Van Elle Holdings (LSE:VANL) — Interim Results & Prospects

0:06 Good afternoon, ladies and gentlemen, and welcome to the VAN ELLE results presentation and update on prospects. To start with, if we could cover a couple of housekeeping items. Before we begin, we would like to submit the following poll, which you will see on your screens. Throughout this presentation, investors will be in listen only mode. However, questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen or if anyone has dialed in via VAN ELLE at warbrookpr.com. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and public publish responses where appropriate. These will be available via your investment company dashboard. Finally, I would like to remind you that this presentation is being recorded.

0:55 Now I'd like to hand you over to chief executive, Mark Cutler, and chief financial officer, Graham Campbell. Mark, Graham? Thank you, Tom. Good afternoon, everyone. Many of you may have met us online previously. I'm sorry that we're not met all of you yet in person, but, we're we're we're here in in the Kirkby office. I'm just gonna run through, an overview of the results just to kick off, and Graham will run through, some of the more granular detail in the presentation pack, which we'll keep on the screen throughout the presentation. Then I'll return again for, an update on strategy and outlook, and, hopefully, then we've got plenty of time for, questions, which, we look forward to.

1:41 So in summary, we've had a really strong first half of the year. We've we've bounced back, we we believe, quite positively. We're we're pleased with progress. All of our markets have returned to reasonably strong levels of activity, not not the same intensity across the board. And, of course, there are always, interdivisional fluctuations. But on the whole, all of our markets have recovered well, and we've we've come out of COVID in in good shape. We've previously talked about the actions we've taken around our balance sheet and strengthening our management team, improving some of our operational processes. All of those have, you know, stayed intact and and have made a made a difference.

2:28 So very much continuation of the objectives and strategy that we've talked about before and finally seeing market conditions improving. So the the the the fact that market hasn't improved in h one, has been pleasing, but even more pleasing is the fact that that's continued through into, the second half of the year. And, we then expect, in in most of our markets, that to continue further into into, f y twenty three. We've reported revenues of 60,100,000, which is a strong increase on last year, as you can see. And, you know, that reflects, as I say, pretty much all of our divisions performing at, at good levels of utilization. All divisions, performing profitably.

3:23 And and the group is in in a good level of profit, not the levels that we expect for the medium term, but very much on trajectory in terms of the steps we're taking, into FY '23 and '24 and '25 towards those medium term KPIs that we've talked about before. So that's resulted in, for the half year, a operating profit of 2,300,000, profit before tax of 1,900,000. We've taken certain previously reported non underlying costs into the cost base, as Graham will mention. So it's a very clean, prudent number. No issues at contract level coming through our audit review at half year. So we're in we're in good shape commercially, and that is a robust result.

4:13 During the period, our rail business has seen, importantly, an improvement in contract activity. So this started to manifest, towards more towards the end of the first half, And we would have been talking about this at our last presentation that we expected, to see progress. In particular, we thought that would impact on the second half of the year, and that is the case.

4:37 Excuse me. So we are sitting here today. I'm I'm pretty happy with the activity in rail that's coming through and the progress that we've made on several of the opportunities that we've been tracking for some time, including the next wave of electrification programs in the England and Wales, and in fact, some smaller ones in Scotland as well. And I'll come and talk in the outlook about where we're heading in rail. And part of the mix is also the Screwfast acquisition that we made in April, April 1, in fact. Screwfast is an excellent little business. We're very pleased with the timing and the strategic fit of Screwfast.

5:23 We'll come on and talk in a bit more detail about what that means for us and and the opportunities that it's opened up. And work winning has also been productive. We've won a position on several important contracts during the period and since the the finish of the half year. They've put us in good position for, again, our medium term objectives. Our order book is one indicator of that, and it's up since the last update as you can as you can see. And you might remember that we typically don't have much more than three months order book, just the first nature of the contracts that we undertake. Remember, we do over a thousand contracts a year. We've done over 600 just in this half year period.

6:09 So, that that's a a good order book, for the nature of business that we that we operate. And cash position continues to be robust and in line with our budgeting and forecast. The slight dip since the, the last set of, results reflects the, use of cash to make capital purchases rather than HP, which, again, Graham will will mention shortly in terms of our debt reduction plans. I'll hand over to Graham then and go through some of the detail. K. Thanks, Mark, and good afternoon, everyone. So I'll just, as as with previous presentation, talk through the a bit on the income statement, go through the divisions, and then a little bit finish on balance sheet and and debt. So as Mark mentioned, strong revenues in half one.

7:02 You'll see across the slides that we presented, not just the prior year comparative, but the year before. And the intention there is to have a comparative period that is pre COVID, so a little bit more meaningful than obviously the the heavily impacted half one of FY 2021. So compared to two years ago, revenue's up 24%. And as Mark said, operating strongly across and profitably across each of the divisions. In terms of the gross profit margin, you'll see from the slide that we've improved gross profit margins, by around about 1%. And there's a few things at play here, but importantly, the downward pressure has come from the supply chain challenges that widely publicized across the market and indeed wage inflation as well.

7:53 If I just sort of look at the the main raw materials that we use, steel, cement, concrete, anything up to 50% of pricing increase as well as a lack of availability across the last twelve month period. So that's caused some challenges on on-site efficiencies. Fuel as well, we've seen white diesel increase by 30% and red diesel by up to 60%. So substantial cost increases there that we've had to mitigate, be agile in in in repricing, retendering, and making sure that we we lock in our tender pricing at the point of procurement to make sure that those costs are embedded in the in the contract pricing. Now having said that, whilst we've had those down refreshes, we've we've also obviously seen a a strong increase in in utilization levels. So where we have fixed costs, so for example, depreciation of our rigs that sits within sits within the gross margin,

8:52 Given that we've had that level of improved efficiency, we've got better recoveries on on on those fixed costs, and that's that's really how we've been able to drive the drive the margin further north. Of course, overheads have also increased, and that's really twofold. One is bringing Screwfast into the group and the the overheads that came with the acquisition. And then secondly, it's about investing for those higher levels of of activity that we've seen.

9:19 And also not not just not just in delivering against those high levels of activity, but also positioning ourselves for the outlook as we see a relatively strong market ahead for for each of our sectors. Mark mentioned that we have no non underlying costs in the period. So these are a a a clean set of profit and loss results. We've rebelled we've reclassified share based payments into into underlying, and that's sort of in line with in line with market trend or what what what many other companies are doing and and really just reflecting a transparent set of set of accounts.

10:00 A quick counter through each of the divisions. General piling, you'll see, has a slight growth in in the top line on on revenue numbers compared to the comparative period in f y twenty, Supported by investment in rigid inclusions, is a ground stabilization technique that we've we've managed to to grow organically. So that that's been that's been successful. But in terms of and we're I suppose the bottom line is that we've got to a profit of of of 900,000 compared to naught point two over the over the previous two years. And that that is despite the the supply chain issues. And general piling is our division that uses the the largest volumes of of raw materials, be that concrete, cement, and steel.

10:52 And and and it is the general piling division that's that's that's suffered the most from those from those challenges that we've seen. So pleasing really to see that the the the the operating profit that we've delivered despite those despite those challenges.

11:09 Specialist piling and rail. I suppose I'll start by saying that the this is the division that we've embedded Screwfast within. So the the growth in the numbers that you'll see from 12,700,000 in the previous period to 22.1 does include just over 4,000,000 of additional revenue from from Screwfast. But notwithstanding that, still a very strong performance, particularly in the in the specialist piling parts of the parts of the division. So we've in the in the in the last presentation, we we presented specialist piling having recovered very strongly from the first lockdown, and indeed, that has that has continued right the way through through the year, back end of last year, and right through to half one and continues to be the case today. It is an area that we've looked to continue our investment in rig fleet. So we we we added to our rig fleet during the second half of last year, and we've got a further three rigs added to the specialist piling capability due either due or delivered in the in in the current financial year.

12:13 So it's a part of the group that's at the upper end of our margin expectations and and is performing very strongly. You'll see also we mentioned drill and grout, which we talked about in the last presentation as well, building a much stronger capability, and we're seeing good revenue growth in that area too. The next slide just touches on Screwfast, so I'll I'll come back to Screwfast in a second. And and then and the important area of rail. Rail recovery has lagged some of the other divisions post COVID, but towards the back end of the period, we we've started to see much improved contract activity levels at the back end of of of half one, which has then continued into into half two. And there's a note there that the first of the the large electrification programs in South Of Wales on the Coal Valley lines, we've been active there since the since the beginning of December. So reasons to be optimistic that there's the the the rail out looking looking much more positive.

13:12 Brief mention on on Screwfast. As you'd be aware, the acquisition of Screwfast completed on the April 1, strengthening our position and and adding to our existing capabilities. And this is primarily helical piling, but it's also about the the connecting mechanisms, which is really the key selling point of of Screwfast capabilities supporting this is the the connection between the pile itself and the and the superstructure above the ground. As I mentioned, contributed 4,100,000 of revenue, so performing in line with what we expected at the time of acquisition. I think it's fair to say that we may talk a little bit more about the Smart Motorways Alliance, but being appointed to the Smart Motorways Alliance as one of two providers Screwfast was an absolutely fundamental part to to to to winning a place on that ten year framework.

14:09 And so so so whilst there is a current pause to the Smart Motorways Alliance work for slightly over two years whilst five years of data is collected, we are well placed for whatever the outcome of that that review well, whatever the outcome of that review is, we've placed ourselves very well. And the long term outlook, I think, still looks still probably positive. Can I just clarify one thing then and say coming back to it's the the new schemes that are paused, not all schemes? So all current schemes are continuing, and the design on the new schemes is proceeding as is the working central reserve for that matter. But, also, accelerating the construction of emergency refuge areas retrofitting across the whole network. So there's quite a lot of work still ongoing, but there are four schemes that haven't yet started, those are ones that have been paused before they start. And while more data is collected, that's just to clarify. Yeah. Alright. Thanks, Mark.

15:09 And so I suppose to wrap up this slide, really,

15:13 integration progressing well. Operational teams are working closely together. We are backfilling areas where there may be gaps caused by the the the pause in other areas, and actually activity is buoyant across a number of a number of other sectors as well. So I think in terms of the integration point, we have, say, operationally working closely together now as a group. I think we've still got some potential benefits to come from back office synergies, which we'll continue to work work on over the over the second half of the year. And the final division, Grand Engineering Services, which is made up of our housing division and our grand investigation business. Again, you'll see very strong recovery after the lockdown close of twenty twenty, where house building activity ceased for a period of anything from sort of eight to eight to twelve weeks.

16:06 So very strong growth and I think supported by the by the stamp duty holiday. We have worked hard to on on geographic expansion, and that's really being more active in the in the South and Southwest where typically VAN ELLE hasn't really gained much traction. And also working very hard to to maximize our margins by delivering with optimum operational efficiency. And we've had we've seen a a steady improvement in our margins over the last couple of years, probably one to 2% further achieved achieved this year. In terms of our ground investigation business strata, again, strong performance, strong seeing strong demand across the sector and making good area good progress in particular in an area of focus, which is ground investigation in the in the rail sector. Again, an area that two, three years ago, we didn't have a great

16:59 level of activity, and we're seeing strong growth in that area now. And overall, pleasing really to see after a pretty challenging period last year, 1,200,000 operating profit for the year for the half. Balance sheet and debt. Think the key points here to make are that we've continued to invest in fixed assets. So our fixed assets and and in particular, our rig rig capability has stayed at at broadly flat levels. You'll see working capital there has increased from 6,900,000 to 9.3. A number of factors there are played, but in particular, this is this is based off

17:36 the back of higher activity levels as you would imagine, working capital increasing. And also some of those supply chain challenges on raw materials, we've had to place orders on some less advantageous terms than would ordinarily be be expected. And that's to secure delivery of of raw materials such as steel to make sure we can meet our contractual commitments. But it has caused a it has caused an increase in working capital, and you'll see that a little bit further on in the in the cash slide. Deferred consideration is the future payments due under our estimated payments due for for for the Screwfast earn out. And I'll move on to the next slide, which is the which is the net funds and and debt position. So with the acquisition of Screwfast came £800,000 worth of of loans where we were able to repay those loans with minimum minimal termination cost. We've done so and reduced the debt to to about 160,000 remaining.

18:39 They have high termination costs and therefore will allow us to run run their course, but they're down to a relatively insignificant level. This time, we've broken out higher purchase liabilities, which is our our true debt along with the IFRS 16 property and vehicle like lease liabilities, which would be the typically old finance lease or or operating lease categories. Obviously, now reported differently under IFRS 16. And you can see that our HP lease liability has decreased from 4,000,000 at the last year end to 2,700,000. And and where we are today at the end of January, that number will be slightly below 2,000,000. So we are approaching very low levels of debt. And if you just compare that to the second bullet point on the slide, you'll see that in FY eighteen, we're sitting at nearly 16,000,000 of of higher purchase debt. So pleasing really to see that take it down to to manageable levels. So all of those taken into account,

19:35 the next slide just presents the the cash flows, through the through the first six months of the year. So you can see the pre working capital movements, a positive operating cash flow, working capital I've already touched on, and we've returned to more normal levels of of capital expenditure. So a spend of around about 2,300,000 with some small disposals resulting in a net CapEx of of 2,000,000 in the period. So in terms of pre pre financing spend,

20:05 repayments of of debt, we have seen cash improve. But then there, you see the 2,100,000 of debt reduction in high purchase and the early repayment of the of the debt for Screwfast. So a net decrease from 8.5 to 6.3. But overall, we've absorbed the working capital increase. We've continued to invest in in in capital and continue to reduce to reduce debt. I'll hand back to Mark. Good. So we feel pretty positive about progress, not just from the return of more buoyant market conditions that we always knew would come, but also the mix of work that's starting to better suit our niche capabilities and will drive the further improvements in the next two or three years.

21:00 So we've exited the period

21:03 with momentum that's con continued into the second half. We've just had a a strong Christmas period as well. We've done seven rail projects over Christmas, our busiest Christmas for for several years, certainly since I've been with the company. Albeit, that's been compensated to some degree by everybody being exhausted in January and many of our projects being delayed by a couple of weeks as we've come back after Christmas.

21:29 So we always know that q three is gonna be affected by shutdowns and poor weather, and we've taken that into account when we've upgraded slightly for the for the full year. We we certainly see improved levels of demand being sustainable over the medium term. We don't see any particular reason why anything's gonna change. If anything, there's gonna be an overheating of geotechnical capability and capacity in the marketplace with the startup of of sizable piling works now on high speed two just about to get going. And and that's definitely a factor for us in terms of holding on to our people.

22:18 And in particular, rail contract activity is established now at a level that is materially improved on where we started the financial year. And we we, again, are confident that that will continue, perhaps not at the same rate of of growth because we've got to a level now where, you know, the the profits are are are are are good every every every month. And if that continues, then, you know, that's a position we've not been in again since I've been with the business. And all of that's backed by government pledged commitment in infrastructure spend and strong market dynamics across the board, but in particular, you know, the decarbonization and electrification of the rail network. I know we we do talk about rail a lot, but, you know, this is an important shift, the integrated rail plan, the onset of of new electrification programs,

23:12 the renewals of the railway rather than big enhancement projects all suit us as a business and the diversified scale of our rail businesses is today compared to where it was three or four years ago where it was very focused only on electrification.

23:27 Having said all of that, the supply chain challenges are, real, and they are material to us, if you excuse the pun. We we typically, in in general piling, only get 70% of the concrete deliveries that we would ideally want to be at our most productive on a job by job basis. Sometimes it can be worse. We we Graham has talked about some of the cost increases that we contend with and try to make sure that we're nimble enough to put into our tenders, but not everybody's doing that. We still remember winning every single one of the what should be well over a thousand projects this year, winning them competitively against others who aren't maybe looking for such high margins as we are. So we do very well with the amount of work that we need to win and absorbing these these costs into our tenders as we go along.

24:19 But those supply chain challenges are going to persist, we think, all the way through the year and and into the next financial year. So, again, we're not getting carried away with the momentum we've got so far in terms of forecast at the moment. We prefer to be careful and and and negotiate through the rest of this this half year. But we've got a healthy order book underpinning, what we're doing. The quality of our bidding is better.

24:45 The the business development team has been strengthened. In previous presentations, I've talked about this, and the quality of the bids that we're writing is improved. And we have a a good hands on involvement from the senior leadership team in our key bids, in a much more collaborative culture that didn't exist, quite frankly, in 2018. We we we work as a team on on strategic bids, you know, more than six months before they come out to the market, and we're a lot closer to our customers as we're building up our win themes and our and our bid strategies.

25:22 So all of that taken into account, we've we're expecting to finish the this year ahead of market expectations. You'll see some guidance from brokers. Remember, have now researching and actively helping us. And we we intend to reinstate dividends subject to final discussion on on the level, but we intend to reinstate a final dividend at the end of this year. So all in all,

25:54 a period of of good progress. Thank you. Oh, yes. And there is a final slide here, which is very interesting, because this is some statistical trends of, some of the key measures in the business that we often get asked about. So, yeah, I'm glad you flashed that up. That's a that's a good one. And that's split into financial measures, operational measures, and employee measures just to give you a feel for where we've moved over the last three reporting periods.

26:25 Thank you, Mark. Thank you. Thank you, Graham. Now if we could turn to the questions. We have a number of questions that were submitted ahead of the presentation. However, please do continue to submit your questions using the q and a tab situated on the top right hand corner of your screen. Additionally, your feedback is important to the company. So immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback.

26:50 While you're submitting questions, so let's first have a look at those submitted ahead of the event. And in fact, what we'll do is we'll combine a couple of these with ones that we've received during the presentation itself because there's a high degree of overlap. So the first one is in respect of your medium term ambitions and a question from Bill. Will you meet your medium term financial targets of revenue growth, operating margin, and leverage in the current financial year? If not, will you meet them in the year 2223?

27:18 And we're gonna combine that with one previously submitted, which is with regards to owner earnings, what projection strategies do you have to increase factors such as earnings per share, free cash flows, and overall stock value? Do you feel that VAN ELLE can continue to expand earnings over a five year plus period? Those

27:38 fit with your medium term objectives there if you blend those two together. You'd like to say that one? Go for it. I think the what we've talked previously about our our strategic financial objectives, we we put those out into the market at the back end of FY nineteen. And and the remain are our key objectives. They are, as you mentioned, five to 10% revenue

28:06 growth, seven to 8% operating margin, 15 to 20% return on capital employed, and, and keeping, effectively keeping leverage low, so less than less than 1.5. And we talked at the time about those being medium term objectives. We've obviously,

28:24 gone through a period of intense disruption with, with COVID. And therefore, I think the, you know, the the the the two years are very difficult. We we we feel very, I suppose, pleased that we've come out of COVID with a a strong balance sheet. We we've continued to deliver against the strategy the strategic objectives. But indeed, it has, of course, meant that the the end game is is pushed back as we as the markets return back to normal. We talked previously about f y twenty four as being the objectives to the the timeline to get to achieve these these these strategic objectives. And I suppose the the big uncertainty out there in the market, which is another question I see that's also been raised up, I think we've touched on it as well, is these is the supply chain challenges and wage inflation challenges. And there's just a little bit of uncertainty out there in the market as to when when the market conditions will return completely back to normal. So will we achieve those strategic objectives in the current year? No. I don't think we've committed to that. However, what we the timeline we talked about was medium term. I think that medium term is is at the moment subject to supply chain pressures, f y '24, f y '25.

29:37 Yeah. Great. That's super. And and just coming on to because you did mention that that one had come in in respect of supply chain. I'm just gonna blend two of those together again. And and Michael asked a question. Have have supply chain issues improved? And there was a pre submitted question, in fact, which was, what have you been able to do to limit the impact of staffing shortages and supply chain challenges? I don't know if you can add a little bit of color as to what you've been able to proactively do to to address those issues. Yeah. I'll I'll I'll do that. So have they improved? Yes. In part, but they're still of concern to us. The the biggest concern is supply of ready mixed concrete, to meet the demands of, you know, bigger projects.

30:23 We've managed to mitigate steel supply by placing orders, earlier, and, also mitigate cost increase in steel by keeping our tenders open until the final day of acceptance and mitigate steel fixes by bringing them into the yard ourselves and fabricating our own, pile cages. We've we've stockpiled cement for our granting operations. Our batching plant in Kirkby has been fairly unaffected because we buy raw materials in bulk with tankers, and that's a that's a easier supply to safeguard. But in Scotland, ready mixed concrete, you have to place your orders four or five weeks out, unbelievably.

31:13 So we've diverted concrete from our own batch up in Glasgow to our sites rather than be held up sometimes. So those are some of the things we've been doing. In terms of labor, we're getting an awful lot of hits on our operatives and staff from competitors looking to build up their teams for high speed two in particular, and that is quite annoying. So we are we're engaging with those organizations. Of course, we know them very well. And the client and the client's client. So we're talking to HS two, the tier one contractors, and our competitors about stopping this ridiculous merry-go-round and trying to come up with an arrangement whereby we are not targeted we're the biggest contractor in The UK on the doorstep of I speed two that isn't currently on a cost plus contract to deliver for its parent company.

32:07 That's something that we've got more work to do yet and will involve all of the leadership team until we're satisfied that we've protected our best assets, our people. Meanwhile, we've been, introducing, more regular pay with you six monthly. We've increased the benefits arrangements for our staff and operatives working away from home, and we've, engaged in several counteroffer arrangements to to keep the people we've trained and invested, and that's costing us costing us money. But, you know, we we believe our people are actually worth keeping. Otherwise, we're gonna be out just adding to inflation in the marketplace trying to replace them. We've managed to maintain a level of 30 apprentices and trainees even through the pandemic. We haven't got rid of any at all even though some of our competitors have, and we haven't stopped training.

32:58 In fact, our training output is increased significantly, as much as a catch up of people that are furloughed, but we've kept all our training operations open. We're gonna up our level of apprentices significantly now for the next six months to try to make sure we've got a a strong pipeline of people coming through, as one of the best defenses to losing perhaps some of the more experienced ones in due course, which, to some degree, it will be inevitable there will be an increased level of churn. Great. Thank you. Right. A, a few additional questions. Is there scope to improve gross profit percentage, and how much unused staff and machinery capacity currently exists? Okay. Yes. There is. And our medium term financial objectives that you see on that screen will imply that the gross margin percentages will will increase in different parts of the business at different in different ways, but they will do.

34:00 And remember, we've got a range of margins in the business from some of our housing operations at the at the lower end. I call it lower end, sort of mid 20% of gross margins up to 50% ish in rail and strata and some of our specialist piling operations. So the the there's no single gross margin target. Every every job is bid according to its specialist technique and the and the market conditions and the overhead structures in that division. And all of the divisions are targeting margin improvement, whether that's through increased operational efficiency, improving work mix, or, greater commercial performance, and and they're all being worked on in different ways.

34:49 So yes is the answer, and it's an important part of our delivery of the of the plan. What was the second half of the question? Over the capacity. Yes. So our rig utilization stats are on that statistics page that we, we showed you back here somewhere. And you can see, if you can read that, that we're if you take if you take if you exclude rail, because a lot of our rigs are in rail, are weekend focused, so that distorts the end of our picture a little bit even though that's changing, and that's part of the work mix I talked about is midweek work as well as weekend work really helps the the rail margins as well as growth in rail, helping the group returns because of the mix compared to the other sectors I talked about.

35:36 But we're operating at 68% utilization for our general fleet outside of the rail business, which is getting up towards the upper end of our expectations. You won't see utilization above 80% with the amount of maintenance and transfer time between jobs. But we have a 118 rigs, and they're not all gonna be used at 80, you know, 80% all the time. So we have some that are right up at that level, some that are lower, and that's where the opportunity exists to kind of use those rigs on jobs where, you know, we we we might have the opportunity to get them out more. But it's not quite as easy as that, of course, because we don't decide which jobs we'd win. So a blended average there of 68% is not bad, but the opportunities are in rail, as I say, for midweek work.

36:24 Some of our, general planning fleet could be out a little bit more, on on certain techniques, but there are also some rigs that we're we're absolutely maxed out, and we're making investments, which is what you mentioned earlier, Graham. We're, you know, we're continuing to grow the fleet where we see consistent high utilization levels, and we're buying rigs that we're familiar with. We we're making those investment decisions. But we're setting a return on capital threshold of 25% for any new rig acquisitions before we do that. I think if you I mean, in in summary, the the the the challenge is how do we get from where we are now to to achieve those those financial strategic targets. And and the the relatively simple answer is that if you look at half one, we've seen very strong growth in the residential sector, which the team's done a fantastic job to to deliver on.

37:18 It is at the lower end of our margin range. And the and and the rail market has come back right at the back end of the first half. We started to see increased activity levels there. So and rail being at the upper end. So we've not benefited from the any great impact from mix. In fact, margin has been has been under pressure. And I think if you if that mix element is that balance is redressed along with the some of the supply chain issues normalizing, that's really the how we ought to get to the medium term targets. Great. Very helpful. Thank you. Bill, just in respect of your your comment vis a vis market expectations and forecasts, can I direct you to the Zoosk Capital website or alternatively, me an email at VANELLE@WALBROOKPR.com?

38:07 We can solve that problem for you. The next question, if I could, is to do with government's rail plans. Does the slowing of government's rail plans have much impact? So I I could see why you might describe them as a slowing of rail plans. But for us, we benefit from the integrated rail plan as published. Less big enhancement projects and more renewals is is is a is a good thing for the type of work that we do. The decarbonization of the railway means more electrification, which is a positive thing. And the commitment to continue with the northern the northern programs and northern connectivity is a good thing.

39:01 The potential shelving of the eastern leg of High Speed 2, we're not too troubled by. High Speed 2 at the end of the day is primarily a big greenfield highway with two tracks laid on top. And and so for us and the niche skills that we offer, where we want to be working is is on the traditional network where there are complex interfaces, and there'll be a lot more of that on the Eastern leg using existing tracks and, you know, tying into the existing infrastructure than there would have been with a with a with a the previous plan. So we're we're we're comfortable with that, albeit that second leg is that eastern leg is somewhere in the distance.

39:49 So in in summary, we're we're very pleased with the integrated rail plan and think it plays to our strengths. Great. Okay. Sticking with the rail theme. How significant could the opportunity around the decarbonization of the rail network be? So that's the point I've just referred to. That that means, in in most parts, more electric trains, less diesel trains, and the electrification programs that are needed to, deal with the thousands of truck kilometers that are currently unelectrified is a very good thing for us. And we are the market leader in the geotechnical engineering in this area, as many of you will know.

40:35 And this has already started with the the Core Valley Lines in South Wales. This is much of suburban capacity upgrade, but it also got placed to the decarbonization agenda. We started work here. The first electrification program we've worked on in three years since I've been with the company, apart from the ones we're finishing off when I joined. The extension of the Midland Mainline up to Sheffield is very good news because we've done most of the other legs south of that with our existing customers, some of whom visited us in Kirkby today. And the Transpentine route upgrade is another electrification program that's being committed to the government's plans. Also very good news for us, and we're bidding for that right now. And there are two or three smaller schemes in Scotland where we're we're active currently as well.

41:20 So, yes, that's all very positive. Great. One quick question on the rig fleet. What is the average age of your rig fleet? And when you sell old rigs, do you sell them at a profit to their depreciated value? So the answer to that question is it it it depends slightly on the on the different divisions, but our our average rig fleet age is somewhere between six and six and seven years. We depreciate rigs over a period of between ten and twelve years, at which point they should have a residual value broadly in line with with the book value. I have to say the with the with the longer lead times on on rigs, there may be a little bit more value in them as as secondhand, but we're not I don't think we're sitting on a pot of gold here that sort of secondhand rigs will will sell them for a great a great deal of profit.

42:22 Broadly, we depreciate them over a sensible time period over the useful economic life, and and we sell them for their or their about book value at the at the end of the term. There's usually a midlife overhaul around about seven years, where some of the key components, and at that point, we'd make a decision on whether to offload the rig at that point or or whether to to invest that that money on the the midlife overhaul, and then extend the life by probably another five to seven years on top. But broadly satisfied with the with the depreciation policy, which changed a few years ago. I mean, the key really is about maintenance. If we maintain the rig fleet as it needs to be maintained, then clearly, we we significantly enhance the the end of life value and the and the term that we can use them over.

43:11 Great. Thank you. One quick question. Residential infrastructure or regional construction, which segment offers the most potential for the company? So all three are growing for different reasons that with different dynamics, and there are subsectors within those three areas. But, to answer your question, the most potential for us is in infrastructure. And you'll see, again, if I go to, this slide oh, sorry, Graham. Sorry. Messed up. Split between infrastructure, regional construction, and, housing has evolved over time.

43:57 If you can see the, left hand side of that slide, if you wind back two years ago, infrastructure was was nearer to 30% and residential was up nearer to 50%. Regional construction stayed about the same, 21%. So we we said that we would increase our exposure and proportion of activity and infrastructure, and that is happening. And and it still continues to offer the the greatest potential, not just in terms of growth, but also in terms of our higher margin activities, particularly rail, which we all, you know, keep keep coming back to. But but highways as well and the Smart Motorways Alliance, you know, is a good example of that. Right. Okay.

44:43 Final one. It's back on rigs again. I'm not sure if there's an easy answer to this one, but the number of rigs has risen by less than 3%, yet the average numbers employed is up by hold on. Dispute. Over 13. Why is that? Is there an easy answer to that question? Yes. But without being I don't wanna be flippant, but not all of our activities require rigs, perhaps to the extent that we might have done historically. So the work that Screwfast does, we don't need to buy rigs for. We use excavators, which are much lower capital, and we can hire those if we if we we choose to. Our diversification in rail has included ancillary civil engineering activities that don't require rigs.

45:29 In fact, we use the same rigs that are usually there for possessions in the first place to do more work. And our expansion in housing, which is where a lot of our growth has come from, and our headcount will have grown, includes the factory being busier to produce beams and piles, which and we've recruited people for the factory, and we've recruited gangs to go and install SmartFoot whilst our rigs have been just busier and busier. You know? So we use less rigs in housing because it's part piling and then part SmartFoot installation, which is hiring a crane. Otherwise, it's coming out of the factory. So in summary, we're deliberately looking at areas of growth that don't always require heavy CapEx for rigs as long as the the other commercial aspects, including margins and and and and and the like are stacking up as well. I think the other point on that one is that, yes, you know, head headcount has increased, and we've we've we've rationalized the rig fleet by adding adding a handful, disposing of a few.

46:38 But but you you just have to look at the I'll flip back to the statistics slide. You just have to look at the utilization levels that we saw in the in the prior period as well. And, of course, as we're starting to get to this high utilization levels, that means more gangs required more more boots on the ground. And that's caused us to need to add to and that and that's helped us to deliver those those increases in in the top line number. Yeah. Good answer. Great. Okay. Final question, and this lends itself to the the m and a piece. What types of business might you wish to acquire to fill a gap in the group or strengthen a particular area of expertise? Well, Screwfast is a good example of the sort of thing that we are pleased with.

47:25 So where there's a niche niche specialist capability in a area of high margin and growth potential that fills a gap, then we are definitely interested. And so anything around the rail sector that that complements what we do or, you know, specialist piling areas, certainly, but not necessarily just to buy a business or or a business as assets that are similar to what we already have. It needs to be something that expands our specialisms or allows a cross selling or upselling of the wider group services in an integrated model, which is again how ScrewFast works.

48:13 So that that's not very specific because we don't have any definitive definite targets, but we are aware of several companies, you know, at any one point in time that that might be worth a look. And we do look at several, you know, during a a, you know, every quarter, but we'll remain very, very selective and careful. Good answer. Excellent. Thank you both. Thank you, Mark. Thank you, Graham, for updating investors today. Could I ask investors not to close this session as you will now be automatically directed for the opportunity to provide feedback? If anyone has further questions or would like additional information on VAN ELLE, please do get in contact via VANELLE@WarbrookPR.com. Many thanks for attending today, and we look forward to updating you again soon.

49:00 Thanks, everyone. Thank you.