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

0:04 Good afternoon, ladies and gentlemen, and welcome to the VAN ELLE interim results presentation. 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'll 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 vanl@walbrookpr.com. The company may not be in a position

0:35 to answer every question it receives during the presentation. However, the company will review all questions submitted today 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. Afternoon, everyone. Okay. We'll run through, our investor presentation, as delivered, this morning to, institutional analysts as well, exactly the same, document and, give plenty of time for questions at the end. If we can just go to the overview section, I hope you can all see that.

1:25 We're pretty pleased with, performance, in the in the first half, resilient performance in the in the face of very challenging market conditions, you'll be you'll be well aware that the construction industry is suffering a little bit from inflation and, you know, difficulty sort of getting momentum in in terms of invest investment confidence in in several sectors and affordability issues and high interest rates around around projects in in in pretty much all sectors. And we expected this when we set our forecast and budgets for f y twenty four. So revenues are down as a result of that, and we've, you know, benefited from being as diverse as we are across housing infrastructure and construction in terms of, making making, progress in terms of the work that we are we're able to bring through.

2:21 Margins have been maintained broadly in line with with last year. That that underlying that, our gross margins are up, which we're pleased with. We're still seeing wage inflation and some cost inflation, but we're generally quite successful passing that on to our passing that on through our contract mechanisms. No particular issues around getting caught with fixed price deals or or or cost inflation that's given us any commercial issues on projects. A very, very clean operational performance in the in the period. So that's left us with operating profit of of 2,700,000, and as I said, 3.9% operating profit margin. This year, I think, very much is is one of you know, where it's it's got it's always going to be a a flat performance.

3:13 Our forecast is is a touch lower than it was last year. As as you as you'll be aware, we're holding that full year forecast, but we're itching to make more progress. We'll be making more progress as soon as the markets improve and give us some momentum in the sectors that everyone's familiar with, housing, rail, highways, and the construction markets. But we've also been pressing hard on diversifying further,

3:44 with in The UK with energy and water and also in terms of rail in in Canada, which we'll we'll touch on, a little bit later. And we see see tremendous potential, in in on all of those, actually. Cash position is is, improved. Our net funds position is improved. Our balance sheet is very strong. We are a very safe bet for, you know, the the the the tier one blue chip customers that we focus on, and, we have the headroom to to do more in terms of acquisition and CapEx to support growth going forward. So very, very stable financial position. And and we've made a couple of comments on the front page about Canada just to be ultra transparent.

4:34 First of all, it's taking us longer to get started than we expected, and I'll come on to that a little bit later when we get to the rail section. But we're we're we're sustainable, you know, through the turn of the year, and we're gonna we're gonna take our time just to review given slippage on some of the bigger programs we're targeting, you know, how we want to make the best of our resources in in the next in the next planning period. And, also, we've pointed out that, we have an increasing and recurring upside from, research and development expenditure credit, RDEK for short, where we've reported, an increase in in in in the contribution in this period, which we should we should be pleased about because that reflects the innovation that we're putting into into the sorts of products and services that are gonna fuel our growth, and it's something that we we expect will improve consistently going forward as well.

5:32 Those two those two items broadly net off actually in in the period. We've we've confirmed the interim dividend, which is, know, not not out of kilter with previous, yeah, previous announcements. Great. Okay. Thanks, Mark. So quick rundown as usual down the p and l and balance sheet and and then a quick counter through the three divisions or the segments that we report against. In terms of the income statement, as Mark said, a drop off in revenue as we expected with a very challenging set of end markets, not least you'll be familiar, I'm sure, with the current level of new build housing.

6:19 If you've read any of the house builders' recent announcements, that is certainly a challenging sector that we expect to continue through certainly end of the financial year.

6:32 Particularly pleasing is to see the improvement in the gross profit percent. We've talked about this again in previous presentations and this is I suppose two fold really. One is the improved mix of our workload. So higher volumes of work at the upper end of our margin range. That's typically within you've seen rail, strata and some of our infrastructure works have delivered well there. And of course with the drop off in housing, which is at the lower end of our margin range, that balance has been slightly redressed back to so we're pleased to deliver just over 30% gross profit margin.

7:16 We are certainly still facing inflationary pressures on our costs. We've got a cost management committee. We're looking very close to our costs and what we can do to reduce them. But inevitably, as you will have read, I'm sure across the market, wage inflation is still running high. We've got in 2022, we saw across the year around about 10% wage inflation and 2023 calendar year broadly five to 6% around that sort of level. So you'll have seen, of course, the inflation numbers published and that is impacting us. It's hitting us hard, but we're looking at other efficiencies to manage that cost base as best we can. The other thing in terms of the flow through here to the profit numbers is, in previous years, we had a couple of challenging jobs, and and this is a relatively clean set of results.

8:09 So if you were to wind back to a previous r and s from the previous year, you would see comments around challenging jobs, low low margins, and actually our operational delivery has been excellent in the first half. Much fewer issues on jobs. We've closed out two of the largest jobs we've ever delivered as a group. We've closed that out successfully with the with the customer.

8:35 In terms of EPS, just very briefly, we've taken a prudent position on booking at carry forward losses for the for the setup of the of the Canada business. And what that means is we effectively haven't booked a deferred tax asset in the balance sheet and therefore it impacts EPS. So I suppose on an adjusted basis, it's a bit easier to read that if you think about the impact of of Canada short term losses and the prudent position we've taken on that, you could have the adjusting element is about 0.6p on top of that. So arguably on an adjusted basis EPS, true rate is more like 2.2 compared to the previous year of 2.6. Three divisions. Let's start with general piling.

9:21 You'll see there clearly general piling's revenue down 13% period on period.

9:27 What we've seen here is growth in residential and infrastructure, but much reduced levels of commercial construction projects. And we had a very strong comparative period in that sector within general pilot. The sector itself remains, as always, it's very competitive, and therefore, by the nature of that, it becomes very price sensitive. So the team working very hard, lots of good opportunities in the pipeline. But but off the back of last year, where we had a brought forward order book with significant projects in there that were delivered during f y h one, f y twenty three, we had a a lower order book brought into the current year. So just softer markets overall, I think, within the within the general piling division.

10:14 We acquired Rock and Illuvium on the November 30, which we're particularly pleased about. It strengthens our presence in the Southeast. You'll have seen the order book increase overall And and, you know, particularly attractive there is is Rock and Living bringing in just short of 12,000,000 in in total orders. Market is still challenging in the Southeast because they are heavily exposed to the residential sector. We're starting to see some improvement in the market there, and that's reflected in their in their very strong order book. Of course, we'll touch on this a little bit later, but associated with that Rock and Illuvium acquisition is the five year trading deal with with Gallipard Tri where we have we will support them with piling works over the next over the next five years.

11:02 The second of our segments is specialist piling and rail, and that is a very mixed story here. Overall, the revenues are down period on period, and that's reflected in the lower operating profit. What's particularly been hit hard is the specialist piling division, and that that has operated near capacity until 2023, the beginning of twenty twenty three when volumes dropped off. Much softer market conditions. We we always thought that would be a a short term dip. But what we've seen towards the end of half two is despite the weaker performance in half one, we've seen very good order winning just before the beginning of half two, and and and the division is now operating at pretty much capacity. So we're expecting a much improved performance for specialist piling in the in the second half, of the financial year.

11:50 Rail is a slightly different story. Rail has benefited from the final year of CP six and has been very busy in the first half. How this sector looks moving forward, and Mark will touch on this in a bit more detail, but as we exit c p six and and network rail goes into the planning period for c p seven, we will inevitably see a drop off in activity. We're already starting to see some of that. But the next bullet point is is key, which is that we've we're on a we're on frameworks for the transplant on route upgrade, and we expect to we expect that to provide a a base load of work, through 2024. So as we see the dip in the between the control periods, we expect transplant on route upgrade to, to to step in and and fill the gap. Mark's touched on on Canada already, so I'll move on.

12:41 Grand engineering services for those that have watched these presentations before, this is effectively sort of 80 to 90% of our housing division and then approximately 8,000,000 seven to 8,000,000 or so of Strata, which is our ground investigation division. I mean, look. No no surprises here probably given that the volumes are off 17%. Demand for housing was extremely strong in the first quarter. Very, very busy. We're very pleased with the performance in the first quarter, not least because there were new building regulations coming through in June, we saw a bit of a hiatus of of of of of of work before we saw the the decline in the second quarter. But as expected and as many of the house builders are are are talking, we've got a we've seen that decline in workload in q two. It's continued into q three. We expect broadly the same in q four, before a a steady market recovery.

13:41 Our current view is that the dip may not be quite as severe as, some some commentators were predicting, a few months ago. Strata, very little to say. It's going you know, the division's going very well. It's at the upper end of our margin spectrum. Revenues are growing, and we've made really good progress on a number of infrastructure fronts, not least, in the highway sector and and on some HS two, ground investigation projects.

14:12 And the balance sheet, well, I think we're in a a good position. We've continued to invest in rigs and the group's transport fleet. The net CapEx in the period is 2,500,000, but the story behind that is that we've actually invested 3,900,000 of CapEx. And we've focused on high utilization, higher margin, higher return on capital rigs, and we've offloaded and disposed of a number of the lower utilization elements. So for example, we've had a close look at our HEV fleet. We've kept what we think is the optimum measure, to to operate our internal transport fleet as effectively as possible. And so that gives us a net a net 2.5 spend, but the underlying investment in the business is is close to 4,000,000.

15:00 A slight decline in in working capital as you may expect with a reduction in the activity levels. And and in terms of cash, well, we we net funds we're in a net funds position, which is a, I think, a fortunate position to be in at the moment given the way that the construction market is.

15:18 We've increased cash. We've reduced debt. We paid off, at the beginning of the year, two of our largest higher purchase contracts. So by the end of the period, we're sitting with, just short of 100,000 of debt, so effectively an insignificant debt level. And we also paid the final, settlement for the acquisition of Screwfast. That was, just over 700,000 in the period, and, of course, the dividend the final dividend payment as well. So so broadly, I said very satisfied with where the cash where cash is at. We're sitting with 9,000,000 of cash on the balance sheet at the at the end of the period, and we have an 11,000,000 funding facility, which is undrawn. So, I think plenty of liquidity headroom, which, which could stay the place to be.

16:06 And and there it is in terms of net funds. So, again, there's not really too much to add to this. You can see there very clearly cash at the end of the period of 9,000,000, and, and the 100,000 I just mentioned in terms of our remaining HP debt brings us down to the 8.9 net funds position.

16:28 Mark, could I ask you to to wrap up? Yeah. So in two two points here. One is the short term trading conditions are, you know, are likely to remain challenging until the end of the financial year. We, you know, we all know that the housing market is going to take some time to come back. And, there is a there is there are spending constraints in infrastructure, not least because of, the Department for Transport's budgets are are affected by HS two, and we and the and the change of control period in the rail sector. Highway spend is is is also sort of carefully being being controlled at the minute as well.

17:16 But we are seeing we are seeing opportunities to to make further progress in q four ahead of ramp up in in FY twenty five. And as we said earlier, we we we can offset some dips with with other opportunities already with us, such as the frameworks that we have in on on TransPenine route upgrade. The the the smart motorway framework will commence in q four, and we've got a a very good workload in specialist pilot coming through as well. We're seeing early signs of the housing market already coming back, and so we we we we we think we're we're past the worst of the of the dip in housing, and we can see an uptick in inquiries and orders for projects going going in towards q four. I think it gives us confidence further afield into f y twenty five.

18:18 So we're, you know, we're we're we're confident in terms of our full year forecast. We're holding it. We've got contingency to allow us to have further delays and setbacks if we if we need to in terms of projects proceeding, you know, because a feature of the industry is delays and re retendering and and affordability difficulties, but interest rates are stabilizing as as we all know, inflation stabilizing, and we we do sense that that is giving a a general sign of more confidence around the industry. And so going into the medium term, you know, FY '25 and

18:55 onwards, we're very, very confident around, the possibilities. In fact, the almost that we think certainties of growth that we've been we've been talking about and have seen, flashes of over the last few years, starting to come to fruition along with our customer work and, business development work to diversify ourselves sufficiently and position ourselves in high margin niche areas that benefit from sustainable, less cyclical investment, challenges. And that's why we've been working hard on the on the power sector, high voltage power sector. So this is transmission and distribution infrastructure. I'll come on to a bit more detail in a minute. Also in the water sector where we've been making making progress, particularly with our partnership with Gafford Tribe who are, you know, particularly strong in water.

19:52 That was part of the thinking of that of that deal. We have rock and alluvium helping us with a geographical spread,

19:59 in particular, the Southeast where we're seeing early signs of the of the commercial and residential markets coming back, you know, more quickly than than than the rest of the country already. And it's no

20:12 it's no accident really that Rock and Alluvium's order book is proportionately quite strong compared to the rest of VAN ELLE at the moment. We think London, the Southeast is is coming back quite quite well. And just a quick word on the Gulliver Tri trading agreement. We we see significant opportunity here. We've modeled 10 to 15,000,000 in, the first full year of of of trading here of incremental, revenues on a partnership basis. It's it's not an exclusive arrangement with us. You know, we'll have to perform, but we we we are a partner of first choice, and that means that we we're embedded with with Gallifords and helping them win projects and engineer them efficiently, and we'll become a very dependable team for them. And I think it's just as good a deal for them as it is for us.

21:09 So that that all of those things combined give us significant prospects to improve over and above the natural recovery of of rail going into c p seven and the and the wider housing and construction markets that we've touched on. So as far as we're concerned and our forecasts are out in the marketplace, there's no reason we shouldn't be doubling our profits in the next three to four years. Absolutely no reason at all. You'll see forecasts out there for FY '25 and FY '26. We'll be disappointed if we can't beat those as you would expect. And, you know, perhaps with a bolt on acquisition every year or so, you know, we can we can boost our speed of progress, and that's that's certainly what we're we're focusing on at the moment. Just a quick further word as well about Canada because because it is important to just explain because we do see significant opportunity in Canada.

22:04 And although we've we've spent the first half of the year investing in our setup, we set up a very professional capability in Toronto. I've got a top team over there. We've trained our workforce. We've shipped our rigs. We've made the adaptions for winter working. We've got the necessary certifications all in place to work on the Metrolinx network sponsored by a a strong set of tier one contractor customers who are glad to have us on board, and we're starting to see workload flowing flowing through, you know, quite impressively. We're in a sustainable trading position as we as we speak now, and we do expect to make further progress. But because the on express program for Metrolinx has been delayed, it's been announced, been delayed a couple of years, possibly up to a couple of years, you know, we are gonna take stock and review, right, what what we need to do here to make the most of this opportunity.

22:59 And is this the best use of of capital, and and was the original plan still the the very best plan? And we'll do that by the end of the financial year, but the opportunities are significant and certainly flowing through faster than than we're seeing in terms of The UK rail market, which is what we'd hope for. And just a couple of slides just to put a bit of color on the two exciting sort of newer growth segments that complement all the other sectors that we work in consistently and have done for for for some time. I've mentioned already energy. This customer base here is is as below. We have frameworks in place with Morgan, Sindle, and Wood and Freedom, actually part of the NG Bailey group, and commitments that we're going to support Murphy and Kelpre. These are all established tier one contractors in the transmission and high higher voltage range of the distribution network.

23:55 And we're looking here at eye watering investment levels to deal with grid connections, aging infrastructure, and energy security, all all being pushed along by Ofgem and the, you know, and the and the big energy transmission companies. And we we we expect to see our first projects on-site for for Wood Group and possibly Morgan Sindle as well before the end of f y twenty four, and it will it will it will grow significantly from there. We're looking at huge investment areas, and the major concern in the in this sector is the capacity to deliver everything that's got to be done. And at the same time, we're pushing on water. And this is, as I say, propelled to some degree by our partnership with Galliford Tri. This is part of the rationale.

24:45 Gallifords are the leading water infrastructure contractor in The UK, but also there's some good household names on that page where we're also in a very strong position. Two of them are on the previous page. That's quite helpful. They tend to be the same management teams in some cases. And we have you know, we're spending five years now working on closer customer partnerships, which is starting to yield frameworks and repeat business and a level of trust with us as a business that we can support through our breadth of capability, our scale of resource, strength of balance sheet, all the innovation in our techniques and processes evidenced by the RDEK point earlier, and innovation like Screwfast, for example, which is the sort of stuff that is very, very helpful indeed in these sectors where you don't want big piling rigs and great big sort of temporary works and and all the rest of it in the traditional sense.

25:42 And this is further supplemented by a new division that we've opened, which is only small at this stage, but capable of doing quite a lot of work quite quickly, which is our civil engineering division, which complements our foundations and piling divisions very nicely because we're finding customers want us to do ancillary and minor civil engineering work around the foundation and piling works that we do, sometimes taking away attendances that they might have provided for us and doing it ourselves, making life more simple, reducing interfaces. We started doing this in rail two or three years ago for obvious reasons. You don't want multiple contractors on track getting in each other's way if you can avoid it. It works very well. The rail market is relatively niche compared to the opportunities in water and energy where this model is being very, very well received. We're the only people doing it, and we're the only people with the breadth of geotechnical and piloting capabilities that we've got as well. So it's a good combination.

26:38 So that's how we're going to fuel our growth in these in these higher margin sectors through these frameworks. And there's a page of statistics there, really more for reference, that probably tell the same story, which is, you know, it's been a challenging it's been a challenging first half of the year compared to what we're expecting ahead of us, but we're we're in good shape. Super. Alright. Thank you. Thank you, Grant. If we could turn to the questions, had a number that submitted ahead of the presentation, and there have been plenty during it. Mark, if I could just turn to you a quick terminology question Eric asked. We talked about a bit, c p six and c p seven. He said, what is meant by c p six?

27:24 Oh, apologies. Control period six and control period seven, these are the five year investment period set by the rail well, rail truck network rail and the and the department for the the funding settlement that Network Rail spend on its infrastructure. Great. Okay. And the second question for Mary, which is on the Canadian subsidiary. How is the Canadian subsidiary being managed, and how are the local managers being held accountable? Okay. So the the Canadian subsidiary is managed by a local regional manager, a Canadian chap who is very well embedded with the the marketplace and supervised by all two directors who alternate their time in Canada so that there's full time support.

28:20 And they they those guys report to me, and we're all accountable. Great. Okay. There has been much commentary on the health of particularly smaller construction companies. What is your experience? And I guess this also plays into the supply chain as well, if you could just add a bit on that too. Yeah. So we've seen an increase in trade credit risk as you might expect with construction companies, you know, going out of business left, right, and center in the industry. A lot of people caught by fixed price contracts having to absorb significant inflationary cost increases, not being able to or nowhere to go, really. We we took out last year trade credit insurance for the first time as a business, and that's that's proved to be a a good decision and has helped us in in a in a few situations where otherwise we'd have been self insuring effectively, and we'll continue to do that.

29:24 We we're pretty we're pretty, I suppose I don't don't think I should apologize. We're quite difficult to get into contract with with people that we have any doubt about their their their stability and creditworthiness, and we negotiate hard and usually get the protection and and security we need, or we don't do the work. So so that's how we manage the upside upstream, downstream. We we self deliver almost everything. So we're dependent on very few subcontractors, only occasional very niche things, and also big blue chip suppliers of our bulk raw materials such as concrete products and and and reinforced steel and the like. And and we have a strengthened procurement team who have strategic arrangements in place with with with those who are big enough and capable enough to deliver our needs and and stand by the commitments they give us. So I think we're in we're in much better shape actually up and downstream as a result.

30:26 Great. Okay. You touched on this earlier, but I wonder if you could just add a little bit to it. But what are you seeing in the rebound on housing demand, and and will that contribute to h two? We're not expecting a huge contribution to h two from a rebound in housing. We'll be quite happy to deliver the the the forecast that we've got, which is broadly breakeven in housing until things pick up. You know, we've we've retained the capability very well and downsized to an appropriate level without sort of shooting ourselves in the foot for when things come back more strongly. I do expect the housing market to offer increased work volumes for us, though, before the end of q four, but I'm not relying on it for our results.

31:16 Certainly, in q in in in f y twenty five, almost almost certainly, it'll be a fair bit better than than than what we've seen in in the last three quarters of f y twenty four. So, we will be forecasting, you know, I expect an increase in when we get to a budget stage, an increase in in housing activity in f y twenty five. You know, we we all the all the indications are there. So our forecast for next year are are, you know, out to the marketplace broadly, 6,500,000 PBT. You know, that will come housing will will certainly help that increase as well all the other things I described earlier. Okay. And and on a on a similar theme, Douglas says, I'm expecting some economic optimism to return after the general election. If demand increases, how fast can you ramp up capacity?

32:08 Oh, we we can ramp up pretty quickly. We've got a 130 rigs. And if and utilization on that stats sheet, as you'll see, has room for significant increase. And we we employ, 450 people out in the field who are desperate to be even busier, and we can we can resource up as well. So we have a direct employment model that that works very well. Can it it you might think it's difficult to to reduce, but we have we have, stand down, arrangements with our with our in our contracts that the VANs are are comfortable with, but we can also recruit up pretty quickly. We're quite good at it. We we we have the ability to to ramp up quite quickly.

32:57 We we rarely hire rigs, for example, but we can do, and we can bring in we can bring in more more labor. The the overheating in the market has dipped a little bit now that HS two's phase one geotechnical works have started to, you know, ramp down, you know, so we can pick and choose, I think, a lot better than maybe a couple of years ago. You know, good people at at at more affordable rates than the overheating that was taking place at that point in time. Great. Thank you. Right. Some some financial questions for you, Graham, actually. Constantinos says, can you please provide some more details on free cash flow generation, which looks slim historically? What is maintenance and what is growth CapEx? And what maintenance CapEx should we assume going forward? So a few questions in there. Yeah.

33:46 No. No problem. So look, I think that's a very good very good comment. Free cash flow has been relatively slim for a number of reasons. Obviously, we've got the challenging pandemic periods taken into account. But also if you were to wind back six years, you would find that the group was carrying sort of $1,819,000,000 of debt. So a lot of our a lot of our debt servicing costs have gone into to drain our cash flow. And if you sort of look at the fact that we are firstly a capital intensive business, to Mark's point, we've got 130 owned rigs. A lot of those taken on higher purchase deals at relatively high interest rates in the past that has drained the majority of our majority of our cash. How do I see it going forward? Well, if I look at the operating cash flow at the half year, six months, we're looking at just over 6,000,000, a modest shrinkage in in working capital.

34:41 And then if you look at sort of the net capital spend there, we're at 2,500,000 as we as you were seeing from the the presentation. We've got the last of our repayment of our high purchase deals in in in there as well. So about $2,300,000 of high purchase payments. We obviously have the m and a activity on ScrewFast that I mentioned and then the dividend. So you take all of those into account. Cash is relatively flat period on from from the end of April to the end of to the end of October, but you can sort of see where the where the cash, the operating cash flow has been has been utilized. Obviously, I'm expecting the repayments of of long term leases and higher purchase to decrease and improve our our cash flow overall.

35:32 We also have a relatively modest dividend well, dividend payment. We have not we have not published yet a dip formal dividend policy. But at the moment, we're sitting at the upper end of our sort of normal normal market sector to is not for our sector, normally two to three times dividend coverage is pretty normal, and we're sitting at the upper end of that range. So it's a it's a relatively modest dividend payment. In terms of what should you expect for CapEx going forward? Well, firstly, maintenance. I mean, clearly, our depreciation is around sort of 5,000,000 to $6,000,000 I would expect at the very least that to be spent. We see lots of opportunities here for rigs in niche areas where margins are high and utilization should be high.

36:18 So we're very much focused on return on capital and high utilization for our kit. And in terms of growth CapEx, a good example of that would be the acquisition of Rock and Illuvium where with the acquisition came 11 new or or or relatively modern CFA pilot rigs. And that will allow us to dispose of some of our older fleet and have a sort of best in class fleet in CFA piling. Great. Okay. Thank you. And Constantinos also asked, any comments on capital allocation strategy and M and A would be appreciated. Well, I can take the first part of that, and then, Mark, you may want to add something on m and a. But we again, we we we have not published a formal capital allocation strategy, but I think I've covered off the key points there. In terms of where does our money go, well, operating cash flow is is is invested back in sustaining the fleet. We must keep that as a as a modern fleet that's that's market leading. And we've got the largest fleet of kits in The UK and that must be maintained, but it needs to be maintained in the right areas, which is as I say, is high utilization, high margin activities.

37:38 Dividends, I think, will remain relatively modest while we have that level of capital requirement. And another key point here is that during the pandemic, we really kept cash very tight. So our investment, our capital spend during that period was as low as $2,000,000 in the full year. So there is an element of catch up here. We do have to reinvest back in the fleet and that is what we're doing and that's why we're expecting a significant spend on capital. In terms of M and A, look, we are constrained by we have a healthy balance sheet with healthy cash balance and an 11,000,000 funding facility that we could draw. Clearly, that sort of 20,000,000 ish headroom doesn't allow us to go mad with with m and a activity, but the sorts of levels of m and a spend, you know, as an example, rock and alluvium 3,800,000.

38:35 I think with the cash flow generation and low debt, we should be able to be looking at sort of one of those per per year. But but clearly, you know, we're not in the game of going on taking huge amounts of debt to business and putting putting us at risk. And if maybe I can add before you start, Mark, maybe I can just add Marcus' question, which plays into this a little bit, which is how do you see further geographic expansion of the group playing out? That might be an element to this. Yeah. Right. So Graham's quite right. Probably one bolt on per annum feels about right. What size should a bolt on be? Well, probably probably, you know, three, four million, it it feels about about about the right size with the bandwidth issue as well for the management team without creating a whole new sort of overhead stream.

39:22 But we've we, you know, we've we've learned a lot from Screwfast and Rocket Alluvium. And in fact, we're the only we're the only player in the industry who's doing any consolidation at the moment. So people will people do realize that, and it brings some opportunities that we might not have been aware of otherwise. But we would need to be selective. There aren't many niche capabilities we haven't already got, and there aren't many, to your point, geographical regions where we feel we need to make an acquisition to strengthen London as a little bit of a an outlier in that respect because it is a it's a market within it with of its own, really, in some respects. Internationally, are we likely to do anything else other than Canada? No. I don't think we are. I think we need to get Canada where we want it, which we're focused on and, take, you know, full benefit from all the efforts and investment we've put into it so far. Certainly, you know, even even sort of six months down the line, we haven't found a a region that's got more opportunity than Canada. That's for sure. So I don't think we'll be distracting ourselves other than than getting getting full benefit from what we're what we're doing out there internationally.

40:28 So I don't I don't know if that really answers much, but regionally, I think we're we're we're well covered. We lit UK. There's possibly some strengthening we could do in Scotland. But, you know, at the end of the day, Scotland's a relatively small market compared to the rest of rest of The UK. We'll see. I think it's more likely to be an additional service offering that might not be a niche area, but it allows us to widen our services faster than than than than growing it organically. And and our civil engineering division's a good good example of how we feel we could we could scale up even more quickly than constraining ourselves only to piling and and geotechnical work. Would that be an area of potential acquisition? Yes. It could be, but the right sort of thing would need to come along.

41:16 Great. Super. Alright. Final question. Could you please provide some color on the bridge between today's margins and medium term targets? I'll take that one, Mark, if you like. Yeah. Mean, it's it's there's clearly a lot of detail in there from our internal modeling to get from where we are, which which is which we've demonstrated gradual improvement over the last two to three years. The big factor here without oversimplifying the answer is that it's about getting the high quality niche skill set that we have in the infrastructure sector, which typically delivers at the upper end of our margin range. And as that, to Mark's points and slides that he talked through there in the power and water sector, As that work comes through and as we we have a better mix impact of that higher margin work, that that that effectively bridges a a large slice of the gap between where we're at now, which is just short of 4% up to our our target of 6%.

42:21 Of course, within that, there's lots of other activities. I mean, you know, maybe additional bolt ons, delivering niche skill sets. We'll be looking at we're looking at cost efficiencies across the board. We're looking at efficiencies in our systems to be to become a better, quicker business. And and of course in housing, although we we sometimes talk about it being at the lower end of its its of our margin range, when it is firing and it is busy. The cost of operation are relatively low. So there's a big it's very attractive towards our return on capital. It doesn't employ significant cost of high value rigs, complex works. And, obviously, we've got a manufacturing facility for smart foot. So when it's working, when it's busy, that gives a very good throughput to the bottom line.

43:09 Great. Super. Mark, anything to add to that, or is that complete? I mean, top line growth will will will make a big difference as well. We we tend to do it very, very well where we've got high utilization and compounded by the mix around the margins, you know, that creates quite an exciting cocktail. So so that's where the that's where it comes from. Great. Super. Alright. Thank you both. Could I ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback? If anyone has further questions or would like additional information on VAN ELLE, please please do get in contact via VAN ELLE at Warbrook PR dot com. Many thanks for attending today's presentation.