Van Elle Holdings (LSE:VANL) — Review of 2024 Results and Prospects

0:03 Good afternoon, ladies and gentlemen, and welcome to the VAN ELLE results presentation. 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 warbrookbr.com.

0:28 The company may not be in a position to answer every question it receives during the presentation today. However, the company will review all questions and publish responses where appropriate. These will be available via your investor meet company dashboard. Finally, I would like to remind you that this presentation is being recorded. I would now like to hand you over to chief executive, Mark Cutler, and chief financial officer, Graham Campbell. Gentlemen. Thanks, Tom. I'm Mark, and this is Graham. Thanks for joining us. We'll quickly run through a series of slides that talk about the FY twenty four results. Hopefully, you can you can see the screen. And then we'll spend a little bit more time than in previous presentations on the outlook in growth markets that we've built, in our opinion, very strong positions in because we think that will really help all of us to understand the potential as we as we move into stronger market conditions that I think we all expect will will will return in the near future.

1:30 FY '24 was certainly a challenging year in terms of the wider construction industry confidence, delays, inflationary pressures, you know, a gap between investment cycles in in infrastructure and, of course, depressed housing market, all conspired to to pretty much come at the same time. All very much as expected, a little bit worse in a couple of areas, but also one or two things that went went ahead of plan. But in the round, we we've delivered exactly what we said. So there shouldn't be any surprises in the results, I hope.

2:09 And we've come in with with a set of numbers that are in line with expectations and certainly as we signposted as as we approach the year end. So consistent profit margins with last year. We'd like to be going faster. We certainly feel we will be. But in in the circumstance, we think we've done we've done very well. And we've developed strong positions in the growth areas that I'll come on to later. We've been busy investing time and effort with with customers and and indeed diversifying overseas as well as with with capability in UK. Again, I'll come on to that later on. And really in terms of the balance sheet and and the dividend, no surprises whatsoever. All very much as forecast, and and hopefully, that's all all all appreciated.

3:05 In terms of the markets that we operate in, just a quick summary. In the all in the in the this is in The UK, really, on the face of it. A a good balance between residential, which includes traditional house building, you know, open market and partnership housing, but also taller residential schemes often for the same customers depending on which part of the country. A lot of taller stuff in London, of course. And infrastructure, which is a combination of rail, roads, and to a lesser degree, some of the utility sectors, water, and energy. But, of course, rail is a niche area for us and regional construction, which is effectively building and building combination of commercial schemes, mixed use schemes, manufacturing and industrial, warehouses and prisons, and a whole mixture of things that very much take place through regional construction companies, and the dynamics do vary around the country.

4:12 Much much wider, more fragmented marketplace. But the point is we're we're diversely spread across all three. That gives us a certain protection against cyclical investment pressures. And what we saw in FY twenty four was very similar trends to what we've seen in previous years. We are deliberately pushing more into infrastructure. We are more selective in construction because that's where we see the biggest commercial and credit risks with some of our customers, and we see the least mature procurement processes, quite frankly. And in housing, we've done more than probably we we thought we might do at the start of the year, and some of the bigger resi has been more resilient. We would expect that to typically be a bit lower than 41% on a similar level to regional construction because the margins are a bit lower.

5:04 And that that mix in the round gives us a very good spread to manage our workforce and manage our workload. But as I said, nearly all of those sectors really struggle to some degree with the wider macroeconomic climate during during the course of FY '24. So we've had to work hard to deliver the revenues that that we've reported.

5:29 Graham, do want to take up from here? Thanks, mate. So from a take a quick run through the the p and l balance sheet and and a and a quick review of the the divisional performance. As Mark said, really, no no real surprises down the down the the face of the p and l. A decline in revenues as we as we expected, revenue down 6%. And you may be aware that we acquired Rock and Illuvium from Galliford Tri at the end of November. So we've got five months worth of trading in there, which accounted for about 8,000,000. So on a like for like basis, revenue is down 12%, which I won't take reiterate the points that Mark's just made, but challenging markets. Very pleasing to see the gross profit performance improving.

6:15 There are two major factors in there. One being the the the the positive mix impact, which benefited from lower sorry, a decline in the housing volumes. So we had a very strong first quarter within our housing division. And then as as has been widely publicized, much more challenging following three quarters. And, of course, our housing division is at the lower end of our margin range. So when the revenues decline, the slightly higher proportion of our higher margin work, and that's that's had a positive mix impact. But more importantly, I think we've had better contract execution, fewer issues on-site, work with teams have delivered really efficiently, really well in the year, and that's delivered a margin improvement overall.

7:00 Of course, we still got some inflationary pressures. You don't have to go back too far to to recall days of inflation running up at 10%. So there have been some some inflation challenges, and and we're working hard to keep those under control, particularly around efficiency projects and some cost saving measures. But overall, it's delivered a a a reasonably healthy looking EBITDA broadly a underlying profit before tax, broadly in line with last year, just slightly slightly down, which overall, I think given the market challenges and the decline in revenue, we're we're reasonably pleased with. I'll just touch briefly on finance costs. We are importantly now in a very low debt position. We inherited a modest amount of debt from the acquisition of Rock and Illuvium. They're higher purchase contracts, and at the end of the year, we had two contracts remaining.

7:49 So overall, total total HP debt is is 500,000. That will clear within the next twelve to eighteen months. So, very modest levels of debt, which, of course, you can see there the impact of of finance cost reducing. We have cash on the balance sheet, which I'll come onto very shortly. And and that, of course, we're we're now in a position with a stable cash balance to to invest that money and and gain some interest book for for the first time the business has been able to do that is in the last twelve months.

8:21 In terms of the three divisions that we report against, general piling, specialist piling and rail, and grand engineering services, very briefly in turn. General piling has seen a a an improvement in revenue, but an underlying reduction. Of course, this division has had rock and alluvium integrated into it. And with five months of trading, that delivered, as I mentioned, 8,000,000 revenue. So overall, on a like for like basis, there has been a reduction in revenue. But more importantly, coming back to the to the to the margin performance, we've seen we've seen good strong margins delivered right across the general planning division, and that's that's showing an operating profit improvement year on year. In the prior year, we benefited from two very, very large contracts, which were slightly slightly below normal margin levels. This year, we've done more contracts, but we've delivered them efficiently and got a bigger and got a better return.

9:18 Specialist piling and rail, Screwfast forms part of that division. That Screwfast solution, that's that's where we report it. Broadly, small reduction in in revenue. Two very different stories. Specialist piling had a very challenging first half with a drop off in activity levels, but come back very strongly in the second half as we as we signposted at the the interim results announcement. Rail has had the opposite impact, which is a solid start to the year. But as we've a CP six network rails control period six has come to an end, the the second half of the financial year has been much more challenging, and we don't really expect to see the volumes in c p 6 ramp up in C P 7 ramp up until 2025.

10:06 Mark will touch on a bit more detail around the rail sector on a on a later slide. Overall, margins have held relatively flat, and the impact there and the reduction that you can see in operating profit is primarily the investment that we've made into the Canadian rail business, and we'll touch on that on a later slide. In our grand engineering services division, we've got formed two parts. So 80 to 90% of revenues come from our housing division. And, of course, the housing market has been very challenging. We saw a very strong first quarter, as I mentioned, and and the team's done actually very well, I think, over the remaining quarters to to achieve breakeven while while the market conditions have still been very difficult. But what we have importantly done is retained all of our capability and people, so that as the market recovers and we expect it will, we're we're well placed to to take advantage of that growth and return back to more historical levels.

10:59 So a the challenge really here has been a reduction in in volumes, and you can see that flow right through into the into the operating profit reduction. Strata, which is about an 8,000,000 turnover business ground investigation part of the business performing very well. Historically, we we deliver sort of 50% gross margin. So it's a high margin part of the business. Lots and lots of small contracts. A good addition to the group structure. A lot of cross working across some of our other our other divisions, and I'm pretty pleased with the performance there overall. In terms of the balance sheet, a huge amount to say here other than it's clearly backed by a significant fixed assets balance. So, you know, the backbone of our balance sheet is a heavy investment in in in our assets.

11:48 We see that there's growth year on year, and that is a capital spend internally of 5,500,000. And as part of the acquisition that I mentioned, we brought on the books, plant and equipment of of 2,900,000 as well. So continuing to invest in the in the fleet of the business. Working capital is up a little bit, primarily due to a a a very strong end to the year. We had a very big revenue performance in April, and, of course, that hits our our receivables position. We've also got an r and d tax claim there, which is very normal, slightly bigger because the scheme the scheme that HMRC offer has has improved. And so we've we've we've made a bigger claim that sits in debtors and causes a bit of a working capital increase. But overall, we're trading at a normalized historical working capital levels when you look over a a rolling twelve month basis.

12:40 And and the final point really is, I think, from a from a balance sheet position, a funds position, we are we're we're we're we're do you know, we're in a a comfortable position a comfortable place. Lots of businesses out there in our sector are struggling. We're sitting with a healthy cash balance, 6,000,000 at the year end. Very low debt, 500,000 as I mentioned earlier. And really, only other the number that that sort of brings us to 1,660,000 net debt, which most people discount anyway, is the IFRS 16 lease liabilities, and we've got we've got 7,100,000 of those. And, importantly, we still have the 11,000,000 funding facility, which for those that have joined this call before be be familiar. Undrawn during the year, a very important safety net provides us great scope for for growth and managing working capital ebbs and flows if we should we need it.

13:33 There's a bridge here on the cash flow. We've moved from 8.9 down to 6,000,000, as I just mentioned, as the closing cash position. You can see there a healthy operating cash flow. The normal things we've seen, working capital growth, which I've talked through, a significant amount of net CapEx. The acquisition cost there is is twofold. It's the first tranche of the ROCKINELUVIUM payment, which is 1,800,000, and then the final tranche of our acquisition of of Screwfast Foundations, which we completed in April 2021. Normal levels of repayments of loans and borrowings there, and, of course, the the dividend, which we returned to the dividend role a couple of years ago post post pandemic. So I think broadly, cash is is is is looking reasonably sensible.

14:22 There's a capital allocation model here. We haven't published this before. I'll just touch on it very briefly, but clearly, priority is to maintain that strong balance sheet, disciplined cash management, keeping debt low, and making sure we've got enough cash to fund the normal working capital cycles. In terms of second priority is investment for growth. So given us the capacity really to use our cash to grow organically, Canada would be an example of that, but also to reinvest in the fleet and make sure we've got that market leading fleet that we, know, we have a 132 rigs and make sure that they are operating efficiently modern rigs. And also give us the capacity for strategic bolt on acquisitions. Clearly, we have we we don't have huge volumes of cash, but we have enough to be able to complete small bolt on acquisitions from cash resources, which is which is what we've demonstrated over the last two to three years.

15:19 Third priority, I think, remain on the dividend distribution. We expect dividends to grow in line with earnings. And but it is a it is a prudent dividend distribution simply because we see strong opportunities out there in the market both for organic and and and and acquisitive spend. And then as a final a final priority, we've got distribute x cash. I think we're not in that position at the moment. And with the opportunities that you will see on future slide on the next few slides, I think you'll see we've got plenty of opportunities for for spending our cash. Quick reminder of our of our strategic targets there on the left hand side. Priority, really, operating margin getting up to 6% return on capital. 15 to 20% is our target. We're obviously at the leverage and, I mean, more recent years, annual revenue growth, we've we've got into the five to 10% compound growth rate. And a quick reminder there of the two the two acquisitions that I've I've just mentioned, Screwfast in April 21 and Rock and Illuvium earlier in this financial year.

16:20 So it's probably worth actually, Graham, reminding where we are right now in terms of these results. The operating profit margin is 3.9%, flat with last year, and return on capital. I don't know if we put that into the presentation, did we? But we're, you know, somewhere between yeah. Yeah. I mean, we've we've progressed from the from the pandemic years to to grow our our operating margins. We're currently 3.9%, as Mark said. In terms of the growth segments that we are focused on, these these are effectively all of our sectors, really. We see growth in all of them. The housing market is, no doubt reasonably well reported, and, you know, won't be any surprises here to to see, the the new government and and commitments around housing volumes, and easing the planning restrictions, the potential for reduced mortgage rates are all very positive signs that will stimulate the, construction of, new housing around The UK, both open market sales and and major volume house builders and partnership and affordable house builders. We work for both, and we have a little bit of resilience as a result of that.

17:43 We also have a a very smart system called SmartFoot, which allows house builders to complete schemes faster and modularizes

17:54 the foundation construction process to get out of the ground with less risk, less resource. And in brownfield locations, that's got distinct benefits. It has as well even in in in greenfield locations, but we think the benefits of our system will be exacerbated. And we've been busy developing initiatives to prepare ourselves for the growth ahead. We we announced just before our results expanded facilities at our pre for our precast factory to deal with higher volumes of precast pile manufacture, a collaboration with M and J Evans, who are a like minded national ground working business where we see the benefits of integrating our capabilities on major house building sites and a, a big scheme for, KeepMode in Nottingham that will be the trailblazer for that, which we're both, awarded to.

18:51 And early indications within our own business in terms of order intake are very positive. We are 30% up on q one, last year in terms of orders so far. Very early days. Those don't those orders don't necessarily, translate into starts on-site with any real absolute firm time frames, but it's all moving in the right direction. We're expecting increased activity levels materially from FY twenty six. If we some of see some of it in the balance of this year, then then fantastic. I split the rail our views on the rail sector into two, one for The UK, one for Canada. In terms of The UK, obviously, Network Rail are the dominant procurer of rail contracting services, and we've been transitioning, as Graham explained, from control period six to control period seven.

19:48 Control period seven started April 2024, but it is normal to spend a year in the first first year designing and scoping projects because all of the regions in network rails world on the right hand side, we procure frameworks at every control period. So the the deck chairs move around and the procurement models change and our customers change as a result. Now good news is that the winning contractors for the CP seven awards, and they haven't all been announced yet, are household names that we have developed deep relationships with during CP six. There aren't many surprises to us, and that will take us quicker into CP seven than we would have done five years ago where we were still, in my opinion, you know, developing some of those relationships better.

20:43 We've also been diversifying customer base and secured a major framework direct to network rail in the Southern region that is mobilizing. We should start first projects in September. That's a ten year deal potentially. And we have a major project that is spanning, almost spanning the transition period on the transparent route upgrade, which is now underway at a reasonable scale and would only get bigger and would extend for three or four years. And we are in a very good position

21:13 in terms of scope of services we're providing across Manchester, across to Leeds, and and and either end as well. It ultimately goes to York and up to connections out to Liverpool. Very important program for us. And in our and on our horizon is the next major electrification program in The UK. This is very stop start, unfortunately, with Network Rail, and this will be the Midland Mainline Electrification extension to Sheffield, which is long awaited in the industry. But I think it's fair to say all those things together, once they they come through, including the stations that I referenced here, look good. But I think we're looking at f y '26 and f y twenty seven for it to really gain gain full traction, if you excuse the pun. But at the end of the day, I feel a lot happier going into c p seven than I felt going into c p six.

22:06 Now the other initiative that we undertook was to diversify further beyond just The UK into Canada because we felt that the cyclical spend in The UK and the lack of confidence that that that not just us, but the wider supply chain in the rail industry felt with with with with patchy investment meant that we needed to do something much more much more sort of radical to

22:34 allow us to to achieve what we wanted to achieve. And as I explained in previous presentations, we selected Canada after a an international review of of opportunities, And the conditions in Canada absolutely fit very well, our capabilities, and the timing for us providing these these expanded services. So 12 ago, we mobilized into Toronto on the on the face of it initially to, become the delivery partner for the Toronto, network expansion pictured on the right, which is enormous. Far more than we could do on our own, by the way.

23:13 But, of course, we're faced, as may be predictable, faced with delays and disruption that really made for FY '24 quite a challenge. We've invested and and reported a a loss of, just over £1,000,000 here operationally during FY '24. So results that you've seen have absorbed this investment, and we are now in a position coming to the end of q one where workload has ramped up significantly. We have a diversified customer base as a result of not waiting around for the go expansion program.

23:47 We're on the verge of being finally the preferred bidder for the latter, and have developed a customer base of industrial customers that's proved to be much, much more easy than we thought it might be. And and this proved a very attractive contracting environment for us, and we're delivering services that frankly don't exist in North America, let alone in Ontario. And the pictures at the bottom here are the sort of things I'm talking about, which is road rail based equipment delivering line side works. It doesn't have to be piling and foundations. And this technology is not at the as advanced as we've developed in The UK off the back of our experience in c p five and c p six, let's say, and is in high demand already. We only have four machines in the country and a team of eight people, but they are are now flat out. And we're planning the next shipping of equipment and and and the building of our team over the over the rest of f y twenty five.

24:45 The 40,000,000 Canadian dollar bid pipeline, we're winning 80% of what we're bidding and, you know, really pleased with progress. We'll deliver a profit in Canada this year, we expect, and, you know, start to demonstrate the investment we've made has been more worth it. The water sector is is not a sector we've talked about frequently in these presentations because we've not had a real focus on it, if I'm honest. We we bid projects all the time but haven't really invested dedicated resource into the a deep understanding of the the needs of the sector and the relationships both with water companies and the tier one contractors. The good news regarding the contractors is a lot of read across from rail to highways to water in terms of the infrastructure divisions

25:36 of our major contractor customers. So it is quite achievable for us. And we've used the opportunity of the arrangement that we have put in place with Galliford Tri to accelerate our progress. It was part of the rationale of the rock and alluvium acquisition and particularly thinking about water, and that is progressing well. And we've been building up schemes and developing designs, planning projects, and as Gallifords are getting visibility of the schemes that are coming through either at back end of AMP seven or and and and or into early stages of AMP eight. We are now there with them and indeed one or two other customers who have similar, scale of ambitions in in the water sector.

26:25 So we're quite pleased with progress. This is in the context, of course, that the spend in AMP8 is almost double what it, was in AMP seven for, again, well publicized essential reasons why, more infrastructure needs to be built or improved, across The UK. And and this is equally important for Scottish Water who are that regulate it slightly differently and working all across the country in every every region of with every water company at the moment, it looks like. So we're really pleased with progress. One thing that we we do in water, and this is a theme, is that we'd have differentiators that are different than our our competitors. And right in the middle of this are two initiatives. One is the Screwfast acquisition from April 2021, which is which is always very strong for highways, but as I've come on to, that hasn't quite worked out as we'd hoped in terms of that market growth, but works very well in water in terms of modular steel foundations that are speedy and efficient in with repeat standardized designs.

27:30 But also our civils capability, which we've developed organically, goes hand in hand with the foundations work that we do because the these works interface with each other. We've been doing this in rail for a couple of years, it works very well. And sometimes customers want the combined service a bit like what I described with M and J Evans in the housing sector earlier. It reduces the interface of people tripping over each other, working on simple stuff that could be done by one one party. The stuff we do is more complicated, so we're starting from a strong position to do ancillary civil engineering works around us. And even more exciting, in our opinion, growth area is energy. There is a, again, well publicized commitments from Ofgem and the asset owners to upgrade, replace, provide new connections for for the transmission network and indeed the the more local distribution networks.

28:32 Bringing green energy connections onshore is behind a lot of this as is replacing, worn out, infrastructure often, you know, fifty fifty years, or more, old. We're doing quite a few transmission towers that are are, where the foundations have failed, for example, at the moment. And effectively creating a capacity for the the the the country's security and low carbon needs into the future. This is, again, essential infrastructure is not optional. We're pretty confident that the frameworks that we're seeing announced, you know, almost on a week by week basis in different different parts of the sector are are gonna proceed at pace. We've developed frameworks of the back to back of some of these major announcements with the tier ones that are going to be delivering a lot of this work. Not everybody because we're selective about who we will work with. Again, we're focusing on customers where we have a a read across from other infrastructure sectors where we're familiar, and we have a good level of trust and and and understanding of the relationships.

29:44 But we also have a a good track record in transmission and energy infrastructure. We've done over a 100 substations, for example, within the group. Quite a few, the majority of which were done by Screwfast over the years. And we have done a lot of transmission related work and onshore wind farms, for example. And you put all that together, we've got a very good combination alongside our, unique capabilities, which are very similar to water with, having the ability to do all foundation types and civils in difficult locations with complex foundation techniques, as required. And we are we are quite different in that respect and and so confident that we'll be in a a leading position going forward. Again, this work isn't really gonna start in earnest into FY twenty six.

30:34 There's a lot going on now in terms of early design and and planning with with the partners that we're working with. I I wanted to mention highways because perhaps contrary to popular belief, it I mean, it's been difficult for us in the last couple of years in in highways. We're we're very disappointed, of course, that the Smart Motorways Alliance didn't turn out to have the potential that we thought it would have at first. We've ended up probably delivering 10 to 15% of the volumes that we would have expected at one stage, but we delivered them very well. And we've made the most of our position on that framework nationally. The photo on the left is is one scheme, for example, of a retaining structure you've done on the side of the m one recently.

31:21 And we've we've done several others. We do all the gantries now on the Smart Motorway Alliance using our ScrewFast Foundation solution. And Strata, our grand investigation business, are out doing grand investigation on highways all over the place of a national framework with with National Highways that's been growing during the course of FY '24. As we look forward into what the highways or National Highways call RIS three, which is their investment program. We're I would I I feel more confident than I would have felt twelve months ago. Part of that is helped by Galliford Tri's presence on several schemes that are visible to us and have been through the delays and environmental challenges affected many highways projects over the last year or two.

32:10 And those are that's a greater level of visibility than we normally get if I'm honest. And we have one or two other partners of a similar pedigree in which we've emerged as their not their sole delivery partner, but certainly, you know, one of their preferred. And that gives us a lot of confidence that we, you know, making good progress with the those customer relationships. And, again, those are the same sort of customers that we're seeing in the other sectors I've mentioned earlier. Bam Bam being one of those, for example. And then finally, in regional construction, which is a more fragmented market, more nebulous, difficult to focus on consistent customer relationships nationwide because the delivery of the enormous amount of building work that goes on in The UK is spread across regional offices of building contractors or regional contractors that that only operate within certain geographies.

33:07 And there are many, many different projects and project types. So very diverse customer base. We're very careful here with customer credit and their ability to to to to make, yeah, make good the the the the payments the payments to us as we deliver the work. So we put a lot of effort these days into governance around credit worthiness. But we do see areas of growth here. Again, compared to twelve months ago, the acquisition of Rock and Illuvium gives us a much stronger position in London, the Southeast, which is a bigger market by, you know, fact. And our pipeline in London Southeast has grown significantly as a result by combining rock and alluvium with a wider VAN ELLE capabilities.

33:58 But, also, there are emerging trends of strong investment in data centers, industrial schemes, battery factories. Warehousing is still strong. Our expanded precast factory helps us with with that as well. And also prisons, the MOJ program for prison construction, you know, again, gets a lot of press, but we are seeing now the start of the the new prison program starting to hit early site works. And we are involved with weights who are the the leading framework partner in multiple frameworks that exist with delivery of of several of their schemes on a on a on quite a close partnership basis, which we're very pleased with. Again, we've put a lot of time into that. So we see opportunities here that are a bit more structural than perhaps some of the high volumes of bidding that we've always done without really maybe seeing the progress in individual segments.

35:03 So looking forward to further progress in this sector as well. And if I was to rank all of these, this might be further down the list. We're still moving in the right direction. Near the top would be energy and water and rail in Canada as the fastest growing segments, but all all of the ones I've just mentioned should be should be delivering increased revenues as we go forward over the next three to five years. Just a brief update here. I won't go through there's a very detailed slide. Obviously, you can use it for reference. I mean, just showing our commitment to our c o two reduction plan. Sustainability, our our our efforts in the year have ramped up significantly on sustainability. We have a senior work level working group with representatives right across the business looking at our sustainability policies.

35:52 I think we, you know, we we we've had a a huge amount of activity in the year that I I won't cover off here, but, you know, couple of highlights. We we held a sustainability open day in our head office at Kirkby. Customers and suppliers visiting, demonstrating products, their sustainability efforts, sharing ideas. And I think I'll just touch briefly on social social value, social efforts. We have, I think, punched well above our weight for the size of company that we are in the local area. We've got a huge amount of our team here who have contributed to local local schools, local parks, local council initiatives. So much, much greater profile within the company. And as I say, there's a reference there to our our targeted reductions on the route to to to to 2030.

36:41 Much of that in the left hand column 2022 is delivered now, and we're now focusing on 2025 as we as we move into next year. Okay. Yeah. So in summary, we've achieved a lot we feel in in the year that we're reporting. Resilient set of results. We would like to go faster. But with market conditions starting to align towards the ambitions that we have for the business, we're still looking at we are constantly assessing acquisitions and monitoring, you know, smaller piling contractors that might be feeling that the time has come to call it a day. We bought some acquisition bought some assets recently from from a company called Fussy Piling, which which fitted in perfectly to what we wanted to do. We're mindful that we need to, you know, keep keep a handle on on working capital as we grow.

37:37 But we but we believe we've got the funds to to do all the things we want to do organically and and through potential bolt on acquisitions over the over the next few years, all towards delivering and and and no doubt, hopefully, outperforming the medium term financial KPIs that we've listed here that, you know, with a with if everything falls into place, there's no reason we can't do these, you know, by FY '27, but certainly in the range FY '27 to FY '28, allowing a bit of wiggle room is is certainly achievable. Great. Super. Alright. Thank you, Mark. Thank you, Graham. Now if we could turn to the questions, we've had a number of questions 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.

38:26 Mark, if I could start with you, we've got a couple of rail questions and a bit like question of sport. We got one home, one away. And we'll start with the home one if we can. John asks, did Sunak's decision to axe the northern leg of HS two reduce expected future prospects? Yes. It did. Yes. It did, John. Unfortunately. It did. We expect we would have expected to have put in place the embedded delivery partner position that we did not get the chance to do for phase one because those decisions were made in two thousand fourteen, fifteen, sixteen. We were not ready as a company at that stage. We were certainly ready by the time phase two came along. I would have expected we'd have teamed up with one of the leading bid bid teams and been successful.

39:13 We had already won a grand investigation framework for the whole of phase two direct to high speed two in in only the a couple of weeks prior to these things being canceled. So that, unfortunately, came to nothing. That would have transformed transformed the size of Strata, perhaps doubled it. So we were pretty disappointed, but, yeah, it had an impact on us. Okay. And and the away question, how quickly can you scale operations in Canada? Well, we can we can we can go pretty quick. We are the only UK business, international business that has figured out how to adapt the technology of the sort of kit that I was talking about to work on the Metrolinx network, which is not a straightforward process.

40:07 It involves quite complex engineering and adaptions to the equipment. We've done that. We've we have four rigs out there at the moment. We've trained operators, and we've achieved all of the essential licenses that are needed to work on the Metrolinx network unsupervised by anyone else, and built a team that's absolutely amazing. Nobody else has done that. There are domestic contractors, obviously, that have, licenses, but they don't have the kit that we have or the operators that we have and don't know how to do the training. We have seven more machines from our UK fleet that we are prepared to send across because this ends up being a an excellent opportunity to maximize utilization of the assets that we have. We have three more machines coming into The UK anyway that we ordered twelve months ago. So we have plenty of options for rigs.

40:57 We have a workforce we can build on. We've got the unions right behind us working with us, and we've got a customer that's pulling us into more and more work all the time. I'm hoping to convert the preferred bidder on the Go expansion project into an award in the coming few weeks, and that will then give us the ability to plan with, a funded commitment, a reimbursed commitment to put some of this extra investment in place. What I won't do is repeat the learning that we had in f y twenty four where we thought the work was there. We sent the kit, and then the work just was delayed. And we we ended up struggling a bit. We we think this time we're in more control of the timing of that, but we can do it quite quickly. Great. Super. Question for you, Graham, balance sheet based from David. What are the £8,000,000 of provisions under current liabilities?

41:50 And the second part of his question is, what was the pounds quantum of the legacy contract dispute? Yes. Good question, David. You're pleased that somebody's reading the detail of our annual report. So so, look, the the majority of the 8,000,000 provisions on the balance sheet is largely a a gross up for the in relation to the to the agency contract dispute that we had. This is a claim from a contract dating as far back as twenty twenty fourteen. So very old legacy contracts, certainly free dates, Mark and myself. It's been long disputed. The challenge here, the judgment here was whether the claim against us would would fall within the insurance program that we have under our PI cover.

42:43 And that's the judgment that we've been making over the last four years. Our view has always been that it would fall within the the insurance cover, and so the the accounting treatment has been to grow effectively gross up the balance sheet. So you'll see a corresponding debtor for the amount that we estimated would be would be settled at and a corresponding provision, that is certainly the majority. There are some smaller provisions within there that make up the the total 8,000,000. I guess the key point to say here is that this is now resolved, and it did resolve in line with the the judgment within the within the insurance cap. So when you look at our interim accounts, you should see that provision number dropping down to much more normal levels. Of course, there will be stand normal normal provisions as you would expect in any business, but the big gross up will drop off by the year by that next time we report.

43:35 Super. Thank you. Focusing on growth in m and a, Andrew asks, with a strong balance sheet and undrawn bank facility, what are the key areas of focus for bolt on m and a and organic growth investments moving forward? I I I probably, I think, answered all the organic growth investments. I mean, the investment would be in those areas, CapEx and working capital, which we we can we can plan. And we have the CapEx identified in in budgets and business plans going forward, and it's it's within the envelope of normal annual investment. We we we don't think we're gonna have to go crazy here.

44:24 We will also a bit like Canada, we'll also divert rigs to areas of better utilization, higher returns where we need to as well. And I've said this to some of our customers. I I will quite happily divert, capacity from our precast factories into the energy sector if if there's a big demand for a precast, for example, compared to some of our lower margin works if if necessary. You know, some of the work we do in the with warehouses can be quite aggressive terms and conditions and and not quite as as as collaborative. So so why why pursue that if I've got big substations that that might demand some of our support? So we can you know, we'll we'll divert resources to get the best returns. In terms of m and a, it wouldn't be a surprise perhaps if we we'll stick to The UK, and we would be looking at where we need to strengthen either niche capabilities or resource depth in the localities where major investments are perhaps beyond our normal resource base.

45:35 You know, Scotland might be a good guess. You'd you'd think to places, you know, where we might wanna strengthen our embedded embedded presence, that sort of thing. Looking at the sort of sectors and and the and the and the the sort of capacity that's needed to to deliver in those sectors, that that's where we'll be focusing. Great. Thank you. Just focusing on energy and water, what does the competitive landscape in the water and energy sectors look like? It tends to be the same people we see time and time again, often subsidiaries of tier one contractors, in which case we steer away from working for those contractors. The difference is that we have, unique capabilities compared to some of those rival companies that I've mentioned in the presentation, and that allows us to not only maximize our market share with with with with companies that don't own their own pilot company, but also, we think influence the way that lines are are specified by National Grid and SSC and and and Significant opportunities that we're in discussion about. For

47:29 example. So more wide range of customers and, you know, a a a competitor landscape that we we're quite familiar with and we understand. Water to say Okay. Different work. Great. Super. I I I lost a little bit there. I don't know if that was you or me, but we'll we'll we'll we'll just move on quickly. A couple of questions from Paul, and you you may not be able to answer them actually, but I'll not read them out. First question is ex the Canadian turnaround, what would you expect profit would you expect profits to be ahead in the current year? And I guess that's probably one you can't answer. If I understand what that means, will we make a profit in Canada this year? Yes.

48:15 We expect to. Will it be ahead of what we currently expect? Well, I'd hope so. If if things carry on on the on the current trajectory, we've we've set quite modest targets for this year in terms of profit because of, you know, we're not quite sure when we did the budgets, how it would go. There's the there is the opportunity to outperform that if we continue to make such good progress. As we look forward, then the contributions in Canada could be quite material to the group as we look forward to FY twenty six, twenty seven, twenty eight. But we've got a long way to go before we we we're we're putting those into the into the group's forecast. I think Paul's question may be in relation to sort of excluding the Canadian turn around, which obviously should Oh, I see.

49:01 Should deliver should should deliver a you know, should deliver an improvement year on year. I mean, consensus for market consensus for next year is a profit of 6,000,000 broadly. And and so clearly, having just delivered just over 5,000,000 with an investment of about 1,000,000 or so in in Canada, that that that broadly explains it. We are not expecting any significant market improvements certainly in the first half of the year. It is still challenging out there for us. But I think the, you know, the opportunity for me lies lies in in half two and and the and the years beyond because a lot of that optimism that you see from the the market sectors that Mark just talked through, I think, is, you know, is is back end of FY twenty five into '26 and '27.

49:48 So hopefully that that Yeah. Great. But so I don't know. You want me to ask that last point, Paul, it it's not my wife bashing me over there with a frying pan. I've had a a small procedure on the top of my head. Nothing to worry about. All under control. Yeah. And for those who haven't seen the question, the question is I hope the bandage is nothing to worry about. But but the final question, and then we'll move to close, is what is your fleet utilization rate, and what could it be in better conditions? Well, do want me to stay on? So I'll maybe just jump to the statistics slide, which you guys see on on the screen there. So the average rig utilization over the last year has come down as I mean, hopefully, the message has come through.

50:37 The it it has been a challenging second half, certainly. And you see the utilization 51%. Previous year was sitting at 61% across the board. If you exclude rail, and you need to bear in mind that our rail division in The UK historically has only worked weekends. We do occasionally get midweek work, particularly if there's a large electrification program, which as Mark's already said, haven't seen for a number of years. We can get midweek working where where we we sort of get bumper margins. But historically, in the last few years, really, it's it's brought the weighted average down. So overall, 55% is our utilization excluding rail, 65 in the prior year. What could it be in in in in good times?

51:27 At the top end, 80% is is if is is almost fully utilized. These rigs have to move around the and they have to be maintained. So there is always a time where they're taken out of service for for maintenance and and travel and transport. We, you know, we we can get them over months over months trading in a 100%, but over a long period of time, over a year, 80% would be, you know, near near full utilization. You know, at 65%, that was, you know, that that in the in the prior year, that was that was re you know, we're reasonably busy, but we had our downtimes as well with the with the market conditions in the prior year as well. So, look, I I I think if we if we're getting up towards 70% utilization, 65 to 70% utilization, the company's performing reasonably well.

52:16 Super. Great. Okay. Lovely place to stop. Thank you, Mark. Thank you, Graham. Thank could I ask investors not to close this session as you will now automatically be redirected for the opportunity to provide your feedback? If anyone has further questions or would like additional information on VAN ELLE, please do get in contact via VANELLE@WarbrookPR.com. Thank you all, and thank you, Mark, and thank you, Graham. Thank you. Thank you.