book now kind of where you'd expect it to plateau, maybe edge back a bit because some of that work that you've won from the one that went past the...

It's probably that the order book is higher than I might have expected 6 months ago. But we do have sort of some very strong competitors who are giving us a run for our money.

Stephen Rawlinson from Applied Value. Can I talk a little bit, if you don't mind, about risk because you've got this long order book. And you've got prices, obviously, cut build costs rising. You've got variations to take into account, particularly in Mixed Use. Could you just sort of talk us a little bit through -- I mean, I know it's a results meeting, but nonetheless, it would be very, very helpful because those order books are getting bigger and longer. And as such, therefore, the risk levels rise and variations, particularly in Mixed Use on existing -- pre-existing sites gives you a high level of risk. Can you just sort of give us a bit of a clue as how you might be tackling that and to what extent your results are insulated from any concerns that we might have about variations?

Sorry, can you clarify on the variations?

Not just site finding a bomb underneath Slough or something like that, which I'm sure John Betjeman would love to have -- that sort of thing. There are things that go wrong in long-term projects, and these are increasingly long-term projects that you're engaging in. And therefore, obviously, risk levels of variations that you might find on sites and so forth increases.

Thank you. Thank you for the clarification. I mean, first of all, in terms of the reference to the long order book, as I mentioned a few times, we actually limit the amount we put in so that we can make sure that as we progress through a scheme that as we move forward that we can expand the order book rather than going the other way, finding the proverbial bomb and then coming back in. We've been doing this as a business 40 years. So those things that you referred to in the ground and those challenges have been -- so we've got a lot of DNA in terms of delivery. And in terms of taking a long-term approach, we can focus on that and resolve those issues as they come along rather than exiting all one basket and it'd be a big issue that undermines us. So we're pretty well versed in responding.

And if I may add a bit, the critical thing is when we have a development agreement, that actually is the mechanism for agreeing the price that we pay for the land in any phase. So -- and we don't have to progress with any phase unless it's viable. So that is the big protection.

And the other thing in construction, I mean, you've increased the revenue target by GBP 0.5 billion. So on a pro forma basis, about GBP 0.2 billion or GBP 200 million will come from Property Services being in part of that envelope. There is a little bit in the text about your feeling of confidence to get what is, in fact, a 33% increase in the underlying construction revenue. Can you just talk us a little bit through the level of confidence that you have about that in this meeting, please?

Yes. So I mean, clearly, we will see quite a bit of progress towards that this year. So it's not as big a jump from the run rate as it might appear. So -- and the order book is going up and our market share is continuing to increase and has done consistently over the last few years.

I think I'd add to that. I mean, I said earlier, the order book is at GBP 1.1 billion. But actually, the important point to note is the preferred bidder position of GBP 1.4 billion. And this division has a very strong track record of converting in the high 90%. So I think you should look at it that way, but also the work it's been winning and the market share it's been gaining.

It's also been strengthening the regions where the market share is less over the last few years. And so there's still market share to go for.