Kier Group (LSE:KIE) Q4 2026 Earnings Call

0:01 Good morning everyone. Tom and I are excited to be taking you through an excellent set of results and introducing our new strategy. Welcome to you all, be it those here in person or online and I'm delighted also to be joined by members of our executive team and these results and strategy are of course a team effort. I'm proud to be leading CAIR at this time and excited about how we shift from Recovery to Value Creation. Good morning. Last year I spoke about the need for Kier to evolve. This year I want to show how far we have progressed and how that progress puts us in a strong position to deliver consistent sustainable growth.

0:47 It was really important to me as a new Chief Exec that we delivered on 26 as we evolved and we did. Kier delivered both a strong 26 performance Revenue up 7.5%, adjusted operating profit up by 6.7%, framework access up by 50 billion and monthly net cash up 60 million. We did that whilst we evolved into a simpler business model through the seamless transition of two divisions into one infrastructure powerhouse and the adoption of our Justice Blueprint into Defence and Health. A new management team is in place, whilst we delivered average net cash for the first time in a decade and strengthened our cyber protection and digital capability, all of which I believe are increasingly important in the delivery of sustainable growth.

1:42 Now Kier is being recognised externally for its leading performance including social value and creating employment and being reported as one of the best places to work. Finally, to deliver this level of change and to report that 27 earnings are expected to be at the top end of the Board's prior expectations is outstanding and why I'm confident this team can deliver on our new strategy. The scale of opportunity in economic and social infrastructures delivered through long-standing customers who value Kier's capability represents a compelling opportunity to drive long-term value for the Group. To capitalise on this, we've identified three strategic priorities.

2:29 Growth. There is a generational significant investment cycle in UK infrastructure, supported by strong underlying trends across markets. So we are simplifying the business to focus on our core infrastructure and construction divisions to capture that opportunity. In terms of resilience. Our customer mix, disciplined bidding and approach to risk contributed to our milestone net cash position in four year 26. And we will continue to strengthen the balance sheet, targeting more than 200 million of average net cash by four year 29. Performance, a simplified model at scale with a stronger balance sheet and productivity will deliver a medium term plan of mid single digit revenue growth.

3:20 at a margin of four to four and a half percent and a double digit EPS cargo. I'll say it again and a double digit EPS cargo. Before going further there is an important strategic decision regarding our property business that I want to share with you. We have decided not to invest in new property developments and instead as each existing development comes to market we will return capital to the Group's balance sheet. This will be managed for a run-off process, balancing timing and value realisation. I will return shortly to provide more detail on the strategic rationale for the property capital reallocation and discuss our strategy. But first, hopefully Tom can spare, I will hand over to Tom to take you through the full year 26 financial highlights. Good luck Tom.

4:16 Good morning all. I'm delighted to be presenting Kier's full year 26 financial highlights. It's been an excellent year for Kier which we've delivered strong growth in revenue and profits and continued all about momentum and a full year average net cash position. I'm going to go into all of these in more detail now. Revenue in FY26 grew to £4.4 billion. It's up 7.5% on the prior year and it's continuing a strong period of successive year-on-year growth in our top line, which has seen Keir's revenue grow by a third since 2022. You can see the top left-hand box here.

5:05 High-quality, profitable growth is underpinned by a high-quality, well-bid and commercially selective order book. such we're pleased to continue momentum this measure which grew 8.2% year-on-year it's now a record 11.9 billion pounds as of the 30th of June this order book growth is a direct result of Keir's leading positions across more than 120 frameworks it's a particular strength of Keir and Stuart will bring it to life later Casting your eye now down to the bottom three boxes, you can see the quality of Keir's recent growth.

5:52 With strong flow through of revenue to adjusted operating profit and then to earnings per share. So you have an AOP of 170 million in FY26 representing a 6.7% increase year over year. We consolidated our AOP margin of 3.9% and subsequently adjusted EPS grew by 8.8% reflecting both the strong operational performance and the impact of the two recent share buyback programs. Now revenue and profit growth is also felt in our cash position where the strong cash generation is a defining characteristic of this business.

6:40 During FY26 we generated 206 million of operating free cash flow and 165 million of free cash flow which represented a year-on-year increase of 6.2% and it's this cash generative nature of the business which has allowed us to further strengthen the balance sheet and distribute capital to shareholders. Since 2022 Kira has generated more than 650 million of free cash flow And it's this free cash flow that's been fundamental to the sustained improvement in the Group's average net cash position, which has been transformed over recent years from a significant net debt position to a positive and growing net cash position.

7:34 The Group achieved an average month-end net cash position of 11 million in FY26, up 60 million from an average net debt position in FY25. Alongside this sustained strengthening of our balance sheet, we have maintained and enhanced shareholder distributions through the dividend and share buyback programme. I'm pleased to announce that the Board has approved the final dividend of 5.2 pence per share, taking the full year dividend to 7.8 pence. This is an 8.3% increase on FY25. During the year we concluded the Group's first £20 million share buyback.

8:19 We purchased just under 11 million shares within the £20 million allocation. And in March we launched the second £25 million buyback, which as of the 30th June has seen just under 4 million shares repurchased. We expect the programme to be completed by the end of the calendar year 26. and we continue to see share buybacks as an important option for enhancing shareholder returns. We'll cover that approach to capital allocation a little bit later in the presentation. Now staying on cash, let's dive into it in a little bit more detail. So the Group's closing cash stood at £232 million, the right block, at the 30th of June. A year-on-year increase of 14%.

9:12 So I'll walk through from left to right and pull out a few of the key drivers which have contributed to this strong year-end cash position. So firstly, the Group produced £106 million of operating free cash flow. It's a cash conversion yield of 121%, well ahead of our 90% target of operating free cash flow conversion. the strong cash performance was driven by 236 million of EBITDA and a small working capital inflow of 10 million pounds less around 65 million of capex which includes the capital payments on finance leases after net interest payments of 33 and the tax payments of 8 million the group generated free cash flow of 165 million our adjusting items here relate to fire and cladding remediation costs which are in line with our expectations and previous guidance.

10:18 You see in FY26 we invested £22 million in our property JV businesses down from £51 million in FY25. Next step along you see we paid cash dividends of £34 million during the period and then £22 million of share buybacks. which as mentioned included the completion of the first 20 million and the commencement of the latest 25 million share buyback programme which we launched in March. So the half year I was pleased to put an average net cash position for the first six months of FY26 and I'm delighted to announce that for the full year we achieved an average net cash position of 11 million pounds.

11:04 It's a significant milestone for the group. The first time since 2012 that the Group has achieved an average month-end net cash addition for the full year. This transformation of the Group's financial position from net debt to net cash has only been made possible by the quality of our core divisions, which have track records of multi-year growth and high levels of cash generation. So I'll now turn to look at the FY26 performance by division. So as you can see our core powerhouse businesses of infrastructure and construction both demonstrate strong momentum.

12:00 Infrastructure delivered an excellent performance in FY26 with 10% growth in revenues and 16% increase in adjusted operating profit representing an AOP margin of 5.5% up 30 basis points on FY25. This standout performance was led by our water business which continues to benefit from the ramp up of the AMP8 investment cycle. Alongside this has been good performance in rail as the sector transitions to Control Period 7. Construction delivered a strong performance at FY26, reaching nearly 2 billion of revenues, up 4% year-on-year, and maintaining its top-end industry margin of 3.9%.

12:58 The business benefited from a second half that saw the ramp-up of work at HFP Glasgow to full delivery phase. Our regionally focused businesses continue to build on their market positions, particularly in the education and defence, where our framework positions are critical for success. Stuart will talk more about the breadth of capability and credentials in that segment in a moment. Turning now to our property business. This continues to be impacted by a subdued market. reflecting the wider macroeconomic prevalence as the division generated revenue of 63 million, AOP of 9 million and a ROCI of 4.3%.

13:50 And against this challenging backdrop the business has made good operational progress in the year. Planning has been secured on around 80% of projects including around 5,000 residential units. We secured tenancy or actively marketing on four projects including 270 residential units that are pre-funded. So as we've progressed into the first quarter fiscal year we're seeing continued strong momentum and I'm pleased to provide the following outlook and guidance for FY27. Recent significant contract awards and continued growth in the Group's order book and further expansion of our pipeline gives us a high degree of visibility into FY27.

14:47 As such we've got confidence in FY27 adjusted earnings per share and we'll be at the top end of the Board's expectations. Now moving now to our strategy. Stuart has already laid out in broad terms the direction we're taking in regards to property. And I'll hand back to him and cover in more detail the rationale and the roadmap for realising and reallocating the capital currently invested in the portfolio.

15:21 There are some seats at the front if anyone wants to take them. Okay, so next slide please. Thank you. Thanks Tom. Let's return now to the three strategic priorities I outlined earlier, which underpin our approach to long-term value creation. To focus on growth in our core businesses, further strengthen the resilience of our balance sheet and drive performance through double-digit EPS growth. Just turning to property, the decision we have taken of property directly supports these priorities. does allow us to focus resources on our core growth businesses where we see the strongest opportunities to create long-term value, namely infrastructure and construction.

16:11 As capital is returned from the existing property portfolio, it will strengthen the balance sheet and over time will also reduce the impact of more volatile transactionally led earnings and give us greater optionality over future capital allocation decisions. In terms of timing, I can confirm the following. From this point, we will not invest in any new property developments. Existing programs will continue to be delivered as planned, working with our partners to protect value and ensure continuity. As a result, total capital employed in property is expected to peak in December this year. We then expect to realise approximately the first $150 million of capital over the next three years. as individual developments mature and come to market, with that capital relocated to server strength from the Group's balance sheet.

17:09 I return now to focus on one of our three priorities, that's growth, before Tom will elaborate further on resilience and performance. So why am I confident in our ability to grow? Well, we now have two powerhouse divisions in infrastructure and construction. both with the scale, capability and market positions to capture the opportunities ahead. They are operating from an established platform that is already growing with existing customer relationships and long-term framework positions. We already have three years of work through our order book and PCSA and ECIs, secured on the same disciplined approach to risk that has underpinned our recent performance.

17:57 We are active in sectors where there is clear visibility of work over, I think, the next 10 to 15 years, giving us confidence in the depth and duration of the opportunity. Four of our existing sectors, water, energy, defence and healthcare, provide material opportunities for growth, supported by structural demand and Kier's proven delivery capability and comfortably cover any rundown from HS2 and Justice. Let's turn into water in a bit more detail. We are aiming to double our existing revenues from 400 million to 800 million by 29. We have strong visibility over a growing market for the next 15 years.

18:46 That coverage is underpinned by a position on 10 of the 12 major water frameworks. Long-standing relationships with the Environmental Agency and the Canal and River Trust and hard to replicate credentials in the sector. Definitely the structural trends are clearly supportive even before allowing for potential AMP9 growth and major projects such as the strategic reservoir options. Our order book has grown to 1.4 billion. We have visibility over 3.5 billion of additional work in our pipeline. We have a strong delivery platform with around 140 live projects, more than 100 projects in early contractor involvement and we have approximately 150 in-house water and mechanical and electrical specialists.

19:36 In energy, we are aiming to more than double our existing revenue from $170 million to $400 million by 2029. Energy is a multi-decade growth sector and Kier has hard-to-replicate credentials that position us well to capture that opportunity. Our growth currently is supported by the nuclear work visible within our order book of 680 million, 3 billion of frameworks and 900 million of pipeline opportunities. There is further opportunity beyond that with the current quoted figures including Sizewell C and STEP. and additional revenue I expect from complementary capability across construction and facilities management.

20:22 This is a market with high barriers to entry driven by the key credentials of a suitably qualified experienced person of which Kier have more than 400 in-house people. The Step Fusion program was a massive win for us because it demonstrates our ability to act as a strategic delivery partner on nationally important mega projects. Longer term, I'm confident we can leverage our capability to grow our share of other energy sectors including transmission, resilience, decarbonisation and battery storage. In defence, we're also aiming to more than double our existing revenue from 150 to 350 million by 29.

21:10 Kier is strongly positioned to grow its share supported by our frameworks with both the MOD and defence primes over the next 10 years. Our 29 revenue target is already supported by the current order book of 300 million, the PCSAs of 500 million and 11 billion of framework opportunities of which we can already see 7.1 billion of pipeline to bid. Our credentials again are hard to replicate, in particular in security. as more than 700 of our people have the necessary security clearance to work behind the line and in our design because of our recent awarded secure by design accreditation. So I'm confident growth in the sector that has been previously hard to grow because the new MOD alliances are adopting principles from our justice blueprint.

22:05 Looking ahead, Defence represents a very significant further opportunity across both infrastructure and construction, including facilities management. Bless you. Okay, in healthcare, we are aiming to grow by 50%, from 170 million to 250 million by 29. Healthcare represents at least a 10 year opportunity. and we are well positioned for our role as an alliance partner on key frameworks. Because of this, we can see further growth coming after 29 from an order book of 600 million, framework access of 57 billion and known pipeline currently of 12 billion.

22:50 Again, our technical expertise is hard to replicate. In particular, I'd point to our in-house M&E and hospital FM capability. Both are differentiators in this sector. Hinchinbrook Hospital is a good example of this. We targeted and secured the opportunity for a new hospital because of our existing FM contract performance with that hospital. Now just moving on to differentiators. Many of you in this room have asked me over the last year what really differentiates Kier. So today I want to set out the strengths I believe already distinguish us before going through a few of them in a bit more detail. TIER has a best-in-class capability in securing renewed frameworks across the UK.

23:40 This framework strength underpins the quality and visibility of our order book and pipeline and gives me confidence that growth will continue to be secured with the same disciplined approach to risk. Of the 200 billion of frameworks available to us, this slide shows that a substantial proportion of these are aligned to our key sectors. Importantly, including the areas where we have seen the strongest growth opportunities. I also expect in time that central and regional frameworks to become increasingly important procurement routes after devolution. I wanted to bring our national scale and coverage to life. Our model gives us the breadth of resources and capability to meet customer needs across the UK.

24:29 Our national approach provides consistent delivery Our local presence gives us the insight and relationships needed to meet customers' social value priorities. We can also move resources quickly to where demand is strongest, giving customers confidence that we can respond at scale. In many regions, the scale of our local business is larger than the total revenue of some of our competitors, which gives us both reach and resilience. Moving on to end-to-end capability. Delivering value for money and social value are becoming increasingly important priorities for our customers. Here is good at this because we can draw on our end-to-end capability at scale across the UK. The metrics on this slide demonstrate our breadth and depth.

25:21 800 people in design, more than 400 projects delivering 4.3 billion of revenue and our facilities management business. This combined capability allows us to co-create solutions with customers that deliver outcome-led results. I would like to highlight the pre-construction phase because this is where we shine, by shaping the right solution with customers, aligning scope, risk and value, and setting projects up for successful delivery. Finally, I want to highlight our culture because it is one of Kier's most important differentiators. Our connected high-performing culture enables us to attract, develop and retain the talent we need to deliver the opportunities ahead.

26:10 It creates alignment across the business, supports discipline and execution and gives our people a clear sense of purpose in the work we do for customers and communities across the UK. That culture is a genuine source of competitive advantage It is built over time through consistent behaviours, strong relationships and pride in delivery and is not something that can be quickly or easily replicated. As we move into the next phase of growth, I believe it will be central to how we sustain performance and create long-term value. In short, our differentiators matter on national scale, regional presence, end-to-end capability and connected high performing culture gives us the agility to move resources to where demand is strongest, shape solutions, early win customers, and continue to deliver with discipline as markets evolve.

27:06 We are also building differentials for the future, in particular, naturally digital, which I will bring back to you later in the year. So, to bring this section together, I want to step back. and just summarise why I'm confident in the growth opportunity ahead of us. We are operating in markets with long-term structural demand, clear customer need. These are essential sectors for the UK and they provide care with a significant, accessible and enduring growth opportunity. That opportunity is reinforced by the strength of our framework positions with access to around, I'll say it again, 200 billion of frameworks, just in case you missed it, which is substantially aligned to our key sectors. It is also underpinned by favourable structural trends that are familiar to all of us.

27:55 From the need for investment in water and energy, to national security, healthcare capacity and the wider renewal of UK economic and social infrastructure. The four sectors we have just discussed are expected to deliver around 1 billion of revenue uplift over the next few years. Importantly, that growth is not dependent on a single market or a single client. It is supported by deep sector credentials, established customer relationships, disciplined bidding and the ability to bring the breadth of care's capability to complex programs across the UK. So that concludes my section on growth. I will now hand you back to Tom who will take you through the two closely connected priorities that support and label that growth, resilience and performance. Tom.

28:51 Thanks Stuart. So Stuart's covered the growth pillar of our strategy, the extent of the opportunity ahead of us. So I'm going to cover the other two pillars of our strategy, resilience and performance. So starting with resilience. What is it that gives us confidence in our ability to deliver sustainable growth? And it's in part due to the optimal mix of work across our customer types our contract approach and our deep long-term relationships so firstly our order book which is building year on year and now stands at 11.9 billion pounds the order book consists of either secured or probable work and gives a substantial visibility of not just the current year but also the following year and that's before a considerable amount of the work £2 billion of which are in one-to-one customer discussions and that we expect to shortly join the order book.

29:56 In fact the £500 million Hinching Book Hostel Award is one example that just missed the June order book cut-off. So our order book gives us confidence in FY27 revenues with 95% cover for the following financial year. and in fact the construction business is at 100% cover for the coming 12 months. Didn't give you an extra target there Martin. It's a great position for the business to be in. Moreover, more than 90% of the Group's revenues come from repeat business, reflecting Keir's excellent customer delivery. Now, in terms of the quality of our work, Our commercial discipline means that 95% of our project revenues are now governed by contracts that are either cost-plus, where all costs are passed directly on to the customer, or two-stage, where the opportunity for renegotiation protects our margin.

31:04 This is of course a material improvement on where we were commercially just a few years ago. And lastly, in terms of assurance, almost 90% of our customers are either public sector or they're regulated entities, as you can see on the right hand side of the slide. Removing much of the commercial volatility from our portfolio. Now, still on the topic of resilience, let's look at how much capital we expect to generate in the next three years from our underlying cash flow. So in the period FY27 to FY29 we're targeting cumulative operating free cash flow of £600 to £700 million on the left.

31:54 During that same three year period we expect to realise net capital of around £150 million from the current property portfolio. Offsetting property capital against cash tax, interest payments and remaining cash outflows in respect to fire and cladding we are left with a total allocatable capital of six to seven hundred million which is the middle block and from that total allocatable capital we will continue to prioritize our core capex and our growing ordinary dividend so the residual the 450 to 550 will be allocated in line with the group's capital allocation framework which I look at now So beyond the primary allocation for capex and dividend, the Group will have the £500 million of capital to deploy in line with the hierarchy of uses in points 3 to 5 on this slide.

33:00 So firstly, we want to strengthen the balance sheet. We are pleased with the substantial progress that's been made in recent years in this respect, and we've achieved the average net cash of £11 million in FY26, which of course was an important milestone. But over the medium term, we will focus on growing this further, reaching a target of more than £200 million of net cash by FY29, which will provide the Group with additional resilience Capital Optionality and Continued Balance Sheet Efficiency. We also have scope to consider selective value accretive acquisitions in core markets as compelling opportunities arise and that's on point number four.

33:54 Then subject to the above considerations and recognising the role that share buybacks play in enhancing shareholder distributions we will return excess capital but via share buyback programs. So that covers our second priority of resilience. How we'll strengthen our balance sheet and enhance capital allocation options. So let's now turn to the third pillar, which is performance. And starting with the key metric of EPS, more broadly, total shareholder returns. Driving EPS performance hinges on our two other strategic pillars of growth and resilience through growth we are targeting a significant increase in AOP as we grow revenue through the considerable market opportunities that Stuart detailed while simultaneously maintaining and augmenting our margin in the four to four and a half percent range And then secondly, through resilience and a stronger balance sheet, we will have the ability to repay our £250 million bond.

35:16 We therefore expect to see structurally lower net interest expense as the Group's capital structure benefits from becoming debt free. In FY26, the Group recorded net interest expense of £35 million. We expect to see that rapidly fall in the medium term with significantly lower costs after we repay the 9% coupon bond. So these two drivers, AOP growth and lower interest costs, give us the confidence to target EPS growth rate of greater than 10% CAGR over the medium term. And this is before the added benefit via a lower share count from any future share buyback programs.

36:06 So as mentioned earlier we will continue to prioritise the orderly dividend. We see the combination of this sustainable dividend and strong double-digit EPS growth as providing a balanced and attractive combined total shareholder return. So looking more broadly at performance, today we are updating our Our medium term targets across a full range of metrics Reflecting the opportunity that we see for our business So starting with revenue we intend to grow the top line by mid single digits each year Blending through the significant opportunities in the growth sectors such as water, defense, energy and health care that Stuart talked about earlier with our established businesses in our core markets.

37:08 Next round we retain our four to four and a half percent margin target for adjusted operating profit and that's enabled as Stuart discussed by our differentiated end-to-end capability. Now retaining the four to four and a half percent margin target despite Our strategic decision on property reflects our confidence in the core infrastructure and construction businesses and Kier's differentiated offering. So these top line and bottom line targets are key drivers of EPS which we aim to grow at double digits. As already mentioned we are targeting an average net cash position of £200 million by FY29 while continuing to deliver Our cash conversion of over 90%.

38:02 And finally, consistent with previous guidance, the Group aims to grow the ordinary dividend in line with earnings and maintain the three times cover. We see these medium term targets as challenging, but we also see them as realistic. We also see delivering these targets as a pathway to significant shareholder returns across the medium term. And I think truly delivering the performance component of the priority secure. So on that note, I'll finally hand back to Stuart to wrap up.

38:40 So good news is I've only got another 20 slides to go through. Okay, thank you Tom. Before we move to questions, I want to close today's presentation by bringing the investment case together, showing how the strengths we have discussed combine to create a compelling and differentiated proposition. Taken together, they leave care well placed to generate substantial value for our stakeholders through a stronger, more focused business. And there it is. So the opportunity ahead of us is significant. We are entering a once in a generation investment cycle in UK infrastructure, reflected in the scale of the frameworks we have secured and supported by clear structural tailwinds across our key markets.

39:30 Kier is exceptionally well placed to capture that opportunity, given our leading positions in central infrastructure and construction markets, our customer relationships and our disciplined approach to risk. Our financial profile is strong and improving. We are growing well, delivering a top tier industry margin and continuing to generate significant cash. That gives us the resilience and opportunity to invest in the business, strengthen the balance sheet and create value for shareholders. We have a clear path to enhance returns over the medium term, underpinned by the strategic priorities we have set out today, namely growth, resilience and performance.

40:15 The medium term targets Tom outlined, from mid single digit revenue growth to double digit EPS cargo, demonstrates our confidence in Keir's ability to convert these opportunities into sustainable growth and improved shareholder returns. So as I reflect on my first year as Keir's Chief Executive, I am more confident than ever in the future of this business. We have strong foundations, a focused strategy, disciplined execution and leading positions in markets that are essential to the UK. Together these give us a firm platform to grow, increase returns and create lasting value for all of our stakeholders. So thank you very much for listening today both here in the room and online and we are now be pleased to take your questions.

41:05 Thank you. Thanks for the presentation a lot to get excited about in there. Can I ask firstly on how you'll decide on the timing of things like buybacks because on slide 30 I think the quantum where you set it out very clearly and the implication is there could be about 100 million pounds a year surplus for buybacks but when you're looking at that decision each year you know how you decide on it based on timing of capital coming out of property and when you might repay the bond. I think you explained it very nicely there.

42:06 we're a very cash generated business and that comes across very nicely in its side 30 where you can see the amount of cash that we're about to generate over the next three years and as I tried to outline in the in the allocation capital allocation framework our priority is we need we want to and we need to strengthen the balance sheet so that's going to kind of help determine the pace at which we can do future either acquisitions or buybacks so that's the kind of the determining factor which is how fast the cash comes in through the core business and the pace at which we execute the kind of the sell down out of the portfolio that's going to tell you how much cash we've got and that's going to give us a good guidance of the pace at which we can do future buybacks Thanks very much and just to follow up I mean in theory it could be quite back end loaded then in terms of the surplus capital generation would you then look for a return program to be a sustainable one as opposed to a big one off We haven't sat down and said let's do a big lump sum buyback there's at no point if we have that kind of conversation.

43:15 Thanks very much and then just last question would be on the timing of the bond repayment and Could that happen early and if so what would the benefit be to your LTE? Back to the cash point.

43:29 So we wouldn't look to make that repayment early. You could repay from March 28th, which would be a logical time to do it. And that's nicely in line with the capital being released from the property business. Thanks very much.

43:53 Good morning, Andrew Nussie from Peel Hunt. A couple of questions as well, please. I guess first of all, infrastructure had a very strong second half performance, both from a revenue and in particular margin performance. Water, you said, has been an influence to that strength. Should we read into that then, that water as a sector, given that it's bringing in more tier skills, is a higher margin opportunity than perhaps some traditional infrastructure sectors? Sort of the first question.

44:27 No, you can't make that assumption from it. So, I mean, water is a strong margin business. It's a stronger, it's a higher margin than, for example, the construction business. It's in the middle of the pack at the infrastructure margin.

44:44 And secondly in relation to water, just your ability to keep resourcing the opportunity there successfully given it's quite a supply chain constrained sector.

44:57 So we always make sure that we don't take any work on unless we've got the resources to deliver it. We do have the benefit of that regional model. So we've got long established relationships with key supply chain in those areas. And if there are major capital works, again, we have the ability to move resources from the mega projects to where they're needed most.

45:17 And last question. I mean, a number of the growth ambitions stretch out to FY29. If you had to add Hitchingbrook into the order book, what level of visibility would you hazard for FY29 in terms of revenue coverage?

45:35 So greater than 95 for... Well we said for FY28 we're at 70% and that kind of that trajectory kind of comes down so if you look at 29 would be about early 50s approximately. That's great thank you.

45:51 I'd go back to the if you look at the the general order book is 11.9 billion if you look at the PCSA and ECI total of 2 billion you're looking at about three years worth of work for there for us to convert and deliver and then past that you've got I think we've got about 65 billion of pipeline opportunity so they're tender opportunities so they're either call off from existing frameworks, new frameworks or renewals or contracts that we can see they'd certainly take the time to win and convert but they took looking at sort of two years hence further from that. Five years work.

46:31 Ainsley Laman from Investec. I think I've just got two, please. Going back to the net cash, the average 200 million, just interested how you arrived at that 200 million number. Obviously, lots of work already in the pipeline, margins discipline. Do you need that much? Why wasn't there 300 or 100 interest there? And related to that, if we were to think about average daily net cash, would there be a big difference between the month end number, say, compared to the 11 million you just delivered?

47:00 and that's the first question and then second question just interest here your views on the overall health of the kind of supply chain at the moment what you're seeing in bill cost inflation just some general kind of pointers there I think you do the first one I'll do the second one yeah um so the the 200 million target um first thing I say it's definitely more of an art than a site so if I could say it was exactly 200 exactly 250 it's you know it's it's certainly a range um and where do we arrive at that range and kind of two ways of thinking about it one is you need to be somewhere near your peer group so if you look at my peer group they will have much they have much more cash on the balance sheet now I don't want to go as far as some of them they've got a lot they've got a lot of cash and you know you look at the commentary on them it'd be more nice to have some of that given back to shareholders but there is a point where we are an outlier in the group and we do get a lot of noise around that. Now we don't get it from our customers but we do get it from the address community look at us compared to our competitors.

48:12 And the other way I think about it is what's the size of your negative working capital, negative networking capital? and because we run large construction projects and we run our cash very very well our net working capital, negative net working capital is about five to six hundred million so that's you know money that we have of our customers that obviously doesn't sit on the balance sheet so how do you how do you support against that well we've got a great order book we talked about 12 billion of order books and if you think about 12 million of order book delivering at 4% margin you've got about 500 million worth of cash coming from your order book we can feel comfortable about that but we want to have more against that negative working capital because that's affecting our capital's money and that's why we kind of come to the conclusion of we'd like a bit more cash and 200 that kind of gives you support against that that negative working capital so negative working capital has against it the order book and that and that incremental cash which helps us get to the 200 million level which is then about what four percent of revenue so that when you kind of triangulate those measures you come to the art of about 200 and that's how they come to that number ah yes so I mean and that's the

49:36 the working capital swing that you get in the month and that makes, look at my treasure over there 120 to 150 million difference per annum and then supply chain so we're definitely not immune to what's going on in the market and the macroeconomics but what we have is we mitigate it and we mitigate that in a number of ways firstly in terms of the sectors that we are in so we purposely stayed away from pure house building and high-end residential markets which have been subjected to certainly in terms of high increases in terms of inflation and difficulty in the supply chain. Our management of risk so Tom spoke about earlier in terms of either cost reimbursable contracts which is about 60% and the further 35% through the two stage so we have a long period working with customers there in terms of working through design and agreeing who takes the risk on inflation.

50:38 So that's 95% of our revenue. Thirdly, I'll go back to our regional model. It means that we are locally placed and have long-term relationships with the supply chain. So they prefer to work with us. They know us well, our people know their people and they trust in our ability to pay. So we get their trust and their reliability through that. So that's the way that we manage it. But we're not immune. Okay, seven minutes left. The MAJ was a good example of Adopting collaboration and in the presentation there's a few comments where you it seemed to indicate that that collaboration was rubbing off in other parts of your other clients.

51:31 Can you perhaps give some examples of how that's evolved?

51:34 Yes so there are two particular clients that have researched that alliance model and gone on to adopt it because they see the benefits of collaboration. The MAZ frameworks and the new hospital program. So the new hospital program is an alliance. They decided to go through a direct award allocation of projects rather than tender and call off projects, which gave us the ability to position ourselves around the Hitchinbrook Hospital, which I mentioned before that we've had a long standing relationship with that client providing the FM facilities there. So we know the client well. They got to know us. So when it became to the allocation, we were advocated one of the first hospitals that came off the alliance. I'm looking at the MD behind you to make sure I said that right.

52:29 Any more questions? In terms of the margin improvement, to what extent is that arising from a mix in the type of work you're doing? Because you've got, say, 800 people in design. I mean, I don't know how you cost those into projects, which is one question. The second question is, are you expecting to increase the element of design in there such that actually we would expect margin accretion from that, possibly above 4.5%. But could you just talk us through that a little bit?

53:03 If you can imagine the number of conversations Tom and I had together to get to four and a half and then we've already been pushing above it. Look, there is definitely an impact of mix and I would point to the growth in infrastructure compared to construction and infrastructure generally has a higher margin so we will get some benefit through that. You've got the runoff of property, we still will have good returns from those projects. but the way I look at it rather than say one individual component of the mix I would say in terms of it's the end-to-end capability that we have at scale that has got to drive productivity improvements as we grow certainly in terms of our move around digitalization we're seeing that we are quicker to make good decisions within the business and that's got to drive some productivity going forward so Tom and I are baking in some of those benefits in future years that we can see that should be there but Nixon scale I'd say are the two. In terms of design I would point to the fact that don't just think it's restricted to only the 800 people in terms of what they do. What we have is a capability to manage all the design.

54:09 So because we have that continuity of sectors, we do school after school, hospital after hospital, road after road, that inbuilt knowledge means that Alongside our own designers, we know how to manage other design to make sure that we get the benefits out of it.

54:27 We need to go online as well for questions.

54:31 This is the time we just need to go back and see if there's anyone online that wants to ask any questions. At the moment we currently have no questions on the telephone line.

54:48 Any final questions in the room?

54:55 Good morning, Dan Cowan from BNP Paribas. One question please, could you talk a little bit about what factors might drive cash flow conversion please? You've just done 120% and your target is above 90, so what drives that range please?

55:11 That is a very strong working capital in large construction projects. So when you have large construction projects, that can give you quite good incremental working capital at the beginning and that's where we can push it up quite high so actually we've got good working capital coming in for those large construction projects and the reality is that when you're 121 one year you've got to expect to come down a bit kind of year after that so we want to kind of keep it up at the 100% level which is that target of over 90 but we're also conscious that there might be a bit of an outflow we've got to manage on that when you had large working capital inflow as we continue to grow we are a negative working capital business so as you grow that can keep that working capital coming in and that kind of pushes it up okay okay again I'd like to thank everyone that's joined us today anyone on the line thank you very much