Renew Holdings plc (RNWH) Earnings Call Transcript & Summary

Thank you, Matt. Good morning, everybody, and welcome to our interim results presentation for the period that ended in March. In terms of format of the presentation, what we're going to cover, I'll start with a quick overview of our results for the period, a reminder of our business model and the strengths of our investment. Okay? Sean is going to provide a run through financials, including our M&A ambitions and criteria. I'll provide a bit of an overview. We'll drive into the operational sectors and this actually includes in this period, a market update to highlight what we're putting into the growth opportunities in our Rail and Water segment. We summarize the progress that we're making on our ESG sustainability journey, and I will conclude the session. We'll be sure to make time at the end of the session to take any questions that you have. For information and support purpose, in the appendix of the deck, you'll find some segmental analysis, a reminder of our key differentiators and how we are collaborating as the group. So turning to Slide 2 of the deck. We are delighted to be presenting yet another set of record interim results for group. This is an excellent performance, that include strong organic growth, almost 17% as well as good cash generation. This is further demonstration of the attributes in the model and the execution of our strategic priorities. We remain active in terms of our M&A ambitions, and we were delighted to confirm the recent complementary bolt-on acquisitions of both TIS in the period and just post period end, the Route One Infrastructure. Both are integrating well and more on these shortly. Importantly, as you will see from the sector commentaries, we have significantly strengthened our framework positions in the key sectors of Rail and Water. Our order book remains strong, yet conservatively reported and reflecting the confidence in our prospects as well as the good momentum going into the second half of our year, we've increased the interim dividend by 5.5%, up to 6.33p. On that page, you will see our 11 principal brands. Just remembering that TIS and Route One actually reported under the Shepley and Carnell brands, respectively. On Slide 3, it's here that we describe our 5 sector blocks, where our engineering services brands have delivered incredible growth. And we've seen that added benefit of leveraging group synergies and collaborations. And again, there's an appendix slide that amplifies exactly what we're doing in that regard. Turning to Slide 4. Well, it's here that we summarize the strengths of our investment case. These record results once again demonstrate the effectiveness of our differentiated model, our risk profile is much lower, given the nature of the services that we provide, our direct delivery model. We have consistently executed to the strategy and this has delivered reliable and long-term earnings growth, which Sean will amplify shortly. Our markets have high barriers to new entrants and are underpinned by resilient dynamics. We have market-leading positions and are now deeply embedded in central U.K. infrastructure programs. We continue to be committed to growing the business both organically and inorganically using our strong balance sheet. But as ever with a very disciplined approach to risk. Sean?

Good morning. Starting with the income statement. The first half of 2024 has seen record revenue of GBP 553 million, which is up by 17% on the prior year. Pleasingly, almost all of this growth is organic with only a relatively small contribution from TIS included in this figure. When we look at where this revenue growth is coming from, I'm pleased to say that it's across almost all of our engineering services segments with the one exception of highways, which had a record year last year, which has sorted of flattened out a bit this year. Our operating profit is up to GBP 33.1 million, which is 17% higher than the first half of last year. And our margin at 6% is consistent with our first half margins over the last few years. As typically happens, I expect this to increase in the second half and I remain confident that the full year margin will be around 6.5% as previously guided. If you recall, for the last 5 or 6 years now, we've consistently guided to a margin between sort of 6% to 7% and typically closer to 6.5% and we're confident that, as the business is currently constructed, it will continue to be within that range. Our focus, as always, is on our EPS growth, and I'm pleased to report record first half EPS of 31.3p, which is up by 14.2% on the previous year. This is despite the increase in corporation tax to 25% from April '23, which we're only getting the full impact of this year. And as Paul already mentioned, we are going to pay an interim dividend of 6.33p, which is up 5.5% on the previous year to previous year. On to the balance sheet. We have a net cash position, which has improved to GBP 42.5 million on a pre-IFRS 16 basis and it's GBP 22.7 million on an IFRS 16 basis. We continue to have support of banks and more than adequate firepower under our RCF. And I'm also pleased to say that work is reaching conclusion on the true-up calculations of both pension schemes, which is required before we can move towards a full buyout. Our current expectation is that the Amco scheme will require a top-up of approximately GBP 1.6 million later this year. But the good news is, is that we now no longer believe that the level scheme will require any further contribution from the company. We've previously expected to pay around GBP 3 million into the scheme. That process should conclude now in early 2026. We have continued to increase our provision against discontinued historic liabilities in Allenbuild. The provision now stands at GBP 8.8 million, which is up from GBP 7.5 million at the end of September. The main reason for the increase is because we have reached a settlement on one of the claims, and that will be paid out in the second half of the year, and there will be a cash impact of GBP 1.5 million as a consequence of that. Looking at our return on capital, first half return on capital is 25%. And I think this slide continues to demonstrate our asset-light operating model. The business continues to consistently deliver a high return on capital with our ROCE average now at 27%. On to the cash flow. The purpose of this slide is to bridge our opening net cash position on the 1st October, 2023 to our closing net cash position on the 31st of March, 2024. The first bar is our EBITDA, which is the profit we've made during the year. We have a small working capital out further this half, which represents the revenue growth in the period. Next is our net CapEx, which is our CapEx less sale of fixed assets. This is a little bit lower than we'd expected in the first half, but it should increase in the second half. And our dividend, which is last year's final dividend of 12p. And of course, the growing cash tax outflow represents the increasing profitability of the business and the fact that the tax rate has now increased to 25% this year, where we're at 22% last year. And then the acquisitions bar is the acquisition of TIS in October. The acquisition of Route One, which was mentioned, happened slightly after the period end, so that will be reflected in the full year results. And all of this brings it back to our period end net cash of GBP 42.5 million. On to our free cash flow conversion. We're slightly below [indiscernible] bridge this year as a result of a small working capital outflow we saw in the first half, which is a consequence of the strong revenue growth that we've seen. Our free cash flow was also impacted by the increased tax bill and our ongoing investments in plant and machinery. The FY '20 and FY '21 numbers, as I've been saying for a number of years now, are a little bit of anomalous because of the impact of COVID and deferral of VAT, but obviously, as we move forward, they'll drop off that side of the chart, so will no longer be an issue. And having said all of that, I'm really pleased with the free cash conversion of over 70%, and I think that really points to that the business is finally cash generative. Our adjusted EPS track record. This is our favorite slide because you think that it really represents our long-track record of value creation. As you can see, we've delivered an EPS compound annual growth rate of 17% over the last 12 years. We had record first half EPS of 31.3p again this year. And all of this has been achieved whilst keeping our net debt to EBITDA below 1x. On to M&A. Despite having already completed 2 bolt-on acquisitions in this year, we continue to actively pursue M&A opportunities in both our existing sectors and in new target markets. We have a very strong pipeline of M&A opportunities, and we are very busy in this area. Our new M&A director that we appointed in January has settled in well and is contributing to help us deliver on this M&A growth strategy. Across our markets, we see significant growth opportunities. And so that way, we were focused on ensuring we have the breadth of capability and capacity to seize those opportunities as they arise. We have a good track record of acquiring those additional capabilities and capacity, as outlined at the bottom of this page, where we've set up some recent examples of bolt-ons that we've done over the last few years.

Thank you, Sean. We're now going to take a little bit of a closer look at our operational highlights. I'm going to start with Rail on Slide 14. Rail represents about 40% to 45% of total group revenues. Operating margins in this segment are around 10%. As an opening comment, activity momentum has remained strong from a strong year last year with ongoing demand across the entire national rail network. We've just transitioned into Network Rail's latest control period cycle, CP7, which commenced in April. And we move into this new 5-year cycle in a much stronger position from the beginning of the previous. Collaboration between our 3 rail brands has been a feature of our success here, putting new framework blocks within reach. Weather conditions continue to expose vulnerability across the Rail Network and we've responded on numerous occasions to emergencies on the network, predominantly around embankment failures and just remembering that there are 25,000 embankments that are vulnerable across the entire national rail network with buying our services in the future. Turning to Slide 15. Well, it's here that we will provide a little bit more color and further amplify the growth opportunities that we see in CP7. The addressable market over the next 5 years will significantly increase with GBP 32 billion of the GBP 45.4 million total allocation allocated to renewing and maintaining the network. We're delighted with the success we've had with both renewing existing frameworks and winning new positions moving into this new control period cycle. The chart on the left illustrates the incredible growth that we've delivered in the previous 2 Rail investment cycles, and we see no reason why that pattern cannot prevail. There are some factoids in the middle of that slide that indicate the true scale of the assets that require our attention across the entire network. The Rail Network chart on the right illustrates the key frameworks that we hold in each of the 5 national regions. In CP7, we have a much broader geographical reach and a wider range of framework, lots to deliver. In summary, our Rail sector is in great shape with significant growth of opportunity in CP7 and beyond. Turning to Infrastructure on Slide 16. Infrastructure represents about 20% of what we do and the operating margin's typically in the range of 6% to 7%. We continue to strengthen our position in highways and wireless telecommunications with progress being made in aviation. In highways, we're in the final year of RIS2, the latest National Highways control period cycle, where we have 10 months remaining. Just to remind, however, that our frameworks are actually committed through to 2027, so we have continuity of contractual engagement over that period of time. And we're very much looking forward to the growth opportunities that we see as RIS3 commences in April '25, where National Highways and the Department of Transport have all stated prioritization funding towards operating, renewing and maintaining their strategic rural networks in the area of the network where we operate. We are delighted to have broadened our offering in this sector with the acquisition of Route One Infrastructure at the beginning of April. Bridge deck services are increasingly in demand today and tomorrow across the entire network. In aviation, in the period, we were appointed to Leeds Bradford Airport for an airside maintenance framework. Growing the client base is simply part of the strategy for our organically grown capabilities in that sector. In wireless telecom, demand and therefore, momentum has remained strong at the back of a record year in 2023 for these services. We continue to support all 4 of the major network operators. And we continue to seek out and develop new routes to market, including private 5G and across the mast owner asset segment. Moving to Energy on Slide 17. These represent about 10% of total group revenues. Operating margin's, typically, again, 6%. The scale of the U.K. nuclear legacy is enormous, long-term reliable opportunities will emerge from it for our specialist services [indiscernible] Nuclear Decommisioning Authority have increased the total rental and expenditure to around GBP 4 billion annually for the year '24, '25. Historically, the runway was more closer to GBP 3 billion a year, such is the scale of the challenge. out of the GBP 4 billion annual commitment, GBP 3 billion of that is committed towards Sellafield and it's here that we remain focused. In the period, we strengthened our position on these 20-year PPP frameworks and program and project partnership frameworks that run for that length of time. The expansion of our nuclear manufacturing capabilities with the recent acquisition of TIS has been extremely well timed indeed with the increasing demand for those type of services. We believe the formation of Nuclear Restoration Services, they're going to look after the Magnox stations, and Great British Nuclear part of the energy fix program, really bode well for our long-term growth ambitions in the wider civil nuclear market. In our organically grown electricity vehicle charging Infrastructure segment, we continue to build foundations best way from where we are. We're building a reputation. But importantly, we've been very selective about our most optimum route to market, building long-term partnerships with big charge point operators and large fleet operators. We believe it's the best route to market for the services we provide. A point of interest. In the period, we installed first U.K. changing point from streetside telecommunication, a green box working for BT, first of its type program, which is likely to grow in the years ahead. Moving to our fourth engineering sector, Environmental, on Slide 18. 20% of what we do is related to these activities. Operating margin's, again, typically 6%. It moves around a little bit. But our largest contributor in this sector, are our water activities. Demand and momentum for our services have remained extremely strong indeed, and we've remained operationally very busy across the networks as we move towards the end of our AMP7, which runs until March '25. We've made excellent progress with appointments in new and extensions to existing long-term journal works in this segment, not unlike the progress we made throughout. We've therefore move towards a new control period cycle with expanded geography and a larger client base, really important foundations. We're now engaged by 10 of 12 national waste and water regions. And clearly, an incredible growth opportunity ahead for Renew and our now 4 brands who continue to successfully collaborate across the water sector to reach into a wider range of frameworks, particularly now that we have MEICA capability to complement the civil engineering experience we've had for many years. In other environmental activities that are reported under this segment, we've been appointed to new operating, maintaining response frameworks by the Environment Agency who continue to commit and increase an increasing budget to a wide range of climate resilience programs. Some very precisely targeted land remediation and conservation and restoration programs complete a very healthy long-term growth prospect across this Environmental sector. On Slide 19, not unlike what we did in Rail, we've illustrated the scale of the Water growth opportunity as we move into the new control period from April '25. [indiscernible] plans. The determination of these plans has not been finalized. These are anticipated in the months ahead and certainly before our year is finalized. Draft budgets terminations, however, that have been published by each of the water companies, indicate a significant increase in commitment over the next 5, 10, possibly 15 years. The specific growth drivers for Renew include extreme weather conditions, rising demand, populous increases, Net Zero and regulatory complaints and to counter these challenges, water companies are proposing an increasing focus on their CapEx to 1.7x that committed in AMP7 with -- and importantly with a focus on renewing and maintaining their network. This involves a specific GBP 25 billion commitment to environmental resilience. This was only GBP 5 billion commitment in the previous control period 7. Encouragingly, we're seeing an early commitment to these proposals, with GBP 2.2 billion of commitment for environment resilience already committed visible to us. As you can see from the National Water Asset Schedule, the scale of the assets that require our services are simply enormous. The U.K. water map on that chart serves to illustrate how we've strengthened our geographical reach. The dark blue colors are where we're now operational and the excellent progress we've made in securing a broader range of frameworks that will serve us well over the long term. Moving to Slide 20. Our Specialist Building activities. This sector remains noncore and will contribute less than 2.5%, with the operating profit this year. Our strategy here is clear and consistent, to remain highly selective and disciplined about how we access and plan route to market. In line with our strategic priority, however, we've improved the balance of the order book pipeline across its 3 subsectors. And this includes a number of framework activities now in science, in particular, providing a much more reliable work [indiscernible] need forward. After many years of attempting to break into some new bespoke specialist markets, we've finally been appointed to one of the royal estates. Not a publication, but an important breakthrough into one of the specialist sector of our building capability work. Sean?

Yes. So on the Slide 21, we summarize our ESG plan, which we call Renew Resilience Plan. As with previous years, we don't talk a lot about it at interim. You'll hear much more of that for the full year. However, just as a reminder, we have 4 key commitments which are, to take climate action; to operate responsibly; to build social value; and to empower our people. A few years ago, we set out specific targets in relation to each of these commitments and we'll report on our performance against these targets at the full year. Having said that, I'm pleased to say that we continued to make good progress across all of these areas in the first 6 months. And then finally on this page, again, as a reminder, we continue to be the recipient of the London Stock Exchange Green Economy Mark, and that means that we derive more than 50% of our revenues from green activities. So to conclude with an outlook. I'm on Slide 23. Hopefully, we've been able to amplify that we continue to see a compelling demand for our services and across our end markets where government and opposition parties have reiterated a commitment to significant infrastructure investment. In truth, we remain ambivalent to the outcome of the forthcoming election and our clients are feeling the same way too. Our largest clients in Rail, Water and Highways, have all made clear declarations regarding an additional focus on maintaining and reviewing their networks, kind of things that we do. And of course, funding is also underpinned by climate action. We can't ignore that, as I alluded to in the emergency we're responding to. Clearly, regulatory and legal obligation compliance are equally leaders that are being felt by our clients. Our strategy is to continue to organically and inorganically grow the group, albeit with a very disciplined approach to those plans. But we've made excellent progress in renewing and extending frameworks, the foundation where the company has strengthened again in the period. So the record results, strengthening those foundations again, that bodes well for our future growth conditions. We can report really positive momentum going into the second half of the year. A feature of our prelim results last year, we've included it in the deck, we're now leveraging those synergies, that collaborative potential across the broader company. Our 11 brands working closely together are really allowing us to penetrate our customer work plans appealing to a win-win rate of framework lots, a really important point and the feature of our recent success and growth. We're very much looking forward to amplifying our journey, giving some more color to our market opportunities in our upcoming Capital Markets event. If you haven't been invited, please take the invitation. That's happening in June. It equally gives you access, not just myself and Sean, but to the wider leadership group of Renew. And finally, we very much look forward to reporting to you again on further progress that we make with that good momentum coming in the second half of our year. Thank you for listening. We're now going to open the session to any questions that you have.

[Operator Instructions]

James Beard. I've got a couple of questions. Firstly, on these sort of more market-related questions, on Rail, looking at CP7, how does the -- that sort of circa GBP 32 billion spend commitment to renewal and maintenance over the course of CP7 compare to CP6? And I guess sort of a follow-on question from that is, it would appear that at the moment, you have a sort of broadly mid-single-digit market share of that addressable market within rail currently? Where, over the course of CP7, do you think that could potentially get to? And then my second question is on Water. Clearly, we are expecting a very significant increase in investments going into unpaids in the next 12 months or so. What risk do you see that some of that spend gets sort of deferred to further down the pike as we saw in the early period of AMP7? And how is the business positioned to respond to that should that occur? And I guess -- and another sort of follow-up question. Do you have the capacity within the Water business to meet what is likely to be a significant increase in demand from your customers?

That's a long question. I think there was 5 questions in there actually. Let's start with Rail. So yes, listen, the transition between CP6 and CP7 is interesting. I think at a headline level, the emphasis is shifting towards renewing and maintaining. You can go and read the business plans, Department for Transport, Network Rail publish their business plans. I think the headline is that we can see the addressable market, as we refer to it, out of the GBP 45.4 billion, around GBP 32 billion of that, an enormous number, will be committed to operating, maintaining and renewing the network. That compares to last year -- it's quite difficult to actually compare one to the other. They move geographies, they move framework [ allotting ]. It is not straightforward to do. We've spent an extraordinary amount of time trying to map it in some detail, and we've given up in the end because it didn't add value. I think the important thing to say, however, so that compares to around GBP 29 billion last year. You could argue with inflation, it hasn't necessarily kicked on a lot. But you've got to drill into the detail. You've got to get into the regions, the 5 regions. But more importantly then, the 14 routes within those regions to look at where their commitment is. And the reality is, our reading of that, whilst we can't see it in granular detail for 5 years, the demand for the kind of things that we do in that GBP 32 billion will increase. We see visibility of that already. That's the important point about this. In terms of market share, it's not something we sweat about. We've grown really well our Rail brands uptake in market share, without any question. I think broadening our range of capabilities, we really started this when we acquired Giffen. We were a civil engineering contract when we acquired Giffen to give us mechanical and electrical capability. QTS accelerated our growth going forward. REL was brought in to connect us into the overhead line capability. So when you think about -- when I talk about geographical spread and a wider reach of group framework allotting, if I take Wales and West, for example, we were operating in Wales and West previously, but we now have the E&P lots in Wales and West, which has tremendous growth opportunity. As we come out of Paddington towards Bristol, all of the issues that created overhead line problems, we now have access to those frameworks. That is new to Renew and its Rail offering. And it's because we've collaborated and that opens up a whole new growth segment to us. North West and Central, we've have a new suite of frameworks in North West and Central formally appointed. We haven't formally had those arrangements. Again, it's through a collaboration of our full Rail grant working together. So James, it's very difficult to plot it in detail other than to say the growth opportunity and the foundations we have in Rail are much stronger and it's tangible in terms of the growth. But quantifying it is quite a difficult thing to us to do. I think the best thing we can do to illustrate what we've done in the past, are those 2 previous 5-year controlled period cycles. And I said in my presentation, the last slide, that we see that as an opportunity -- we see them, [ as I said ] that's a growth opportunity because we're in an excellent position in Rail more generally. In terms of Water, moving to AMP7 to AMP8, we're a little bit early in giving granular detail. We're still looking at a draft determinations, as I said. But we fully anticipate all water companies to be presenting a case for much bigger budgets. The reality is we're all going to pay more for our water services to support that. That's the harsh economics of the circumstance. There's excitement in Water despite those disappointing headlines for the failure in compliance. The only way to fix those issues is to spend it on the kind of things that we do. Spend in the reliability and resilience in your assets. I think the Water growth that we've had has been tremendous. I think we're going to a new control period. Again, with wider geography being pushed into Southwest through organically pushing into that. We haven't acquired to get that geography. We've just made a business case to do it, and we've known we're in a 5- to 10-year framework in a new water region. If you remember, we were frozen out a bit in Northumbrian Water. We've now been reappointed into Northumbrian Water. So we're -- actually out of 10 of the 12 water companies that we have, we're in a much stronger position across water more generally. Bigger budget is coming. We have to be a little bit patient for those determinations [indiscernible] but again, not unlike in Rail, the focus will be on renewing and maintaining the infrastructure assets, playing straight to our strength. We actually believe, James, and we've seen a cyclical uptrend, sometimes a quiet start and a quite end to control periods cycles. I have to say, we've seen some improvement in the discipline around annualized commitment to the pipeline. That has been a feature. And I think it will improve again in AMP8. It's one of the obligations and regulatory improvement initiatives just to be more consistent in the progress you make across the network. And we, therefore, believe that over the next 5-year cycle that commences in April '25, it will be more reliable in the way it presents itself to us. That's certainly emerging in the [ work facts ] we're looking at. It's very nice to have the problem of the skill set resource challenge. You can do a number of things in responding to growth. You can sit and whinge about it or you can go pinch people from your competitor, or what we've chosen to do is grow your own. And getting ahead of the game, we have 350 people in various training programs, 160 apprentices currently in programs. The persuasion of where the skill sets are in our various training programs is probably a little bit biased towards our future water skill requirement. Part of our M&A work that we're doing at the moment is not just to buy individual brands in Water but to actually find companies that have resources in Water. We've made no secret of that. Because to work on these water assets, whether it's on the clean or on the waste side of the Water portfolio, the qualifications and skills to deploy people on to the network are extremely hard. You can't just qualify somebody overnight. So we're looking at this from a -- it's a multifaceted solution to this, but growing our own is part of its succession, pushing people through the business, developing people and products [indiscernible] are passionate about it. I test every business on that front and putting enough resource into brining your own talent pool is absolutely crucial. I think we're doing better than most.

James Bayliss here from Berenberg. Two questions, if I may. On kind of workforce and your employees, can you just give us an update on what the hiring landscape looks like and what you're seeing in terms of churn? I guess last time you spoke, obviously, you see kind of how [indiscernible] attractive proposition for some guys in the space. That's [ new jobs way ]. Have you seen any tailwinds as [indiscernible] come back and say will work there? And then the second piece is on cross-selling and the intergroup collaboration you mentioned. Is it at a point yet where we can quantify that in terms of how we should be thinking about that as a [indiscernible] portion of group revenues or just the operating profit? Or is it still more about the strategic concept than versus the actual contribution?

Okay. I will deal with the people piece, I'll let Sean explain where we're at on cross-selling. But there's about 5,000 people that we employ, James. As I said, I look at the data almost on a daily basis really what the movements are. I check that we are -- back to James' point, that we've got enough effort into building the talent pool for the future. And I think we've got that right. But clearly, as you pointed out, staff turnover rate is something that are pretty critical metric and concern [indiscernible] and I'm delighted to be able to say it has improved slightly since we last reported. We are now down at 14%. If you recall pre-pandemic, I was extremely proud to consistently report 10% staff turnover rate in a sector that typically has somewhere between 20% and 25% normal staff turnover levels. We've always been at around 10%. Things changed. In the post-COVID society, we have early retirements that still plagued the business. It's unfortunate, but that has softened a little bit after probably economic circumstances playing out. We were at 15%. We've tightened a little bit to 14%, which I still believe is probably in a good place, considering all of those other challenges. We know with the interest of movements around U.K., particularly around capital projects, HS2 northern leg was a blow to some, of course, but it did kind of free up the employment market. I think it's actually settled in all honesty. I think we've had cost of living pressures across the workforce. We've dealt with those properly and in the right manner. And again, that is reflected in the strong staff turnover retention levels that we have.

So on the collaboration piece. I think we don't spend a lot of time trying to quantify it. It's still relatively small in the context of the group. But strategically, it's very, very important and increasingly so. I think the key thing that we see is that there are certain frameworks where -- in certain sectors, where we have the skill set but not the experience of working in that sector. So we can take the skill set and then it's combine it with the sector expertise to be able to win more lots, and we previously did a great job. That would be in Highways, where we've got Carnell and AmcoGiffen working together, collaborating on the barriers framework. Another great example would be we've got QTS, which is a devegetations expert, working with [indiscernible] our business that works with Welsh Water on a few vegetation lots working for Welsh Water. We've taken things like on the overhead line piece, taking the combined expertise in Rail of QTS, REL and Amco and tendered for the [indiscernible] framework that Paul mentioned earlier at Wales and Western. So for us, it's all about strategically trying to get us into new markets or new subsectors of markets that we're not currently [ invited ] by combining the capability of the group's brands. In terms of quantum, as I said, it's not huge, but it's growing, and we expect it to continue to grow.

Stephen Rawlinson from Applied Value. You -- I think the bigger, i.e., buying, are you coming up against more of the regular -- or the larger contractors and then there's margin pressure coming from competitive circumstances? We've talked a little bit about margin pressure from labor costs. Is this something you can help us with a little bit about margin pressures that might be coming from the competitive environment, which as you grow, you become more of a threat to them. Or they might be trying to put you off on certain contracts or the usual games that go on in this area. How best can you protect your margins possibly? And I think you've already signaled 6.9% in engineering services is probably as good as it gets because that's what -- that's the industry. And then there's only really Balfour Beatty getting those sorts of margins in the quoted arena at the moment in the sorts of areas that you're in. So is there something you could add a little bit about how you can protect those margins from competitive pressures as you go bigger and become more of a threat?

That's a good question from Stephen.

Yes. Look, we've valued for some time, the margin range of 67%. We're fairly consistent about that. The big shift for the group was when we acquired QTS in 2018, which is a higher-margin business. And there's been a little bit of margin accretion over the years as the proportion of building has got smaller and we did more engineering services so getting close to that 6.9%. But I've always been -- and even 2 or 3 years ago, when we've been at 6.9%, I said at the time, that's unusual. It's a one-off. We're going to get back to 6.5%. That's where this business is. To answer the first part of the question, we don't see ourselves competing with those larger sort of Tier 1s and the ones that you're talking about. Whilst we're getting larger, we're still doing the same thing that we've always done, which is the smaller tasks, the lower value maintenance renewals activities and the larger, particularly larger quota businesses that you're referencing, Stephen, are still focused on the larger enhancement lots, big capital programs, which is not our area. We're not interested in entering into that area. So we're not seeing any competitive pressure in that sense. I guess looking ahead, with the economy as it is and funding as it is, there is always a bit of margin pressure coming from the clients who want you to do more for less and it's up to us in those circumstances to work with the clients to find ways to deliver operational efficiencies so that we can do more for less, but maintaining our margins at the same time. And I think where we're getting -- where the customer is getting better, and we're getting better is that more strategic planning, so understanding what the work bank's going to look like over the next 2 to 3 years, working with the customers to understand that, what is the most operationally efficient way to deliver that work bank so we can keep our margins and they can get better value for money. We're seeing a lot of that going on now.

[indiscernible] supplementary to that because one of the factors in what you just talked about will be your IT systems and your Magnox controlling the work. You don't talk about it very much, but obviously, you're in quite a number of different segments, each of which might require a different approach to IT. Is this something you could talk to us a little bit about how you intend to stay ahead in that area as well? Because managing a lot of small projects, I mean, itself, it lowers the risk, and you can rebid so it lowers actually your inflation risk. On the other hand, you've got to have great IT systems to manage them. Is there something you could talk to us a little bit about how you intend to expand improve those and so on?

Yes. We do an extraordinary high volume of tasks. Just to give you a flavor of our circa GBP 500 million worth of Rail activity, the maintenance task is still circa GBP 14,000, GBP 15,000 ticket size. Our renewals, our project world on average is somewhere in the order of still about GBP 1 million. So if you can imagine how many of those we actually do. So we create a lot of -- we hold terabytes of data as you can well imagine. In terms of how we control business functions, it is done at a subsidiary level. What we do have at the center, however, our sector business function responsibilities, group minimum standards that we impose on the brands. They all do it in their own fashion because, as you said, they're all fitting into their own respective market areas, some have access to client platforms. Cyber is our biggest risk. And we spend an extraordinary amount of effort and energy on just making sure that we are resilient as we need to be in that regard. So we don't centralize our IT platform. It is driven by our independent businesses, but they have to be -- have to satisfy the compliance of the way we set out the regime. We have a Head of IT at the group, who is responsible for such matters. We have a central team at Renew, but the responsibility is at subsidiary level in that regard. I say the same against commercial discipline, health, safety, environmental, sustainability, have a people officer at the center of Renew. It's managed in that fashion. And we can scale it up, Stephen. People say do you get to the point where you can't manage it? Well we can. We just bolster. As we said, the period we've recruited an M&A director because that was a bit of bandwidth we needed. If we need more bandwidth in one of the areas like IT, we'll continue to build it. It is a -- Board take an interest in how resilient we are. It's on the risk schedule as it is on every company's risk schedule. We spend an extraordinary amount of effort on IT, particularly around the cyber resilience group. Touch wood, we've managed it particularly well. I think I'll mention one other point linked to probably your early question, the flexibility of the Renew model. We can behave like an SME because customers quite like the idea of an SME-type response on a specific lot, in a specific region, Affinity Water, for example, on a drainage scheme, want the brand in that region. The beauty of the Renew model, we can form relationships between brands who can use the Renew balance sheet. And that has been a feature of our success. So we can get behind our brands to have I think [indiscernible] density, or we can behave like SMEs. And that is something that our competitors we cannot do. And we pull that lever frequently. It's definitely part our success.