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Edited Transcript of GFRD.L earnings conference call or presentation 16-Sep-20 8:30am GMT

Full Year 2020 Galliford Try Holdings PLC Earnings Call

Sep 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Galliford Try Holdings PLC earnings conference call or presentation Wednesday, September 16, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Duxbury

Galliford Try plc - Finance Director & Director

* Bill Hocking

Galliford Try plc - CEO & Executive Director

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Conference Call Participants

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* Alastair Robert Stewart

Stockdale Securities Limited, Research Division - Former Construction Analyst

* Andrew Nussey

Peel Hunt LLP, Research Division - Analyst

* Joe Brent

Liberum Capital Limited, Research Division - Head of Research and Equity Analyst

* John Fraser-Andrews

HSBC, Research Division - Global Equity Head of Building Materials & European Building Materials Analyst

* Kevin Malcolm Cammack

Cenkos Securities plc., Research Division - Building and Construction Analyst

* Stephen Joseph Rawlinson

Applied Value Limited - Director & Analyst

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Presentation

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Bill Hocking, Galliford Try plc - CEO & Executive Director [1]

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Good morning, all, and welcome to our full year results presentation for the year ending June 2020. It's been a busy year and a year of significant business change for us. Firstly, through the disposal of the housebuilding businesses and then, of course, managing the continuing business through COVID-19. I'm here with Andrew Duxbury, Finance Director, and he has the agenda for today. Andrew and I will present for about 20 minutes, and then we'll take questions.

So on to Slide 3. This is what I see as important for the success of our business to be a people-orientated progressive values-driven business that delivers predictably for our stakeholders. People are at the heart of any successful business, and we have excellent people. We aim to attract, retain and provide great career development opportunities for people with the right attitude, culture and competence.

Despite the pandemic, we have continued and, in fact, increased our early careers intake. A progressive mindset is important to keep pace with change in all of its forms to enable us to be more efficient across all aspects of our business and fundamental values like safety, inclusivity, ethics and the environment bind us together to enable us to deliver the built environment in our communities and our country need. You'll hear a number of times today that we're in good shape, well capitalized with no debt. This makes us a reliable partner to our clients.

Our revenue was around GBP 1.1 billion, and that was down around GBP 200 million on forecast owing to the highest cause by the lockdown. The good thing, of course, is that our revenue hasn't been lost but move to the right, which means that our work in hand position for the current financial year is excellent as is the order book position for full year '22.

Our cash held up well through the period, helped by the fact that over 80% of our revenue is in the public and regulated sectors. The public sector guidance to keep cash flowing through the crisis was welcome, and we ensure that, that cash continued to flow through to our supply chain, borne out by the prompt payment code statistics that Andrew will run through in a minute.

In the circumstance of full year '20, the Board have decided that we will not pay a dividend this year. On to operational highlights, the transition to a focused construction business was extremely smooth, and we held up well through the lockdown to a position today where we are very close to normal site productivity. We are likely to have a little disruption on our sites from time to time, if an individual test positive for COVID-19, and we have engaged with Public Health England to hone our reaction to such events to keep any disruption to a responsible minimum. I would like to thank all of our people for their strength of character, resilience and tenacity through the lockdown and beyond, which has brought the business through in good shape and well positioned for the future.

Our investment in and encouragement of smart and agile working really showed its value in recent times, and like many companies, catapulted a general acceptance that as a blend of office and homeworking is effective and efficient and probably here to stay. Government policies support increase investments in construction and we look forward to the future with confidence. Our disciplined approach to project selection and risk management is reflected through our order book, in terms of its blue-chip client base, sensible terms and conditions, embedded margins, risk allowance and cash flow, and the order book quantum and the duration of that order book reflects the strategic importance of our framework positions.

We expect to return to profitability in full year '21 and this conference allows us to reinstate financial guidance, which Andrew will expand upon in a minute. Our ESG performance is really important to us, and we measure a ourselves over the 6 areas you see here. As well as being the right thing to do, people want to work for a sustainable, ethical, green companies. And so our approach to sustainability helps us to attract the best people to Galliford Try. We particularly I really proud to have in beer ranking in the FTSE for good index to 3.3 out of 5 compared to a sector average of 1.5. And it's important to note that apart from our moral and legal obligations, our sustainability credentials are a crucial aspect of our ability to win work with our clients.

Our business model is found of national strength, national consistency, coupled with local delivery and local accountability. We operate through 2 brands, Galliford Try in England and Morrison Construction in Scotland. The split is roughly 75% and 25%, and both are focused on the public and regulated sectors. The core of the business is in building and infrastructure, which is the majority of our revenue. We have an investments business with assets of around GBP 40 million and an FM business, which currently turns over around GBP 25 million. These adjacent businesses generate lower risk margin-enhancing annuity type income for the business. The fundamental drivers of our market are robust, and you can see the order book for each building sector on this slide.

In eduction, the Education and School Funding Agency have ambitious plans to increase the construction of new schools, and we typically have around 30 schools under construction at any one time. In defense, we construct operational facilities and accommodation projects for the defense infrastructure organization and other clients in the sector, and we're also on the ProCure22 framework with the NHS.

In infrastructure and in highways, we have a number of frameworks of Highways England and local authorities with a planned spend on roads in the current horizon is over GBP 28 billion. In the environment business, we work for a number of regulated water and wastewater companies, and these frameworks are generally 5 to 10 years in duration. I mentioned our FM and investments business earlier on. The investment business generates work for the wider building business and has an increasing focus on co-development in the PRS sector, which is really buoyant at the moment.

The FM business, in addition to its day-to-day activities supports the billing business in handing over and operating new buildings, soft landings with the COVID. Moving on to our strategy. We have a straightforward strategy to retain and enhance our existing platform, improve our operations to drive margin progression and deliver predictably for our stakeholders. In the light of the events of this year, we've revisited our strategy in terms of our markets, our client base, our pipeline and our structure, and I'll reassure that the strategy is still valid and fit-for-purpose in the current environment. Despite the challenges, we're happy with the progress we've made, but never complacent.

In a bit more detail then. For the retained part of the strategy, we include our excellent people, our regional structure, which gives national coverage, our strong framework position in the public and regulated sectors and, of course, our sustainability credentials. In improve, we always look to improve our operations and drive efficiency. The safety of everyone on our sites is paramount, and we're pleased to see our AFR, our Accident Frequency Rate improved to 0.07, which is a good performance in the industry. We aspire to AFR of 0 and work very hard in pursuit of that goal.

We have robust risk management and commercial controls to underpin predictable project outcomes and have set up a project efficiency task force to stare our modern methods of construction and digital agendas. And those 2 support our delivery aspirations. We're focusing on bottom line quality of earnings and cash generation over top line revenue growth and see revenues in the range of GBP 1.2 billion to GBP 1.5 billion over the next few years. We're targeting more than 2% operating margin after central costs and obviously keeping tight control of those central costs.

We generate cash, which we measure monthly, and we'll resume dividend payments with our return to profitability this year. And then on to our order book. Our order book has increased from GBP 2.9 billion to GBP 3.2 billion at the end of June and has moved on to some centers as well, obviously. And you can see it's constituent parts here. Public sector work has remained constant in terms of value, and the increase in the regulated sector reflects our success in renewing frameworks in predominantly in AMP [7] in the water and watter sector. The increase in the private sector reflects both PRS and commercial project wins for blue-chip private clients. So on that note, I'll hand over to Andrew to take us through the numbers.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [2]

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Thank you, Bill. Morning, everybody. So I'll now give a little bit more detail on our financial position. So as you can see, revenue was down GBP 313 million, 22% compared to last year. The 2 main drivers for that. Firstly, our strategy to refocus the business, which we implemented in mid 2019; and secondly, and more significantly, the impact of COVID. So about 30% of our business is in Scotland, which, of course, closed during lockdown. And in England, we saw much reduced productivity in April and May. So probably altogether, we lost about GBP 200 million of revenue from the COVID impact. And although COVID disrupted our operations last year, importantly, all of our site are now open and output is now at a good level. So we're not complacent. We're implementing our new procedures well, and we're, of course, planning for any further ongoing COVID risk.

The loss from operations is shown there preamortization and reflects the accounting for COVID, which was a significant impact. The lost turnover I've mentioned, but there's also a productivity costs. The cost of furloughed staff, the cost of sites standing empty, and we're still paying for welfare of our facilities, scaffolding and so on. And the loss also reflects that as part of this transitional year, we accelerated some final account settlements on older jobs. And although these had an impact on gross margin, they do provide us a really clean base to move forward from. And these impacts have all been reported through normal or underlying results not as exceptional items. The tax rate was low in the year disposal accounting, and going forward, we'll move back towards a more standard tax rate, and this results in the loss per share for the continuing business as shown on the slide.

So looking at the segmental results in a bit more detail. The building business revenue was GBP 138 million lower. There was some lower revenue in the commercial sector, and specifically, southeast towards the end of calendar 2019, really as Brexit came into site. And then from mid-March, as I've said, our sites in Scotland closed during lockdown, and in England, we saw that reduced productivity. Infrastructure revenue, reduction of GBP 170 million reflects the 2019 restructuring, which saw our activity in this segment reduced. COVID impacted our Scottish water business and our specialist infrastructure businesses, although there was less impact in our highways operations.

The margin impacts I've already mentioned, but it's worth noting that the performance of current jobs is encouraging and is in line with our target margins. Our loss in our PPP business, GBP 0.5 million, whereas the previous year profit included GBP 6.9 million profits from disposals. And our central costs were GBP 8.2 million, that's less than we've guided to our more normal level of cost over the last few years has been kind of GBP 13 million to GBP 15 million. But this central costs were suppressed by reduced share scheme costs and amongst other things. And we have spent a lot of time looking at our cost base. And I expect our central costs to continue at around GBP 10 million this year before we achieve further reductions thereafter, for example, through further review of the PFI estate, our property portfolio and other operational efficiencies.

Importantly, our balance sheet is strong, as you can see. We're now operating debt-free every day of the year with average month and cash since the transaction of GBP 141 million. We've got no balance sheet debt, no pension liabilities and PFI assets, which are valued at GBP 41 million using a conservative 9% discount rate. Of course, the detailed cash flows in the year are complicated by the disposal of Housebuilding and the payment of the previous year's dividend. But what's really important is the strong position that we're now working with. And given the level of COVID disruption to our revenue, I'm particularly pleased with the average month end cash number for last year. And it's really encouraging that already, Bill and I, have seen the benefit of this when talking to new and prospective clients who are pleased to work with that simpler cash back balance sheet that we can offer.

Our balance sheet is also important for our suppliers. And we continue to improve our processes and our payment performance has continued to improve, including over the last 6 months through the COVID disruption period. And Bill has set out our financial objectives, and I expect us to show progress on these during this new financial year. I expect us to be profitable at a divisional level and overall within the range shown on the slide, with further performance improvement and central cost savings expected over the following couple of years as we progress towards our 2% target. I should also be clear that this obviously assumes that there's no new major lockdown, but the cost of our new working practices are allowed for in these estimates. Our average cash will remains strong as set out on the slide. So we'll make really important steps forward in this new financial year.

Now let me finish again by emphasizing our balance sheet and our cash position, which gives us a really strong platform to work from going forward. So thank you. And with that, I'll hand back to Bill.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [3]

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Okay. Thanks, Andrew. So moving on to the summary slide then. We're very confident for the future. We're well capitalized and debt-free with no pension fund deficit. We've had a good start post-transaction, notwithstanding all the issues we had this year. All of our sites are operation, and we're confident but never complacent that we can deal with local COVID-19 issues should they arise. We have a clear strategic plan, which is aligned to strong demand from our clients. We're well positioned on all major frameworks, and this gives us a high-quality pipeline of work over a long duration. And we're very focused on risk management and cost management to deliver margin progression and cash generation. Our confidence allows us to restore financial guidance, and we plan to resume dividend payments as we return to profitability this year.

So that brings the presentation to conclusion. Thank you for listening. And I'll now hand over to the moderator to take any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We can now take our first question from Andrew Nussey from Peel Hunt.

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Andrew Nussey, Peel Hunt LLP, Research Division - Analyst [2]

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A few questions from me, if I may. First of all, in terms of the sort of trading outlook, can you give us any insight to, first of all, the environmental business, where I think 1 or 2 peers have mentioned a sort of slowness of some work coming out of frameworks? And secondly, just sort of your thoughts on commercial buildings over the next sort of 6 to 12 months, obviously, given corporate pressures with COVID-19? And then a question for Andrew. When you look at the supply -- customers and prompt payment practices, which were put in place as a result of COVID, particularly in the highways sector, is that enduring? And sort of allied to that, have you seen any challenges with your own supply chain because of COVID?

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Bill Hocking, Galliford Try plc - CEO & Executive Director [3]

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Okay. Thanks, Andrew. Our trading outlook is positive. We've not seen any big change really in the public sector and the regulated sectors carry on as normal. We did have a hit, of course, in Scotland in the regulated sector, but that's back to normal. Now some of the framework we were are a little bit slower than we would normally anticipate. But I don't think that's necessarily COVID induced. So the trading outlook remains positive. The only sort of thing we see coming through the local authority and councils is that they are more, I suppose, looking at the social side of things, and therefore, some of their projects are drifting a bit to the right. But that's the only thing we see on the trading outlook. We do commercially -- we don't really exposed to commercial buildings, we've got a few, that's a small part of our market. We do see a bit of a slowdown there with commercial clients pausing for breath to see what happens in the commercial office environment. But as I said, we're not exposed there.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [4]

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And Andrew, just on your questions around payer practices. So actually, really pleasingly from a customer and cash receipt perspective, most of our customers behave very sensibly through the COVID disruption and really pleased with how that works. And of course, we've also then tried to work very closely with our supply chain. We've got our program in (inaudible) through alignment, which was all about engagement with our supply chain. And although we continue to work hard our comp payment statistics improved over the last 6 months, both in terms of average days to pay, which reduced and also the proportion of invoices paid in less than 60 days increased in both our building and our infrastructure businesses. So actually, really good behaviors, I'd say, from clients and working closely with the supply chain.

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Operator [5]

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And we can now take our next question from John Fraser-Andrews from HSBC.

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John Fraser-Andrews, HSBC, Research Division - Global Equity Head of Building Materials & European Building Materials Analyst [6]

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So I'll have 2, please. The first one is on the cost outlook. Andrew, you mentioned that you see central costs moving up this year from last year's suppress level and then coming down again. Are those sort of reductions that you've identified going through the COVID process or are they just general good cost-saving measures? And within COVID, could you just give some sort of indication as to the cost you're carrying in the financial -- your current financial year, how those might drop away if we move into a COVID free world, if I can put it that way? So that's the first question. And then the second is just asking about the demand outlooks that you're seeing in government, what you're seeing on Highways that GBP 28 billion you mentioned, Bill, perhaps you could give an indication as to the volumes of work you expect from government in the next 2 or 3 years? That would be great.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [7]

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Okay. So Andrew takes the first 2 and I'll take the (inaudible).

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [8]

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Yes. That's fine. So in terms of the costs, John, really, the driver there is more of the the disposal of our housebuilding business and the reorganization and bringing through the operational efficiencies and overhead efficiency. Yes. We shall also take some time in some areas. So more driven by that than directly by COVID. Of course, COVID has (inaudible) for everybody shown on a light on working practices and, of course, there are opportunities to be gained out of that as well. But it's more about the restructuring of the business more generally. And in terms of our cost of growth, so we've assumed effectively that our current working practices stay in place for the foreseeable future in terms of our outlook. So I don't think anybody is expecting social distancing and other work practices to go back to pre-COVID in the immediate to short term. So we've assumed that within our -- drop by job with in our cost outlook on our cost estimates, I guess the one thing that we haven't assumed, as I said earlier, is a wholesale lockdown again, I think that would be actually possible for us to predict. But in terms of -- assuming the current working practices continue, that's all allowed in our margin going forward.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [9]

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Thanks, Andrew. John, on the demand outlook and highways. We've won GBP 237 million worth of new work during the year. We've got 3 main schemes for the highways England on the ground at the moment. They are the 3 where we're waiting for notice to proceed, and we hope to get that in this calendar year. On the a47 Peterbroeck Way, and that will be laying a little bit. And then we hope to get here to proceed in now on the M56 smart motorway via Manchester. So I would say the demand from Highways England is pretty consistent, and the pipeline that they have in front of them is also encouraging. On the local authorities, a bit like I said earlier on, we do see a bit of (inaudible) in new projects coming through from local councils and so on, we're more focused on the central side of things at the moment and getting on other projects. But that's a fairly small impact on us. So overall, the demand remains encouraging.

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John Fraser-Andrews, HSBC, Research Division - Global Equity Head of Building Materials & European Building Materials Analyst [10]

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Great. And you said education was -- is that sort of ticking over at similar levels? Or are we looking at a rise or a fall in the coming years?

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Bill Hocking, Galliford Try plc - CEO & Executive Director [11]

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There's certainly an aspiration from the ESFA to increase output, and we're engaged with them as our other companies in the industry as to how we might go about that. So that's encouraging. And certainly, the aspiration is to increase the output there.

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Operator [12]

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And we can now take our next question from Joe Brent from Liberum.

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Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [13]

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3 questions, if I may. Firstly, you say that output is at a good level. Can you put a number on that and give some indication of the sort of productivity as others have done? Secondly, the GBP 200 million COVID impact, could you split that between the divisions? And thirdly, clearly, you have done a lot of final settlements in both business in the end of the year, which clearly does give you a clean position going into 2021? Could you give us an indication of the cash impacts from those final settlements? And even better give us some indication of the underlying working capital exiting out the Bovis deal?

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Bill Hocking, Galliford Try plc - CEO & Executive Director [14]

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Okay. Thanks, Joe. I'll take the first one and I'll ask Andrew to pick up the second 2.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [15]

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Yes.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [16]

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We said that our output is close to normal, Joe. And obviously -- it's not an easy thing to measure in black and white. I think that we -- the steps we've taken in terms of staying in our working days, providing far more better facilities for people, changing our working practices have all worked really well. And I think that we're up, I'd say, 98%, if you want me to put a number on it. We have factored in that 2% into our forecast going forward. And we've become adept at how we react to any COVID issue. So for example, just last couple of weeks, we had an issue on one of our sites in Birmingham, where a person tested positive. We obviously send that person and his close associates home to isolate and then get the site clean. We've also engaged -- an in doing so, we engage with public health teams to understand how we can be faster and remain responsible at how we get people in the sites back to work quick. And they've done -- they put their approval on our plans on how we go about things. So we are down to -- on a site of that size, which is a PRS side in Birmingham, we're down to a day turnaround now. If someone is found positive, we'll be up and running in 24 hours again. So we're confident that our output can carry beyond at a high level of productivity, notwithstanding with local issues.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [17]

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And Andrew, just picking on your questions. So in terms of the revenue impacts of COVID, it was really biased towards the building business. So our Scottish Building business is -- it is a significant part of our overall building operations, account for 25% to 30%, so that was closed during the lockdown. As I say that was closed during the lockdown. And of course, building in England, as I said, was also impacted. So the was largest part. I'd say Highways business was much less affected. And our environment business, there was impact in Scotland, much less impact in England. So that's GBP 200 million, if you are splitting it out, everybody thinking it'd be at least 2/3, maybe 3 quarters across the building business, that kind of order of magnitude. And then in terms of cash flow, so the final account settlements were -- they generated positive cash inflows. We are prudent on our cash, and these are all jobs that were finished on the ground. So that's a clearance business and sticks. I mean, you're probably talking a few million pounds altogether, we're not talking tens and tens of millions of pounds in terms of the impact. And in terms of our kind of underlying working capital, and of course, our cash flow statement is hugely complicated this year. But effectively across the period since we set our pro forma cash kind of post-transaction was GBP 225 million. So we've had about a GBP 30 million net outflow in the period. Of course, actually a slightly more than, which is we receive the settlement money on the Aberdeen project during the period as well. And really that -- what that reflects is that volume reduction in the final quarter of the period.

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Operator [18]

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We can now take our next question from Alastair Stewart from Shore Capital.

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Alastair Robert Stewart, Stockdale Securities Limited, Research Division - Former Construction Analyst [19]

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2 questions, please. (inaudible) and PPP. I think the first one is to Andrew. You said the valuation was conservative at 9%. Can you give us a rough feel for the sensitivity on that portfolio, say plus or minus 1% or 2%? And the second question, probably more for Bill is, can you provide a better color for the way that PPP and your involvement in PPP new bidding and new opportunities were, let's say, post the election but pre-COVID? And do you think there will be a greater appetite or need for PPP or PPP type projects in a post-COVID world?

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [20]

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Okay. I'll go the first one I answer that. And actually, in the appendices to the slide pack, I said, appendix 4.4, which is on Slide 36, gives a little chart on the sensitivity to it. I want to sense (inaudible) already Alastair. And broadly speaking, the kind of quick in (inaudible) 1% is about a GBP 3 million impact on the valuation. So that's sort of order magnitude.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [21]

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Okay. So on PPP new opportunities. So obviously, we're still busy with the house scheme in Scotland and been working through that business unit on PRS opportunities, co-development opportunities in PRS market, and we've got 4 of those on the go at the moment in various stages of development. So that's part of the business has sort of adjacency, which is codevelopment of PRS schemes. And with regard to PPP or PF2 going forward, I think that's too early to tell. We haven't seen any signs of it yet, but we wouldn't be wouldn't (inaudible) enough.

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Operator [22]

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We now take our next question from Stephen Rawlinson from Applied Value.

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Stephen Joseph Rawlinson, Applied Value Limited - Director & Analyst [23]

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Only if I can ask 2 questions, please. The first with regards to net cash and the size and scale of the business. Just could you set me right on what you believe the right level of cash might be to run the size and scale of the business that you're currently expecting to run? Because quite clearly, GBP 140 million average net cash in the bank is nice to have, but actually the return on the cash (inaudible). So that obviously impacts on the returns you can make to shareholders, could you just sort of talk to us through what the ideal of cash might be? And secondly might I explore your thoughts around (inaudible) management because it merits a little statement early on that you're developing your developing your skills in facilities management, and it's 18% of the building order book. And I think we probably all get it that the distinctions between what's replacement and what's renewal and what's construction and what's maintenance is somewhat blurred. But is there a thought process around developing an independent business in our (inaudible) division in your mind? Or am I just sort of seeing something here that wouldn't perhaps a little in a burden signaling? So 2 questions there, please.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [24]

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Okay. Andrew takes the first one.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [25]

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Yes. I'll take the first one in cash. I mean, look Stephen, we're very happy that GBP 240 million but over 10% of turnover. But we think that's (inaudible) level, yes, improvement, but that allows us to manage working capital through the cycle. It allows us -- as ever, within the month, there's movements up and down prices and weight, and it's important that we can continue to pay our supply chain if we get a slight delayed on a receipt coming in within a month. So -- and actually, not that any of us foresaw COVID, of course, we did investments. But yes, I think what COVID has demonstrated is actually the importance of having sufficient liquidity to be able to manage our way through that kind of circumstance. So Stephen, I'm pretty comfortable that is accessible level for us to be operating at.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [26]

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Okay. On the FM. Yes, this business is small at GBP 25 odd million. It produces low risk, higher margins than we have in construction. And just to point that, that order book at GBP 395 million is a long slow burn order book, now that's a 2025 year as suppose piece. So there are opportunities for controlled presence in this area. There are some small portfolios of FM projects out there, which are -- which we can think of favorable -- on favorable terms and conditions. So our view that we will grow gently and conservatively for the right opportunities.

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Operator [27]

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We can now take our next question from Kevin Cammack from Cenkos.

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Kevin Malcolm Cammack, Cenkos Securities plc., Research Division - Building and Construction Analyst [28]

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Yes. 2 from me. Firstly, you obviously alluded to the fact that as you return to profitability, you return some dividend risk. I just wonder if you could share your thoughts on any basis that you might be looking at in that regard? And then secondly there has been a number of surveys quite recently, including one from the (technical difficulty) emerge as, I guess, certain contractors rebuild -- looking to rebuild order books, et cetera. I just wondering is that something that you become conscious of already in any of these (technical difficulty)? And is it something that we feel won't represent one of the bigger risks to your objectives of margin recovery?

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Bill Hocking, Galliford Try plc - CEO & Executive Director [29]

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Okay. Thanks, Kevin. I'll ask Andrew to take the first one and I'll take the second.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [30]

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Kevin, what we said on dividend is that we will resume dividend when we really return to profitability, which will be in FY '21. I mean, look when we did the transaction, we indicated a 3x policy cover, and that's -- we haven't said anything else about policy or basis at this stage. But as I say, other than that we'll return to paying dividends with that return to profitability.

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Kevin Malcolm Cammack, Cenkos Securities plc., Research Division - Building and Construction Analyst [31]

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Okay. Yes, you wouldn't find that view as a result of the events of the last couple of quarters, that would still -- that would still actually be a relatively valid cover basis in your view?

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [32]

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Yes. Yes, I think that's right, Kevin. I mean, clearly, these things are always kept under review, and we look at them at the time as we get to our declare dividends. So the time of that, that is -- we think that was set as a prudent policy for a new company finding its way into the new shelf. So -- and that will be the case.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [33]

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Okay. With regard to pressure on margins, Kevin, if I answered your question correctly. The first thing to -- just to reiterate, is our book is really strong. So we've got more than 90% of this year's work in hand, and we've got something like 72$ I think of next year's work in hand So that gives us a really strong base to maintain a real focus on only taking on the right work. So our risk management actually shines through now our order book. Our GBP 3.2 billion order book is exactly where we wanted to be. We have not seen it yet. We've not seen as yet any recent perhaps 1 or 2 minor examples of contractors where you might raise your (inaudible) a bit. But I believe that the tier 1 contractor and actually the tier 1 clients are more (inaudible) then we were in the past. And I don't think -- and we will certainly not be getting back to any (inaudible). Our focus is on bottom right point of earnings over revenue growth, and that's where we continue to be. So I'd like to think that the industry has moved on in that seat, but we certainly won't be doing it in dark.

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Kevin Malcolm Cammack, Cenkos Securities plc., Research Division - Building and Construction Analyst [34]

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Okay. So your bidding processes at the moment would be absolutely geared towards the ultimate goal of margin that would be your sort of deep day default position on any new bids that you made?

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Bill Hocking, Galliford Try plc - CEO & Executive Director [35]

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Yes. We think that our revenue in the range of GBP 1.2 billion to GBP 1.5 billion is plenty of critical mass, and I'll focus on the bottom line.

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Operator [36]

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We will now go to questions from the webcast.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [37]

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Hi, everybody. So we have a question on the webcast from Jonny (inaudible) at Numis. So I'll read the question and then answer to sort of answer to question. So the question is, please could you provide some further details on how you're seeing secondary demand for assets within the PPP portfolio? And how do you think about the current 9% discount rate given the lower interest rate environment? So I'll take the second half of that first, Jonny, if I may. So apologies, your question may have come in before. Alastair ask a similar question. So we see that discount rate has been relatively conservative, and I'd say broadly speaking, each percentage reduction that would add kind of GBP 3 million or so to the valuation. And in terms of secondary driver for assets. I mean, we would say it's probably reasonably flat at the moment. But the important thing is, I think, good assets and yes got good demand. And there is opportunity there. But we are -- one of the key things is since the disposal of the housebuilding business, we are looking to nonetheless sell ny of these assets but to retain them and keep the interest annuity income, which is coming off the assets, but there is demand for the assets in the markets still.

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Andrew Duxbury, Galliford Try plc - Finance Director & Director [38]

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Yes. I'd say the market is still consistent.

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Bill Hocking, Galliford Try plc - CEO & Executive Director [39]

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Yes. Okay. If there's no further questions in. Thank you all for joining, and we'll bring the session to a close. Thank you. Take care. Bye-bye.