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

I will say a few words and then Kelly will say a few more words again. And then I'll come back and talk about the medium-term strategy and outlook, and then we'll move on to sort of some questions if we may. Brilliant. So look, we've had a good year and a better year than we expected this time last year. In fact, actually, we've had 10 good years. So we've had 10 years where we've had record profits every year, except for the COVID year. So in that 10-year period, we've had a PBTA CAGR of 18% and a dividend CAGR of 16%. I think the other thing that has been good in the year that our secured order book and preferred bidder work is up to about GBP 19.1 billion, but that's not the whole story. If we take into account the work that we have on frameworks where we've been allocated all the work on that particular framework, or the work that we expect to come from future phases of our development programs, that would actually take the sort of line of sight, if you like, up to about GBP 30 billion. Now clearly, that is a huge amount of work, and we need a very strong balance sheet to do that. We need a strong balance sheet with a lot of cash. We need that so we can win the work, so we can really execute that work perfectly in good times and bad. And we also need the cash to drive our future organic growth at pace. We're increasing today on the back of the sight that we have a work, the medium-term targets of 2 of our divisions, Muse and Infrastructure. I'll now hand you over to Kelly.

Following strong and robust earnings growth over the last decade, this is a great segue into the group's significant trading performance for 2025. Now here are just a couple of our key financial highlights, a more detailed income statement you'll find at the back of the presentation pack within the appendices. Revenues increased by 10% to just over GBP 5 billion in the year, and that's been followed by our operating profit increasing by 39%, delivering an operating margin of 4.5%. Following the lowering of interest rates during last year on our strong cash balances, our adjusted profit before tax and amortization increased by 35%, delivering a PBTA margin of 4.6%. That's 80 basis points up on this time last year. Adjusted EPS increased by 33% to 370p per share. Our effective tax rate continued to track in line with the U.K. statutory tax rate. Our net cash improved by GBP 39 million in the year, closing at GBP 531 million, also supporting our profit to cash conversion rate to 87%. That's 4 points higher than this time last year. Our order book at the end of last year increased by 5% to GBP 12 billion, and that's been followed by a further GBP 7.1 billion of work at preferred bidder stage, totaling GBP 19.1 billion of future work, 17% up on this time last year and placing the group in a fantastic position to deliver its revenues over the medium term. Underpinning this all, underpinning the significant trading performance, the group has announced a 20% increase to its full year dividend rising to 158p per share. So I'm going to just give you a few headlines on the divisional performance. We'll go through each of the divisions in a short while. Once again, following a strong work winning year, together with excellent contract execution, Fit Out delivered a significant contribution to the group's results. Its profits increasing by 41% in the year. But that's been followed by equally strong contributions from Construction, Infrastructure and Partnership Housing despite the latter being impacted by a weaker housing market. In Mixed Use Partnerships, the division reported an expected loss impacted by costs, which we've invested in schemes yet to start on site but planned for 2026. And in Property Services, it reported a modest profit in line with our expectations. So overall, totaling an operating profit of GBP 226 million, delivering a margin of 4.5%, 90 basis points up on this time last year, high-quality earnings supporting that delivery. Now you heard me say a few moments ago, during the year, our net cash improved by GBP 39 million, closing at GBP 531 million. There's a couple of noteworthy points I really do want to draw to your attention. Some of them a bit obvious. Firstly, a strong operating cash inflow in the year of GBP 196 million. That's GBP 60 million up on this time last year, and that's after the net investment in our partnership activities of GBP 125 million. It's also facilitated and supported the delivery of that profit to cash conversion rate of 87%. Secondly, when it comes to our capital allocation framework, we've continued to apply the principles, the key one being investing in our partnership businesses. For us, that's predominantly Partnership Housing. And here, we've continued to invest and support the development of not only our existing schemes, but the expansion of our sales outlets. At the end of 2025, Partnership Housing had increased its active open sites to 70. Thirdly, during the year, there have been strong returns to our shareholders amounting to GBP 66 million, comprising of not only the 2024 final dividend payment, but the 2025 interim dividend. And finally, when you look at the closing net cash as a proportion of our revenues, that's about 10%. That's massively key in supporting the delivery of our future workload of about GBP 19 billion plus. So let's just touch briefly on the capital allocation framework. And the hierarchy remains unchanged as does the principle of holding significant cash at all times. Not only does that give us that competitive advantage in terms of work winning across all of our divisions, but it allows us to make the right choices, the right decisions around our regeneration activities. So let's put a little bit of color and context behind that. If we just look at last year alone, the future workload for those 2 businesses, and by that, what I mean is the secured and the preferred bidder work, that increased by 29% to GBP 11.5 billion. That growth in that year alone is supported by the returns that we've set out in the medium-term targets for those 2 businesses. So a much more familiar chart. So the blue line sets out our daily cash profile all throughout 2025, and the gray line does exactly the same, but for the previous year being 2024. Another rather obvious statement or observation here is how closely those lines have tracked with each other all throughout the year. But I wouldn't want you to think that, that's what 2026 is going to look like because receipts and payments will ebb and flow and investment decisions will take place at different times of the year. But overall, the average daily net cash landed at GBP 368 million, slightly lower than this time last year, but the second half was at GBP 381 million and actually slightly higher than the second half of 2024. So I think that just reinforces this point about the timing of the receipts and payments and when investment decisions are made. When we look at the highs and lows during the year, the lowest point once again was in May at GBP 270 million. The highest was almost just a day or 2 before the end of the financial year closed at GBP 564 million. And those of you that can really see it, there's a little dip right at the end of the year, and that's a payment run that happens pretty much every year. So a few thoughts here. Even at the lowest point, there's good headroom because of the unutilized facilities. But I think what's more interesting is just in that period between the highest and the lowest, how significant the cash swing movements can be, particularly now for a business of our size where we're delivering around GBP 5 billion of revenues. So I think it's important to look at our cash, not only at the end of the year, not only during the year, but at the lowest point of the year. As we look forward to 2026, we expect our average cash to be in excess of GBP 400 million. And that's really because we want to continue to take advantage of those opportunities within our partnership businesses where the returns will be in line with the targets we have set out for the medium term. ESG continues to be integral to us operating as a responsible business. And whilst the legislative environment has continued to change and continues to change in the forthcoming period, we expect that, that's going to start to settle in the second half of this year. But we forged ahead with our commitments in this space. And here are just a couple of the highlights to chart the progress that we've made. When it comes to leadership in climate for the fifth year running, we've been awarded the AAA rating by MSCI and A- rating by CDP. We're on track with the medium-term target set out for Scope 1 and 2 emissions. So as a reminder, what we said was by 2030, we would achieve a 60% reduction in those emissions. By the end of 2025, we are at 55%. When it comes to protecting our people and safety, once again, over 90% of our projects remain injury-free. And finally, in 2025, we created GBP 2 billion of social value, bringing the cumulative to date position to GBP 6.5 billion. And that can range anything from helping generate local employment to supporting local regional businesses to helping communities develop their infrastructure to becoming healthier and safer. So let's now take a slightly more deeper dive into each of the divisional performances and much of my narrative will be looking back. The looking forward element, I will leave John to provide that overview. So in Partnership Housing, the division has continued to expand and forge ahead with delivering long-term partnerships with the public sector. And during the year, it had notable sizable awards with that public sector, including partnership schemes with Cardiff and Vale of Glamorgan Councils and Barnet Council, where for these 2 partnerships alone, we expect to deliver around 3,000 homes over the next decade. But more recently, the division has been appointed preferred developer with Birmingham City Council on the Druids Heath Regeneration scheme, where it expects to deliver around 3,500 homes over the next 2 decades. But over the last year, its revenues increased by 5% to GBP 903 million. And it once again has been supported by strong growth from its contracting activities where those revenues have increased by 13% to GBP 638 million at a time when the housing market has remained subdued. But overall, the division delivered a strong and resilient performance in the year with its operating profits increasing by 16% to GBP 42 million, delivering a margin of 4.7%, 50 basis points up on this time last year. Its average capital employed increased in the year by about GBP 108 million, up to GBP 446 million, and it's been influenced by a couple of factors here. We've got a couple of schemes in the London region, where the capital has been higher for longer, largely impacted by the weaker demand in the London area, particularly around apartments. But despite that, the division has progressed with its sales expansion of opening new sites and outlets, and that requires investment. With a secured order book of GBP 2.3 billion, preferred bidder work at GBP 2.8 billion, a strong pipeline of future development phases, we remain confident in the division's ability to deliver against its targets and ambitions, recognizing the need for a recovery not only in market conditions, but also returning consumer sentiment and demand. As we look forward, though, to 2026, we expect the average capital employed to be in a range somewhere between GBP 490 million and GBP 550 million, recognizing the growing increasing scale of this business and the stage of where its developments and schemes are for the forthcoming year. Moving on to Mixed Use Partnerships. Now as I said earlier, this division reported a loss of GBP 5.3 million. It's an expected loss largely impacted by the costs that it's invested in schemes yet to start on site but planned for this year as well as supporting those schemes that represent future opportunities for this division in years to come. To put a little bit of context around that, at the end of last year, we had 7 schemes on site. By the end of this year, we expect that to more than double to around 19. During the year, the average capital employed for this division increased by about GBP 38 million to GBP 125 million, slightly similar themes to Partnership Housing. We've invested capital in one London residential scheme. The capital is higher for a little bit longer, but it will turn, again, driven by the weaker demand within the London region. But 2025 has been a significant work winning year for this division. It's continued to build upon its prior year successes, converting 8 schemes from preferred bidder stage through to signed development agreements, and that's been followed by the appointment of preferred bidder on 8 sizable schemes during the year. At the end of the year, it had a secured development order book of GBP 4.6 billion. That's 13% up on this time last year and a further GBP 1.7 billion of work at preferred bidder stage. As we look forward to the end of -- or during 2026, we expect the average capital employed for this division to be in a range of GBP 125 million to GBP 140 million. Now as I said earlier, Fit Out has delivered a significant result for the year, contributing to the group's overall results. Its revenues were up 37% to GBP 1.8 billion. Its profits rose by 41% to a record-breaking GBP 140 million, delivering a high-quality margin of 7.8% but this outcome hasn't been solely driven by the exceptional volume growth. We've had excellent operational contract execution with real precision and the ongoing continued benefit of operating leverage. But all the while, the division has placed increased focus on delivering the very best high-quality outcomes for its customers and ultimately, the end user. And that represents everything that this brand has been known for, for the last number of decades. It closed the year strong with a secured order book of GBP 1.3 billion and a further GBP 0.5 billion of work at preferred bidder stage, highlighting the short-term visibility we always see in this business. So totaling GBP 1.8 billion of future work. In Construction, this division has continued with the strong discipline it exercises around risk management, right from the selection stage through to project management and delivery right through to handover. And it's this consistent approach, it applies to the large volume of projects, it's delivered all throughout 2025 that has led to the revenue growth of 11% to GBP 1.2 billion, the significant growth in profits by 20% to GBP 37 million, delivering a margin of 3.2%, right in the middle of those medium-term target ranges for margin. Now the public sector continues to represent a significant proportion of the revenues delivered in the year, around 85% and education continues to be the largest sector we serve around 46%. And pleasingly, the division was reappointed on the Department for Education's framework late last year. But all throughout last year, this division experienced strong work winning momentum. It finished the year strong with a secured order book of GBP 1.1 billion with a further GBP 1.5 billion of work at preferred bidder stage, totaling GBP 2.6 billion of work for the future, and that's a 20% year-on-year improvement. Property Services, following the successful remediation program that we concluded on in late 2024, delivered an expected modest profit of GBP 2 million in the year. But more importantly, from the 1st of January 2026, this division has now successfully integrated into our Construction division. That's where the work is so much more aligned, and that's what we shared at the half year. And so this is the last time that we will report on Property Services as a stand-alone division. And finally, turning to Infrastructure. Very similar to Construction in terms of its approach to risk management, particularly in respect of those long-term framework contracts. And this is where it carefully balances the profile of risk and reward right from the selection stage through to delivery. Most of you will remember, 2024 was a fairly significant work winning year for this division. It won around over GBP 2.5 billion of work. That theme, that trend has continued in 2025. It's won over GBP 2 billion of new work, largely in the energy and the nuclear space. The long-term framework contracts that's been awarded will include examples like Sellafield IDP, where that framework will last anywhere between 9 to 13 years. And National Grid electricity transmission partnership framework. So as a result of these frameworks, these large frameworks that it's won over the last 2 years, the division plan to commence a high volume of early planning and design activities during 2025. And so as a result, there was an expected decline in revenues, which we also highlighted at the half year, where revenues have now declined 11% to GBP 935 million. The operating profit, however, marginally declined by 3% to GBP 37.2 million with its margin at 4%. That's 30 basis points up on this time last year and again, right in the middle of its medium-term target range. And finally, this division finished the year strong with a secured order book of GBP 1.9 billion, a further GBP 700 million at preferred bidder stage and only including the visible work from those long-term frameworks, which I've just talked about. So John, over to you.

Thank you, Kelly. So I think the big message on Partnership Housing is we've been winning enough work to give us confidence about our medium-term targets. And if we look at the visibility on the left, over the 2-year period from the end of '23 to the end of '25, we've doubled the visibility of what we can see. Obviously, the dark blue are secured orders, which actually haven't changed a great deal. Then we have the light blue, which is the preferred bidder. And then the gray is what we'd expect to get from further schemes in the same development agreements. Now they wouldn't be a preferred bidder yet because perhaps they've got to get planning permission or some funding or something like that. We have now a line of sight of GBP 7.1 billion. And to give you some idea, that's about 33,000 homes. I think the other big message in Partnership Housing is that contracting is broadly 50% of the turnover at the moment. But as we go forward and these partnership schemes come on site, the contracting turnover, which is the dark blue on the right, is not really going to increase, but what does increase is the mixed tenure, and that's what we need to get to our medium-term targets. If we talk about Muse, now here, again, significant wins in the year gives us confidence to increase the medium-term target ROCE towards 30%. But we'd expect that to be at the end of the medium term because it's going to take us time to get there. Now the order book here is an interesting one because the GBP 6.3 billion is our equity share of the partnerships. But because we run the whole thing, a big part of our income comes from the development fees that we charge. And the development fees would be on the figure in excess of twice that. So that's actually quite a significant thing that I think people can miss quite easily. And to give you some idea of scale, again, that's about 6 million square feet of nonresidential mixed use and about 22,000 homes. So if you add the number of homes with mixed-use and partnerships, that's about 55,000 homes in the pipeline, which is quite an increase on where we would have been this time last year. Now this is a business that we've been in for about 20 years. We've learned a lot. We now know a lot more about what makes the scheme successful, and that gives us confidence that the ROCE are going to be higher going forward as indeed with turnover because we have 7 projects on site at the end of '25. And by the end of 2030, with what we can see, there's going to be 31 projects on site. So quite a change in this business over the medium term. The graph on the right shows what the turnover of our share of the equity is likely to be over the next few years up to 2030. Now Fit Out is very interesting because Fit Out in many ways is similar to Muse. Both businesses are the market leaders in a very specific market. We have spent 20 years in Muse and nearly 50 years in Fit Out, one, building up the track record, and two, the knowledge that we need to be market leaders. There is a fundamental difference between the 2, though, inasmuch as Mixed Use has more work in the second half of this century than Fit Out has for next year. So that is a very different thing completely. Now the landscape has changed significantly in Fit Out because I'm sure most of you are aware, ISG went out of business a year or 2 back, and we certainly picked up quite a lot of work on the back of that, particularly with the strength of our balance sheet, which is obviously fundamental for people having Fit Out work, having done for them. But we're still keeping the medium-term target between GBP 80 million to GBP 100 million because we do expect it to come back shortly. Now the other thing we've got to remember about this business is compared to perhaps a contracting business, it has a higher gross margin, but also a much higher overhead. So it's much more operationally geared. So when the turnover goes up in a bit of a rush, we do very well. But of course, reverse could happen when the turnover comes down. But having said that, it's a really good business and the markets that we're in are still strong and supporting it, but we do have sort of competitors looking to get some market share, but it's still a great business. If we move on to Construction, this is a business that we've been growing carefully and very successfully, particularly over the last 10 years, looking at how do we reduce risk. Our orders come from 2-stage tender. In fact, our order book is up very dramatically at the moment, which is great. And it's all about high-quality delivery. Our average contracts are smaller than most. Here, we are talking over GBP 1 billion turnover, but the average job is still only GBP 15 million to GBP 20 million. And we can see from the order book profile on the right-hand side, we're pretty well set up for this year, and we've got a good start for next year and indeed a good base for the year after. So we feel really confident about this business going forward. Now Infrastructure is a very interesting situation where we've actually tripled our line of sight of work over the last 2 years. Again, the order book on firm orders hasn't really changed. Our preferred bidder has gone up a bit, but the work that we would expect to get from the frameworks where we're the only people allocated on the frameworks has gone up dramatically. So our line of sight is 3x what we could see 2 years ago, quite a significant change and bodes really well for the future. So if we look at the medium-term targets, we put them here really for record, but the only 2 we're changing this time are Mixed Use Partnerships and Infrastructure. And I think I've gone through the reasons why we've upped both of those, both because of extra work coming in. So if we look at the outlook for '26. Partnerships, we see solid profit growth expected with a ROCE similar to '25. Of course, the final outcome will depend to quite a large extent on what happens to the housing market for the rest of this year. At Mixed Use Partnerships, we see a lot of projects getting on site, a lot of work that we're winning. So we're probably only going to make a very modest profit and a low ROCE. Fit Out, we've already said that profits are going to be significantly ahead of our medium-term target range for '26. With Construction, we see the margin being right in the middle of the range with revenues towards GBP 1.3 billion. And Infrastructure, again, margins to be in the middle of the range with revenue towards GBP 1 billion. So if I sort of summarize, look, our long-term organic growth strategy remains unchanged. We're in the markets we want to be in, and we see real growth in those markets. So there's still a huge amount for us to go for. The biggest differentiator for our group is our decentralized and empowered operating model. This really allows great people in the businesses to really drive those businesses hard at pace and to be really flexible and get there before the competition. That really is our differentiator. I talked about our strong balance sheet, obviously, Fit Out profits being higher than expected and the medium-term increase in targets in Muse and Infrastructure. And I would summarize by saying we're on track to deliver an outcome for 2026, in line with our revised expectations set out in the trading update released on the 12th of February this year.

It's Rob Chantry at Berenberg. Three questions from me. Firstly, on Muse, you've obviously increased the return on capital profile from 20% to 25%, now 25% to 30%. Could you just give some more color around the kind of confidence so early in the kind of build-out to give those return on capital increases? And also comment, I guess, on the EBIT contribution relative to the timing of the preferred bidder chart that you had? Secondly, on Fit Out, again, obviously, exceptional performance. Is there much color you can provide on the shape and concentration of the EBIT profile in the year versus history weighting to large projects of note? And then thirdly, Infrastructure, interesting to see an increase in target to GBP 1.5 billion. Could you just talk about the even longer-term ambition in that space, given the real strong structural drivers in areas like energy, nuclear, water? I mean, do you believe Morgan Sindall could be an even larger player in that infrastructure dynamic on a 10-, 20-year view?

I think when we talk about our medium-term targets, they're never the limit of our ambition, but what we think we can do in the medium term. If we look at Muse, it's the reason we've upped the target is because we can see that the ROCE is that we're likely to be winning on the schemes that we have won, and that's significantly better than we've had in the past. You might like to touch on Fit Out.

So I think, look, on Fit Out, what we have already signaled is we've been in a rather exceptional window driven not only by the changing competitive landscape, but also the mix of work we've been delivering. And we do see that normalizing in a strong marketplace. So the guidance we've already shared with you still solid and robust.

And I think with Infrastructure, we've upped it to what we -- where we think we're going to be in the medium term. But again, that would not be the limit of our ambition. But we wouldn't -- but we're more concerned about quality of earnings than we are about volume.

But having said that, the spaces where there is growth around energy and nuclear and even to some degree, water are all spaces that we are very active and present in.

Aynsley Lammin from Investec. Just 2 for me, please. On Partnerships, obviously, last year, site numbers going up, margins going up, which is in contrast to kind of what we're hearing from others in the sector, there's margin pressures and plan is difficult to get. So just interested to maybe hear a bit more explanation and color how you've been so successful opening sites and increasing the margin and your view on '26 for that area? And then secondly, just, I guess, following on from previous questions, just on the Muse outlook, you're going to be active on more sites this year, clearly, and you had the loss of GBP 5 million. Maybe if you could give us some help on what turnover and operating profit would be this year on a more short-term basis.

Maybe I'll take those. So I think perhaps just on the Partnership Housing, you're absolutely right, Aynsley, we have expanded the number of active sites that are open to 70. Look, we're a national business. And yes, overall, the market is somewhat subdued. But there are regions and pockets of the U.K., which we operate in, which have very good sales rates. So we've been pivoting towards forging ahead in those areas. And fundamentally, we believe that the market will return. So we are still forging ahead with our plans, but being smart and cute about the areas which are softer than others.

But we shouldn't forget that housing for sale probably represents less than 25% of the turnover of that division. So we will do better than a normal housebuilder in a bad time, but perhaps a normal housebuilder will probably do better than us in a good time.

Just even with the kind of issues around social, the funding for affordable social homes, you're navigating that quite well, I guess.

Look, I mean the reality is when we go into partnership, we're working closely in understanding the financial health and well-being of those associations or partners as do they with us, by the way, because it's a long-term partnership, and they need to be sure we're going to be there for the end of that partnership, whether it's 10 years or 20 years.

Our balance sheet and track record is enabling us to win more than our fair share of the big partnerships.

So just returning, I think, finally to the question on Muse. Yes, there's -- we had 7 schemes on site end of last year, that's more than doubling by the end of this year. We shouldn't get too carried away, though, with the size of the revenue profile and indeed, the profit because the spend will gradually build up and the profile, therefore, of revenue and profit will become more meaningful towards the middle of the medium term. And certainly, the returns will be yielded, as John has signaled towards 2030. But this is a ramp-up.

It's also important to understand that when we win a scheme in Mixed Use, it's likely to take 3 years before we get on site and probably another year before we start to make any money. So it's a very long-term business. And as I said, we've got work going into the second half of the century, which is pretty unusual.

Sorry, if I can squeeze in one question, sorry. So following up on the Muse, if I can about the capital expenditure involvement you guys are expecting? Because I think you mentioned GBP 125 million to GBP 140 million expected. So how should this evolve from 2026 and onwards? And also how about the Partnership Housing CapEx expectation as well?

So if we start with Muse, we've guided that it's going to be in a range between GBP 125 million to GBP 140 million for this forthcoming year. I think as you look over the medium term, it will ebb and flow a little bit. I think one of the charts in the presentation showed the range. In the middle of the medium term, it will come down a little bit because there's an expectation some of the capital invested will start to turn and be realized. And then incrementally, it will grow. We have highlighted previously. This is one partnership business where it will be modest incremental growth in the capital invested. It won't be significant.

That is in the short term.

Yes. Yes. We're talking about this medium-term horizon, you're absolutely right. With Partnership Housing, we've guided between GBP 490 million and GBP 550 million just because of where we are with the stage of developments and the market in general. But I think over the medium term, again, one of the charts does show that, that starts to normalize very much in line with what we've always said over the medium term, sort of around the GBP 450 million to GBP 500 million, very much in line with the medium-term targets.

Alastair Stewart, Progressive. A couple of questions, please. London housing featured -- London housing in apartments in particular featured in the Partnership Housing and Mixed Use divisions. Presumably, it can't get much worse than it is -- London housing can't get much worse than it is just now. Are you seeing any signs of improvement perhaps through the emergency measures announced recently in that division? And then in Fit Out, the total order book went down slightly, but the -- if I understand it right, the 12 months ahead orders went up. Is there any strange difference in the dynamics between previous years? And are your gross margin expectations for that division in the 12 months ahead, any different to usual?

I think we would expect the turnover and the gross margin in the Fit Out division to be lower this year.

And I think the reality is it's just the mix of projects we're delivering, Alastair. I think just going back to your initial question though on the London market, I think we're no different in terms of the trends we're seeing to anybody else. It does ebb and flow. It is moving, but we're no different to anybody else in that space.

Visitor numbers are marginally up.

Andrew Nussey from Peel Hunt. Again, a couple of questions. I might ask each in turn. First of all, on Infra, where the revenue target has been increased to sort of GBP 1.5 billion. Is that really driven by the nuclear and energy sectors? Or is there other elements within that? And arguably, given that level of mix, it might have been an opportunity to review the margin target as well.

We reviewed the margin targets not that long ago, and we can't sort of increase them every 6 months, as you can probably appreciate. But you're right, a big chunk of that growth has come from particularly the energy sector.

And secondly, Property Services is now part of Construction. Given that focus on planned maintenance and decarbonization, should we expect that to help or drive an element of underlying margin improvement there? Or should it continue to be a drag on that divisional margin for some time?

So I think the way you should look at it is it's going to be a very, very small part of Construction. It will be careful growth, which construction will lead upon. So I think you should look at the guidance we've given on Construction and assume that's the guidance that remains.

And last question on the cash balances. I think you alluded to feeling comfortable with 10% of revenues as spot cash at the end of the year. Can we read into that as 5% of revenues as being the minimum point that you feel comfortable with?

I think I actually said it's key to the delivery of the GBP 19.1 billion workload as opposed to comfortable. So I think that's probably the important statement here. It's key.

As you can imagine, it's something that the Board review on a regular basis. But it's not -- I think to just say a percentage of turnover is too crude a way to look at it. It's what do we think the partnership needs are going to be over the next 4, 5 years and a lot of other things.

Jonny Coubrough from Deutsche Numis. Could I ask firstly on the Fit Out market? You mentioned some competitors are trying to get market share. Do you think the overall market has the capacity to deliver the amount of work they've taken on over the past year?

The Fit Out market has been strong, and it's still good. But I doubt it's going to grow significantly over the next 2 or 3 years. So this is why we are sort of flagging up that we would expect our turnover and our profit to reduce in Fit Out. It's probably not reduced as quickly as we might have expected.

And going back to Muse. In the presentation, it pulled out, I think, GBP 14 million of overheads relating to upcoming schemes. Is that a run rate? Were some of those one-offs? And will that amount of overheads be covered by revenues this year?

There will be an element of that, that starts to get covered because there will be some profit contributions through development management fees. But I think the guidance on the overall profitability is still quite modest because of the level of spend that is going to be quite gradual in terms of the stage of those schemes on site.

And you can imagine, we spend a lot of our overhead getting a job on site before we actually start earning any money. So a lot of that overhead will actually transfer from working on the schemes before they're on site to being on site.

And let's not forget that, that isn't entirely down to getting a scheme on site. It's also about keeping the machine running on winning new work, which is quite important.

And the last one would be on the GDV. You gave in the slides what the GDV should be going forward. And John, you pointed out that the development fees are on double that amount. Are you able to tell us roughly what a typical development fee as a percentage of GDV is across the portfolio?

Probably be unhelpful because what we do on each one is slightly different.

And finally, is development risk changing much in the schemes you're taking on across sales risk, for example?

We're doing much more forward selling.

Stephen Rawlinson. Just a quick one on the working capital lock-up on housing in London. Could you just give us an idea of whether that's in completed units? Is it sort of -- are we ready to roll should the market pick up? Do you have an amount of flexibility over pricing on that, which should enable you to reduce that capital employed? And you probably won't be able to -- would be willing to tell me what it is that you've got locked up in London, but it'd be interesting to know what proportion is of the total or some figure that helps us understand better what's going on in London and how quickly you might be able to reduce that capital employed? And furthermore, what -- you've mentioned your plans to look at the other geographies. Would it be the case also that longer term, you'll be looking outside London as well?

So maybe if I start on that one. I think, look, the reality is it's a combination of in progress and completed stock. They are selling. We are getting a lot of inquiries. It's just taking longer. It's just -- it's higher for longer. But we're not worried. The capital will turn in the near medium term. The range of how much we've got invested is somewhere between about GBP 100 million to GBP 150 million.

I think one of the advantages of having a good balance sheet is we can make the right long-term decision, and we're not forced into doing a fire sale or anything like that. And the profit we're making on them is the profit that we would expect. It's just selling less of them per month than we would like.

So I think you mentioned short term that you're looking away from London. Is that a longer-term position that you would hold as well that you'll be seeking to move out with some sort of level of concern around about London's commitment to housing?

No, we're not against London. I think we probably recognize that building large residential schemes with sales risk, particularly flatted apartments is probably not for us. Any more questions, anyone? Well, thank you very much indeed for your time today. Thank you.

Thank you.