Kier Group Stock

Good morning, everyone. Tom and I are excited to be taking you through 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 Kier at this time and excited about how we shift from recovery to value creation. 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.

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 GBP 50 billion and monthly net cash up GBP 60 million. We did that whilst we evolved into a simpler business model through the seamless transition of 2 divisions into 1 infrastructure powerhouse and the adoption of our Justice Blueprint into Defense 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.

Now Kier is being recognized 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 infrastructure delivered through long-standing customers who value Kier's capability represents a compelling opportunity to drive long-term value for the group. To capitalize on this, we've identified 3 strategic priorities. Growth. There is a generational significant investment cycle in U.K. 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 risks contributed to our milestone net cash position in full year '26. And we will continue to strengthen the balance sheet, targeting more than GBP 200 million of average net cash by full 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 at a margin of 4% to 4.5% and a double-digit EPS CAGR, I'll say it again, and a double-digit EPS CAGR.

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 through a runoff process, balancing timing and value realization. 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 stand. I will hand over to Tom to take you through the full year '26 financial highlights. Good luck, Tom.

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 order book momentum and a full year average net cash position. And I'll go into all of these in more detail now.

Revenue in FY '26 grew to GBP 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 Kier's revenue grow by 1/3 since 2022. You can see the top left-hand box here. High-quality profitable growth is underpinned by a high-quality, well-bid and commercially selective order book. Such, we're pleased to see continued momentum in this measure, which grew 8.2% year-on-year. It's now a record GBP 11.9 billion as of the 30th of June. This order book growth is a direct result of Kier's leading positions across more than 120 frameworks. It's a particular strength of Kier, and Stuart will bring it to life later.

Casting your eye now down to the bottom 3 boxes, you can see the quality of Kier's recent growth. with strong flow-through of revenue to adjusted operating profit and then to earnings per share. So we have an AOP of GBP 170 million in FY '26, 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 2 recent share buyback programs. Our revenue and profit growth is also felt in our cash position, where the strong cash generation is a defining characteristic of the business.

During FY '26, we generated GBP 206 million of operating free cash flow and GBP 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, Kier has generated more than GBP 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.

The group achieved an average month end net cash position of GBP 11 million in FY '26, up GBP 60 million from an average net debt position in FY '25. And alongside the sustained strengthening of our balance sheet, we have maintained and enhanced shareholder distributions through the dividend and share buyback program. I'm pleased to announce that the Board has approved a final dividend of 5.2p per share, taking the full year dividend to 7.8p. This is an 8.3% increase on FY '25.

During the year, we concluded the group's first GBP 20 million share buyback repurchasing just under 11 million shares within the GBP 20 million allocation. And in March, we launched a second GBP 25 million buyback, which as of the 30th of June has seen just under 4 million shares repurchased. We expect the program 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 GBP 232 million, the right block at the 30th of June, a year-on-year increase of 14%. 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 GBP 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 GBP 236 million of EBITDA and a small working capital inflow of GBP 10 million, less around GBP 65 million of CapEx, which includes the capital payments on finance leases.

After the net interest payments of GBP 33 million and the tax payments of GBP 8 million, the group generated free cash flow of GBP 165 million. Our adjusting items here relate to fire and cladding remediation costs, which are in line with our expectations and previous guidance. You can see in FY '26, we invested GBP 22 million in our property JV businesses, down from GBP 51 million in FY '25. Next step along, you see we paid cash dividends of GBP 34 million during the period and then GBP 22 million of share buybacks, which, as mentioned, included the completion of the first GBP 20 million and the commencement of the latest GBP 25 million share buyback program, which we launched in March.

So at the half year, I was pleased to report an average net cash position for the first 6 months of FY '26. And I'm delighted to announce that for the full year, we achieved an average net cash position of GBP 11 million. It's a significant milestone for the group, the first time since 2012 that the group has achieved an average month end net cash position 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 multiyear growth and high levels of cash generation.

So I'll now turn to look at the FY '26 performance by division. So as you can see, our core powerhouse businesses of infrastructure and construction both demonstrate strong momentum. Infrastructure delivered an excellent performance in FY '26 with 10% growth in revenues and 16% increase in adjusted operating profit, representing an AOP margin of 5.5%, up 30 basis points on FY '25. 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 in FY '26, reaching nearly GBP 2 billion of revenues, up 4% year-on-year and maintaining its top end industry margin of 3.9%. 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 defense, where our framework positions are critical for success. And Stuart will talk more about the breadth of capability and credentials in that segment in a moment.

Turning now to our Property business. And this continues to be impacted by a subdued market, reflecting the wider macroeconomic turbulence as the division generated revenue of GBP 63 million, AOP of GBP 9 million and a ROCE of 4.3%. And against this challenging backdrop, the business has made good operational progress during the year. Planning has been secured on around 80% of projects, including around 5,000 residential units. We secured tenancy or actively marketing on 4 projects, including 270 residential units that are prefunded. So as we progressed into the first quarter of this fiscal year, we're seeing continued strong momentum, and I'm pleased to provide the following outlook and guidance for FY '27.

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 FY '27. As such, we've got confidence in FY '27 adjusted earnings per share, and we will 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 regard to property.

And I'll now hand back to him and cover in more detail the rationale and the road map for realizing and reallocating the capital currently invested in the portfolio.

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 3 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 on property directly supports these priorities. It 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. 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 realize approximately the first GBP 150 million of capital over the next 3 years as individual developments mature and come to market with that capital reallocated to further strengthen the group's balance sheet.

I'll return now to focus on one of our 3 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 2 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 3 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.

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, defense and health care, provide material opportunities for growth, supported by structural demand and Kier's proven delivery capability and comfortably cover any rundown from HS2 and Justice.

Just turning to water in a bit more detail. We are aiming to double our existing revenue from GBP 400 million to GBP 800 million by '29. We have strong visibility over a growing market for the next 15 years. That confidence 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 GBP 1.4 billion. We have visibility over GBP 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.

In Energy, we are aiming to more than double our existing revenue from GBP 170 million to GBP 400 million by '29. 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 GBP 680 million, GBP 3 billion of frameworks and GBP 900 million of pipeline opportunities. There is further opportunity beyond that with the current quoted -- sorry, in those quoted figures, including Sizewell C and STEP and additional revenue I expect from complementary capability across construction and facilities management.

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, decarbonation and battery storage. In defense, we're also aiming to more than double our existing revenue from GBP 150 million to GBP 350 million by '29. Kier is strongly positioned to grow its share, supported by our frameworks with both the MOD and defense primes over the next 10 years.

Our '29 revenue target is already supported by the current order book of GBP 300 million, the PCSAs of GBP 500 million and GBP 11 billion of framework opportunities, of which we can already see GBP 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 a sector that has been previously hard to grow because the new MOD alliances are adopting principles from our Justice blueprint. Looking ahead, defense represents a very significant further opportunity across both infrastructure and construction, including facilities management.

Okay. In health care, we are aiming to grow by 50% from GBP 170 million to GBP 250 million by '29. Health care 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 GBP 600 million, framework access of GBP 57 billion and known pipeline currently of GBP 12 billion. 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. Hinchingbrooke 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. Kier has a best-in-class capability in securing renewed frameworks across the U.K. 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 GBP 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 U.K. Our national approach provides consistent delivery, while 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. Kier is good at this because we can draw on our end-to-end capability at scale across the U.K. The metrics on this slide demonstrate our breadth and depth, 800 people in design, more than 400 projects delivering GBP 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 preconstruction 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 wanted 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. It creates alignment across the business, supports disciplined execution and gives our people a clear sense of purpose in the work we do for customers and communities across the U.K. That culture is a genuine source of competitive advantage. It is built over time through consistent behaviors, strong relationships and pride in delivery and it's 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, our 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 -- sorry, early with customers and continue to deliver with discipline as markets evolve. We are also building differentiated 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 summarize 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 U.K., and they provide Kier with a significant accessible and enduring growth opportunity. That opportunity is reinforced by the strength of our framework positions with access to around, say, again, GBP 200 billion of frameworks, just in case you missed it, which is substantially aligned to our key sectors. It is also underpinned by favorable structural trends that are familiar to all of us from the need for investment in water and energy to national security, health care capacity and the wider renewal of U.K. economic and social infrastructure.

The 4 sectors we have just discussed are expected to deliver around GBP 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 ability to bring the breadth of Kier's capability to complex programs across the U.K.

So that concludes my section on growth. I will now hand you back to Tom, who will take you through the 2 closely connected priorities that support and enable that growth, resilience and performance. Tom?

Thanks, Stuart. So Stuart has covered the growth pillar of our strategy, the extent of the opportunity ahead of us. So I'm going to cover the other 2 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 GBP 11.9 billion.

The order book consists of either secured or probable work and gives us substantial visibility of not just the current year, but also the following year. And that's before a considerable amount of the work, GBP 2 billion, of which are in one-to-one customer discussions and that we expect to shortly join the order book. In fact, the GBP 500 million Hinchingbrooke Hospital award is one example that just missed the June order book cutoff. So our order book gives us confidence in FY '27 revenues with 95% cover for the following financial year. And in fact, the construction business is at over 100% -- at 100% cover for the coming 12 months. I 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 Kier'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 the customer or to Sage where the opportunity for renegotiation protects our margin. 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 the 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 3 years from our underlying cash flow. So in the period FY '27 to FY '29, we're targeting cumulative operating free cash flow of GBP 600 million to GBP 700 million on the left. During that same 3-year period, we expect to realize net capital of around GBP 150 million from the current property portfolio. Offsetting property capital against cash tax, interest payments and remaining cash outflows in respect to fire and fladding, we are left with a total allocatable capital of GBP 600 million to GBP 700 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 GBP 450 million to GBP 550 million 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 GBP 500 million, about GBP 500 million of capital to deploy in line with the hierarchy of uses in points 3 to 5 on this slide. 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 target -- of average net cash of GBP 11 million in FY '26, 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 GBP 200 million of net cash by FY '29, 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 point number four. Then subject to the above considerations and recognizing the role that share buybacks play in enhancing shareholder distributions, we will return excess capital 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 2 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 4% to 4.5% range. And then secondly, through resilience and a stronger balance sheet, we will have the ability to repay our GBP 250 million bond. We, therefore, expect to see structurally lower net interest expense as the group's capital structure benefits from becoming debt-free.

In FY '26, the group recorded net interest expense of GBP 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 2 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 by a lower share count from any future share buyback programs. So as mentioned earlier, we will continue to prioritize the ordinary dividend. We see the combination of the 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 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.

Next down, we retain our 4% to 4.5% margin target for adjusted operating profit. And that's enabled, as Stuart discussed, by our differentiated end-to-end capability. Now retaining the 4% to 4.5% 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 GBP 200 million by FY '29, while continuing to deliver our cash conversion of over 90%. And finally, consistent with previous guidance, the group aims to grow the ordinary dividend in line with earnings and maintain the 3x cover. We see these medium-term targets as challenging, but we also see them as realistic. We also see delivering on these targets as a pathway to significant shareholder returns across the medium term. And I think truly delivering the performance component of the priorities for Kier.

So on that note, I'll finally hand back to Stuart to wrap up.

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 combined to create a compelling and differentiated proposition. Taken together, they leave Kier 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 U.K. infrastructure, reflected in the scale of the frameworks we have secured and supported by clear structural tailwinds across our key markets.

Kier is exceptionally well placed to capture that opportunity given our leading positions in essential 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.

The medium-term targets Tom outlined from mid-single-digit revenue growth to double-digit EPS CAGR demonstrates our confidence in Kier's ability to convert these opportunities in sustainable growth and improved shareholder returns. So as I reflect on my first year as Kier'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 U.K. 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'll now be pleased to take your questions. Thank you.

Johnny Hubert from Deutsche Numis. Thanks for the presentation. A lot to get excited about in there. Could 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 GBP 100 million a year surplus for buybacks. But when you're looking at that decision each year, how you decide on it based on timing of capital coming out of property and when you might repay the bond?

Yes. I think you explained it very nicely. So firstly, we're a very cash-generative business, and that comes across very nicely in Slide 30, where you can see the amount of cash that we're about to generate over the next 3 years. And as I tried to outline 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 of our portfolio. That can 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.

And just a 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 lump sum?

We haven't sat down and said, let's do a big lump sum buybacks at no point if we have that kind of conversation.

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...

Back to the cash point. So we wouldn't look to make that repayment early. It's -- you could repay from March 28 should be a logical time to do it. And that's nicely in line with the capital being released from the property business.

Andrew Nussey 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 it's bringing in more tier skills, is a higher margin opportunity than perhaps some traditional infrastructure sectors? So the first question.

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

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.

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.

And last question. I mean, a number of the growth ambitions stretch out to FY '29. If you had to add Hinchingbrooke into the order book, what level of visibility would you hazard for FY '29? In terms of revenue coverage? So greater than 95%.

Well, for FY '28, we're at 70% and that kind of -- that trajectory kind of comes down. So if you look at '29, we'd be up early 50s, approximately.

I'd go back to the -- if you look at the general order book is GBP 11.9 billion. If you look at the PCSA and ECI total of GBP 2 billion, you're looking at about 3 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 GBP 65 billion of pipeline opportunity. So they are tender opportunities. So they're either call off from existing frameworks, new frameworks or renewals or contracts that we can see. They generally take a time to win and convert, but they're looking at sort of 2 years a hence from that. 5 years [ work ].

Aynsley Lammin from Investec. I think I've just got 2, please. First, just going back to the net cash, the average of GBP 200 million. Just interested how you arrived at that GBP 200 million number. Obviously, lots of work already in the pipeline, margin discipline. Do you need that much? Why wasn't there GBP 300 million or 100 million 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 GBP 11 million you just delivered? That's the first question. And then second question, just interested to hear your views on the overall health of the kind of supply chain at the moment, what you're seeing in build cost inflation, just some general kind of points there.

I think you'll do the first one, I'll do the second one.

Yes. So the GBP 200 million target First thing I'd say it's definitely more of an art than a science. So if I could say it was exactly 200 or exactly GBP 250 million, it's certainly a range. And where do we arrive at that range? And kind of 2 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 think I don't want to go as far as some of them. They've got a lot of cash. And you look at the commentary on them, it can 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 investor community, look at us compared to our -- and the other way of thinking about it is what's the size of your negative working capital, negative net working 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 GBP 500 million to GBP 600 million. So that's money that we have with our customers that obviously doesn't sit on the balance sheet. So how do you support against that? Well, we've got a great order book, and we talked about GBP 12 billion of order book. And you think about GBP 12 billion of order book delivering a 4% margin, you've got about GBP 500 million worth of cash coming from the order book we can feel comfortable about that.

But we want to have more against that negative working capital because it's our customer money. And that's why we kind of come to the conclusion of we'd like a bit more cash and GBP 200 million kind of gives you support against that, that negative working capital. So negative working capital has against the order book and that incremental cash, which helps us get to the GBP 200 million level, which is then about, what, 4% of revenue. So when you kind of triangulate those measures, you come to the art of about GBP 200 million, and that's how we come to that number.

[indiscernible]

Yes. So I mean -- and that's the working capital swing that you get in the month. And that makes -- I look at our treasury over there, GBP 120 million to GBP 150 million difference per annum.

And then supply chain. So we're definitely not immune in terms of what's going on in the market and the macroeconomics. But what we have is we've mitigated it, and we've mitigated that in a number of ways. Firstly, in terms of the sectors that we are in. So we purposely stayed away from pure housebuilding 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 a further 35% through the 2 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. So that's 95% of our revenue.

I think thirdly, I'll go back to our regional model, 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. 7 minutes left.

Adrian Kearsey, Panmure Liberum. The MOJ was a sort of good example of adopting collaboration. And in the presentation, there was a sort of few comments where it seemed to indicate that, that collaboration was rubbing off in other parts of your sort of other clients. Can you perhaps sort of give some examples of how that's evolved?

Yes. So there are 2 particular clients that have researched that alliance model and gone on to adopt it because they see the benefits of collaboration, the MOD 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 tendering call-off projects, which gave us the ability to position ourselves around the Hitchenbrook 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 allocated 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.

Any more questions?

Stephen Rawlinson from Applied Value. In terms of the margin accretion or the margin improvement, to what extent is that arising from a mix in the type of work you're doing -- because you said 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 that 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?

If you can imagine the number of conversations Tom and I get together to get to 4.5%, and then we're 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 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 mix and scale, I'd say, are the 2. 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 the capability to manage all the design. 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.

We need to go online as well for questions. Just 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 lines.

There we are. Any final questions in the room?

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?

That was a very strong working capital in -- of our 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 we can push it up quite high. So actually, we've got good working capital coming in for those large construction projects. The reality is that when you're at 121 1 year, you've got to expect it to come down a bit kind of year after that. So we want to kind of keep it up at the 100% level.

We set 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 have large working capital inflow. As we continue to grow, we are a negative working capital business. So as you grow, that 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.

Good morning, everyone. And for those here in person, thank you for joining our Half Year 2026 Results. I'd also like to extend a warm welcome to those joining by webcast and audio. So I'm Stuart Togwell, Chief Executive of Kier Group.

And before we begin, I want to take a moment to say our thoughts are with our 9 colleagues and their families based in the Middle East. We are thinking of them at this difficult time and hope they remain safe and well.

So turning to our half year results. I would like to start by saying I'm immensely proud and honored and energized to be leading Kier as its Chief Exec and speaking to you today to update you on our half year results and the strategic and operational progress we are making. I'm also delighted to be joined by Tom, our Chief Financial Officer since the 1st of January.

Okay. This morning, I'll walk you through our highlights and touch on the strategic progress we've been making. I will then hand you over to Tom to talk through the group and divisional financial performance. I will then come back and take the first opportunity as Kier's new Chief Exec, to offer some color and context around these results and share my perspectives on our operational highlights and where we're leading as a group. We will then finish with a group summary and outlook before opening the floor for any questions you may have.

Starting then with the highlights from the last 6 months. The period saw the group deliver a strong first half with good growth in both revenue and profits. The future prospects of the group also remains strong with our order book increasing by 5% in the period to a record GBP 11.6 billion, reflecting contract wins across our business and providing multiyear revenue visibility. Through our order book, we secured 94% of our full year '26 revenue and 78% of full year '27 revenue. And we have seen the momentum continue into the second half with a number of appointments to frameworks in our key sectors.

Our Property division remains on track to deliver ROCE target of 15% by '28. We are continuing to convert profit into cash with a net cash position significantly improved to GBP 103 million. Most importantly, we have now delivered an average net cash position of GBP 17 million for the first time in 13 years. Our shareholders have and will continue to benefit from this strong performance.

Due to our robust cash generation and in line with our capital allocation framework, we have announced a proposed increase in interim dividend up to 2.6p per share. In addition, I am pleased that we're able today to announce the launch of a new share buyback program, increased to GBP 25 million. This follows the successful completion of our first share buyback program worth GBP 20 million. We have also made a number of operational changes in relation to our new structure and leadership capability.

If I may, I'd like to now take a moment to expand on this and reflect on the change we've made in line with the first few months since I became Chief Exec. Over the period, we've taken a number of steps to optimize our structure and leadership capability to maximize the market opportunities that exist for Kier, particularly in response to the government's 10 year infrastructure strategy announced in June 2025. We have strengthened our Executive Committee and be joined by Tom as Chief Financial Officer; Martin as the Group Managing Director for Construction, alongside the creation of new roles for Louisa as Chief Operating Officer; and James as Group Commercial Director. They give us industry-leading functional strength.

We also brought together our 2 complementary divisions within infrastructure to form a combined infrastructure powerhouse, to create a more integrated delivery platform to meet our customer needs. The group has also introduced its Naturally Digital program to empower our people and improve productivity through access to the right digital tools and platforms. We are seeing strong operational delivery and opportunities within Kier's divisions, which I'll touch on later.

And we're advancing our Kier 360 approach, which leverages the group's capabilities across the whole fund, design, build and maintain project life cycle and enables the most appropriate solutions to be achieved, tailored to meeting customer needs while meeting the environmental, social and digital requirements of national and local frameworks. These positive steps we are taking ensure we are poised for future sustainable growth.

With that, I will hand you over to Tom to give our financial highlights for the period up to 31st December. Tom, over to you.

Thank you, Stuart. And I should firstly say that I'm delighted to be presenting to you for my first time as Kier's CFO. It's my pleasure to take you through our performance for the first half of FY '26. Let's begin with the financial highlights for the period.

Revenue in the period, as you've heard, grew 2.6% and reflects good growth in activity levels, primarily in infrastructure services business, which I'll cover in more detail shortly. We delivered adjusted operating profit of GBP 71 million, up 6.6%, representing a margin of 3.5% and a modest improvement of 10 basis points from that achieved in HY '25.

Allowing for our usual second half weighting of earnings, this margin is consistent with our target range of 4% to 4.5% on a full year basis. You'll see that the period end net cash position is materially better than the prior period at GBP 103 million compared to GBP 58 million at December 2024. This is despite increasing shareholder returns via our GBP 20 million share buyback and the increase in dividends paid.

As we targeted, the group achieved average net cash over the period of GBP 16.8 million, a significant advance from the prior period average net debt of GBP 37.6 million. This cash and profit performance is all underpinned by our order book and framework positions, which provide us with the visibility over future revenue. Our order book currently stands at a record level of GBP 11.6 billion, having grown by 5% from June 2025. It represents 94% coverage of this year's revenue and substantial coverage of next year's forecast revenue, currently standing at 78%.

The order book continues to be underpinned by long-term framework agreements, positions totaling GBP 150 billion. And within this, we have GBP 35 billion pipeline of work visible for this year and the next. You can see from the graph at the bottom of the slide, how our order book, combined with our framework positions provides revenue visibility covering a period of at least 5 years. Stuart will look at our pipeline, order book and long-term opportunities in more detail later.

Now focusing on our revenue for the period. We delivered group revenue of GBP 2.029 billion, representing a 2.6% growth versus the comparable period last year. The main element of this growth comes from Infrastructure Services, which was up 4.9% to GBP 1.083 billion. This growth came primarily from the design and delivery of road capital projects, growth in rail work, including HS2 and a ramp-up of water activity under AMP8.

Our Construction segment delivered GBP 920 million of revenue in the period, down slightly by 1.3% due to the recent transition to modular construction. Although as the off-site construction comes on-site, we will see these revenues bounce back in the second half of the year to full year growth. Property transactions grew modestly, although again, we expect a busier H2, which is a familiar seasonal feature of this business.

In the same fashion, I'll now take you through the adjusted operating profit in the period. The revenue growth that we saw in Infrastructure Services translated into the profit growth of GBP 2.1 million to GBP 48.2 million. We maintained our strong 4.5% margin in this business. The Construction business also maintained its operating margin at 3.9%. The small increase in property volumes resulted in the operating profit growing GBP 1.2 million, and we also saw lower corporate costs in the period. Overall, we delivered adjusted operating profit growth of 6.6% to GBP 71 million.

There are some specific costs excluded from our adjusted operating profit figure, which I'd like to take you through. Excluding noncash amortization interest, the adjusted items amounted to GBP 10.7 million in the period and are now solely related to fire and cladding compliance costs. This is an increase on the same period in the prior year, and we expect this to result in a charge of around GBP 30 million for FY '26. We then expect this level of expenditure to continue into FY '27 as we remediate any remaining cladding and internal fire remediation works under the Building Safety Act.

These specific remediations are treated as adjusted items and are provisioned gross when the liability is recognized and can be reliably quantified. Further, we recognize insurance or third-party recoveries once they are confirmed, therefore, creating a net provision in adjusting items. We expect the adjusting items to reduce post FY '27 and for these claims to be resolved by the end of FY '28. The interest costs here are recognized under IFRS 16 relating to the exit of leased office space.

Turning now to free cash flow. Starting with adjusted EBITDA, which in HY '26 was GBP 101 million. Working capital outflow in the half was GBP 107 million, in line with HY '25, slightly lower in fact. As you'll know, we expect to see our usual working capital inflow in the second half with the higher activity levels of the spring and summer months, combining with government spending and budgeting cycles.

CapEx in the period amounted to GBP 24 million, with the majority of this relating to lease payments capitalized under IFRS 16. Net interest and tax paid were just slightly above the prior period, with the group continuing to utilize its significant long-term deferred tax asset. You may remember that the tax asset of GBP 130 million relates to past losses, allowing us to offset half of our tax charge in any given year, which we anticipate to take around 7 years to fully utilize. Altogether, this results in a free cash outflow of GBP 42 million, slightly improved on that of the prior year period in what, as we have said, is a seasonally disadvantaged half of the year.

Then taking this free cash flow to the net cash flow, net cash movement in the period. We started the period on the left at the end of June 2025 with GBP 104 million of cash. This free cash outflow of GBP 42 million then reduces our cash balance. The cash impact of the previously mentioned adjusting items equate to GBP 4 million as our insurance recoveries offset a lot of the cash fire and cladding costs in the period. We contributed GBP 3 million in the period to our smaller pension schemes, which remain in deficit, with the schemes we inherited through acquisition around 10 years ago.

The net cash bridge neatly shows a significant return to shareholders as well. GBP 23 million of dividends paid in the period and GBP 14 million of share buyback. We also purchased GBP 15 million of shares for the group's employee benefit trust for share-based employee incentives. This resulted in a net cash position of GBP 103 million, lower than at June 2025 due to the seasonal working capital outflow, but importantly, a significant increase over the last 12 months compared to GBP 58 million of cash at December '24.

The second half of the financial year has started well from a cash perspective, and we expect this uplift in cash position to roll into the full year net cash. So staying with cash, we consider the average net cash position to be a critical measure. It's been a key target for the business for several years, and I'm delighted to report that we achieved a milestone in this most recent period. We've always defined average net cash as the average month end position. The average net cash is therefore the average over the month ends in the half year. You can see here how over the last 4.5 years, we have steadily reduced average net debt and debt-like items by GBP 600 million, so that we now have GBP 70 million of net cash. It represents a significant mark for the group and provides an excellent foundation for our growth plans.

Looking now at our financing arrangements. This slide sets out the structures we have in place to provide flexibility and optionality as we pursue our growth strategy. Last October, we completed out the refinancing of our revolving credit facility with a new 3 year GBP 190 facility. This represented a GBP 40 million increase on the size of the previous facility, including an option to extend for 2 more years as we strengthen further our debt maturity profile. In October, our credit ratings are reviewed with S&P upgrading us to BB+ and Fitch upgraded our outlook from stable to positive, maintaining us BB+. This affords us the optionality as we review the financing requirements for the group.

Now to my final slide, I thought I'd remind everyone of our capital allocation framework and its clear priorities. Overall, we are focused on optimizing shareholder returns while maintaining a disciplined approach to capital allocation and an ever-strengthening balance sheet. In short, our capital requirements are minimal. We target dividend cover of around 3x earnings through the cycle. We plan to invest further in our property business to generate consistent returns over time, deploying up to GBP 225 million of capital and targeting a consistent long-term ROCE of 15%.

With regards to acquisitions, we will continue to consider value-accretive acquisitions in our core markets. And then lastly, having completed our first share buyback program of GBP 20 million in December, I'm pleased that we're now able to launch a new GBP 25 million buyback program. This, alongside the interim dividend demonstrates that our shareholders will continue to benefit from Kier's significant financial improvement as well as the renewed strength of the group's balance sheet.

And now I'll hand back to Stuart for the market update.

Okay. Thanks, Tom. What I'm going to do now is give you some insights into how the business is doing and provide the confidence in terms of us do long-term generation of cash to give Tom loads of options in terms of what he's going to do with the money. So many thanks, Tom.

Turning now to our operational update. It would be a good opportunity to reintroduce our divisions, particularly in light of the structural changes we have made and to give a sense of their size and scale and how that gives us confidence of our ability to continue to meet our medium-term targets. I will share an update on the breakdown of our order book and the considerable pipeline of opportunities beyond that. And I really want to highlight is our capabilities and to remind you of those. And the way we leverage them together across the group positions us strongly to benefit from the opportunities in front of us. We really do have a resilient order book, a healthy pipeline and a set of complementary strengths that continues to support delivery in our chosen sectors.

So let's start with the Infrastructure Services. Infrastructure Services has an order book of GBP 7.1 billion, which is up 6% and provides 92% of secured work for full year '26. The business continues to win work across its chosen sectors. The most recent examples include National Highways Legacy Concrete Framework that's over GBP 900 million, where we're 1 of 3. Project to upgrade Thames Water treatment works at Maple Lodge, that's GBP 280 million. In nuclear, we've also been awarded a 2 year extension on the Hinkley Point C.

We've made progress in aviation with an appointment to the British Airways Better Buildings framework. And if you look at the new graphs we provided on the right, which go to explain the gap between the GBP 150 billion framework position and the GBP 11.6 billion order book, you can see the scale of further opportunity. By the way, pipeline includes further material work even within preferred bidder stage and known tender opportunities. I've only included those that cover the next 2 years in terms of work opportunity winning. There is a clearer material pipeline emerging, particularly across water, defense and rail, which gives us real confidence as we move into the later stages of our HS2 delivery.

Importantly, our 750 strong in-house design team gives us a fully integrated design-led delivery model. It means we can engage early with customers and shape solutions around what they genuinely need. In addition, our infrastructure division is driving innovation, whether it's around how we manage environmental risks through sustainable drainage techniques or through digital innovations such as our QuikSTATS, which delivers high accuracy digital data at scale, lowering strike risk, delivering measurable efficiency gains across major programs.

Given the scale of the pipeline ahead and Kier's geographical footprint, we have robust strategic workforce plans in place to support us to pivot resources as required. Some of these capabilities are genuine differentiators for Kier and strengthen both the value we bring to customers and the quality of work we convert into the order book. But it doesn't stop there.

So moving to our Construction business. We have an order book of GBP 4.5 billion, which is up 5% and 96% is secured for full year '26. Construction's approach to building long-term relationships and its track record means we have good visibility of repeat business on key infrastructure frameworks and also within the private sector commercial sector. Recent wins include a place on the GBP 37 billion new hospital program 2.0 Alliance framework, a place on the DfE's new GBP 15 billion CF25 framework for schools, universities further in technical colleges to deliver high-value projects over GBP 12 million in the North and South of the country.

Now this is on top of the work we are delivering for the existing Department of Education or CF21 framework, including 8 schools within preconstruction agreements awarded in quarter 2 alone, and they are not yet reflected in our order book. Other notable wins include the construction of the flagship Government Property Agency Hub in Darlington worth GBP 85 million. You can see that there is a strong pipeline visibility ahead with opportunities to convert frameworks to projects in health, education and defense and of course, in the London private sector commercial market.

Also part of construction is Kier Places. Now this represents 15% of the '26 revenue. It's an annuity type business providing long-term FM, housing maintenance and specialist critical school works under GBP 10 million, often from existing frameworks and often from direct award. Kier Places also plays a central role in our 360 approach. A recent example is a way their operational footprint and proven delivery of the Heathrow Quieter Neighbourhood scheme directly strengthened our proposition and help secure the BA Better Buildings win in infrastructure. This demonstrates how our integrated model drives differentiated value for our customers.

Our construction capability is anchored in our national coverage and regional delivery model and the strength of our long-term supply chain partnerships with delivery projects from GBP 1 million to GBP 683 million, the strength of our dedicated clients and markets team and the access to call-off contracts under 2 stage or direct award. The construction offering is further strengthened by our in-house mechanical and electrical capability, which is supporting projects of circa 40% of the '26 revenue across all regions of the U.K. Using in-house capability allows us to self-deliver complex projects, reducing risk and removing reliance on Tier 1 external subcontractors. It also enables better engagement with customers, coordinated solutions, ensuring a smoother transition from construction to operation and our input to long-term building performance through our digital twinning capability.

Finally, our product capability is critical to outcomes-led solutions and ensuring satisfaction and repeat business from our customers. I would draw your attention to our Deyes High School in Liverpool. It's a great example of how we do this. By taking an outcomes-led approach and working in partnership with the customer, Kier has delivered 7 extra minutes of learning time per lesson. And we did this through the design of the school. It's also delivered energy-efficient performance well above target and has driven high levels of customer satisfaction. There is a video that is available on our website and it is well worth watching.

Property. Lastly, let's look at our Property business. Invest and develops commercial and residential sites, largely operating through public and private sector joint venture partnerships to deliver urban regeneration projects across the U.K. As you can see from the slide, property has a gross development value of GBP 3 billion. There has been considerable progress made across the portfolio as developments move through their cycles. For example, 60% of sites now have planning permission. 6 sites are in construction and 4 schemes that we are actively marketing for sale. There is considerable capability within the Property division, which drives future opportunity and create synergies with the other business divisions.

Kier Property has trusted public sector relationships built on delivering outcomes-led development and regeneration. It also has a deep understanding to what is needed in terms of responding to changing market needs in business and retail that leads to the efficient recycling of funds. An example is the growing need for net zero and energy-efficient office space, for example, our development 19 Cornwall Street in Birmingham.

Looking ahead, these long-standing relationships with public and private joint venture partners will leverage funding that can be turned into delivery. Kier Property is also critical to our 360 approach. The historical PFI and urban regeneration expertise will support Kier to influence the early-stage vision and structure long-term investment models set out in the 10 year infrastructure strategy that is moving toward blended finance and PPP type models, particularly in areas like community health care and environmental resilience and from which Kier could create predictable, durable revenue streams. The momentum we currently have and the future opportunities that exist supports our confidence in delivering our target of 15% ROCE by full year '28.

I thought it'd be worth just touching on some of the things that I've spoken about in the past. So I would like to just give a more of an explanation around our 360 approach. It's really cool. Simply put, it captures the breadth, depth and scale of Kier and enables us to leverage the group's capabilities across the whole fund, design, build and maintain project life cycle. It enables the most appropriate solutions to meet customer needs while meeting the environmental, social, digital requirements of national and local frameworks. This drives tangible customer benefits because due to the breadth of our national footprint, we can deploy capability consistently wherever it's needed.

We combine that breadth with real depth because we can fund, design, build and maintain. We solve customer needs end-to-end. We can offer customers choice of solution, what we call Choice Factory. That focuses on the flexibility needed to deliver true value for money and high-quality outcome-led solutions. One example is MMC. Now Kier doesn't own a manufacturing facility. That means we don't need to keep it full. Instead, we have a broad supply chain, and we can curate a choice of factory-based solutions. This has allowed us to select the optimum system for each project, improving value for money, managing risk and delivering with greater certainty.

Harnessing digital is also fundamental for improving customer experience. Digital processes and data-led approaches drive productivity, improving accuracy, program certainty and building performance, e.g. digital twin. And crucially, our work delivers more than just assets. We support customers to generate social and economical benefits such as creating jobs, training, supporting SMEs and creating greater equality. This all reinforces our position as a trusted industry partner, strengthens repeat business and enhances margin certainty.

I would also like to expand on the environmental and social benefits as environmental and social performance, they're not an add-on, they're integral to long-term value creation. They are both a key requirement for government contractors and a direct driver of employee engagement. The Kier recent highlights include achieving the first Carbon Disclosure Project A rating for climate disclosure, placing us in the top 4% of companies globally. First in sector in the FTSE Women Leader's review for women in senior leadership positions, strengthen our safety performance through Kier Cares, our new health and safety well-being strategy and through adopting predictive digital tools to help us prevent incidents even before they happen.

Average supplier payments down to 32 days, and we achieved 95% of payments within 60 days. We have 532 people engaged in apprenticeship programs, and we were included in the top 100 Apprenticeship Employers list. We are also signatories of the government's Youth Guarantee. For those who are financing within the room, I thank you for your patience of going through that slide.

Moving on to drive shareholder value. That all points to how we now continue to drive shareholder value. Before I come to our summary, I thought just to remind everyone of our medium-term financial targets, which are set out here. And actually, there's no reason to change these, they're still applicable today. So we target revenue growth above that of GDP, an adjusted operating margin of between 4% and 4.5% cash flow around circa 90% conversion of operating profit and an average net cash position, a sustainable dividend policy of circa 3x earnings cover through the cycle.

And then finally, in summary, the group delivered a strong first half, along with the significant achievement of average net cash for the first time in 13 years and revenue, profit and cash all continue to grow. Our order book stands at a record GBP 11.6 billion, and we have further excellent visibility of future performance. Significant increase in shareholder returns, we're able to announce the launch of a new larger GBP 25 million buyback program and a 30% increase in our interim dividend payment to shareholders.

Finally, in terms of outlook, building on our half year '26 performance, we have seen this momentum continue into the second half, and we are trading in line with Board expectations. Full year expectations remain unchanged. We are building and leveraging capabilities through 360 approach, which underpins a 4% to 4.5% margin target range. We are confident in our ability to pivot at scale and pile sustainable growth through delivering social and economical infrastructure that is vital to the U.K.

So with that, I'd like to open up the meeting to questions-and-answers. Questions from the room first, please, and then we'll take questions from the call. Thank you.

Rob Chantry at Berenberg. Just 3 questions. I suppose, firstly, for both of you. Could you just share your views on the optimal balance sheet structure medium-term for Kier, I guess, in the context of the potential bond refinancing this year, the recent cash generation, the move to an average net cash, just how you see that evolving on a 3- to 5-year view?

Secondly, just touch on building safety costs. I think it's fair to say that's a step-up versus where the guys thought it was a year ago. I think you're now talking GBP 30 million this year, GBP 30 million next year, a bit of a balance in '28. Can you talk a bit about what's driven that change and happy it goes no higher thereafter?

And I suppose, thirdly, really interesting going through the different structural dynamics of your market share. Could you just kind of highlight to us, I guess, where you think you're a genuine market leader in these markets and where you think there is a gap to the top and how you might think about if that's a gap you want to fill with potential M&A or more investment?

Do you want to take the first 2?

Yes, a couple of questions there. Can everyone hear me okay? So let's start with the balance sheet one. I guess, firstly, let's reflect on where we are. So we're at this average net cash positive position, which I think everyone is very pleased with. It's been an enormous journey to get there. And then if you reflect on our cash flow, here we have strong cash flow, and we expect that to build over time. We've obviously come out there and said, we'd like to continue with the share buyback. So we've continued the share buyback.

So the implication there is that if you look at our cash flow, we are kind of returning the dividend. We're doing the share buyback. That does mean we have spare cash. So that does mean it will build. So we expect the cash to build over time, and that's what we'd like it to do. So we would like to continue to build -- we'd like to continue to strengthen our balance sheet in the medium-term. So what I can't say is here's the cash number we're going to aim towards. We haven't got that. What I can say is that we want to keep it positive, and we would like to continue to strengthen the balance sheet. That's our plan.

And then the point on the bond, I think you kind of reflected on the bond quickly. So we've got a bond. It's at 9%. Kind of I alluded to it in the slides that there is optionality around that bond, and we will look to potentially go to market on that at the kind of end of the first quarter. So like in the next few weeks, let's see what happens. But ideally, we'd like to come to the market with the bond later on. So that's the bond side, the balance sheet.

So fire and cladding. So you saw there in the half year that we've got GBP 10 million adjusting item for fire and cladding. And I also said that we expect that to be around GBP 30 million for the full year. So your question then was, well, how you got comfortable with this? So what we've done is look through every project that's got any exposure on fire and cladding. And each one is bespoke. Everyone is unique, each one is discrete, and it all has different insurance recoverability against it as well.

So -- and we have to wait to see if the liability is going to crystallize. So we're going through each one to try and work out, is there a liability? Is it going to crystallize? And then those numbers that I've kind of alluded to are an estimate on how that liability could crystallize over time and an estimate on how we could get recoveries on insurance against them. So that's a kind of net estimate against that.

And the challenge, of course, is that you can't take it all today because you don't know the liability is going to crystallize and you don't know the scale of it. So that's the best we can do is estimate what that adjusting item is going to be this year and next year.

If I pick up in terms of the market and the sectors, it's a great question. Thank you. If you think about it in terms of Kier stalwarts, that still remains around education, highways and at the moment, MoJ work that's passing through. We are seeing through the slides I put up there, the growth opportunity through the pipeline in defense, the water contracts are starting to come through and working with the water companies in terms of their cycle of funding coming through. Certainly, a huge opportunity in health, particularly off the placement in terms of the new Alliance framework, but there's also other health spend that's going on with the trust that haven't been privileged enough to be one of the 11 hospitals. And we're seeing entry into the nuclear sector, which is a slow burn. It takes time, but we are there and positioned well.

In terms of areas in terms of future, rail is an area that I'd like to do more in. There's certainly going to be some spend. Certainly, when the money starts being diverted onto HS2, we're looking about where that's going to go. The London -- the views out here, the London private sector is starting to wake up. And we have a dedicated team in London that is delivering very well at the moment, and I see further opportunity there.

And finally, the Places business. I made a point today, I've actually explained a bit more around that business particularly being annuity and the opportunity we have through FM, housing maintenance and also the specialized work we do around small works. As I said, that's often work that's coming through existing frameworks or direct award. It's critical work to the client and often it leads to either repeat business within places or across the group.

Longer-term, I've often said around, I felt the opportunity was going to be there for PPP and urban regeneration. And what we're doing about it? Well, we're starting to have conversations. We had a conversation yesterday with NISTA and cabinet office and other CEOs around how the construction industry can feed into the models going forward to make sure that we learn the lessons, the good and bad of previous PFI. But I also look to, at the moment, I've got a Property business that has expertise from the previous PFIs. We certainly have the ability to draw on funding and with the relationships with the public sector. And we have a Places business that is already currently working on 22 contracts under PFI arrangements. So we have all the bases covered.

Jonny Coubrough from Deutsche Numis. Can I ask perhaps on the change in mix within Infrastructure Services and it looks like water is clearly expected to be a big growth area also defense. How do you view the contract terms in those markets and also potential margins relative to transportation?

The second question would just be on central costs and why they fell in the period. And then third question on Kier 360. Do you think there are opportunities to broaden that out across your markets in terms of increasing your activities at the front end of projects and improving margins there?

So if I take 1 and 3 and leave you on 2. Yes, I leave you 2. So the margin risk in terms of these new areas, we've used the word pivot quite a lot. So what we look for is work that is procured on a similar basis through framework that it plays into our strength of having the U.K. coverage, plays in our strength in terms of that we have the local presence that we can bring the environmental and social benefits. Generally, in terms of the frameworks, the risks are going to be proportionate to what we do elsewhere. And it really plays into then us bringing -- being able to bring in the other capabilities we have across the group.

So I see those very much in terms of being just same as just a different sector. And that's the strength of the model that we have going forward is that we have the visibility where spend is going to be. We start thinking about those sectors way before they come to market in terms of frameworks. It gives us time to think about the capabilities that we need to understand the customer needs. And we also have a model now that we can really look at our workforce in terms of how we move it around to suit these new streams of work.

If I touch on the last point in terms of Kier 360, the answer is actually both. If you think about it in terms of the infrastructure business, our 750 strong designers predominantly are based on the highways business in terms of transportation. Now by combining those 2 organizations together, I've opened up that ability to move it quicker into serving things like water and defense going forward.

Now if I look in terms of the construction capability around M&E design, again, I'm looking at 40% of the construction business. But there's no reason why I can't start looking in terms of how do we help that, particularly around the water sector to drive better efficiencies and confidence around that. So both internally and externally. The feedback we had from our one government day when we're talking about the departments about ability to bring, say, environmental understanding into any scheme because most schemes at the moment will have some form of water problem in terms of how they deal with the current water or how they make sure it goes away.

Or they're going to have issues in terms of how do they get power in and make sure the energy supply is there sufficient for them. They might be looking for funding solutions because they haven't quite got the funding. And they might need be talking about, well, how do we maintain these buildings in the future? Are you Kier interested in doing the future maintaining? If you're not, can you make sure that the base specification reflects your knowledge of operating these buildings elsewhere?

And if you want to put it all together, go and have a look at the Deyes High School. So an outcomes-led design. And you can only do that by bringing all these skills together, look at it in terms of how the building works in terms of energy efficiency, how you actually transfer children more effectively around and teachers around the school classrooms. And that's delivered, as I said before, 7 minutes improvement per lesson. That's [ Kier 360 ] in work.

Okay. On the corporation costs, I mean they're relatively flat year-on-year. I think there's a slight improvement. I think the only change is kind of -- I think it comes down to things such as what's the level of bonus accrual you put into the corporate costs, Jonny. I don't think it's much -- there's not much more than that. There hasn't been a deliberate cost drive in the corporate center to date. So it's not different from that. It's more kind of smaller assumptions driving it.

Andrew Nussey from Peel Hunt. A couple of questions. Useful disclosure around sort of the pipeline. I did observe that you've got defense sitting in both sectors. How do you sort of draw the line? And does that create some inefficiencies having it sort of sitting in both buckets?

And secondly, in construction, modular construction is becoming a feature of the industry and there was an implication of being the revenue sort of slightly lumpy. Is that going to be an ongoing feature as one would imagine your projects get bigger and more modular? And is there any impact on the cash flow from that shift?

Okay. I'm happy to say both, and you can then correct me in terms of the second one. Good spot on the defense. The distinction is one is nuclear defense and one is anything else that isn't nuclear defense. Nuclear defense has a particular requirement in terms of your capability, obviously. And it tends to be more large infrastructure complex schemes like Hinkley. So that's why we keep that within that side of the organization. We do, though, share knowledge between the 2 and the relationships and make sure that if there is any joint learning or joint sharing of design or joint sharing of M&E that we do the crossover. But that's the reason we do that.

In terms of the MMC, I think you have to remember in terms of the big impact there is in terms of the Glasgow, in terms of the size of it, in terms of timing. I personally don't see it as being -- having a lumpy impact on us. And our approach to MMC really has been embedded in the organization from what we've learned around MoJ in terms of the mill site. And we will continue working through it. Anything else you want to add?

No, I think as you said, it does suppress the revenue a little bit on one side versus the other. But what it does do is large construction, you can actually achieve bringing that cash in slightly earlier, if anything. So if anything, it's positive from a cash perspective. So you've got kind of large construction activities, then that can be advantageous for cash actually.

Adrian Kearsey, Panmure Liberum. Three questions, if I may. In terms of water, which kinds of projects have you got in the pipeline and which looking beyond the current AMP do you see sort of coming through? Kier Places 15% currently in terms of revenue of the division, where do you think that can go? And what kind of -- do you think you need to expand your capability within Kier Places in order to grow that? Or is it more about just winning more -- just more of the same kind of work?

And then the last one, frameworks, your position within frameworks is not equal across all of the participants within the framework. Which particular frameworks do you think you'll win a greater share?

Okay. Again, I'll do my best. Yes, I thought you'd say that. Water, I like the [ time ] there in terms of pipeline. So capital works, we went to the water treatment works. Some of us went to the water treatment works. We're seeing more of that, which is what Maple Lodge is. So more around the capital works. In terms of places, no, we have the capability. It's more of the same. I held back in terms of housing maintenance because that became quite awkward in terms of price per property programs that were in the last 5 or 7 years. But definitely, there is going to be a need to upgrade in terms of housing maintenance properties across the country.

And the FM, generally at the moment, we're staying within public sector. I'd like to see if that opens up more opportunities around, particularly around the PPP work going forward. Frameworks, are we equal? There are some that we are more equal than others. That is correct. But generally, the approach with any framework that we go on that we've discussed this morning, we try to have a position in 1 of 3. So if we can get a position in terms of 1 and 3, you have the real opportunity to influence in terms of the customer. You start being able to bring forward your views around outcomes-led design, and it often allows you to work very closely in terms of the alliancing work about what's going forward.

Generally, if you look in terms of longevity in the past, education and highways are a stalwart of what we've done. Alongside that, I took a trip down to Bridgewater to look at the environmental work we were doing. We do somewhere between GBP 50 million and GBP 100 million a year on that. Smaller organizations will be talking about it because it will be a larger proportion of their works. But some of the work we do that in terms of our understanding in terms of the environment and how we work with local communities to make sure that we manage water, wildlife, et cetera, is a real strength that we have. And I can see us leveraging that expertise across the other divisions.

Max Hayes from Cavendish. So first, looking at the in-house design consultancy, just looking at the potential to sell these services externally. And then also the improvements in net cash and average net cash balance, has that supported access to any certain frameworks and help develop the pipeline?

Okay. In terms of cash, no. But what it has done is reduce the number of questions we've had about net debt with some of the people in the room. But I do see it as a positive sign in terms of where we are. Generally, the turnaround has been accepted. We've closed that off in terms of the frameworks. What this does do, though, is draw people into, okay, Kier, PPP, okay? You get into a position in terms of having surplus cash at some point in the future. We will have conversations with you in terms of how should we be thinking about Kier in those conversations. So, positive.

In terms of design, at the moment, we have so much internal. It's a benefit to us. We like to keep it internal. The other benefit we have in terms of the internal model is that when we go to customers, if you like, our outcome is revenue for the other divisions. It's not time on the clock. It brings a different focus in terms of what our design capability do. So I wouldn't want them to move away from that focus and all the work they do for us, moving into an external place where quite often it's time on the clock. So for now, internal.

Okay. I think this is the last question.

Alastair Stewart from Progressive. A couple of questions. First, following on from Andrew. Defense, very small in terms of the current order book as a percentage, but very big in terms of both pipelines. Have you been getting a sense that, that pipeline is getting more urgent from your clients? And specifically, have you had any incoming calls in the last few months and more particularly -- more particular in the last few days that could move that forward. So that's question one.

And question two, GBP 197 million capital employed in property. Given the move to average net cash and the comments on PPP, do you see that GBP 225 million ceiling moving up in the mid-term?

Do you want to take that one?

Yes, I'll do the last one first. So let's start with the -- you can talk to the defense kind of point, your phone is booming this morning or not. On the property, I said GBP 197 million at the moment. And we were quite clear, we want to get to a 15% ROCE. So we kind of need to prove that. We need to prove it to this room. We need to prove it to ourselves. We need to show that this business can get up to that kind of sustainable return level. And we're confident we can get there, but we need to kind of prove that.

I think once we prove that, then you can look to invest further. And to what Stuart said earlier, that doesn't necessarily mean that it's the current kind of design model. It could be slightly pivoted model into other investment areas. It could be a PPP. It could be a specific focus on urban redevelopment. But that's what we're thinking about it. It's about how do we use our cash, let's get the returns, let's prove the returns of the business, and then let's move from there.

There's a subtlety that I'm looking for is to make sure it generates revenue across the divisions. So we can actually see it more as in terms of being integrated solution we have. Just going back to defense, I've got to start by saying it's most important that we -- at this time, we think about our people, the 9 employees we have -- employees that we have over in the Middle East. And also, we have -- many of our staff have friends and family of that region.

In terms of the urgency, it's been urgent for a while in terms of the need they have, whether it's in terms of providing the nuclear safe havens for submarines or warships, along with improving the living accommodation for -- under the SLA or in making sure that we've got proper safe havens for storage in terms across the country. So there has been an urgency for probably the last couple of years. But what I would say is that Kier saw this as an area of undoubtedly, there was going to be some spend that was going into it, that they were going to start changing their way in terms of the way they approach more to an alliance in way and procuring work through frameworks. So it's a reason why we -- and we needed something to continue the work that we created in terms of the MoJ and defense became a natural place to start moving our resources probably a couple of years ago to be ready for this growth.

Specifically, is that urgency getting more urgent?

No. Okay. I think we are done. So thank you very much for coming. Thanks for your time. And I'd love to share a coffee with you next door if you've got time. Thank you very much.

All right. Good morning to everyone who has joined the Kier call today, you are in the right place, and we'll give it just a moment for everyone to join and then we'll look to get underway.

Right. Well, I think everyone has now come through from the waiting room, so we'll get underway. So good morning, and welcome to the Kier Group call today following the half year results released on Tuesday last week.

My name is Robert Irvin, and I'll be hosting the call. And with me from Kier are Andrew Davies, CEO; Simon Kesterton, CFO; and Rory Elliott, Director of Corporate Development; Stuart Togwell, who's the CEO Designate is on his way, he's having technical moment, but he will be joining us shortly.

Before handing over to the team, some housekeeping points: There will be a brief overview first, and then we'll be taking questions after that. [Operator Instructions] You should all have the link to the presentation on the reminders. If you don't, please shout out, and we'll send it across, but it is on screen as well. I'd like to hand over to Andrew. The floor is yours.

Okay. Robert, thank you. Good morning, everyone. So Adam, if I could perhaps just start. We'll start with Slide 11, if you have the deck, we put on the screen, just to give you an overview of where we are with the government sort of policy on infrastructure and where we see the market and our access to that market.

So this slide has a couple of data points you may find useful. Firstly, the government has committed to GBP 725 billion infrastructure reinvestment program in the U.K., and it's issued a pipeline against that. Now that pipeline won't be definitive, it will always change, it may get delayed.

It's unlikely to be canceled in any material extent, but there will be changes to it. And indeed, you may have seen yesterday on the Northern Powerhouse, there's been a slight delay in publication of that by way of an example. And that's to be expected. But across the broad range of activities in government, we think this is a very positive activity because it's given real visibility so we can start to allocate resources as appropriate to that pipeline. More tellingly, they've also issued a 3-year spending commitment that underpins it. So the first 3 years is funded within that pipeline. But again, it's subject to those sort of potential delays, as I said, or recrafting of it, but that's good news in the spending review that the Chancellor did allocate that pipeline.

And it will all be delivered under the auspices of NISTA as well, which has now been brought in as part of Treasury, who was originally part of Darren Jones' role as Chief Secretary. He's obviously moved on, but he remains a treasury function that overseas next the sort of gatekeeper for infrastructure investing in treasury.

So the access to that funding is via frameworks. And as you see in the middle of this slide, there's GBP 156 billion addressable market, which we have access to. And that's the advertised framework positions, we've won positions on. And they cover a whole range of activities, you can see from health education, housing, water, roads. Not all of it obviously is government funded. The rail sectors, some of the nuclear sectors in the civil sector are all privately funded money as well.

So we've got a good range and breadth of framework accessibility to that pipeline, that GBP 725 billion pipeline. And the important point is, as I said, you do get ebbs and flows and delays in certain sectors and that will be compensated in other sectors. Hence, the position Kier has and the scale of Kier and the range of accessibility to markets via these frameworks gives us quite a buffer against any potential changes that may happen, and that's proven to be the case as perhaps we can touch on a little bit later in terms of our ability to meet our targets on a consistent basis over the last 4 years.

That pipeline then in the frameworks that drives the order book. The order book is made up of contracted income, mostly of those frameworks and also our probable income. So we define or Simon defines probable income as that income, where we're potentially going to win a contract because we're in a 2-stage negotiation with a client on a funded program on an exclusive basis. So almost certainly, it does go through and does become contracted income.

So it's quite a conservative figure that our order book. What we don't do is include factored framework positions. Some of our competitors do, we don't. So by way of example, on water, we've won positions on 17 frameworks, which we can touch on later, I think worth GBP 15 billion. We will only include the first year, 1.5 years, depending on the visibility of those opportunities within that order book, notwithstanding that we believe in AMP8, the water companies are accelerating their expenditure and that expenditure indeed will almost certainly go through to AMP9 as well. So it's quite a conservative position. We don't extrapolate forward any of the framework positions which we have. We just include contracted and as I said, probable income.

So we just, Adam, go on a slide, what does that give us in terms of coverage? This is the important factor. So we have 91% of coverage in FY '26 and we have 70% in FY '27. That's a very comfortable position, confident position, which we find ourselves in, and certainly for this financial year, I'll be very strong. So you do expect normal growth out of existing framework positions and other opportunities. And as you see in the 2 graphs at the bottom, our order book obviously secured out for 2 years, but underpinned for 5 years, really gives us a lot of confidence that we will have a good quality order book for 5 years, indeed, a very strong visibility of the pipeline up to 10 years as well. And that's what you'd expect to see in an infrastructure multiyear contracting company as well in a strong position which we're in.

So the market, I think, despite a lot of the sort of varying news you get out of government, et cetera, we think the market is very strong. I think the key point, as we say, is a point in our strategy. We do infrastructure that's vital to the U.K. So it's not discretionary or optional. So take defense. U.K. has a posture of deterrence, that deterrence is provided by the nuclear submarine program, that program requires a seismic dock, we're building those docks or converting those docks in Devonport by way of example. So it's nonnegotiable.

We believe housing, a lot of the housing, a lot of schools, a lot of the social infrastructure around sort of prisons and hospitals is also nonnegotiable. Indeed, much of that is already contracted. So as a matter of strategy, we have focused very much in areas which we think are vital. And then in the private sector, clearly, the water industry because of the environmental issues, public sentiment as well as an aging infrastructure and the need to sort of recapitalize and maintain it. We believe that's a very strong pipeline for us as well.

So if we go back to Slide 4, I think, please, Adam, and therefore, just take you through why we believe we can convert that very strong market position into good revenue, profit and most importantly, cash. This is the FY '25 highlights. So we did, as I said, have a record order book of GBP 11 billion, giving great visibility in FY '26 and beyond.

Good revenue growth, 3%. Profit levels ahead of the initial expectations. And indeed, we're beginning the year trading slightly ahead of the Board's expectations as well, which is positive. Now we've driven free cash flow out of our business last year of GBP 155 million, and that's allowed us to continue our strategy of deleveraging of the company, but also the balance sheet strength, which we now have from that cash conversion really is allowing us to have a disciplined capital allocations policy and that means increased shareholder returns.

So we've increased our proposed final dividend to 5.2p giving a total of 7.2p for the year. That's a 38% increase, but more tellingly, what it is, is we now achieved our 3x cover target, which we said we were aiming to get to. We've done GBP 10 million out of the GBP 20 million share buyback. We deployed beginning in January this year, and we've increased the property in -- sorry, the investment in property shade under GBP 200 million, which fundamentally recapitalize that business and puts the liquidity into it, which allows us to really sort of take advantage of the synergies it has with the rest of our business and also providing a pool of capital should we need it at a point in time.

And we're on track to deliver our 15% ROCE target by FY '28, maybe at the back end of FY '27 on a run rate basis. So we're pretty pleased with where property is at the moment.

And as Robert said, I will be stepping down on the 31st of October. I feel I've done my bit in Kier. I've had a fantastic time, and I have an outstanding team below me. And so Stuart will be taking over as CEO on the 1st of November. And obviously, Simon will continue as well.

So I think at that point, Robert, perhaps I'll open it up for questions.

Thank you, Andrew. I think we also now have Stuart on the line as well. So hopefully, you can hear us. Can we hear you, Stuart?

Good morning, everyone. And just picking up from what Andrew said, I'm incredibly proud to be taken on the role and really looking forward to being the next steward of this brilliant company.

In terms of saying about me, I've been in the industry now for over 39 years. The last 6, I've really enjoyed myself, I've been working closely with Andrew and Simon, in particular, ensuring that we brought in the risk management and discipline that has helped to transform the business and rest assured that we're not going to stop continue doing that stuff because it's really important that we have that control over the sectors that we work in, and we sign up to the contracts on the right terms and conditions.

The last 2 years, I've been the GMD of the Construction business and also being sat on the board with Andrew and Simon. So in terms of moving forward, very excited about the opportunity that Andrew has laid out in front of you this morning from the -- whether it's the GBP 725 billion opportunity in front of us, the fact that GBP 500 billion of that has been -- is now identified on the construction infrastructure pipeline and the positions that we have which are in all the right sectors and all the frameworks and very positive and confident alongside Andrew and Simon, about the future for Kier. And very happy to take and help take any questions from anyone now.

Thanks, Stuart. As mentioned, we'll now open for Q&A and repeat my earlier instructions on how to ask a question [Operator Instructions] And perhaps if we open with the first one, which is: the government is under pressure financially, what are the risks to the spending envelope that you're engaging with?

Well, it is under pressure. But I think as I said earlier, the strategy we've had really for 6 years now, have been very much about dealing with infrastructure that is vital to the U.K. in many ways, that's politically vital, socially vital or operationally vital.

So the prison programs has been fully funded pretty much. We're well through that. Stuart perhaps can touch that a little later. As I said in defense, there has been an increased commitment to defense because of the transatlantic relationship position. What has traditionally happened in defense is the equipment program sometimes has been funded at the expense of the estates program.

The equipment program now is going to benefit from that increased funding, which means the estates program will be protected. And indeed, much of the estates program was deemed in defense as sort of nonnegotiables and witnessed the issue on the deterrent and the need to build the docks at Devonport and all the facilities of Faslane to support the new boats coming into operation as well as then the single living accommodation programs which I think, again, defensive is to meet its recruiting targets is deemed again essential to do in which we've got major positions in the southern part of England and also at RAF Cranwell.

So I think then you move into the private sector, I mean, that is going to be ring-fenced by the water companies. in AMP8 and probably through to AMP9. And again, in Civil Defense, it's EDF, clearly are being regulated and invested in by the government, but that again is a settled position. So what you will see is occasionally, you will see deferrals, you'll see sort of elongations of programs in which we're seeing probably in Northern Powerhouse.

But again, the prudent nature of which Simon has always sort of driven the forecasting is the group is we don't assume that we're going to get all of these contracts on the time which they initially advertise them. And the portfolio effect of the group means that certain areas may be deferred or disinvested in other areas won't be. And overall, whilst we do take contingencies at the center at a group level, it generally covers off any such delays. So I think the combination of our strategy, our performance, our outstanding order book and visibility in the frameworks and then the prudent levels of assumptions we put into those orders and their translation into revenue means that we think we've got a very secure plan.

The final point I'd just say on HS2 is obviously has been topical. Again, the spending review has funded the main civils contractors through to completion. And we've been allocated because we're in the key area in the center of the trace, which on the critical path to getting rail systems in place and also, therefore, testing commissioning in place, which is politically important. So we've been fully funded, and we'll take that through to the next sort of couple of years.

And whilst that will come off in probably 3 years' time, the speed with which water is down mobilizing in particular, but also other transportation activities as a result of RIS3 and CP7 that being published, we're very confident in our growth trajectory of the group because of those, again, portfolio factors.

Super. And then there's another question on the order book. But perhaps if I could ask you first, because you talk to frameworks. So there's different levels of knowledge on the call. Could you expand on frameworks, please, what they are, how important they are and then also if they're funded as well?

I'm just looking -- I think we've lost Stuart again, unfortunately. I don't know if you are on, Stuart. I think we lost Stuart. So frameworks, they do differ. We're on -- I would say we're on all material frameworks we need to be on with very few exceptions. You can have national frameworks. So for the Department of Education, the education funding agency as was they will issue national frameworks. Ministry of Justice has issued national frameworks on alliance basis for the large prisons, for the medium block and small blocks, et cetera.

There's many different varieties of frameworks you can have. And generally, there are sort of 4, 5, maybe 6 years; 4, 5, 6, maybe even 10 contractors, it sort of depends on the framework issuer. But the essence of a framework is you pretty agree certain aspects of it before getting into then mini competitions and contracts. So much of the framework activity translates into these 2-stage negotiations I mentioned earlier. And once they down select you for that 2-stage negotiation, as I said, you will get into contract. But the point is, if you're not in the framework, you're not in it, you won't win it. It's as simple as that.

So again, on the frameworks, you have to then usually book pre-auth that sort of rate -- run rate, rate decks and pricing and assumes a prelims, they're all negotiated through the 2-stage negotiation. But you also have an emphasis now in government on procurement notices relating to the sort of qualitative aspects.

So it's not a question of anyone just being able to rock up on the framework and say, well, I'd like to be on your framework. They've got to demonstrate their payment profile to SMEs, they've got to demonstrate their carbon reduction credentials, they've got to demonstrate their capabilities in the area, they've got to demonstrate their community engagement and social engagement, they've got to be able to demonstrate how much training they do in the organization, et cetera, all the things which Kier for many, many years has been extremely strong at, and which we just continued or accelerated.

So those are qualitative factors, which are just as important as quantitative factors. And indeed, some frameworks, the entry point is not the lowest cost wins. It's actually a median point and the highest and the lowest tend to get eliminated. So they're very much designed to get the best quality contractor, which means the way we look at it, it's a good chilling bar, it's a high chilling bar, and we're very happy with that.

And if government wants to continue to increase these qualitative aspects, that's okay with us because we believe a contractor of Kier's quality is best able to support government in these types of activities. So frameworks are -- yes, and then the funded framework is a methodology for delivering a funded program, that's what it is, as simple as that.

So Andrew, I'm back again, I'm enjoying your explanation. If you go for the department frameworks, they're funded because they're back in terms of their 1-year or 3-year commitment. You have other frameworks which provide a route for public bodies to procure contractors through. They tend to be non-funded, but quite often, again, will restrict the competition and it goes through the same route in terms of pre-agreed, overhead and profit and allow quality of selection process.

And they tend to be regional type framework. So local authorities who may not have procurement expertise, can use the outsourced to these framework providers to provide work? And we have a mix of those. And our success rate on getting frameworks in particular, the construction business is around 98%. So we do see them as a lifeblood in providing that access to the addressable market that Andrew spoke about earlier.

Great. And there are a couple of other questions in this area, which is: Firstly, the GBP 11 billion order book is about 7% of the GBP 156 billion addressable market. How high could that wallet share go? What are the constraints, whether internal or customer (government)? And what's your desire to diversify partners?

Yes, a nice step. So 7% in terms of the market is a good position to be had. That's my first point, I'd say, it's an enviable position. Others might be around about 3% of the addressable market. It varies because you often find you get ebbs and flows in the particular sectors. So there'll be some sectors that we'll be running at the moment where we'll be over 10% of the addressable market. MOJ was one of them. But as you come to the end of the spend of the capital program, particularly in the MOJ in terms of the new prisons sales they've been producing, you then look in terms of where is the other sector that we need to go into. And that's one of the strengths that Kier has that we have referred to pivoting our human capital from markets that we can see that are coming to the end of the capital spend into areas that we see that are picking up.

So we've got 2 great examples recently. We foresaw that the highways were going to be a little bit sticky for a period of time as government just came back in and looked at the risk-free in terms of making sure they were satisfied in terms of the new risk-free coming out, which it now has. But during that period, we moved our human capital over to the water sector because we were encouraged to go into the regulated body. They wanted Tier 1 contractors to bring capability of running large capital programs rather than more usual sort of maintenance programs. And we moved over to that with a high level of success, as I'm sure we'll touch on later.

The other one in terms of the MOJ, we saw that the approach to framework alliance working and rolling out things at scale across the country was a really good fit in terms of where the defense sector in terms of DIO were going. So we pivoted very quickly into that sector to get ourselves into their frameworks in terms of [indiscernible] and the single living accommodation, and we see that as an ability to replace the MOJ work. So 7% is a good area of coverage that we've got, and then we then look to make sure that we harvest the sectors that we're in as hard as possible to have individual growth within those sectors, whilst others may be turned off during the period of government.

Great. And the next question is around revenue growth, which is considering the size of the addressable market. Are you disappointed with the level of year-on-year growth? And perhaps another question goes on to talk about is 3% to 4%, what we should expect in the future, but perhaps if you can talk about the medium-term plan as well, that would be helpful?

Yes. I mean we also talk about the fact that don't overtrade. So it is quite easy to win work in this market. You just go in incredibly cheap. But history tells you in terms of those sort of contractors and competitors that have done that. ISG was probably the more recent one there. There are some real challenges that if you look for growth too quickly because you can't just back it up with the skills and capability and the span of controls that you need.

So we are careful that we look to go into the sectors and then maximize our revenue through those chosen sectors that we have. Yes, we can see if the government meets its pledges in terms of spend coming through, we can see opportunity for us. And we certainly have got a mindset that we will be growing, not retracting in terms of where it is, and we're careful about areas where we don't believe the works that come through meet our approach to risk taking.

So at the moment, we're very careful around data centers because they're quite risky work, although there's a lot of spend that's coming through it. And we're also very careful around high-end residential, so in terms of the issues at the moment around planning, delays and also the Building Safety Act Gateway 2, which is really stagnating that marketplace. And we've held back from that until that's all been resolved because we need revenue from our people, which means we need projects to go rather than people sitting in their offices, doing pre-contraction work.

I think I'd just draw your attention to Slide 5 in terms of what Stuart has said and how Simon has sort of prudently managed everything here. If you just go to Slide 5, it's a track record. It's an important slide. There's a track record of consistent delivery. So you'll see, actually, over the last 5 years, we've had 5% compound annual growth rate, and some of that has been recovery.

There's been recovery in markets, as Stuart said, where we will make money as opposed to previously when we were on the 4 sort of -- here was GBP 4 billion. It was in probably GBP 1 billion of market that, lost considerable amounts of money. We've exited all those as part of the turnaround of the group.

But more telling if you look at all the other sort of statistics as to how we've managed this company. We have avoided the temptation to run after contracts. We've gone after quality on frameworks in our chosen markets with our chosen clients via frameworks with the high chinning bar. So you see adjusting operating profits increasing 12%, earnings per share 20%; free cash flow, 14% on average, and that's produced a monthly average month end net debt from GBP 582 million back in '21 down to frankly, nothing given where we're trading at the moment.

And we've invested, obviously, in shareholder returns quite rightly and in our property business as well. So we've got this business through cautious growth in sectors where we know we can make money and bring relevant skills and translated that into profit and most importantly, cash, which then returning benefits to the shareholders. So we're not going to chase market share, that's fool's paradise, that just will not happen.

And there are sectors where we have relevant skills, but where we don't foresee at the moment an opportunity to get into sort of the top 3 position in those markets. And so we're not going to play in those unless we feel we can get to those sort of positions because you're a follower otherwise.

Great. And then probably the last question in this area, which is do you have a feel for in the order book what percentage is nongovernment funded and which -- and how much is directly government related?

So what is it -- is 70%, is it same, Simon, government or is the...

Yes. I mean usually, we're roughly about 70% government, 15% regulated. Obviously, that's 85%, and then the rest is private.

Yes. And that private then will include, don't forget, things like Sizewell and Hinkley in the civil nuclear side. Our private exposure to the development market is really just through our London construction business and certain elements of the other construction business, but that's tightly controlled by Stuart. We have a very clear strategy that will only pursue blue-chip operators with long-term pipeline aspirations and through 2-stage negotiations.

Great. And the next question is on HS2, but perhaps I round it out a little bit, and you touched on it earlier. Can you just remind us of where you sit on HS2, the runway on that project? And then also whether where you're exposed on the southern end towards Houston?

Well, not is the answer towards Eastern. We have no exposure down there. That's SCS, which is a consortium of Skanska, Costain and STRABAG. So we have no exposure down there at all.

We built north of -- or south of Southern, which is a strange way of saying it, and North of -- help me here guys, what's against you? No. Where does the tunnel come out on the North portal. Where's Mark [indiscernible] -- he's on the call, he'll tell you. So look, we've got 32 kilometers roughly of this. It is, as I said, it transcends east-west line at Calvert. That's where they'll start to build out the rail systems. That's where they'll start to do the test regime once rail systems and people have sort of delivered that.

And the funding, as I said, has been cleared through for the main work civils contracts now. So we anticipate and indeed, we're enjoying a run rate, which supports the program through the next 2, probably 3 years' time before we complete that. We don't see that changing. I think there will be a renegotiation with government. They've talked about reset. We've willingly offered to sit down and talk to them about how we can get a degree more certainty in their program, take some cost out, do things cheaper and better. That's absolutely normal. That's what we do.

And we've offered that to the previous government. We offer that to the existing government. And I suspect we will get into a discussion over the next sort of 12 months or so as to how we can do that. And that's nothing to be afraid of because they've been very clear with us that if there is a degree more certainty and fixation of costs in the program, there will be an increase in incentives to deliver that. That's in everyone's interest. So on HS2, we're feeling okay.

This old oak comment, Andrew.

Yes. We don't start there, though, Stuart. We start well north -- it's the North portal. I just can't remember the name.

Moving on to nuclear. Can you talk about your involvement in the nuclear space overall? And then also any involvement in Sizewell C?

So 2 sides to nuclear. One is defense, one is civil, starting with the defense stuff I said, we are -- our infrastructure and Natural Resources business is down in Devonport in JV with BAM. We're building out the nuclear dock for the next generation of submarines. That program is going well. Down there, it's probably got another 3 or 4 years to go, and then there'll be further work surrounding that as well. We also are an ECI contract with AWE, building a new facility for the next generation of weapon system to go on that submarine. On the quasi nuclear side, we've been very successful in Sellafield, building out a medium-term storage facility. All of those are strong nuclear credentials. They're all involving nuclear capable build techniques and strategies. So it really is there if you want to participate in those programs, you're going to have suitably qualified experienced people on those types of programs.

On the civil nuclear program, which is Hinkley and Sizewell, Hinkley, we've been in partnership with BAM. Sizewell, they want us to join in our own capacity. We're bidding on Sizewell, and we've delivered probably over GBP 1 billion worth of work on Hinkley. So again, we're not involved in the nuclear island. That's led by the French EDF design and then Bouygues build. That's entirely to be expected. That's the same consortium that builds these facilities in France, but we're heavily involved in all the ancillary infrastructure, which runs into many, many tens of billions of pounds. So we're starting out Sizewell, and we're well through on Hinkley.

I think the other bit to add, Andrew, on nuclear is it slow?

Yes.

But what we are seeing is anything that's linked in terms of defense nuclear will go ahead of it. And that's what we're seeing in terms of Devonport in terms of Clyde, AWE.

Yes. The deterrent program is protected.

Super. And then perhaps if we move on to water. Can you talk about the outlook in water? Where your exposures are across the -- across different AMP cycles?

Yes. If you just go to -- there's a slide, let's take a quick look, Slide #21, that's the one. Just someone has very kindly said it's great missing to Southern. That's our HS2 track. Thank you, Andrew [indiscernible].

So if you look at Slide 21, this is our water exposures. We've obviously bid as part of the AMP8 rebid like everyone else did. We had preexisting relationships with Anglian, in particular in Southwest Water, where we did a lot of integrated maintenance with them. To a degree, we're indivisible from their teams in an alliance structure and their long-standing relationships. But the AMP8 is really recapitalizing the infrastructure as well. And so we've been heavily engaged by the water companies in their frameworks for new CapEx. So the new clients we've got and on positions with United Utilities, Wessex Water and Southern Water.

Now we've won, as you say, one positions of sort of circa GBP 15 billion in total on 17 frameworks in varying capacities. But we've also reenergized frameworks with Severn Trent in particular, where a couple of years ago, we were doing sort of single-digit millions of pounds worth of work and now we're probably moving to an excess of GBP 100 million, including the recently announced Wanlip recapitalization in Leicester GBP 140 million project. So it gives you an indication of what the water companies are now committed to.

Thames obviously have their own particular issues. But again, our relationship with Thames is quite intense. It goes all up to CEO level. I regularly talk to Chris Weston. Stuart will take on that relationship. Simon is getting engaged with their financial people to make sure that we have appropriate terms given their circumstances at the moment, but they have probably the biggest program of all of these water companies.

So what they've been doing is they've been moving towards Tier 1 contractors and Kier has positioned itself very carefully to be at the front of that team very successfully as well. So we anticipate, given that the AMP8 revenues are double AMP7, there's no reason our revenues in water won't double commensurate with that. And we also anticipate that AMP8 will go into AMP9. These are long-term programs. They're talking about multiyear programs. So we think it will be maintained protection. This is a 10-year recapitalization program. So we had a very strong position in water, and we're mobilizing well.

Super. You touched on Thames but there is a very specific question around does exposure to Thames create a risk for the group and how are you managing that?

I mean, Simon you can add to this, but you have a risk when you talk to everybody, and we always carry some WIP. In any contract, you will, you can't get paid on an early basis in that sort of sense. So you agree, but the management of it is very tightly controlled. I don't know if you want to add anything, Simon to that.

Yes. I think, Andrew, you're right -- and we're typically depending on what part of the month during it's GBP 3 million to GBP 5 million. So it really is in a box, and we've been clear, I think, to Thames that we're happy to grow alongside them, but we're not happy to grow that exposure until they've sorted out their balance sheet issues and they understand that.

And the other point is that in terms of any decisions about new work comes to the 3 of us to sign off. So we've got tight control over the business as well.

That's very clear. And then perhaps this is a good place to put there's a question on labor here and obviously a lot of growth coming through water. So operationally, how much of a challenge is it to find appropriately experienced labor?

So I think Kier has always been a very strong culture of training people that predates my own tenure here, and I hope it post-dates as well. So we've got circa 600 people in apprenticeships at any point in time. I mean I personally sponsored the senior leader courses as well in the group where we train up our next generation of senior leaders and potentially even ExCo members as well. And we've got over 10% people in sort of earn-as-you-learn schemes. This is just fantastic, and we're generally regarded the benchmark is 5%. So we are a platinum standard in these things. We really are. So self-help on resourcing begins at home. That's our attitude to it. And we take full benefit then of the apprentice levies, CITB levies, et cetera.

We make sure we maximize our returns, and those levies we're required to pay. So I think pretty exemplary, and again, I'm not going to particularly claim credit for this, but I'll claim credit for continuing it. But I think Kier has always had that reputation as a good employer of people. We also look after our people well and the culture surveys, which we do given 80% positive engagement in our engagement indexes, that's a fantastic performance right the way across the group.

We look after our supply chain very well. They obviously rock up 25,000 people circa a day. And they come to us for a variety of reasons, one of which is our attitude to their welfare, their safety, their health and their welfare conditions on sites, et cetera, et cetera.

So all these things add up to enabling us to mobilize contracts pretty effectively. And also our geographic disposition means that we're not focused in 1 single area or the maybe shortages. The fact that we have national coverage, in particular in construction, means that whilst we may have national frameworks, we operate locally. So we think nationally, where we operate locally. And that means that if you've got a strong pipeline, you advertise that strong pipeline and you do all the things I said you do, you pay supply chain, you train your people, you look after you, it means you get good access to the premier labor markets in any particular area.

So we're not immune from any resource constraints, but I say I would argue that we manage it as well as anybody and indeed, it's always there as a risk, but I would not -- sometimes you listen to other industry parties and we don't experience it. We just don't.

No. I'll just add 2 other points. One, the ability for us to pivot our human capital across the sectors. And finally, we don't overtrade. So we are very confident we have the skills and capability and the relationships, as Andrew set out, to deliver the GBP 11 billion order book. And that's another reason why we don't just win any work at any cost because we're very constant in terms of we need to make sure that we've got the backup skills and the capability to do it.

The other bit that we have that we haven't really touched on yet is our in-house design capability. So that we've got 700 designers. Andrew, I don't know if you picked up the point that we have now sort of 23rd largest consultant in the country in terms of design house. That allows us to derisk these projects so that we can be very efficient with the use of resources on the job, which definitely helps us.

Great. And then we've got a few questions here on property, but perhaps if we start with a wider one. Can you talk about the approach to property, please? How does it fit in the group? What are the aspirations and how long will it take to get there?

Simon, do you want to take that one?

Yes, absolutely. So property are very synergistic with the group. So I'll just explain the business model a little bit. And there's some really good documentation from our Capital Markets Day that we did a few months ago, so people want to go through that, that's got some real life examples in it.

So property, we focused on 3 sectors: we look at mixed-use urban regeneration that we do in partnerships with our existing customers and existing clients and our other businesses. We look at last mile logistics, and we look at environmental offices. So the 3 sectors that we focus on, so we don't bundle risks.

It's not a traditional property development model. So we typically only deploy small amounts of capital per project in order to keep the portfolio very liquid. So you shouldn't think about large, lumpy investments. You should think a bit on average between GBP 4 million, GBP 6 million investments in between 30 or 50 projects ready to running at any one moment in time.

The model is -- it's a 3-year model really. We don't hold assets. So we will get control of the land, and I'll explain a little bit more about that in a minute. We will then change of use, get planning permission, build out, find tenants and then sell the property, and that's typically where we take the revenue and the profit of the project.

In terms of gaining access to land, this is where the synergistic model comes in. So we -- commercially, we're working in joint venture predominantly with the customers in other businesses. So local authorities that want to redevelop a town center as an example, the department for transport network rail, where they want to free up space and regenerate a train station will be a good example, and they want to fund that and they can fund that by using the land we build a car park. We put some residential properties on it, so they get a benefit like that.

So they will put the land in, and we don't pay for the land until the project makes a certain return. So it's a very capital-light model. And of course, they look that. So great commercial synergies. Operational synergies are clear there. If you're redeveloping a town center, redeveloping a train station, we obviously -- a road might be part of that project, a building might be part of that project. We're working on the rail. So of course, we can bring our design, our operational capabilities to either self-deliver or keep a delivery partner honest.

And then finally, there's a financial synergy. So our contracting businesses typically will get paid in 15 days by the customer and we'll pay our supply chain in just over 30 days. So we get as we grow a working capital inflow. And on a project-by-project basis, that working capital inflow is going to flow out again at the end of the project, cash and profit equal the same number. But if you continually grow, you obviously continue to get this working capital inflow, which you have seen from our cash flow statement. So we can take that capital, which is effectively free capital. We deploy it into our property business, [indiscernible] that enhance returns. And then if you should shrink at any moment in time, you can extract some of that capital and use it to satisfy any working capital outflow.

In terms of numbers, which I think is also part of the question, we've just come through a period where we were capital constrained. So that took the capital employed in the business down to GBP 122 million. And that meant for 5 years, as we'd effectively sold 8 projects and acquired just 2 on average per year. So the portfolio was too small. So it wasn't liquid enough to generate 15% return every single year on a consistent basis.

So we said we've got to recapitalize this business. We need GBP 170 million to have enough projects to consistently deliver 15% return on capital employed. And we want to allocate another GBP 55 million, so going up to GBP 225 million. So we can extract some capital should we ever shrink in any one period going forward.

We're currently at GBP 198 million capital employed. So we've done most of the work from getting from that low point of GBP 122 million to GBP 198 million is behind us. You saw last year, we made GBP 12 million operating profit. So clearly, that's not 15% return on capital of GBP 200 million. So over the next couple of years, this is going to be a great driver to profit growth, and we anticipate exiting FY '27 at that 15% return on capital employed. So we'll see that coming through in 2028.

The other point for the future, Simon, is that we have previous experience of PFI funding and contractual experience that sits in that property division. So at some point, I can see that the government is going to have to come up with a solution in terms of how it's going to fund its aspirations. So we're particularly well set that we have that capability in-house. We do have access to either own funding or external funding we can bring in. And of course, we then have the ability to build and maintain anything that could come through that opportunity. So it gives us another potential revenue stream in the future.

Great. And then there's 3 questions around different sites, perhaps or different aspects of the business. And the first one is, could you talk about the development JV to intensify the uses around railway stations, please?

Go Simon.

Okay. Yes. I mean yes, fantastic JV with Network Rail is called Solum. And yes, so a good example would be Twickenham Railway Station, where effectively we've built a multistory car park. And so you don't need so much parking. We've done a tender in residential and those residential apartments have effectively paid for a brand-new station. And that's a typical model. I think Network Rail and of course, that Department of Transport would want to follow. They've got lots and lots of land that's there. And of course, there's targets in terms of house building as well. Stuart, did you want to add something?

I'd say in terms of Solum's delivered over 1,200 units to date, and Network Rail is setting up an in-house development company called Platform 4 which is an aspiration to build out 40,000 new homes over the next 10 years. So as Simon said, quite often, these are complicated sites with adjacencies, and that's where our civil engineering capability really helps them to unlock the value of these areas around either stations or just adjacent to tracks.

Great. And then the next question is, can you talk about the Watford scheme a little bit, please?

Yes. So Watford is a great scheme. Again, this is in our Capital Markets Day, actually it was nice to be able to detail that project in. This is a huge area of redeveloping part of sort of Watford Town Center. It's an old people's home, a car park, a road as part of it, potentially some work on the hospital and a lot of residential units as well.

Now that's that, and it was in total over GBP 500 million gross development value. Now you would think there's a huge amount of capital that you have to put into that. But if you actually look at how we do it and we build it out in stages, with the maximum capital we ever deployed into that was GBP 12.5 million. On average, it was GBP 6 million and the IRR we've made so far across that project is 25%.

Yes. And just the other bit on that, Simon, is that because we're not just a housebuilder when we have schemes like the JV we have with Watford, we can help them also if they need care home, hospitals, commercial units, industrial units. So we can give them the full spectrum of assets they're looking for, which is why quite often they prefer working with us rather than the traditional housebuilder.

Yes. And the other thing, I mean, it's a great example, Stuart, as well there. Jarvis Homes actually went bankrupt in the middle of us building out the residential properties. And our construction business stepped in and continued that build, any other property developer would have been completely stuck.

Yes.

Great. And then the last, specific one is, do you still own Tempsford and are you involved in plans for the new town there?

We do. And no doubt, we will be.

Excellent. And then last one I have on property is in the property business, how are you finding the market to sell completed assets into at the moment?

Yes, great question. It's been a bit of a sticky market for a long time, to be honest. I guess we're kind of -- we're used to it. But having said that, because of our model, I mean, I think we've got pretty good visibility. So if you noticed, last financial year, there was quite a material step up to the number of transactions in the prior year.

So while it's not the best market, that's not giving us any concerns about our objective about getting to 15% return on capital employed by FY '28. And I'd say that sticky market. I mean, we've been buying. So we've been buyers during that market, recapitalize it. So we'd probably rode the cycle very well.

And Simon, just to give them some foresight, the work we've got, how much has got planning approval at the moment?

Yes. So we've got GBP 3 billion gross development value unbelievably with access to that and of that, 60% has got planning commission already. And I think in 18 months, we'll have about 80% of planning permission. So yes, we are in really good shape to deploy that capital at the best moment in time on the right projects.

Great. There's a number of financial questions coming up, but perhaps last one that will be useful just now is -- to what extent are you adopting AI? And will AI application provide material contribution to margins above 4%?

Yes. Another great question. We're using it a reasonable amount already. So we use it in the back office. We've got robots that do automated processing. I don't think we're using it that extensively on the sort of front of house at the moment, which is where perhaps the biggest opportunities are and you would expect a reasonable amount of cost to come out of that. Obviously, it can be used in design, it could be applied to how you actually build out the project where you're building it.

The computer is building for you and managing your logistics for the material flow. We've got health and safety and bottlenecks. So eventually, you'll probably have Tesla robots helping you build it. So there's a massive opportunity going forward with sort of AI and data development. However, in terms of increasing your margin, I expect others will be able to adopt that. We're not -- we haven't got any intellectual property, no doubt in that IP, in that sort of AI IP. We're not Microsoft. We're not ChatGPT, unfortunately.

So it's going to be probably quite difficult but that will meaningfully increase your margins compared to competition. And of course, they will adopt it as well. Having said that, if you can stay one step ahead, maybe just create a small tailwind to the margin as we go forward.

Then the next question is tremendous progress on the balance sheet. Looking forward, what feels like the optimal level of cash to carry?

Yes. If you look -- I mean, Andrew looks at Slide 12, and that's trying to give a big strong message really. We've got 90% of this year's revenue covered and approximately 15% of revenue doesn't touch the order book. So in effect we've got poor visibility on this year and 70% on the next year. And then the frameworks show us the size of our addressable market. So you can see whether that market is increasing or decreasing over the next 5 years. So that means the working capital outflow is very unlikely over the next 5 years. Obviously we're getting to that GBP 225 million and that GBP 225 million in property means you can extract a reasonable amount of money and still deliver 15% return on capital employed.

So really, we think plus/minus zero is absolutely perfect. You've got capital that you've deployed into property that you could extract. And you've also got -- we've got GBP 0.25 billion, so GBP 250 million bond and the bond market is very happy with us. So probably a little bit too happy, which gives us potentially another opportunity. And we've got a very supportive bank that's given us a GBP 150 million revolving credit facility. So we've got lots of liquidity. We've got assets on the balance sheet where we can extract capital if needed. So we're not going to have to need to put hundreds of millions of pounds of cash on the balance sheet as some of our peers do.

If you look at the peers, most of them are different. One of them needs -- has got about GBP 600 million of sort of like cash, which they can't pull so they need to fund that. Another big competitor would have a fit-out business where you've only got 5 months visibility. That's probably half of their business. And then other competitors would be too small to really access the debt capital markets in a meaningful way. The GBP 250 million sterling bond is probably the minimum you need to access that market efficiently.

Great. And then there are a couple of questions effectively around capital allocation. So I don't know if perhaps you can talk about your capital allocation framework and in particular, around the shareholder returns and how you think about the balance of dividends versus buybacks in the first instance?

Yes. So capital allocation is on Slide 17. If people have got access to the deck. Our CapEx is always #1 in the list, but it's a very CapEx-light business model, our business model. Most of the CapEx goes on what we're talking about, just like AI, data, digital solutions that we can help provide solutions to the client in a more efficient and effective way.

You've then got our dividend. Andrew touched on it earlier. We've increased that this year. So we're at our targeted cover of 3x through the cycle. So that's great to tick that box. And 3x is still very cautious. So I expect as we look at our capital light allocation policy going forward, we continue to generate cash. It continues to evolve. There will no doubt be downward pressure on that cover number. And the higher your share price is rated, the more that I think that pressure will come through. Then you've got property. We've talked about that. It's a core part of the business model, and it's really related to your contracting businesses.

So if your contracting businesses grow, then you're probably going to allocate a little bit more capital to your property business because there's more of a risk that you could shrink and have a working capital outflow. Then you've got M&A. It's not a core part of the strategy. We don't need to do M&A to deliver on our strategy, but we'll be opportunistic with bolt-ons as we were with Buckingham, which was a great success, recent success. So very well integrated and proved out that our teams to negotiate diligence and integrate what albeit a small acquisition value, GBP 9 million was actually quite a reasonable sized business, GBP 150 million turnover.

And then finally, we started share buybacks in January. So we've got GBP 20 million away there. We're about halfway through that share buyback, GBP 10 million left to complete. We're aiming to complete that by the end of December. And then clearly, as we're continuing to generate cash, if there's no sort of bolt-on opportunities, we've done most of the investment in property. I think there is the opportunity there for a further buyback. But clearly, we've rerated and the ratings increased, then you're looking at well, further buybacks or is there more pressure on the dividend and increasing the dividend by reducing that cover, which is very cautious.

Great. And another question on buybacks, which is why are the shares purchased through the buyback program being held in treasury as opposed to being canceled?

I mean it's -- we -- obviously, if you're going to grow and you need to issue shares, it'd be pointless canceling them and issuing them. So it's just a very efficient way of storing them. And also, we do issue share -- well, we do need shares for share save, and share buybacks and it doesn't necessarily match evenly. It's very difficult to balance your buying on the exact same day because of rules at the time you need those shares. So it just gives you that flexibility to move the share count up and down a little bit. That's all. But in terms of your earnings per share, shares in treasury do come off your weighted average share count. So that's important to realize. It doesn't impact your EPS.

Exactly.

Right. And then a couple of questions here, which I'll push together, which is, can you talk about the benefits the Board attaches to being a public company? And if the company were private, how do you think the government would view that as opposed to being a public company?

Well, it gives you access to capital markets, which has been fairly crucial in delivering our strategy, point one. And point two, the government says entirely negative.

Very clear. And then the last question, I think we're going to have time for -- before we wrap up, which is the year started slightly ahead. Where have you seen the positive surprises at?

Yes. So I think the positive surprises, Robert. If you look at property for one, I don't think the market listened to us or believed us necessarily. So obviously, you can see in our results that we presented that confidence coming through in the actual result. And we can see that this year should build further on that. So firstly, property and then how the water growth is coming through. So that water sort of Severn Trent is a perfect example. If you go back 18 months, we were running at less single-digit millions turnover per annum with that client, and we're now running at a run rate of about GBP 100 million per annum. So to deliver that kind of growth and mobilize that and do it so well, that's giving us quite a lot of confidence too.

Super. Well, that concludes the Q&A. I don't know if I can hand back to for any concluding remarks before we wrap up.

Thank you, Robert. And thank you, everyone, for coming on and being so supportive over these last few years of our strategy. It's hugely appreciated. And it's good to see now the value really is beginning to come through in the shares. But what we've delivered over the last 4, 5 years is that consistent performance when you put that performance and operational performance together with what we see is a strong market positions that Kier has with its government and regulated and private sector, we see that opportunity to continue in the future as well.

And the management team is strong in this company. We spend a lot of time and energy making sure that we do have a good pipeline of management. And I'm delighted that we're handing over the company in good shape to Stuart to be CEO; and Simon continuing in his role as CFO as well. So those are really the concluding headlines. But again, once again, to thank you all for your support over the years.

Super. There was 1 technical question we didn't answer. We haven't noted that, and we'll come back to you directly on that. But otherwise, thank you to the team. Thanks to everyone who attended and for your questions. There is a short questionnaire as you exit the call, and we really appreciate it if you were able to take the time to fill that in. And the last thing to say is [ David Dairy ] which is -- there is a provisional date for trading update on the 13th of November, along with the AGM. That concludes the call today. Thanks very much.

Thank you.

Thank you, all.

Thank you.

Good morning, and welcome to Kier Group Full Year 2025 Bondholder Call.

The Group CEO, Andrew Davies; and CFO, Simon Kesterton, will share some brief opening remarks on the group's performance before giving the bondholders the opportunity to ask any questions. [Operator Instructions]

Please, Andrew and Simon, go ahead.

Okay. Good morning, everyone. Perhaps we could just find out who's online, first. We know we've got people to talk to.

Yes. I believe that we've got HSBC and S&P and a couple of our internal colleagues at the moment. I don't think we've got any of the investors on currently.

Right. So...

I think -- as S&P have dialed in, I think you should give them an intro on how you feel the numbers have gone down.

Perfect. Okay. Good morning, everyone then. So I think you've got the pack, which we distributed, and we should have online, which we're using the results presentation and therefore, with all the debt and equity calls.

The page I suggest we start at is Page 11, if you could go to in your pack, which is headlined Our Access to U.K. Infrastructure via Frameworks. That is sort of summarizes what we see in the market at the moment with the opportunity that Kier has. So the government has announced a pipeline of GBP 725 billion worth of investment it would like to make in Infrastructure in the U.K. over 10 years. And it set itself up organization with organizations like NISTA based in treasury to monitor, to approve that investment. It's also underpinned that investment with a 3-year spending commitment, which they settled as part of the spending review in June 2025. And that's important because that gives us a high degree of confidence for certainly the next 3 years, if not for 10 years, in the scope of the opportunity we've got ahead of us.

So the question then comes is, how do you access that pipeline of work? And if you go down the slide, you see that the addressable market, which we estimate is about GBP 156 billion, and that's made up of the framework positions we've got in the sectors we've outlined there like health, education, affordable housing, defense, et cetera, et cetera. And so that GBP 156 billion is the value -- the advertised value of the frameworks, which Kier has positions on. And the frameworks can be anything from 5 to 10 years. They can have anywhere sort of 5 to sort of 10 people or entities on them as well. But clearly, you're not going to access all GBP 156 billion. But the point here is the framework the [indiscernible] to get access to that GBP 725 billion opportunity. If you're not on the framework, invariably, you simply cannot bid for those contracts within that pipeline.

The Kier got an extremely strong position in frameworks, and that really our hopper, which then feeds our order book. Our order book of GBP 11 billion is made up of contracted income and also income, which we deem probable and that's really positioned where we're in a 2-stage negotiation with the client on an exclusive basis for a funded contract. And really what you're doing there is you're allocating risks, getting pricing right, the terms and conditions right, getting a program, fitness, et cetera. It's [indiscernible] always end up in a contract. It's very rare, they don't. So Simon and the finance team have very high degrees of confidence that, that GBP 11 billion order book is absolutely real and is fed by the GBP 156 billion addressable market and framework position we have.

So the point we're saying there is that we got very strong visibility of our future revenues. And if you just turn the page to Page 12, what this really says that translates into 91% coverage of our FY '26 revenues and 70% for FY '27. And of course, if you look at the graph below, the reality is whilst we did burn through the 91% to 70%, it's underpinned by those framework positions. So we're very confident in our revenue forecast that sort of certainly 5 years and indeed, the government's commitment through 10 years.

So question we always put is, so how is government going to report this? And that's a very valid question, and we think they will have to embrace private finance in many ways. But let's not forget some of our frameworks, of course, with water companies or energy companies, which are privately funded. So they're out with government finances. And we have very, very high degree of confidence because given the state of the water industry, infrastructure and the environmental and social pressures on them as well as the regulatory pressures that money will get spent, and we'll probably touch on that a little bit later. So I think the outlook, the hopper, the framework positions of the order book give us a very high degree of confidence in the visibility of future -- the medium-term future revenues.

If we then just go back, and this is where it gets probably more relevant and interesting, the highlights on Page 4. We're turning that record order book of GBP 11 billion visibility giving us into good growth. And we're turning that revenue into profit, I believe, in cash. So our free cash flow in the last year was GBP 155 million, slightly less than the prior year. But that prior year, we had very strong working capital inflows due to the recovery in revenues, which we've had over the last 2 years. So GBP 155 million is back on where we wanted to be, an excellent performance and ahead of our conversion in our long-term target.

And that's giving us options in how to allocate our capital to some of those options, and we've elected to increase our dividend, final dividend of 5.2, which means a 7.2 annual dividend. That's a 38% increase. But more tellingly, we've met our target of a 3x cover on dividend. We're halfway through our GBP 20 million buyback. And we've invested our investment in Property, now GBP 200 million, which when that matures that investment will go to 15% ROCE by probably the back end of FY '27, certainly by FY '28 as well.

And why are we confident? Well, on Page 5, this is the track record of delivery we've had, really consistent delivery for the last 5 years. You can see all of the graph going consistently in the right direction and probably telling you one on the bottom right, the average month-end net debt reduced through various methods was GBP 582 million, a monthly net debt figure in FY '21, down to GBP 49 million, which is exactly where we want it to be, allowing us to then make these investment choices and allocation of capital choices.

So our performance has been excellent over the last 4, 5 years, giving us very strong confidence that Simon and Stuart, my successor as CEO, will really drive the performance on in this business and turn our future revenues into, as we say, good profit and cash back profits.

I'll probably just stop there the introduction and really sort of open up for questions. So anyone who wants to talk about, any of the numbers and specifics?

[indiscernible] questions, please.

[Operator Instructions] We currently have no questions. I will hand back to Mark.

Thanks, Claire. It's Mark here, everyone. I will take the lack of questions as really ringing endorsement of Andrew and Simon stewardship of this company. As always, you have my e-mail address, you have our Investor Relations e-mail address. If there are any questions subsequently that you'd like to ask, please don't hesitate to get in touch. I think as you can tell from our numbers, we're quite proud of them, and I'm happy to talk about them. So please ask any questions you have down the line. Thank you very much all, and have a good day.

Thank you all.

Bye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Okay. We'll start then. So good morning, everyone, and thank you for joining our full year 2025 results presentation. For those of you who are here in person, and welcome to those joining us today by webcast and by audio as well. I'm Andrew Davies, I'm Chief Executive of Kier Group. And somewhat pointedly for me, this marks my last Kier results presentation. I'm joined today by Simon Kesterton, our Chief Financial Officer; and also by Stuart Togwell, currently our GMD for Construction, who will become the Chief Executive on the 1st of November this year.

So just quickly before we go through the results, Stuart, if I can invite you to introduce yourself to those who you may not have yet met, Stuart?

Good morning, everyone. I'm Stuart Togwell. I'm delighted to see you all this morning, and I'm really proud and excited to become the next Chief Exec of the Kier Group. I've worked in this industry that I love for over 39 years now, the last 6 years of which has been working closely with Andrew and Simon in Kier. Initially, I came in as the Group Commercial Director, where I introduced the risk management and the operational discipline that we still use today. The last 2 years, I've been in the GMD for the Construction business and have also been a member of the main Board. I'm looking forward to talking to some of you here in person after the presentation, but in the meantime, Back to you, Andrew.

Okay. Thank you, Stuart. And let's move on now to our FY '25 results. So firstly, I'll walk you through the highlights from the last financial year and then hand you over to Simon to talk through the group's financial performance. And this will be followed by an operational review, an update on ESG and we'll finish off with our outlook and recap of the long-term sustainable growth plan. And then, of course, there will be an opportunity for questions and-answers at the end.

So working through the disclaimer, and we move on to the results summary and highlights. So starting with the highlights for FY '25, which is the first year of the long-term sustainable growth plan that we launched last September. In the year, the group's order book grew to a record GBP 11 billion, reflecting contract wins across our business and providing us with multiyear revenue visibility. Specifically, the order group -- the order book currently covers 91% of our targeted FY '26 revenue and around 70% of FY '27's. Group saw continued overall revenue growth of 3%, which delivered an adjusted operating profit of GBP 159 million. And this result represents a margin of 3.9%, which is above our own initial expectations and also progressing well towards our long-term target level of between 4% to 4.5%.

This higher level of profitability continues to convert strongly into cash at a rate above our long-term target, leaving us with a net cash position of GBP 204 million at June 2025. We also saw a significant improvement in average month end net debt for the year to GBP 49 million. So given the continued progress that our group has made, I'm pleased to say we've significantly increased our returns to shareholders in year. We're proposing to pay a final dividend of 5.2p per share, representing a full year dividend of 7.2p, 38% higher than last year. We also launched a GBP 20 million share buyback during the year, which, as we speak, is roughly 50% complete. Additionally, we increased the capital deployed in our Property business where we're on track to deliver our long-term target of 15% ROCE, thus further enhancing shareholder returns.

So overall, I'm pleased to say, as leadership of Kier now transitions to Stuart, that we're a business in very good shape, our strategy is progressing well, driven by our great people and now underpinned by our high-quality order book and strengthened balance sheet. We're progressing well to deliver against our long-term sustainable growth plan.

So for this -- now my last set of results, I thought it's worth reflecting on Kier's track record of consistent delivery in the past few years and how that performance underpins our conviction in our ability to deliver our long-term plans. In recent years, we've proved that we can deliver for our customers and shareholders alike. As you can see from these figures, we've seen significant growth in revenue, profits and earnings since 2021. This has been achieved with growing levels of cash flow and as a result, significant improvement in the levels of debt, whereby we are now touching -- in touching distance of reporting average net cash.

At this point, I'll hand over to Simon, who will take you through the detailed financial results. Simon?

Thank you, Andrew. Good morning, everyone. Turning to Slide 7. This sets out our high-level results. Revenue in the period, as Andrew mentioned, is higher than FY '24 and reflects strong performance across the group, especially in the Infrastructure Services segment, which I'll cover more in detail in the next slide. We delivered an adjusted operating profit of GBP 159 million, up 6% in the year and at a margin of 3.9% as we progress well towards our long-term sustainable growth plan target of 4% to 4.5%. We continue to generate significant levels of operating cash flow with net cash at the end of June 2025 as a consequence, materially improved year-on-year, rising to GBP 204 million compared to GBP 167 million at June 2024. This performance includes a strong working capital performance as inflows follow revenue growth to normal levels, allowing us to deploy additional capital to our property business, which will drive future earnings growth.

In terms of average month-end net debt, this has improved to just GBP 49 million from GBP 116 million in FY 2024. The group has also been able to significantly increase dividend payments and further grow returns to shareholders through the launch of our initial share buyback as well as invest in the property business, as mentioned.

Turning to Slide 8. I'll walk you through the group's revenue growth. Starting on the left-hand side, you can see FY '24 revenue of GBP 4 billion. Infrastructure Services revenue grew by 7%, primarily due to growth from water and nuclear, supported by continued HS2 activity. Construction revenue was steady with continued delivery of Justice projects. We have worked to increase the quality and profitability of our Kier Places business, resulting in us exiting some lower-margin contracts. Finally, for property, we saw a significant increase in transactions compared to the prior year, although the positive impact of this is only seen in operating profit given the mix of transactions with our property business being a return on capital business rather than a return on revenue business. So overall, growth was 3%. And if you adjust for property and the FM contracts, closer to 4%.

Moving now to the adjusted operating profit bridge. We start on the left-hand side with the previous year's adjusted operating profit of GBP 150 million. Overall, volume, price and mix have resulted in an increase of GBP 0.6 million. As we just mentioned, we saw an increase in the volume of property transactions in the year, which resulted in increasing profit by GBP 6 million. Cost inflation was more than offset by management actions that delivered GBP 11.6 million during the year. These savings related to projects such as improving supplier onboarding, site setup optimization and Kier 360 and reflect the success of our performance excellence program as we demonstrate sustainable growth across our businesses.

In terms of cost generally, it's worth reminding you all that more than 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 our customers, it's only done after key risks and opportunities are understood. The overall result is growth in adjusted operating profit of 6% to GBP 159 million and a margin of 3.9% that is progressing well towards our long-term target of 4% to 4.5%. Adjusted items, including -- excluding noncash amortization, amounted to GBP 26 million in the year, GBP 1 million lower than the previous year. The main element relates to fire and cladding costs, GBP 17 million in the year. The property costs relate to the sale of a legacy office in Manchester, which completes our corporate office space reorganization.

This slide illustrates how our sizable attractive market opportunity flows ultimately into our strong order book and the visibility that we have on it. The government has committed to improving and renewing the U.K.'s infrastructure and in June this year, reaffirmed its 10-year strategy, setting out total spending to 2035 of GBP 725 billion. Also in June, as part of their comprehensive spending review, the government detailed their priorities in the next 3 to 5 years. This strategy and projected spend map to the markets served by our business via frameworks. Kier is well placed to benefit as we currently hold positions on frameworks worth GBP 156 billion. These frameworks cover key areas of government focus, such as health, education, defense, water and nuclear. As you can see on this slide. It is these frameworks from which projects are awarded to preselected contractors that provide the path by which we fill our order book, driving revenue growth, giving us confidence in the successful delivery of the long-term sustainable growth plan.

This slide considers our order book in more detail, standing now at a record GBP 11 billion, as Andrew mentioned. This order book gives us a clear view of future revenue and cash flows, representing 91% of FY '26 revenue already secured and around 70% of FY '27 revenue. As I've just said, 60% of our order book is under target cost or cost reimbursable contracts or otherwise subject to a 2-stage pricing process, which reduces considerably a contract's risk profile. Furthermore, as we've just seen, our order book is fed by our sustainable long-term framework agreements, where the value of the positions that we hold amount to GBP 156 billion. As you can appreciate, the combination of our strong order book underpinned by these framework positions illustrated here provides us with considerable visibility of future revenue streams and cash generation.

Now let's turn to our cash flow. Adjusted EBITDA in the year grew 10% to GBP 228 million. We then have GBP 28 million of working capital inflow, a great performance. It's worth noting that last year saw 17% revenue growth, which drove a higher working capital inflow, while FY '25 saw revenue growth of our expected GDP plus levels. CapEx in the period amounted to GBP 65 million, with GBP 48 million of that relating to payments made under leases now capitalized under IFRS 16. Net interest and tax increased by GBP 13 million in the year due to interest payments to new bondholders, which commenced in August 2024. The group's deferred tax asset of GBP 137 million relates to losses made in previous years, allowing us to offset half of our tax charge in any one given year, and we anticipate it will take around 7 years to fully utilize this asset. All this means that we generated significant free cash flow of GBP 155 million in FY '25 with a conversion of 125%, significantly above our long-term sustainable growth target.

This strong cash generation has allowed the group to grow our cash balance while significantly increasing shareholder returns. Starting on the left-hand side with closing cash of GBP 167 million at June 2024, we then have the FY '25 free cash flow of GBP 155 million that we've just seen on the previous slide. Next, we have the adjusting items of GBP 18 million, significantly lower as we've seen in the GBP 37 million paid in FY '24, followed by the payment of GBP 8 million to our smaller pension schemes. The level of cash generation after these items provides us with considerable scope for capital allocation. Firstly, regarding dividends. It's notable that FY '25 is the first year to include payment of both interim and final dividends totaling here GBP 24 million. Then we have GBP 51 million of capital deployed to the property business.

Lastly, we have the purchase of Kier Group shares, both the shares bought under the share buyback program as well as the shares for the group's employee benefit trust. As a reminder, this trust acquires Kier shares from the market for use in settling the long-term incentive plan scheme shares and the share schemes when they vest. This results in a net cash position of GBP 204 million, a significant improvement, as we've mentioned, compared to the GBP 167 million at the start of the year.

Now moving to Slide 15 and as a reminder of the significant progress we've made by effectively eliminating our average month-end net debt. Over the last 4 years, we've reduced our average net debt and debt-like items by over GBP 500 million, a significant improvement, resulting in just GBP 49 million of average net debt in FY '25. This slide sets out our long-term funding arrangements that we have in place to support our strategy while retaining flexibility to deliver future growth. The long-term financing of the group is provided through the GBP 250 million of 5-year senior notes expiring in 2029, combined with our GBP 150 million revolving credit facility, which runs to 2027. In January 2025, we fully repaid all of the outstanding USPP notes and GBP 111 million of the revolving credit facility matured, both in line with their agreements.

For my penultimate slide, I'd just like to remind everyone of our capital allocation priorities. Overall, we're focused on optimizing shareholder returns while maintaining a disciplined approach to capital allocation and maintaining our strong balance sheet. In short, we target dividend cover of around 3x earnings through the cycle. We plan to invest further in our property business to generate consistent returns over time, deploying up to GBP 225 million of capital, targeting consistent long-term return on capital employed of 15%. With regard to acquisitions, we will continue to consider value-accretive acquisitions in core markets. Lastly, in January earlier this year, we announced an initial GBP 20 million share buyback program, further increasing returns made to our shareholders.

I will finish with a look at our shareholder returns. As we saw earlier, Kier has an astonishing record of delivery in the period under Andrew's stewardship. Material improvements have been made to grow the order book, improve profits, grow cash flow and reduce net debt. All this combined with the substantial revenue visibility now provided by our order book and the pipeline of growth opportunities gives us confidence in the group's future prospects. It allows us to propose a final dividend of 5.2p or 7.2p in total for the year 2025, an increase of 38% versus the prior year and representing earnings cover of 3x, in line with our long-term sustainable growth targets. This, combined with the GBP 20 million initial share buyback shows that shareholders will continue to benefit from Kier's significant financial improvement as well as the renewed strength of the group's balance sheet.

And now before the last time I hand over to Andrew for his operational review, I'd just like to say thank you very much to Andrew. Thank you for his efforts, for his hard work in leading and putting together a great team, which has been very successful. And thank you very much for being a pleasure to work with. Congratulations for all of that success. And then, of course, finally, to wish him all the best for the future.

And now, for the last time, back to you, Andrew.

Thank you, Simon, and a real thank you to you as well for all you've done for the company. So if we move now to the operational update, and we'll start with Infrastructure Services first. In 2025, we saw revenue growth of 7%, driven by HS2 capital works as well as growth from water and nuclear projects, where our previously announced contract wins are now converting to revenue. In particular, our Natural Resources, Nuclear Networks or NRNN business has continued to build on our strong position in water market as the operating companies in the sector commence the next investment cycle of AMP8. Adjusted operating profit was GBP 111 million, representing underlying growth of 4%, allowing for a one-off GBP 6 million customer gain in the prior year. It's widely acknowledged that the industry remains affected by delays at the start of the works under Control Period 7 for rail and the deferred announcement of the RIS3 program for highways.

Nevertheless, the strength and breadth of our design and build business in highways, where we maintain and build national and local highways and our excellent customer relationships, combined with our strong order book allows us to continue to effectively manage risk and return in this segment, providing us with good current throughput and future visibility of revenues.

If we turn to a slide which emphasizes the strong position Kier has across the U.K.'s water sector. So here, we have a clear growth opportunity in what is a regulated market, which, of course, sits outside the public spending envelope. The AMP8 investment cycle is now well underway with operating companies set to deliver a significantly larger investment worth circa GBP 104 billion to 2030, and that's double of AMP7.

As we said in the past, with the market doubling, we expect Kier's activity to match that growth, thus doubling in the same time frame. The momentum and determination behind this level of investment is clear. An aging asset base, which needs replacing or refurbishing, increasingly stringent environmental regulations and the focus on extending the life of existing facilities through maintenance. The operating companies are thus turning to Tier 1 contractors to deliver these upgrade and maintenance programs, particularly those with specialist mechanical and engineering skills where Kier is demonstrably well placed to take advantage of this opportunity.

And this slide sets out our U.K. footprint in water. We're one of the largest Tier 1 contractors supporting the regulated water companies with their asset optimization. As you can see, at June, we held positions on a total of 17 frameworks with 9 water companies worth a combined GBP 15 billion of spend opportunity.

Moving next to our construction business, where we build schools, hospitals, prisons and defense projects for government as well as projects for the commercial sector. Also included here is Kier Places, our facilities management and housing maintenance business. Construction revenue remained steady overall at GBP 1.9 billion. During the year, we successfully delivered significant levels of work for the Ministries of both Justice and Education, alongside starting work for HMP Glasgow for the Scottish government, where activity levels will ramp up through 2026. We also acted to better position Kier Places for enhanced future returns through the exit of some of the lower-margin contracts, which Simon mentioned. The adjusted operating profit grew 8% to GBP 75 million, seeing the benefit of an improved business mix.

And lastly, let's look at our property business, which invests and develops commercial and residential sites, largely operating through joint venture partnerships to deliver urban regeneration projects right across the U.K. Operating profit grew significantly, driven by the higher volume of transactions Simon mentioned in the year compared to 2024 -- FY '24. Indeed, many transactions were achieved in the second half of the year as we continue to build momentum and scale in this business, and we expect this seasonal profile to repeat in FY '26. Just a reminder, we remain focused on the disciplined expansion of the property business through selective investments and strategic joint ventures with capital employed totaling GBP 198 million at June 2025. Our long-term plan is to increase capital employed to GBP 225 million, and we expect that this stable capital and the maturing partnerships will result in the business exiting 2027 on or around its targeted ROCE of 15%.

So let's turn to our sustainability framework. It's through this framework that we align our activity to our major clients, the U.K. government and regulated companies by focusing on 3 key pillars: people, places and planet. As a reminder, our purpose is to sustainably deliver infrastructure, which is vital to the U.K. As a strategic supplier to the U.K. government, ESG is fundamental to our ability to win work and secure positions on long-term frameworks. U.K. government contracts above GBP 5 million require net zero carbon and social value commitments. And in order to help achieve these goals, we focus 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 that our people reflect the communities where we live and we operate.

Secondly, leave a positive legacy in our communities through our places pillar. We do this through the projects we deliver and the people we employ within them, mindful always in addressing the challenges of inequality. And thirdly, as the stewardship of the planet is vital to all of us, we're reducing our carbon emissions and supporting our customers with their infrastructure requirements as they adapt to climate change. Our sites aim to protect and enhance nature as well as efficiently use resources on our projects.

To just review our environmental progress as we see carbon reduction as both an obligation and an opportunity. Overall, we're seeing increased demand from customers to deliver projects sustainably, which is reflected in our Green Economy Mark accreditation. Our net zero targets for Scopes 1, 2 and 3 have been validated by SBTi. And in line with these, we have reduced Scope 1 and 2 emissions by 4% in FY '25 and by 71% since FY '19, which is our baseline year. We continue to reduce our emissions according to our carbon reduction plan. In terms of our efficiency, we achieved a 3% reduction in our waste intensity overall in the year. And secondly, we'll reflect on our social responsibility. Safety as ever is our license to operate, and we're pleased to report a 26% reduction in our accident incident rate in FY '25. Kier's performance depends ultimately on our ability to attract and retain a dedicated skilled workforce.

During the year, this included 590 apprentices with over 10% of the workforce in formal training and development or earn and learn programs. Furthermore, over 40% of our graduate intake in the year were female as we focus on making Kier a diverse and inclusive place to work, reflecting the communities we work within and we serve. And turning to our supply chain partners. In FY '25, over 60% of our subcontractor spend was with small and medium-sized enterprises, while we continue to adhere to the prompt payment code.

So before we come to our outlook, I thought I'd just remind everyone of our long-term growth plan, which is laid out here and provides clear visibility of the direction of the group. We target revenue growth above GDP, driven by the attractive market dynamics combined with our market-leading positions. We're targeting to reach an adjusted operating margin of 4% to 4.5%. For cash flow, we target around circa 90% conversion of operating profit and the achievement of average net cash position to allow us to invest surplus cash in those areas that will deliver increased shareholder returns. This includes a targeted sustainable dividend policy of circa 3% earnings cover through the cycle, which we have, of course, now delivered for this year.

And now to finish with a short summary and our outlook. The group has continued to make significant operational and financial progress in the year, delivering revenue growth with margins ahead of expectations and progressing well towards long-term target range. We've continued to grow our order book to a record GBP 11 billion, providing us with significant multiyear visibility. This has allowed us to significantly increase the proposed dividend payment, and we're well progressed with the initial GBP 20 million share buyback program launched in January 2025. And building on our outperformance in FY '25, the group has started FY '26 financial year well and is trading slightly ahead of the Board's expectations.

And on a personal note, it's been a privilege to lead Kier over the last 6.5 years and to see the group transformed into a strong and sustainable business with enhanced resilience and a reinforced financial position. That transformation has only been possible due to the capability, professionalism and frankly, hard work of Kier's teams and the support of our clients and our partners. I'd like to thank them all for their support and commitment in ensuring Kier's continued success in delivering infrastructure that is vital to the U.K. And in particular, I'd like, of course, to wish Stuart and Simon the very best for the future and thank them both.

And with that, I will open up the meeting to questions and answers. And I suggest we do questions first from the room, and then we'll take questions from the conference call. Thank you.

Rob Chantry at Berenberg. Obviously, congratulations on the delivery and your time in the business, Andrew. So 3 questions from me. So firstly, thoughts around, I guess, the debt position. Obviously, tremendous increase in delivery in recent years and kind of business moving towards an average net cash position. The '29 bonds trading well. Can you just remind us of the options available on the refi, any longer-term thoughts around capital structure given the cash delivery?

I think secondly, clearly, you've been successful on getting on the GBP 15 billion of frameworks in water and water revenues set to double. Can you just talk, I guess, a bit more anecdotally around what surprised you about the evolution of that market in the past years? Has it been more competitive? Has there been things where you've done better than you might have expected, things that might be more challenging? Just how that market has evolved in terms of the contracting structure?

And then thirdly, property, clearly, kind of good step up this year. You're talking about 15% ROCE by '28, so that's GBP 30 million, GBP 35 million of EBIT. Can you just give us an indication of kind of what's working particularly well in that division at the moment? Any indication of the shape of going from GBP 12 million EBIT this year towards GBP 30 million, GBP 35 million 3 years out would be very helpful.

Simon, do you want to take the first and the third, maybe I'll do the middle one.

Absolutely. So thanks, Rob. In terms of debt position, I mean, we're very happy with the balance sheet, GBP 49 million of monthly average net debt is pretty much there, plus or minus zero. And as I've mentioned previously, I think we're comfortable really even going up to probably 0.5 turn plus or minus on the balance sheet of EBITDA in terms of monthly average net debt. In terms of the refi, yes, we did that in February 2024. So the first time we could refi the bond would be in February 2026. And you're right, it's trading very well. So that would give us an opportunity. And of course, we've got our half year results probably out March that year in 2026. So that might be a good opportunity if things remain the same to refinance.

Property?

I can cover off property as well first. So in terms of shape, it's probably going to be back-end weighted, Rob. So I'd expect a small increment in this current financial year on last year before we really start towards the back end of FY '27, delivering that 15% return on capital employed. And that's just sort of the nature of when you invest, it takes 3 years before you start to see the returns.

Rob, just on the water question you're asking, I mean, we do see our revenues doubling because the AMP8 has doubled. We've got material positions on all of the frameworks circa GBP 15 billion by advertised values positions on the frameworks, which we've won. So we feel we are confident that we will double alongside AMP8. The competitive environment is they have sought out -- the water companies sought out Tier 1 contractors to deliver some of the larger schemes, and that's why we've been selected by many of the larger water companies to deliver those. But there are -- there is plenty of space within this sector for other companies to operate. But I think we're probably one of the leading Tier 1 companies operating in that sector. So yes, we're very confident over the next 5 years, certainly on AMP8 and probably thereafter, but we'll see what happens on AMP9 that water is going to come a mainstay of this company. There's no doubt about it. Andrew?

Andrew Nussey from Peel Hunt. Two questions. First of all, for Simon. When we look at the profit bridge, obviously, inflation and management actions are pretty big chunks there. What are the thoughts in terms of '26 and '27 and the ability to keep driving management action to offset those inflation pressures is the first one.

Okay. Yes. So firstly, I think inflation, the number that you're seeing there, obviously, our projects are quite long term. So you're seeing the impacts of prior -- a couple of years ago inflation there. So I would expect, firstly, the inflation number to start to tail off a little bit. And then in terms of management actions, I don't think any question that we'll be able to continue to more than offset that.

Second question is actually for Stuart. Obviously, you've led the Construction division, which has been a leader in terms of modern methods of construction and digital tools. I'm just curious, when you move into the CEO role, what other opportunities can you see for those developments across the group? And what might that mean?

Okay. I'll stand up. I was enjoying sitting in the audience. I think the most important thing to start with in terms of we're not being complacent, although we're already sitting with GBP 11 billion order book. I'm a big fan in terms of AI and digital, first of all. in particular, the work we've been doing around digital twin in terms of how that drives energy efficiencies and also product improvements. But alongside that, in terms of Simon's team is already using bots at weekends to run around to look at administration improvements. Alongside that, to make sure it's really important with AI that we create a safe environment for us to use. So we're working with our IT providers in terms of how we can do that. And even more importantly is to make sure that when we do have that technology in the business, we have a workforce that is comfortable and can embrace that technology to make the most of it.

Regarding MMC, again, we haven't been complacent. And what we've been looking at is rather than just concentrating on volumetric, we've been looking at all forms of MMC to ensure that we can come up with the appropriate solution for our customers. And there are 2 key themes that I would take around from MMC. First of all, if you don't have the design right, you lose the benefits of MMC. So one of the huge benefits we have across the group is we were already sitting with 700 designers that can help us. And the other point in terms of that is just to remember, that provides us the opportunity to working with new clients like the defense when they're bringing out volumetric and single-living accommodation in terms of 2D models, we can provide very cost-effective designs for them to actually start working through at scale.

The other key factor on MMC is you got to have integration with the M&E. So again, in terms of care, we have our own in-house M&E company that can help bring those both design and M&E to the forefront of any MMC solution.

Tony Coubrough from Deutsche Numis. Could I ask firstly on Living Places, you mentioned exiting some underperforming contracts. Were those always underperforming or had something changed there? And how does the portfolio look today? Another question would be on property. What was driving the increase in transactions? Was there any particular sector there? And then last one, probably a follow-up on MMC, where you're able to access R&D tax credits. Is that predominantly in where you've been using MMC and a bit of detail there, please?

I'll take the first one, Simon, perhaps take the second and third. On the Living Places, the key to getting efficiencies in housing maintenance is density. So you may have some very effective contracts. But if you don't have the density, you won't get the utilizations you need to make the money you need. So we elected to exit certain contracts where we didn't feel we could get the density around those contracts to make it profitable. We're focusing now on areas where we can get the density in both reactive and planned maintenance as well. So I think that was a fairly straightforward set of actions, which the team just delivered very effectively. So we're pretty pleased where we find ourselves now. We do think in the future, that will be an area of growth as society seeks to upgrade affordable housing in particular. So we want to stay heavily connected to that.

Simon, do you want to take the one on property, the transactions?

Yes. I mean, property, Jon, it's just across the board really. So the 3 segments that we serve, really pretty much equal in transactions. So nothing really standing out. And then in terms of R&D tax credits, this isn't just focused on MMC. I mean Stuart touched on it, 700 designers go to it, and it's between 100 and 200 projects a year that it's spread across. So it's not one big chunky claim. It's lots and lots of little claims.

Adrian Kearsey, Panmure Liberum. Another question on property, if I may. Simon, you talked about the lead time for property being sort of 3 years in order to do a project sort of from start to finish. And so therefore, you've got a building visibility. Could you give us some idea within that sort of 3-year sort of time frame, what types of property are you looking to develop and deliver? And also what kind of development relationships you have and perhaps give us an indication of how much JVs are going to be used within that context?

Yes. So as in JVs, we use extensively. That allows us to keep the amount invested in any one project small and hence, spreads risk and helps keep liquidity in the portfolio. So we intend to use JVs extensively. Where we focus on is last mile logistics, mixed-use residential redevelopment projects and, of course, environmentally friendly offices as well. And so those are the 3 sectors that I think we'll continue to focus on going forward.

You mentioned the 3-year gestation. That's what gives us the confidence because we're putting the increased capital into that. That will take a period to gestate whether it's 3 years or slightly more, slightly less. It's never a precise number like that, but that's where we get the confidence and where we're getting the performance is out to the pre-existing financial investments we've made. So we put more money into that in the same strategy in the similar sort of areas which are paying well for us. That's why we're confident this thing will grow to 2027, hitting the 15% ROCE target.

Any more questions? Are there any questions online?

[Operator Instructions]

At present, we have no questions on the conference call.

Okay. Then with that, I...

I just thought as perhaps one of the elder statesmen in the room, I really just like to acknowledge all your efforts on behalf of the city over the last few years. 2019 seems like quite a long time ago, but Slide 5 clearly articulated the progress. So I appreciate it's a team effort, but you put the band together. So on behalf of the city, well done.

Andrew, that's very kind of you, thank you. That's probably why I have the gray hair I have hanging in there. But can I thank everybody in this room and my team present and past for the enormous efforts and support. And thank you for all your help and advice over the years. It's been hugely appreciated. And I think we've got a great company back to exactly where it needs to be. And again, wish Simon and in particular to Stuart, the very best of luck in the future. They won't need luck. They're a great team, and they'll continue to do the great work. So thank you all very much.