Kier Group plc

OK, we'll start. So good morning, everyone, and thank you for joining us for our full year 2024 results presentation. And for those of you here in person, I'd like to extend a warm welcome to those of us who are joining or those of you who are joining on the webcast and on audio as well. I'm Andrew Davies. I'm chief executive of Care Group, and I'm joined today by Simon Kesterton, our chief financial officer. So this morning I'll walk you through the highlights from the last 12 months to the 30th of June 2024 and then hand you over to Simon to talk through the group's financial performance. And this will be followed by an operational review, which I'll give, an update on ESG, and we'll finish off with our outlook. And then there will be an opportunity for questions and answers at the end, both here in the room and thereafter online as well. So if we go through the disclaimer and the results summary, and moving to the highlights of the year here on slide four. So the past three years have seen the group achieve significant operational and financial progress. We've delivered a strong set of results for FY24 with over £560 million in revenue growth, improved profitability and strong cash generation, allowing us to significantly deleverage. During the year we successfully delivered the acquisition of the Buckingham Group's rail assets and we also refinanced the Group. These results are a testament to the hard work and commitment of our people who have enhanced the Group's resilience and strengthened our financial position in line with our medium-term value creation plan. I would like to extend a big thank you to all of my colleagues in Kier for all of their hard work and efforts over that period. The future prospects of the Group also remain strong, with the Group's order book increasing 7% year-over-year to £10.8 billion, reflecting contract wins across our business and providing multi-year revenue visibility. And over 90% of our FY25 revenue is now secured. Our order book is supported by long-term framework positions, and frameworks, as you know, are our route to market. We've maintained and grown our central and local framework positions. And given the significant progress that the group has made, and given our continuing confidence in the business, a final dividend of 3.48 pence per share has been proposed, giving a total dividend of 5.15 pence per share for FY24. This equates to an earnings cover of four times, which we anticipate improving in the current year, FY25, as we move to a three times earnings cover. Overall, we're in good shape. Our strategy has progressed well, supported by great people, excellent long-term order book and strengthened balance sheet. And we're therefore in a position to look forward to our next phase of evolution as we move to our long-term sustainable growth plan. We look to slide five, our medium term plan update. Since we announced the medium term value creation plan in June 2021, the group has made significant progress against these financial targets, with operating free cash flow conversion and profit margins met consistently over recent reporting periods. During that time, the group has significantly de-risked, having deleveraged the business markedly, enabling the group to return capital to shareholders through dividends. The direction of travel is expected to be maintained going forward. During the year we secured long-term funding through an extension of our revolving credit facility and the issuance of senior notes. And we believe that this funding, alongside our cash generative business model, will comfortably support our organic growth plan, value accretive acquisitions and further increases to our property investment. We're now in a position where we have capital allocation options to drive shareholder value over the long term. And accordingly, the group has evolved its targets into a sustainable growth plan. We're targeting revenue growth above UK GDP, driven by attractive dynamics of the markets we serve as well as our market-leading positions as we pivot from recovery to sustainable growth. We're targeting an adjusting operating margin above 3.5%, targeting cash flow conversion of at least 90%, and we're aiming to achieve sustainable average net cash position and targeting to invest any surplus cash. In terms of dividends, as I said earlier, we're targeting a sustainable dividend policy of three times earning cover through the cycle. We believe our long-term sustainable growth plan is supported by UK infrastructure spending commitments. The spending is in turn driven by structural trends such as population growth, transportation pressures, aged infrastructure, energy security and climate change, which are substantial and largely non-discretionary in nature. Given that public spending may be insufficient to maintain public assets, customer behaviours are moving to long-term partnerships. And these continue to favour Kia, given our scale, our integrated design and project management capability, our track record of delivery and our ESG credentials. These positive structural trends and customer behaviours are expected to expand our addressable market opportunities, particularly in water, environment, energy and affordable housing, as well as increased demand in our property business. And in particular, the group has recently been awarded a number of framework places as part of the AMP8 water investment cycle. Kier is well positioned with all the major water companies to support them with their water infrastructure upgrade and maintenance work. We've also started to increase the capital deployed in our property business, and I will talk to this later. But for now, I'd like to hand over to Simon, who will take you through the detailed financial results.

Thank you, Andrew. Morning, everyone. Turning to slide 7, this slide sets out the high-level income statement. Revenue in the period, as Andrew mentioned, is significantly higher than 2023 and reflects volume growth in both our infrastructure services and construction segment, which I'll cover more in the next slide. We delivered an adjusted operating profit of $150 million in the year, despite continued, albeit lower, inflationary pressure. The group achieved an adjusted operating margin of 3.8% which remains above our medium term value creation plan target. Statutory profit before tax is 31% higher than the comparative period despite increased amortisation arising from the Buckingham acquisition and interest charges as interest rates were partially offset by material reductions in debt. As a reminder, the amortisation of 23 million relates to acquisitions and has increased as a result of the Buckingham acquisition. This additional amortisation is provisional for 12 months and will be circa 4 million per annum for the next two years. We achieved adjusted earnings per share of 20.6 pence. This represents 7% growth when compared to the 19.2 pence achieved in 2023, despite corporation tax rates rising to 25% from April 2023. Net cash is significantly better than the prior period at £167 million compared to £64 million for FY23 as operating cash flows from profitable volume growth translated into working capital inflows and reduced pension scheme payments. As expected, the Group materially delevered. This has resulted in the average month-end net debt halving to £116 million from £232 million. This means that the run rate in the second half of the year was already lower than £100 million. Turning to slide 8, I'll walk through the Group's revenue growth. Starting on the left-hand side, we start with 2023 revenue of £3.4 billion. Infrastructure services revenue increased by 16%, primarily due to HS2 volume growth and the successful Buckingham acquisition. The revenue would have grown by 9% before the impact of Buckingham. Construction revenue increased by 15%, as the strong order book we entered the year with converted into revenue. We also saw higher property revenue resulting in the growth of the group's revenue of 17% in the period to 4 billion, achieving our medium term value creation plan target. Moving now to the adjusted operating profit bridge, we start with the prior year's adjusted operating profit of 132 million pounds. Volume mix and price changes have resulted in an increase of 21 million pounds. We have achieved management actions of 13 million during the year. We continue to see inflation repression, albeit lower, and we continue to manage and mitigate this. Over 60% of our order book is made up of target cost or cost reimbursable contracts. And if we do choose to give price certainty to customers, it will be done after key risks and opportunities are understood. The result is an increase in adjusted operating profit to 150 million pounds. Adjusting items excluding non-cash amortisation and interest amounted to £23.9 million in the year and a £7 million lower than the £30.8 million of costs in the comparative year. The main item relates to fire and cladding costs which are £2.4 million higher than the comparative. Given the nature of the construction projects we typically engage in and following regulation change, we estimate our net exposure to this could be a further £20 million. Of the smaller items, we incurred fees of 4.5 million related to our refinancing, including the five-year bond. Property costs relate to various legacy properties, and we've also experienced an FX gain related to our reduced exposure to international business. Other costs include some costs in connection with the Buckingham acquisition. The interest relates to IFRS 16, where leased office space has been exited. As previously guided, we haven't incurred any restructuring or related costs. Slide 11 sets out our order book position. Our order book is high quality and has further increased by 7% to 10.8 billion pounds compared to June 2023. We have secured circa 90% of our 2025 revenue as we continue to win work in our chosen markets. Significant effort has been made to improve the quality of the order book. We're focused on winning work with UK government and regulated authorities. We continue to focus on managing risk and reward when bidding, negotiating and delivering work. 60% of our order book is under target cost or cost reimbursable contracts. Our infrastructure business has nearly 100% of its contracts agreed as target cost or cost reimbursable and is an important part of balancing our risk and reward profile. With our construction business, the majority of the contracts are fixed, but circa 95% of these are fixed following a two-stage process to identify, mitigate or retire the risks involved. Our average order size is only £20 million and this relatively small average order size results in us regularly repricing contracts. The order book continues to be underpinned by significant long-term framework agreements. Our long-term framework positions are excluded from the order book. These represent further opportunities for the group. Moving on to free cash flow. The result of all the hard work done over the past three years with the group achieving significant operational and financial progress can be seen very clearly here with a material improvement in operating cash flow. Looking at the detail, we can see that adjusted EBITDA in the period grew to £208 million. We then have 68 million pounds of working capital inflow, slightly below FY2033, due to construction volume growth starting in Q4 of that year, and as a result, partly benefiting for some of that inflow. This includes supplier payment days of 34 days. CapEx in the period amounted to 57 pound. However, 41 of this relates to payments made under leases now capitalized under IFRS 16. Net interest and tax reduced by 7 million in the period, due primarily to corporation tax payments restarting during the year being offset by interest payments due to new bondholders not starting until August 2024 after the year end. This results in the group improving its operating cash conversion from 130% to 145% with operating cash flow now over 200 million pounds at 217 million from 171 million last year. Turning over to page 13, we have the net cash bridge. We start on the left-hand side with closing cash of £64 million at the end of June 2023. We then see significant pre-cash inflow of £186 million that I've just talked about. We had adjusting items of £37 million. This includes the payment of £10 million for items that were accrued in 2023 and pension payments of £9 million. As previously mentioned, we paid nine million to acquire certain contracts of the Buckingham Group, which are performing well. Eighteen million relates to deploying capital to the property segment. This will help drive future returns as the current market is affording us some great opportunities. The result of all our hard work improving the Group led to Kier rejoining the dividend list and the interim dividend paid in the year was £7 million. We then have the purchase of Kier Group shares. This is in respect of the Group's Employee Benefit Trust, which acquires Kier shares from the market for use in settling the long-term incentive plan share schemes when they vest. The net cost of this was £4 million during the year. This results in a significantly improved net cash position of £167 million. Moving to slide 14, as at the half year, this slide is a pleasure to talk through. As we move through FY2024, it demonstrated the significant progress made by the group in reducing our month-end average net debt. If we look at the last 24 months, we've reduced our average month-end net debt and debt-like items by £170 million. a significant improvement resulting in just £116 million of reported month-end net debt remaining, meaning that, as I mentioned earlier, during H2 the average month-end net debt was already less than £100 million. During the year, we've seen operating cash generation lead to a material deleveraging. The $116 million achieved across the year is half the comparative, with free cash flow generation entirely devoted to reported net debt reduction. A key part of the medium term plan was to generate cash and strengthen the balance sheet. The previous slide demonstrates the material improvement in our cash generation and reduced debt. This success provided the opportunity to put in place a long-term capital structure to support the strategy of de-gearing the business whilst retaining flexibility and optionality to deliver future growth. In February 2024, we secured long-term financing of the group through the issue of a 250 million five-year bond and extending our revolving credit facility to 2027. both strengthening our debt maturity profile and diversifying our funding sources, an important step in the delivery of our medium term plan. This slide shows the details of our debt structure and the changes we see over the next few years. Following the completion of the £250 million bond issuance, our 548 million of facilities now comprise of £250 million of bonds, 261 million RCF and 37 million of USPP notes. The next key date is January 2025 when all of the USPP notes will be paid and 111 million of the RCF matures and this will leave our facilities comprising of a 250 million bond and a 150 million revolving credit facility which mature in 2029 and 2027 respectively. The maturity profile is reflected in the chart on the right hand side. Moving to capital allocation, we're focused on optimising shareholder returns and maintaining a disciplined approach to capital allocation. Accordingly, as we generate cash from operations, we expect to deploy that in a number of ways, whilst maintaining a strong balance sheet. CapEx is expected to continue to be minimal. Further deleveraging, we continue to target an average net cash position, investing any surplus. We plan to invest further in our property business in order to generate consistent returns over time. At the half year, we increased its range to between 160 million to 225 million, given the growth of the group. We'll continue to do this in a disciplined way and are targeting the segment to deliver consistent longer term return on capital employed of 15%. As Andrew mentioned, we're targeting a dividend cover around three times earnings through the cycle. With regard to mergers and acquisitions, the group will continue to consider value accretive acquisitions in core markets. This evolved framework complements the evolving long-term sustainable growth plan, ensuring our commitment to our evolved targets. We've always recognised the importance of dividends to our shareholders and reinstatement of one is an important facet of the medium-term value creation plan launched during 2021. We said that we would deliver a dividend cover of circa three times adjusted earnings over the cycle. We expect that we will pay the dividends approximately one third as an interim and approximately two thirds final dividend. The results presented today show strong operational and financial performance and we've seen material deleveraging during the period. This significant improvement combined with the strength of the order book and the future prospects of the group will allow us to declare a final dividend of 3.48 pence per share. This represents, as Andrew mentioned, a dividend cover of approximately four times as we progressively move to the medium term target. It's very pleasing that the results of everyone's hard work at the company are now being shared with our shareholders who have been extremely supportive over recent years. And now I'll hand back to Andrew for the operational review.

OK, many thanks, Simon. So now turning to the operational review, as Simon has said, we'll do infrastructure services first. Our infrastructure services segment saw significant growth of 16%, largely driven by additional high-speed to capital works activity, as well as the acquisition, as we said previously, of Buckingham's rail business. As a reminder, as part of the Eiffage, Kier, Ferroville and BAM or EKFB joint venture, Kier is delivering the longest section of civil works, 80 kilometres from the Chilterns to just south of Warwick. And we have the lead on the project management and the programme integration in the joint venture. Our adjusted operating profit increased 41% in the division to £112 million and this was an excellent performance. Adjusted operating margin remained strong for the infrastructure services business at 5.6% as the volume growth translated to operating margin. We also had positive momentum in the order book with a 10% increase to £6.4 billion compared to the prior year. The order book consists of high quality and profitable work in our markets reflecting the bidding discipline and the risk management embedded in the business. Our transportation business successfully won a two-year interim extension to deliver maintenance and repair services across Birmingham's extensive road network. Our natural resources, nuclear and networks business has won a number of frameworks with water companies as part of the AMP8 investment cycle. And these awards include works for United Utilities, where we've been appointed on a five-year framework to deliver circa £100 million per annum of design, engineering, project management and construction services work for clean and waste water. On Southern Water, where we've been appointed to a £3.1 billion seven-year strategic development partnership framework to increase capacity at water supply and wastewater treatment sites. And also with Southwest Water, where we've been appointed to their £2.8 billion five-year Mechanical, Electrical, Instrumentation, Control and Automation Alliance, or otherwise known as MAICA, framework to deliver their water infrastructure plan through to 2030. I'm pleased to say that 86% of our FY25 revenue is secured, and this, combined with our recent wins, underpins our future revenue in infrastructure services. So we just have a look at the water operations within the business in a little more detail. The AMP8 cycle is, as you probably know, currently underway. Regulators are focused on the size and scope of the capital delivery program and are scrutinizing water expenditure for UK water companies. The delivery program is driven by aging asset base, which needs replacing or refurbishing, increasingly stringent environmental regulations, and a focus on the life of existing facilities through maintenance. As a result, water companies are forecasting improvements to their assets of circa £88 billion following the regulator's draft determination. And this slide sets out our UK footprint in water. We're one of the largest tier one contractors supporting regulated water companies with their asset optimisation. As of June 30th, we had 14 frameworks with the eight water companies illustrated on this slide. And the water companies are turning to Tier 1 contractors for long-term support, particularly those with specialist skills, including the maker skills, such as Kier, to help them deliver the upgrade and maintenance programme, given the large increase in capital expenditure. Moving to our construction business. Construction business comprises regional build, where we construct schools, hospitals, prisons, and defence projects for the UK government, as well as delivers projects for the private commercial sector. It includes our Kier Places business, and Kier Places includes our workplace solutions business, which is formerly our facilities management business, and our residential solutions business, which is formerly known as our housing maintenance business. Construction revenue increased 15% to £1.9 billion, which reflects the increased volumes in our regional build business. Adjusted operating profit, Simon has said, remained consistent with the prior year at £69 million. and the business delivered an adjusting operating margin of 3.6%. The year-on-year reduction in margin was in line with expectation and driven by a change in mix with the prior year benefiting from a larger weighting towards the higher margin Kia places business. The business has also experienced increased overheads to support additional site starts in our regional build business. And despite the reduction in the year, the 3.6% margin remains industry leading. Within construction, our key places business saw volume grow across workplace solutions and residential solutions. As a reminder, workplace solutions is predominantly facilities management work for the Ministry of Justice and the Home Office. On the other hand, residential solutions delivers housing repairs and maintenance services for local authorities. And we continue to grow the capabilities and customers in this area with a focus on decarbonising social housing through retrofit opportunities. The construction order book remains strong at 4.4 billion pounds as we continue to win work in our chosen markets. and has successfully won a number of awards, including the appointment to the Defence Infrastructure Organisation, or DIO's, six-year alliance to create 16,000 bed spaces for armed forces in single living accommodation. Within education, we've been awarded four projects worth over £130 million. Our healthcare business has been awarded three projects worth over £55 million. Justice remains a key sector for Kier, and we continue to win work following the successful delivery of HMP Fivewells and our ongoing delivery of HMP Millsike. Further awards include the design and build of houseblock projects for HMP Channings Wood, HMP Bullingdon and HMP Elmley, together worth over £400 million. The houseblocks are delivered using the T60 design, which is the most modern, fit-for-purpose design, enabling repeatability and therefore cost efficiency across the sites. We've delivered seven houseblocks to date for the Ministry of Justice and we're currently on site delivering another 10, which makes 17 houseblocks in total. Our care places business has been appointed by Heathrow Airport to deliver its quieter neighbours support scheme, a major programme that works over the next eight years to reduce the impact of aircraft noise on homes, businesses and community buildings around the airport. And finally, our construction business has 97% of revenue secured for FY25. Next, our property business. So our property business invests and develops primarily mixed-use commercial and residential schemes across the UK. Business is well established in the urban regeneration and property development sector, and we largely operate through joint ventures to manage both risk and opportunities. The business is seeing challenging environment with scheme evaluations, developments and transactions being delayed due to market conditions. But despite these conditions, the property business generated £6.2 million in adjusted operating profit. The group is focused on the disciplined expansion of the property business through select investments and strategic joint ventures. At the end of the year, Keir's capital employed in the property segment was £166 million, excluding third-party debt and fair value gains. and this reflects the group's cash investment in property. Given the group's increased operating cash flows, the benefit of building out certain projects such as 19 Caldwell Street in Birmingham, and market conditions showing tentative signs of recovery, we can see a number of attractive buying opportunities. and we previously targeted a range of £140 million to £170 million of capital employed in the property business. This range was reviewed earlier in the year and we increased to £160 million at the lower end and £225 million at the upper end and there is potential to increase this further. As a reminder, the property division targets return on capital of 15 percent. We also recycle the capital from our property transactions and therefore these provide a future source of capital. We believe this will generate a return for our shareholders over the next few years, especially given the timing of deployment within the cycle and expected market recovery. And the property division has synergies with our wider business model, with the cash generated from our construction infrastructure services division being deployed to generate higher returns in the property division, thereby smoothing the returns profile of the group. But we believe it takes time to selectively invest in sites, to seize in capital and then transact. And over the long term, we expect property business to deliver a more consistent return. During the year, the business has disposed of student accommodation asset in Southampton to Greystar. So with the investment in the property business being expanded, we thought it'd be worth looking in more detail at the business, what it is, how it operates, and the market opportunities available to it. So Properties, as I said, is our commercial and urban residential property developer. We've structured the business into three core areas, mixed-use residential, sustainable offices in core UK regional cities, and finally industrial and last mile logistics. There are a number of market trends driving growth in this business. Firstly, the demand for carbon reduction resulting in energy-efficient buildings, but also businesses relocating to regional cities with improved infrastructure. Secondly, the impact of population growth with an ageing UK population, increase in single-person households, increased demand for build-to-rent properties and a shortage of affordable housing and restrictive planning policies. And thirdly, changing consumer trends with an increasing demand for high-quality, large-scale warehouses, global supply chain stockpiling and on-shoring technology such as robotics and automation driving demand in that sector. Keir's capital allocations across these three asset classes is broadly balanced, and we're targeting to grow the property portfolio and investment, as I said, up to £225 million as opportunities arise. The property business operates through joint ventures, has access to £1.5 billion of gross development value pipeline. Joint ventures are a core to what we do. And we have 70 strong in-house team, which is multi-disciplined, which is really what our joint venture partners value, their expertise in helping deliver urban regeneration. And by delivering projects through joint ventures, it helps us manage risk. And the property mix between public and private joint ventures is currently 50-50, which delivers really strong synergies to the rest of the group. So we look at the five steps of our value creation model in property. First step is to source and acquire suitable land to bring into the joint venture or bring directly into care. The next step is to obtain planning permission. We use our in-house experience and expertise and the multi-discipline team that we've got to interface with local authorities to achieve this. We then build and manage the development. Within the building phase, we have the opportunity to use some really strong construction expertise within the rest of the group to help mitigate risk. The fourth step is to secure an occupier. This creates most of the value of the supply chain, value chain, sorry, with the potential to forward fund the opportunity and use that capital to actually deliver the scheme. This de-risks the investment and obviously therefore drives return on capital employed. And finally we sell the investment. Understanding our market and understanding what your customer want to buy helps us to deliver a product which is highly sustainable and in high demand, which gives us the best price. It's worth noting we do have the optionality to sell investments at one of these earlier stages throughout the process as you can see from the diagram. And if we look at the group synergies and the key relationships, the property business enjoys a number of synergies with our other divisions, particularly commercial and operational synergies. Our public sector joint ventures tend to be with local authorities, and local authorities tend to be significant landowners with large portfolios, where we have existing relationships from our construction and infrastructure services businesses. Through these existing relationships, we're able to understand the strategic aims of the client and the system to unlock value within their estates. By leveraging our established relationships, we have access to a huge opportunity to provide services to clients where we are already a trusted partner. As well as these upstream synergies, there are also many downstream synergies within our construction business able to tender for work within these joint ventures. Property maintains a number of existing public sector joint ventures across our South East and regional city target market, including Liverpool, Birmingham, Watford and the South East focused joint venture with Network Rail. These joint ventures are long term in nature, ranging from 10 to 20 years and provide a strong pipeline, as I said earlier, of opportunity with contractual access to land on fixed margins. The joint ventures are procured through a bid and scoring process where the score includes not just the financial return, but also the track record, partner fit, ESG credentials, ability to adapt to the client needs and deliverability. And these are the things which set Keir aside from many of its peers. So if we move now to, finally, sustainability. Last year, following the success of our first sustainability framework, we reinforced our commitment by issuing a refreshed framework. The new framework better aligns our activity to our major clients, the UK government, and regulated companies. And this evolved framework focuses on three pillars, people, places, and planet. As a reminder, our purpose is to sustainably deliver infrastructure, which is vital to the UK. And as a strategic supplier to the UK government, ESG is fundamental to our ability to win work and secure positions on long-term frameworks. The UK government contracts above £5 million require net zero carbon and social value commitments. In order to help achieve these goals, we have focused on our people pillar, which targets to build a workforce which has the relevant skills and capabilities to deliver these goals, ensuring where possible that everyone receives equitable treatment and that our people reflect the communities in which we serve. Secondly, we leave a positive legacy in our communities through our places pillar. We do this through projects, through the projects we deliver and the people we employ within them. And alongside this, we aim to further tackle inequality. And thirdly, as the stewardship of the planet is vital to all of us, we plan to reduce our carbon usage and support our customers with their infrastructure requirements as they manage climate change related events. Our sites aim to protect and preserve biodiversity as well as efficiently use resources on our projects. So if we move to slide 30, our environmental progress. So we see carbon reduction both as an obligation and an opportunity. We aim to ensure that we do the right thing and operate as a responsible business. From an obligation perspective, Kier has had its carbon reduction plan recognised by the Science Based Target Initiative, including our target to achieve net zero carbon across scopes one and two and three by 2045. We have reduced carbon scope 1 and 2 by 9% in FY24 as we progress towards our targets. This is the third year of reporting our scope 3 emissions and we're working collaboratively with our supply chain partners to target our most carbon intensive materials and activities such as steel, concrete and diesel consumption. We've also enhanced our sustainable design capability to reduce whole life carbon, including embodied and operational emissions, and we reported a 13% reduction in scope three emissions in FY24. For waste, we have committed to reducing the volume of waste by 2035, and we've achieved a 2% reduction in the year, and 93% of our construction material and packaging waste is diverted from landfill, or has been diverted from landfill in FY24. And if we look at our social progress, safety, as we've always said, is our license to operate. The group's 12-month rolling accident incident rate, or AIR, was 115 in FY24, an increase of 76% over FY23. The FY24 numbers are an increase on the high-performing benchmark we achieved the prior year, and we are disappointed with that. But this result for Kier does continue to demonstrate that Kier does perform better than the historic industry league results. During FY24 we rolled out our Culture Programme, which complements our safety-specific behavioural training across the group. These programmes have been designed to bring positive health, safety and wellbeing approaches to all of our operations and apply to all personnel, including our supply chain, and they sit alongside our existing policies and procedures. Kier is a people-based business, and our performance depends upon our ability to attract and retain a dedicated workforce. And during the year, we had over 660 apprentices participating in programmes representing 6.5% of our workforce, a graduate intake comprising 36% women. We also continue to focus upon Kier as a diverse and inclusive place to work to ensure we better reflect the communities we work within and serve. And turning to our suppliers, our supply chain partners are a highly valued bias. They help us deliver solutions to benefit of our clients. And in FY24, over 60% of our subcontractor spending was with small and medium sized companies. In addition, we continue to ensure our suppliers are paid on time. We adhere to the prompt payment code and our suppliers were paid on 34 days throughout the year. And with that, let's turn to page 35 for the summary and outlook. I am particularly pleased that we performed or outperformed our medium term target. Our order book has remained strong at £10.8 billion and provides us with good multi-year revenue visibility. The contracts within our order book reflect the bidding discipline and risk management now embedded within the business. The new financial year started well and we're trading in line with expectations and the group is well positioned to continue benefiting from UK government infrastructure spending commitments and we're confident in sustaining the strong cash generation achieved especially over the last two years allowing us to significantly deleverage, increase dividends and deliver our long term sustainable growth plan which will benefit all stakeholders. And with that, I'm very pleased to be able to open up to any questions and answers. Questions in the room? Shall I? Johnny.

Thanks. Johnny Kubra from Deutsche Numis. Thanks for the presentation. Could I ask firstly on construction? 97% of FY25 revenue being secured seems a very high level. Do you expect to have less work won in year this year? And are you seeing any procurement delays as a result of the change in government? And then the second question, perhaps related, is on working capital. Slide 14 talks about a reduction in average net debt in FY25, partly due to a working capital inflow. Is that the impact on the average of the working capital inflow last year, or do you expect to spot working capital inflow again? And how do you feel about the level of negative working capital relative for revenue on the balance sheet at the moment? Do you expect that to be a normalized percentage?

Shall I take the first, you take the second? We don't anticipate any change. The bidding is still very strong. The opportunities are strong. The pipeline remains strong in all regions within construction across all sectors. Our average size of contract is slightly increasing. That's okay. We can manage that very well. So no, I don't think we see that changing. In respect to the government, I think the government is obviously going through a period of just evaluation of where it stands, having come into power only recently. But I think over the longer term, we see no change in government policy. We still see, as I said, the non-discretionary nature of what a lot of what we do means that we believe that they will continue the policy of spending. Simon.

Yeah, thanks Andrew. Johnny, good question and important point really. So yeah, we're a negative working capital business. So as we grow, we get a working capital inflow. You can't have it twice. So if you grow to a certain level, you'll get an inflow, which we've seen. So you're right, the average will be mostly impacted by that inflow that we've already received. Any incremental inflow will just be based on the amount of further growth that's from there. And of course, that can also go backwards. So if we shrink, there'll be a working capital outflow as well.

Thanks. And just to follow up, you don't expect a working capital inflow or outflow unless you see the revenue move? Yes.

I mean, I think if you look at the numbers that are out there, they expect a small amount of growth. So I'd expect a much smaller working capital inflow.

Thanks. And then just one more from me would be on the updated long-term growth strategy in which you point to the potential opportunity for value increase of M&A. Have you learned anything from the Buckingham acquisition in terms of the ability to integrate acquisitions into the group? And also, do you have a focus on infrastructure services relative to construction?

Yeah, we have learned a lot, and it's been good learning. We've captured that learning, and I think we've integrated it very, very well. It's gone extremely well. We transferred sort of circa 180 people over. We brought with them. We brought the assets out of the administrators. It's gone very, very well, and it's been a very good integration. So, yeah. The second part of your question, Johnny, was...?

whether if opportunities do arise, whether there's a preference for infrastructure services over construction?

There's no direct preference, but I think we probably see a little more opportunity in the infrastructure side. But we've got an open mind, but that's where we see more of the opportunity, yeah. Thank you. Andrew, do you want to? Oh, okay. We'll come back to you, Andrew. We'll come back to you now.

Andrew Nussie from Peel Hunt. Three questions, I think. First of all, on slide 14, you obviously indicate that you should be moving into average net cash position in FY26. On the basis of the new long-term plans or long-term targets, What do you think that might mean in terms of the level of cash which you could potentially deploy either in property or M&A? And then sort of allied to that, in terms of new investment in property, do you have a preference to maybe changing the shift in terms of those three buckets, which obviously are evenly spread at the moment? And I suppose allied to Johnny's question, in terms of any strategic white space in that infrastructure area that you might look to build with potential M&A. And lastly, very high-level thoughts that if the government looks to use more private capital in infrastructure projects, how do you think here would be placed to potentially benefit from that?

Do you want to take the first one as to what we're going to do with the surplus?

Yeah, so, I mean, you've rightly pointed out, Andrew, that on slide 16, we give our capital allocation. So we ran through that. I mean, capex is obviously minimal. Deleveraging, you're right, to your point, there's not much further to go on that. And I think we clearly say we're going to invest the surplus. So I think our targeted balance sheet is really plus minus zero. So once we get there, any of that surplus can be deployed. And we mentioned properties, which is a great underpin. Andrew said there's further opportunity from the 225 to go up there. And of course, that hurdle rate, 15% ROKI, really underpins your M&A strategy. So we're only going to do an M&A where it's more attractive than that.

So to your question about property, the relative investment in the three sectors, at the moment we'll continue to have a fairly balanced portfolio, but I think there's going to be perhaps more emphasis on the affordable housing, the bill to rent and the urban regeneration going forward. But it does take time to come through, so the government's made a clear commitment that it wants to sort of expand the house building programme in the UK, but you still have to find the land, source the land, go through the whole process of development, planning, et cetera, et cetera. So that will be a little while before that really does kick in. So there may be an increased emphasis there, but I think at the moment we're going to be broadly balanced across the three sectors, and they're all performing very, very well. Infrastructure, white space, areas we're not operating. We're pretty happy where we're operating. I mean, there's been a big focus in water, as I said, hence the reason we put those slides up. You know, the draft determination from the regulator of $88 billion, and we'll see where that ends up at the end of the year. But the water company has been very proactive in actually locking down their supply chain and they're looking much more towards the tier ones because we're obviously talking about quite large scale capital expenditure here. So we're pretty happy with that. We see a lot of opportunity in the nuclear space as well. The pipeline is very, very strong and that's building on our credentials already at Sellafield, at Hinkley Point, down at Devonport. in defense and the AWE. So we'll be continuing to follow that and build that out as well. And transportation, we've got a preeminent position with both local authorities and with National Highways as well. So we'll be looking to to continue that position serving that customer as well. So I think that's where we want to sort of focus. We have built up our rail assets with the acquisition of the Buckingham Group. And as I said in response to Johnny's question, if opportunities arise on M&A, we'll look at them very seriously and probably more weighted towards infrastructure than the construction side. And your last question was on PFI capital. We have a lot of skills in this. We have a lot of contracts where we're the merchant supplier, looking after a number of assets for the MOJ, looking after them for schools, education, defence, etc. We'll continue to have those skills. And obviously in our property business, we have the capital skills as well on the development side of any potential PFI. So we'll see where government wants to go if it wants to go down that path. But we think we've got a lot of relevant skills and capability to offer if they do decide to pursue that. Thank you. Go to the back.

Hi, morning, guys. Thanks for the presentation. It's Rob Chandry at Berenberg. Three questions. So firstly, could you just give a bit more color on, I guess, the expected divisional margin evolution in the coming years, given the relative deviation last year, like 5.6% in infra and 3.6% in construction? Secondly, clearly you focus on water in the slides, can you just comment I guess on the competitive positioning versus the peer group, so where are you better, where do you maybe lack teams, is there anything you'd like to build up to really take good share? And then thirdly, going back to property, I guess if we get to 225 million in capital employed, 15% Roki, it's like 33 million EBIT or so, is that enough scale in each of the divisions? It's roughly what, 70, 80 million in each of the three target areas, is that? strategically give you enough scale to be relevant and get the right opportunities and be really competitive at that scale.

Thanks. I'll take the margin evolution. So you're absolutely right, Johnny, about the margin. I think we first of all take the construction margin, which has softened. That was always flattered last year by a higher mix towards our places business, which is high single digit margin. That was always going to move as the regional build business grew. And so you see that fall down, because regional build really is low single digit margin. And of course, as Andrew mentioned, the 3.6% is still industry leading. In terms of infrastructure services, it is still flattered by a high level of design work that's going through it. So it's flattered a little bit there, so I'd expect it to soften a bit further going forward. It also had a £6 million claim in there, which won't repeat next year. It wasn't really a claim, it was for work that was done previously and finally paid, allowing us to take that credit. But that won't repeat, so of course I'd expect it's slightly flattered from that as well.

Just to build on that, the construction team led by Stuart Togwell are really focusing on the quality of their business and ensuring they get consistency and resilience into those earnings. As Simon said, 3.6% is still industry leading, so we're pretty pleased. with the work they're doing. On the second point, the water and the competitive position, I can't say whether we're one, two, three, but I probably can say we're probably in the top three suppliers. We do have differential capabilities, which the clients value in terms of project management, design capability. We can do D&B contracts, as well as maintenance capability as well. and my capability the M&E in water and obviously the tier one traditional skills which we have. So I think we're well positioned. And I think the recent wins we've had as I said the United Utilities with Southern on top of the existing relationships and extensions we've got with Anglia and Seven Trent and Southwest really do put us in a good place in water into the future. But you've got to get in the ground. So we're winning these positions on frameworks, but we've now got to get these frameworks working. But the water companies are really progressive. They want to get going with us as soon as they possibly can. So whilst AMP8 doesn't actually technically start until next April in the expenditure, they really do want to get going. We're talking to them all over the place about opportunities to get into the ground. And on property, 225 million, 15% ROKI, 30 million EBIT. I think your question was, is it going to be evenly balanced across the three divisions within property? Was that the question?

It was more to do with, if it is, is that enough relevant scale to be really good at it if you're just at 70, 80 million in each?

Yeah, it is. It is, is the answer to that. And I think we've consistently said we wanted to get more money into property because then you get more liquidity in it. You can be able to do more deals within it. You get the high velocity of capital use. Therefore, you get the better road key as well. So, you know, we've always wanted to put more money into it. And as we said, there's opportunity for yet further money to go into that business. But it's a question, as I said, as a 70 person team, great team, really highly skilled. But they have to make sure that they can only work at a certain pace as well. So if you sort of inundated it with more capital, they may not be able to deploy that capital. So at the moment, it's all very measured, very businesslike. But we are looking at opportunities beyond that. But no, we think that's 225 is a good level of capital investment. There are opportunities. Adrian.

Thank you. Adrian Kiersey, PAMU Liberum. You partially answered one of my questions literally just a moment ago, Andrew. On the headcount within property, you say headcount's currently 70. In terms of skill set and scale, where do you need to invest in order to drive that business beyond a sort of 200 capital employed type business?

Okay, so to get more capital employed, you can actually just do bigger parts of the deals. Because we take a share of joint ventures, you can increase your share of the joint venture. And that doesn't require any more headcount per se. So you can actually deploy capital more efficiently in the existing sort of deal structure. So we think that is a barrier. Ultimately, you will have to step change if you get a market increase in capital. But we think that can go way beyond 225 with the existing structure of 70 people by expanding the opportunity within the existing deals, as well as doing more deals and getting more liquidity into it. So we're pretty comfortable with 70 as a number.

So by implication, the joint venture structure and joint venture profile of property will evolve over the coming years?

Yes, it will. But we'll still stick to the principles of having joint ventures. It's good risk management, price liquidity, you can fund them, et cetera, et cetera. It's the technique they always use in it. But you can take bigger positions.

In the presentation, you talk about design more than you have done historically. What kind of areas are you particularly strong at in design and what proportions of the contracts do you currently have design elements and where do you think that's going in the future?

So we've just consolidated our design capability within our transportation business within our infrastructure services business. We brought together the maker capability which we had in the water and the infrastructure and utility side together with the transportation teams together with our construction design capability. So probably the strongest area we have is in the highways division, where we do take design and build contracts and do a lot of the design ourselves. So A66 at the moment, which we're together with Balfour Beatty, in a broad alliance. We're doing a lot of the design work in this phase ourselves in-house. And then we have partners to top ourselves up. But we have a real design capability, which I think is fairly unique in the industry. And that attracts, obviously, a higher margin as well, which explains some of the mix issues that are going on partly the mixed issues going on in the infrastructure business. But we think that's a real differentiator. But we also have it in the water sector as well. In construction, it's slightly different. The clients tend to want to pick their own designers and then innovate them across and you work with them. But they're all known to us within the construction business. But probably the strongest area is we generally are a D&B contractor in highways. Stephen.

Thanks very much indeed, Stephen Rawlinson, Applied Value. Just three areas of topic for me. Firstly, and it's about risk really, the first two, construction. Average project size, 20 million, but it's usually the big ones that get you. So could you just sort of give us a clue as to the size of the largest two or three projects that are multi-year and whether or not they're for public sector regulated areas, just to give us a sense of the risk that you've got in there? Because as I say, 20 million is a broad average, but it's the big ones that cause the pain.

Not necessarily. So by construction, you mean in our definition of construction, schools, hospitals, prisons, not the infrastructure side.

Yeah, the 1.9 billion that's in construction.

OK, so the first thing I think you've got to remember about these contracts is the average size of 20 million. It means you can reprice them fairly regularly. you know, building a 20 million school pretty much 18 months, you're going to be repricing it. So you do get a problem with inflation. A, the element that's going to be inflated within that contract is relatively small. So take a 20 million quid contract, how much steel, say, for example, which is exposed to inflation, quite small. And you probably have it contingent within the price as well. So that's the first thing to remember, the nature of those contracts. The second thing to remember, when we do fix them out, we fix them out after two-stage negotiation where you understand the risk. And you'll fix them out when you've probably retired the material risks you don't want to accept, asbestos, for example, or ground risk when you're out of the ground, et cetera. And the client wants you to do that, it gets certainty, and you have an opportunity to expand margin as well and please your client, et cetera, et cetera. So within construction, whilst you always look at construction, you think, well, that's where the fixed-price contracts are in infrastructure, that's where all the cost-reimbursable contracts are, the nature of how you get into the contract is vital. And our principle and policy in construction is overwhelmingly we get into fixed-price contracts through two-stage negotiations. And we just don't take single-stage lump sum D&B negotiation contracts unless some of them are heavily negotiated. They're called lump sum D&B, but they're heavily qualified and negotiated, in which case that's fine, it's the same principles. But the basic principle of when we get into contracts and the disciplines we put into place, in particular in construction, mean that we have to understand the risks before we'll fix that out. That's the principles. And if you do do that, then it doesn't matter if it's a big contract or a small contract. you've allocated risks, you understand those risks, you continge for them, you put visual sums in them, and it doesn't really matter the size of the contract. So I'm not sure I totally agree that bigger contracts equal bigger risks. A well-negotiated two-stage offer framework, big prison, for example, 17th T Block, we are going to be building 17th. These are virtually identical and they're all built off-site. means that you really do manage your risks effectively and therefore the bigger contracts tend not to be the riskier ones. So risk comes in many shapes and sizes.

On property, thank you for that. On property, one of the undoings of construction companies working in that area has been becoming their own anchor tenant, particularly on commercial projects and ending up with too many offices at the wrong place at the wrong time of the cycle. Can you provide some reassurance to us in and around you becoming your own anchor tenant on projects to get them kicked off?

It will not happen under my tenure. I can give you total and complete and utter assurance. That's just not what we're going to be doing. I mean, we're working very, very hard, as Simon has talked to in the adjusted items, to solve that little conundrum. So that will not happen. Our property business is focused on those three sectors, as I talked about, not on gear at all.

And thirdly, on HS2 specifically, though related to what Andrew was asking about earlier, just two points. Do you recognise the comments that appeared in the civil engineers' review that appeared yesterday. You may not have had the time because you're preparing for this, but do you recognize some of those comments? And secondly, given what your experience, if there is private money to go into HS2 specifically, would you be tempted to engage yourself in those discussions?

Well, I'll answer the second bit first. I mean, the private money is probably referring to Euston and how they're actually going to get Euston built out with private development, etc. We're not participating in Euston. We're participating in the central section, the 80 kilometres in the countryside, pretty much from Warwickshire down to the Chilterns. That's where we're participating on. On that contract, the main works civil contract, which we're participating in, EKF, BJV, no, I don't anticipate any private... It'll just be built out on a conventional basis. In relation, I did have a quick look at the ICEs. I mean, it's a good piece of work. I'm sure there's different opinions about what the causes of this are, but I think, you know... what's pretty clear is that there was a slight conspiracy of optimism around, as there often is on these major projects, and perhaps you haven't de-risked the project as efficiently as you could have done, which means early investment to do ground investigations in that case to drive out specification, and maybe an over... an over-desire to over-spec it, produce that, as they say, the world's greatest railway for the last 200 years. I mean, that all comes at a price. And I think there's an element of truth in that. I mean, everyone's going to have their own opinion on what's happened on HS2. I can only give you the facts as they relate to EKFP. But that's their opinion. Hi.

Thanks. Ainsley Laman from Investec. Just two questions for me, really. First of all, on the kind of revised long-term sustainable growth pattern, it appears you've tweaked some of those targets and you're already kind of at most of them in the margin revenue growth, obviously. So just trying to get a bit more of a feel and understanding of where your priorities are, how you see the grid. If you look three to five years out, I guess, what do those pluses mean? What's the scope for the margin growth? over the medium term? How aggressive will you be to grow the revenue? Have you got the capacity to increase the scale there? Or actually, should we just read it as more of the same, you're at the margin already, just better quality margins, delivery, cash conversion? How should we read that first question?

Do you want me to go? Yeah, go for it. OK. I think a lot of it's about the quality of the business. That's what we've worked incredibly hard at over the last couple of years, is build a really good, high-quality order book, which you can then, you know, mobilise into a good quality revenue stream, which will generate profits and cash on a consistent and resilient basis, in particular in those areas like construction, where, you know, that's where most of our contracts sit, you know, circa, I think, 200 in the construction business of, you know, circa... 20, 30 million average value. So what Stuart and the team there are really focused on is de-risking the order book, really building relationships with quality clients, deploying our skills. MOJ is the best example, I'd say, at the moment of that. Good client, invested early in a design, the modular design of T60 blocks. We're now deploying that out. I think we've built seven and 10 to go. I said all the other way around, I can't remember. That's a great example of building resilience in with a client from your order book through to your production like that. That's our focus, I think, across the business. In terms of GDP++ or plus plus plus, whichever you want to call it, a company like ours, given our scale and breadth and our property business, You should be able to slightly outperform the growth in your client's ability to spend. The client is only, over the cycle, can only spend really, grow according to GDP. We think we can outperform that because of A, our performance, B, our scale and size, and C, the property group as well. That's really what that refers to.

And then just on the second question, looking at the government's plans for social and affordable housing, just interested in your views of how they might fund that, what you may expect in the budget, how you're positioned to benefit from what we expect to see a big increase in social and affordable housing.

I think the first thing they've got to do is sort out planning. That's the first thing to allow it to happen. We participate in affordable housing already extensively in three areas. One through the construction business where we build under contract, a conventional contract for either a developer who's got a contract with a local authority or affordable housing provider, or maybe directly for an affordable housing provider or local authority itself. So we've got a lot of capability which we can evidence there. in that sort of sense. Secondly is our developments in property business due to urban regeneration, which includes a lot of affordable housing. So we act there as the developer. And our construction business may act, has acted, excuse me, Watford being the example, as the contractor there. It's not necessary. We don't do it for that reason. We don't want to bottle up risk within the company. But that's a great opportunity for construction if they're best of class. And they often are best of class. So that's the basis on which they can contract with our property business. And the third area we participate is through our places business in affordable housing maintenance as well. So we're well exposed. Do I think it will happen immediately, as I said earlier? No, I don't, because I think they're going to have to acquire land. They're going to have to get planning regulations changed. They're going to have to get planning. There will be issues. It's not just going to disappear. They've then got to get funding in place. They've got to get a contract in place. So we're bidding happily at the moment on a lot of frameworks to get into affordable housing, in particular through our construction business. but we're also bidding through the developments business as well. And we think that will come through in a couple of years' time. So it's an area of real interest for us, and we've got real skills and capabilities. Any more questions in the room? Were there any questions online, therefore? I ask at the back. We have no questions from the phone lines. No questions. OK, well, just to summarise, therefore, the summary and outlook, we have outperformed our medium-term target. Our order book is very strong at £10.8 billion, giving us great visibility. We started well in FY25 and we're trading in line with expectations and we're now pivoting to focusing on the long-term sustainable growth plan. So, no more questions. Thank you all very much for coming today. Thank you.