Hello, everyone, welcome to the Galliford Try Trading Update Conference Call. My name is Bruno, I'll be the operator for your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. I will now hand over to your host, Bill Hocking, Chief Executive. Please go ahead.
Thanks, Bruno. Good morning, all. Welcome to the trading update. I'm sure you've all seen it, so I'll just, as usual, go through the headlines, and then we can take any questions after that. In a nutshell, I'm really pleased with our progress in the year against our targets. The acquisitions that we've made, two in the past year, are settling in really well. Both of them in the water arena, you know, looking back a couple of years when we looked at the water industry and the options and the opportunities there, I think we got our timing right in our entry into the water market. It is a big and growing market, you've all seen the press and so on of late.
Notwithstanding some of the current noise, the market out there is really big and growing. That was really good timing. Full-year PBT, at the end of current consensus, and a really good performance across all of our operations in both revenue and tech profit terms. The revenue has grown in a disciplined way. You know, we had the issues of inflation and the fallout of the mini budget and so on last calendar year, which pushed the revenue to the right. Overall, a really good approach to work winning, which has meant our order book, up at GBP 3.7 billion now, is a really high quality and underpins our growth targets through to 2026.
Special dividend of 12p following the settlement of our long-going dispute, which was really. It's really nice to get that behind us now, and that'll be paid in October. Balance sheet, really strong cash, good result at GBP 220 million about at the year-end, and average month-end cash of GBP 135 million. That's down slightly on the same period last year on the back of the buybacks, the acquisitions we've made, and the exceptional costs into our ERP system. That's easily explainable. Really pleased also in the year to achieve our science-based targets validation, which basically underpins our carbon emissions, carbon reduction target. All in all, really pleased, everyone, and making good progress on our strategy.
I think those are the headlines, and I'll go over any questions.
Thanks. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We have our first question. Comes from Andrew Nussey from Peel Hunt. Andrew, your line is now open. Please go ahead.
Good morning, Bill and Andrew. A couple of questions from me. First of all, in terms of the supply chain, just some reassurance around the skills out there, the financial strength of that supply chain to deliver what is obviously a growing order book and probably a pretty busy FY 2024. Secondly, if you could expand on some of the adjacencies elements of the strategy, I think particularly around the decarbonization opportunities which are coming through. Thank you.
Yeah, thanks, Andrew. Morning. On the supply chain, I think the first thing is that, you know, we have our Advantage through Alignment initiative, which means that we deal with fewer, more, stable subcontractors throughout the country. That has really paid dividends. We have had some supply chain issues. We're not immune to this, but nothing of any materiality. We've put in place an enhanced sort of due diligence policy, whereby we look much deep into the financial health of our supply chain, perhaps, than we would have done in previous years. That's, you know, bearing fruit. As I say, we have had a few issues, but nothing of any materiality.
Overall, you're right, that the supply chain has to come along with us as we grow, and I think what we're doing to make sure that we bring our supply chain along with us is also paying dividends. We've got our Net Zero Partners initiative, where we share information on carbon reduction with our supply chain, and they do the same with us because, of course, it is a symbiotic relationship. All in all, we see that the supply chain that we use is there and is robust, and we don't see that changing much, to be honest. On adjacencies, there are lots of adjacencies out there, and, you know, on the green retrofit side, this tends to go into all of our markets.
Green retrofit fits into making buildings more carbon efficient. It also means making water treatment plants more carbon efficient and things like that. It is a big market, and what we're seeing is that in the main, clients are maybe interested in it philosophically, but have OpEx budgets but not necessarily capital budget skills. We are trying to find ways around that. What we're also finding is that clients are doing lots of smaller projects, so we're looking at how we approach the sort of small works part of our business. We've trialed that up in Scotland, in two of our regions, and it's working really well, and it's going down in London now.
There's a small works division, not division, small work sort of part of the business, which is growing as clients want to do sort of green retrofit improvements to their buildings, but with relatively limited budgets as well.
That's great. Thank you.
... Adrian, your line's now open. Please go ahead.
Thank you. Morning, guys. Two questions from me. Within the order book, there's always ebbs and flows in terms of the sub-sectors. Would you be able to give any sort of flavor in terms of which sub-sectors have driven the largest amount of the uplift in the order book? Second question, you know, within water, you obviously expanded your capability through M&A, in that particular area. Could you give us some examples of the new work that you're winning that sort of plays into that expansion of capability? Thank you.
Andrew, take the first one, Andrew, and I'll take the second.
Yeah. Morning, Adrian. I'll just take the first one. That, the growth in the order book is probably biased more towards building the infrastructure. I mean, some of that is, as you say, is timing, and we've seen some really good wins in building over the, over the six months. Obviously, there's a couple of those referenced in the statement today, and there's also ... Obviously, we've issued various RNSs over the last, the last few months. What, what I would say, Adrian, is across all of the sectors, so across our highway infrastructure business, across water, but then in building across, you know, whether it's education, justice, defense, you know, health, there's really good momentum across all of those sectors.
Even the private sector piece, which probably has been most exposed to, you know, some of the macroeconomic issues around interest rates and so on, you know, again, we've seen some really good opportunities coming through in the private sector piece. I think we're pleased that the momentum in the order book is across all the sectors. It's not really just focused on one particular area of the business.
You know, on the in-house side, the acquisitions that we've made, have been in two areas, really. When we bought nmcn 18 months or so ago now, that gave us a coverage of the whole country, and virtually every single water company within the U.K. is a client of ours. That gives us, you know, presence in the market and is the sort of main part of the business as we speak, in terms of design, build, commission of water and wastewater treatment works. The adjacency is about capital maintenance, and retrofitting combined sewer overflows, and all of these things. These are the higher tech, higher margin end of the water business. It's more oriented towards mechanical, electrical, and technology, and so on.
We've got the Lintott brand. We bought Lintott with nmcn, then we bought MCS, and then Ham Baker. All of those companies, as I say, operate in this maintenance sphere with higher margins that are built in. What we're seeing at the moment, you know, as we've all seen in the press, is a huge emphasis on water quality in the first place, which is a constant, I suppose, but a huge emphasis on discharges and so on, into rivers and estuarial waters. And there's an enormous amount of work coming down the line on that, which fits right into the sweet spot of these higher tech businesses that provide the kit that water companies need to do this.
I think, as I said, our timing into this has been good. Notwithstanding some of the noise we hear about Thames, for example, at the moment, and just for the avoidance of doubt, we don't perceive any risk to the business on Thames. You know, we've been talking to Thames, as I'm sure lots of people have. I don't think we know a lot more than what we read in the press, by the way, or listen to the interviews. We are reassured that they're actually in pretty good shape, and they do have the support of their shareholders.
In any case, if it did go the other way to temporary government ownership, I don't think anything would change for the supply chain because, you know, things have to go on in regulated business. We don't perceive any great risk in either of those scenarios to us, just for the avoidance of doubt.
Thanks, Bill. Thanks, Andrew.
Thank you.
Our next question comes from Alex O'Hanlon from Liberum. Alex, your line is now open. Please go ahead.
Morning, Bill and Andrew. Just one question from me. Clearly the balance sheet is a clear differentiator for customers in winning work, and the average net cash position has come down in FY 2023, which has been well flagged and explained. I was just interested if there is a minimum, kind of, level of average net cash that you target to always have at any given time or any given year?
Yeah. What we've said in the past, Alex, still holds, is as we get to 2026, we've set some trend lines where we expect our average cash and PPP assets, you know, in aggregate to be to be within. We're well within that. Of course, as we grow the business through to 2026, you know, all other things being equal, the balance sheet would grow. We're very happy with the, where the average cash sits at the moment. It sits within those timelines still, we're, you know, we're continuing to progress, you know, as planned. I think the point you made at the start there, the balance sheet. You know, it is important for clients, and we've talked about that a lot in the past.
It's also, particularly at the moment, where supply chain have got choices where they work, it's really important that we pay the supply chain properly, and the supply chain have got the confidence that we've got the balance sheet to continue to pay them properly. It is a differentiator for us, you know, in both the winning work and also, in terms of delivering quality work as well.
Right. Thank you very much, Andrew.
Our next question comes from John Fraser- Andrews, from HSBC. John, your line's now open. Please proceed.
Thank you. Good morning, gents. Two, please. First one, inflation. Has that been a factor in the results? I mean, clearly, you've guided to the top end of consensus, a +20% PBT. You seem to have taken it in your stride, but has it had any impact on margins, and how is that inflation, build cost inflation, evolving more recently? That'd be the first one. The second one, the build to rent end markets, I understand there was a bit of a hiatus in after the mini budget, but has that started to pick up now? You know, what are you seeing, and what's the update on your projects in that area, please?
Okay, thanks, John. Firstly, with inflation, you know, as I said before, the majority of our clients we're very sensible about inflation, and how we dealt with it. In some cases, we ring-fenced part of our projects to say that, you know, that's the price, for example, is attributed to steel or whatever it might be. If that price moves up or down, you either pay more, or you get a rebate, one of the two. We've gone into many different ways. We've got some projects that are index linked, so the impact of inflation will hit the project, but then three months later, when the indices catch up, that'll be squared away.
I think the most important thing for us, John, is in that period of high inflation, we were really disciplined about not taking on any work until we were happy that we had everything buttoned down. That led to a bit of a drift to the right, as we've signaled before, in terms of some of our projects, but that discipline is paying dividends now, in so far as, you know, we don't have any big issues with inflation. Might have the results been a bit better for possibly? I don't know, but I think we've handled it really well. All of the projects we have and have taken through that period are in good shape. I think that's the main message.
In terms of current inflation, it's a bit flattened out for sure. It's, if there are any rises, they're signaled well ahead, generally. There are some prices that are falling, but I would say on the whole, it's flattened out and is more stable. It's not going down, would be my overall view. On the build to rent market, yep, there was a hiatus after the mini budget. What we've seen is that, you know, the BTR companies and investors are reappraising, you know, the interest rates obviously are going up, the yields and so on, that they get back on their, on their rents, will also go up. Overall, the feeling is that those investors are coming back into the market.
You know, there will be some views being taken on, you know, what you can rent these things for, and how much they're gonna cost in the future. On our own scheme in Cardiff, we're making good progress and I know we've said this before, but we hopefully will have some good news fairly soon in terms of getting that first one over the line. Then we've got two more that are following behind, one in Keynes and one in Nottingham, a little bit further behind in the search gestation period. What we've seen is quite good interest coming back into the market at the moment on the build to rent schemes, yeah.
Thanks, Bill.
Ladies and gentlemen, if you'd still like to ask any questions, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Our next question comes from James Lowen from Hambro. James, your line is now open. Please proceed.
Hi, it's James Lowen from J O Hambro. Morning. Two questions.
Of course.
If we, if I can. Just firstly, perhaps you could extend your comments on water, to what we can look forward to in AMP8, where there's gonna be a clear increase. Just what you think that could be versus AMP7, with your new footprints, including the acquisitions you talked to. Secondly, there seems to be quite a lot of change in the highways area, in terms of how Highways England are procuring work, and also delays in funding and pushbacks. Can you just talk about whether you're on the right side of those structural changes, and what you're seeing in terms of the allocation of funding in that area? Thanks.
Yeah, sure, James. First in water, you're right, AMP8 is gonna grow very significantly from AMP7. We're positioning ourselves, well, in my opinion but I would say that, from our perspective, quite a bit of our work will roll over from AMP7 into AMP8, James. There'll be no reprocurement in probably, I'm gonna say 60% of our work would be off the cuff. Those contracts will roll over, we'll continue-
Mm.
-to perform for those clients through to 2030. Then there's other AMP 7 frameworks that are in at the moment, that have to be reprocured because they are the time. Typically, these things run for 5 + 5 years, when they're 10 years, then they have to be reprocured. There are a few of those that we have that will be reprocured, and we're being quite choosy about, you know, which ones we're going to go for and which we won't. I think the key thing here in the AMP8 design and build type framework exchanges, is not to bite off more than you can chew.
We'll be looking at growing into AMP8 for sure, but not going into the areas where we don't think the work suits our capability. That's the first part. The second part of AMP8 is getting more of the capital maintenance asset optimization part of the pie. There, our acquisitions really come into play. The, you know, all of them, Lintott, MCS and Ham Baker are, as I said earlier, integrating well and have a big part to play in AMP8. Particularly in terms of plug-and-play type technologies, like phosphate removal and things like that, ozone treatment, where we can build these things in the factory, take them out on the side, plug them in, bob's your uncle. And the water industry is very key on those sorts of interventions.
Then another growing market in AMP8 is gonna be water quality monitoring. On the back of all the news we hear about, you know, sewer overflows and combined sewer overflows, and so on, there's gonna be a far higher degree of monitoring of water quality upstream and downstream of wastewater treatment works. That is a market again that we're going into. This is more about data really, than anything else.
This is about collecting data on whole catchments, which include rivers and sewers, and all the rest of it, to understand the way a catchment behaves, you know, in a storm situation, and the various interventions that Defra or the environment agencies, the water companies, can put in place. It's a big market, and it's a market both in terms of construction and in terms of more high-tech, data-driven type solutions. The key thing for us, James, is that we're not going to bite off more than we can chew, you know? We're not gonna overtrade.
Okay.
On Highways, we've seen, you know, quite a bit of noise about Highways recently in the press. Our own experience is pretty good, actually, apart from the delays that we've seen. On the A47, we've got two schemes ready in the blocks to go, and actually just last week, the judge overturned one of these, what's the word I'm looking for?
Challenges.
Challenges, legal challenges, that had been put. That was a good step in the right direction, I'd like to think that on both those A47 schemes, we'll be on the ground probably in the New Year. We're not that exposed to National Highways now, we're probably 50/50 between National Highways and local authority schemes. You would've seen James, we won the Carlisle job at GBP 140 million. A few months back, we won Melton Mowbray, GBP 80 odd million. We're busy working on a few other local authority schemes. We're probably 50/50 local authority and National Highways, but notwithstanding that, National Highways will always be, you know, a big and important client to us.
We're busy talking to them about you know, what RIS 3 looks like, and how it'll be procured, and all those sorts of things. I would say that the early indications are that RIS 3 is gonna be good for us, in terms of, there'll probably be fewer big roads projects and more smaller sort of, bottleneck schemes and improvement schemes. That's gonna play to our strengths, actually. Yeah, we've seen what's happening in the highways, but it hasn't really affected us and what we're doing, James.
Okay, thanks very much. Very useful.
Our next question comes from Alastair Stewart from Shore Capital. Alastair, your line is now open. Please go ahead.
Good morning again, Bill and Andrew. Couple questions. First, first one I imagine for Andrew, it's in terms of your average net cash, it went down a bit, still obviously extremely good, but you had the buyback, you had the digital investment, working capital impacts of the acquisitions, and possibly a bit of supply chain, you know, paying them quicker, I imagine, given the circumstances. Do you think some of this will result in a working capital cash inflow in 2024? That's the first question.
The second question, for Bill, I suppose, a bit more color on not so much the quantum of AMP8, but looking back at previous previous changeovers from AMP programs, they always seem to be, you know, a big hiatus, things took months to get started and so on. It, it used to cause quite a lot of short-term pain for for the supply chain. Is that getting any better? Why? If you've got any examples of that would be great. Thanks so much.
Okay. Morning, Alistair. Let me take the first one, I'll let Bill talk about AMP7 to AMP8 transition. Yeah, so in terms of cash, I mean, you flagged some of the points there around buyback, obviously, around the investment in digital assets, around the investment in the acquired businesses working capital. Remember, when we did the acquisitions, they were for very low consideration, and we said that there would be some working capital to go in, you know, which is what we've seen. Those, if you like, are issues which won't necessarily flow back.
The other thing that we have flagged in the statement is obviously, that there were some delays in starting new contracts in through 2022, and that's probably just softened the average cash a little bit, compared to where it would otherwise have been. The flip side, of course, of that, you know, that will come back, and the flip side of that, is that our carry forward of new work into FY 2024, at 92% revenue secured is I think a record position. Yeah, actually what we've seen, and we said at the half year that we were seeing some delays there, we weren't seeing projects being canceled, we were just seeing things moving to the right.
That's been the case, which is why our, you know, the confidence going into FY 2024 is so high, because we've got such a really good, strong position going into that new financial year. That's a little bit of cash, which will then start to come back through, you know, as those projects come through into the books, Alastair.
Sure.
Thanks.
Sorry, the long and the short is, there's more risk that on the upside to average cash than on the downside. Is that a reasonable way of thinking?
Yeah. The digital investment will, you know, finishes imminently. Obviously, the working capital input into the acquisitions, you know, that pays off.
Yeah.
As you say, as we grow the business, that's what you'll see. Yeah.
Sure. Great, thanks.
Can I just add, Alastair, yeah, you're right that the, that traditionally there's been a bit of a hiatus between cycles, and we've been lobbying for decades to get that flattened. The water companies are listening, and I think in this, particularly in this AMP, you know, AMP7 to AMP8, what we've seen so far, is the water companies are actively looking to secure a good quality supply chain in good time for AMP8. They recognize that there are gonna be some constraints in their supply chain, on the back of this big increase in work, and therefore, the intelligent ones are locking in a good supply chain now.
That means that the sort of hiatus should be, I would say, go away altogether, Alastair, but it should be far more sort of moderate, I think, this time around than normally. In any case, you know, we've got a really flexible workforce, so if one water geography turned down a bit, we could redeploy those people very easily into another one. It doesn't worry me at all this time around.
Great. Thanks very much indeed.
Thank you.
We currently have no further questions, so I would like to hand back to the management team.
Okay, thanks, Bruno. Okay, well, thanks everyone for dialing in. Just to reiterate, really pleased with our performance in the year. Looking forward to see you in September. Take care. Keep safe. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.