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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, all, and welcome to Galliford Try Holdings Half Year Results to December 2021. I'm Bill Hocking, Chief Executive. And I'm here with Andrew Duxbury, our Finance Director.
Here's the normal agenda for today. I'll spend a few minutes on the highlights, Andrew will take us through the numbers, I'll give an update on our Sustainable Growth Strategy, and then we'll take questions.
We've had a good half year. Thanks to the skills and agility of our staff and supply chain, and of the cooperation of our clients, we've managed the challenges of inflation in materials and labor, and produced a good result. The integration of the nmcn business is going well, and we're very pleased with the acquisition and the 900 or so excellent people that joined Galliford Try through it. We're making progress across our suite of ESG measures, and we have momentum in the business, which is reflected in the order book, our controlled revenue growth, and in the figures you see here.
Profit for the half year is £7.1 million, up from £4.1 million in the same period last year. Operating margin is 2.2%, up from 1.6% same time last year. And the interim dividend is £0.022, up from £0.012 previously. All of these figures demonstrate good progress in the period, and we're on track for full year 2022 and the longer-term strategy.
So, over to you, Andrew, to give you more detail on the finances.
Thank you, Bill. Good morning, everyone. So, the picture on the screen there, you're seeing Invercannie Water Treatment Works. It's a £52 million project for Scottish Water that will produce 60 million liters of drinking water each day once it's completed.
So, let me start with some headlines. As Bill said, we're very pleased with the performance in the half year and the progress that we're making against our strategic targets. You can see that all the key metrics on the slide show improvement compared to the same period last year. In particular, revenue is up 10%, our divisional operating margin has increased to 2.2%, and pre-exceptional profit before tax is up 73%. And we continue to be very strong on cash performance, which I'll come back to. Our interim dividend per share of £0.022 is 83% higher than last year.
So, let me go through the results in a little bit more detail. Revenue is up 10% in the period, and it's worth remembering that neither this period nor the comparative were disrupted by COVID, so that increase is real growth. Building's revenue is up 3% as we continue to deliver more across our existing businesses, and Infrastructure's revenue is up 25%, with increases in both highways and environment. The main driver of the increase is the improvement in the AMP7 revenues in our water business, as we anticipated when we reported in September. And about £12 million of that growth in Infrastructure, so about 7 percentage points, relates to nmcn. And nmcn's contribution will be more in the second half year, around £60 million in H2 as that business begins to get back to delivering at full capacity.
Operating profit before amortization is up 77% at £6.9 million, and the divisional margin improvement to 2.2% is very good, progressing in line with our margin improvement targets. You can see that the margin has increased in both Building and Infrastructure, driven by good contract performance. Central costs of £5 million are around half of the last full year figure, as you would expect. And we continue to focus on cost efficiency across the business. We've reported exceptional costs of £9.7 million as flagged in our January trading update. None of this is contract related. £6 million relates to the acquisition and integration of nmcn, and £3.5 million relates to our investment in cloud-based ERP systems. This ERP investment, which is upgrading our previous 10-year old Oracle platform to the latest cloud version, will continue through 2022 with a similar spend in the second half year and completion around the turn of the calendar year.
Our tax rate is lower than the standard due to brought forward losses. So, our £7.1 million pre-exceptional profit before tax translates into £6.5 million profit after tax and its earnings per share of £0.059.
Our strong balance sheet, both our cash and our PPP assets, continue to help us in the market in winning work and engaging with our supply chain. I've said it before and it's worth repeating, we've got no pension liabilities and no debt, and that's even more relevant now in a period where interest rate rises are more likely. Our month-end average cash increased to £180 million, with period-end cash of £211 million.
The PPP assets are valued at £48 million at a blended 7% discount rate with the same as we used at June, and that reflects the active market for these assets. And that portfolio contributed £2 million of interest income in the period. Our intangible assets and goodwill increased by £11 million pounds as a result of the acquisition of nmcn. And these intangibles will be amortized over 3 to 10 years, with an initial annual charge of around £1 million.
On the cash bridge, you can see that we have an operating cash inflow before exceptional items reflecting a very strong collections performance in the period. Month-end average cash of £180 million in the daily low point in the year remained above £100 million, providing real resilience to the business. And very importantly, our supplier payment performance improved again, with now 98% of invoices paid in 60 days and an improved average days to pay of 25 days. As I said in September, working closely with the supply chain, paying them properly is the right way to operate. And it's been especially important in these last few months of a tighter supply market.
So, now, I'll just spend a moment talking through our capital allocation framework, the principles of which are consistent with what we said at September. So, most importantly, we continue to prioritize a strong balance sheet. So, firstly, our balance sheet provides a competitive advantage, which will help us to deliver our sustainable growth plans. It's valuable to our clients who see the importance of financial stability in their contractor, and it's also important to ensure we're the partner of choice for our supply chain. On top of that, it allows us to invest in our people, in digital assets, in adjacent markets, such as PRS, and in other opportunities or bolt-on acquisitions that arise which support our strategy. Our ability to transact with the administrators of nmcn is an example of that agility.
Secondly, a strong balance sheet provides mitigation against any future adverse market conditions and provides confidence that we can deliver our strategic plan. As an example, we don't need to chase the wrong terms or pricing on contracts just to generate cash flow, as well as short-term decisions that would harm margin and performance in future years.
Thirdly, the balance sheet provides us the confidence that we can pay sustainable and regular dividends. With today improving our annual dividend cover policy from a 2 times to 2.5 times cover range to a straight twice covered policy, so returning 50% of our annual earnings to shareholders as dividends. As we deliver our strategy, with revenue growth and margin growth combining to provide faster earnings growth, our dividends will increase accordingly.
And we do also continue to review our future cash requirements in the context of the market conditions and outlook. We don't anticipate cash requirements will need to grow proportionately with our revenue growth through the period of our strategic plan. And when there is a sustainable excess cash in the business, then we'll seek to return that excess to shareholders.
So, to summarize, overall, we're very pleased with the results we're announcing today. The excellent half year performance, strong balance sheet, and the quality of the order book have given the board the confidence to declare an interim dividend of £0.022, which is 83% higher than last year. And we've improved our policy such that we now plan, this year and going forward, to pay full year dividends that are twice covered by pre-exceptional earnings.
And with that, I'll hand back to Bill.
Thanks, Andrew. And now, it is progress on the strategy. [indiscernible] (08:28) of our strategy to deliver high-quality buildings and infrastructure in a responsible manner, and provide a good return to our shareholders. There are four main pillars to the strategy: Culture, safety and people at the top left. Responsible delivery, net zero carbon, social value and so on, bottom left. Quality, innovation, digital and supply chain, top right. And the result in good financial returns, bottom right. And I'll cover each of these pillars in a bit more detail later on in the presentation.
We have an action plan to grow the business to £1.6 billion of revenue and 3% margin in 2026, as we have previously announced. Part of that growth comes from doing more in our existing markets and part from growth into higher-margin adjacent markets, primarily PRS, retrofit of existing buildings to lower their operational carbon, and the capital maintenance asset optimization in the water industry.
In PRS, we will develop or co-develop our own projects using our balance sheet to acquire land or options on land, designing, and obtaining planning permission for the project, and then selling that project to a forward fund. This locks in the development gain on the project, and then we then go on to construct a scheme on behalf of the buyer. The blended margin from this approach is significantly higher than normal construction margins.
In FM, which is a higher-margin business in the first place, we look to help our clients reduce their operational carbon by refurbishing their buildings with more efficient heating, lighting, glazing, and so on. And in water, in addition to our normal activities of designing, constructing and commissioning water and wastewater facilities, we intend to move into higher-margin capital maintenance and asset optimization of treatment plants.
Our acquisition of the nmcn water business adds momentum to this, and here is a bit more color with regards to that acquisition. In the first place, the acquisition is very complementary and aligned to our strategy. It provided an excellent geographic fit with our existing water business as there was virtually no overlap between the two operations.
As a result, we now have a long-term framework with virtually every water company in the UK, and have gained a portfolio of new long-term clients. The acquisition also brought new skillsets into Galliford Try, a significant design function, offsite build capability, and the design software and manufacture of control panels and chemical dosing systems for the water sector, all of which adds momentum to our growth strategy.
And of course, and very importantly, it brought 900 excellent people into Galliford Try. Our balance sheet strength and our knowledge of the water industry enabled us to move very quickly when the acquisition opportunity arose, and the integration is going well with a new, bigger business restructured in January and settling down nicely.
As Andrew said, there was limited contribution to revenue in the first half, but we'll see revenue and operating profit come through in the second half, along with opportunities to leverage our new capabilities across the whole of Galliford Try.
As well as a business rationale for the acquisition, it ensured continuity of important water and wastewater projects across the UK, and safeguarded the livelihoods of a great many people, both in terms of staff and in the supply chain. It is our intention to do a more detailed presentation on the environment business to our investors later in the year.
Moving on to the market. We continue to see a robust pipeline of work through the medium term, driven by government spending across UK and by private commercial organizations in the regions. And you can see here examples of very significant programs of work in the sectors in which we are very well-placed to perform.
Our order book has grown by £100 million pounds to £3.4 billion, and you can see here the split between Building and Infrastructure, and the constituent parts of each sector. 90% of our order book remains in the public sector; and at the half year, we had 95% of this year's revenue secured, of which 87% is in long-term frameworks. Very importantly to me, we already have just over 80% of full year 2023's revenue in hand, which is a very good position.
You've seen this slide before. And just to remind you that our risk management process is unchanged and incorporates robust contract selection procedures and product commercial controls and oversight. There's a lot of focus and effort on managing the effect of materials and labor shortages, as well as inflation. Our strong order book and cash position supports our disciplined attitude to risk and, as Andrew said, allows us to walk away from the wrong projects. And that's really important to us.
Our supply chain is aligned to our business. We engage them early and we pay them promptly, which is important in retaining the best suppliers and subcontractors. We allow for risk and current inflation in our tenders, and so we're only looking at the differential between what we allowed for in the first place and the actual inflation through the tenancy of our projects. There's also a lead-and-lag cycle in inflation, which tends to balance out over time, in my experience. We procure materials early to mitigate possible inflation and material shortages, and we have increased our lead times to provide more of a buffer. And most importantly, the culture of risk management across the business is good, and our management incentives are aligned.
So, going back to our strategy, here are some of the metrics we use to monitor our progress. You'll see in the appendix the full suite of metrics which you report on an annual basis. Our AFR at 0.07 is significantly better than the industry average; and notwithstanding that, we always work very hard towards aspirational zero. Early careers people make up 6.2% of our staff. Our considered contractors score is well above the industry average. And 93% of our clients are repeat clients.
We have a huge focus on people and career development, with an emphasis on retaining our excellent people and attracting new high-caliber people to the company. We did our staff engagement survey last year, and we're very pleased to get an overall engagement score of 72%, with 85% of respondents being strong advocates of the company and 94% of our staff feeling motivated by our vision for the future of the business.
We've made good progress towards our zero net carbon goals in the period, both in terms of general business processes and practical actions. We've resourced up on appropriately qualified people, and invested in the tools we need to drive and measure our progress in carbon reduction.
On the practical side, we've converted all of our piling rigs and associated equipment to run on hydrotreated vegetable oil, which dramatically reduces their carbon emissions. And our fleet average across all of our cost is down to 67 grams of carbon per kilometer.
We continue to invest in the technology that we need to collaborate digitally with our clients, designers and supply chain, which helps us to enhance site efficiency and site safety, reduce rework and capture high-quality data to monitor quality and progress. And all of this drives an excellent financial performance.
We've maintained a robust risk position, prioritizing the bottom line over top line growth. And we're really pleased to see the progression in the margin to 2.2%, en route to our 3% target. Revenue is up 10% and cash generation is good, and we're producing a good return for our shareholders.
So, in summary, everyone, we're in good shape. A strong balance sheet, excellent order book, and we're making good progress against our strategy, with improved financial performance across [indiscernible] (16:28). We're on track for full year 2022 and the strategy period. And my thanks go to all of our staff and supply chain for their excellent contribution.
So, that concludes the presentation, and I'll hand back to the operator to take any questions. Thank you.
Thank you. [Operator Instructions] We will now take our first question from Joe Burnett (sic) [Brent] (17:01) from Liberum. Please go ahead. The line is open.
Good morning, gentlemen.
Morning, Joe.
Morning, Joe.
Congratulations on some very good numbers. If I may be greedy and just start with three questions, if that's okay. Firstly, on nmcn, can you give us an indication of what sort of margins that business is achieving and what it can achieve relative to group?
And secondly, given that that looks such a fantastic acquisition, are there other acquisitions that you can make? And could you give us some indication of the areas you might be looking to add to?
And thirdly, you touched on the very important subject of shortages and inflation. I'm very interested to hear your perspective on which parts of that are most worrisome. On the inflation side, I imagine that your principal issues is labor. And on the shortages side, I'm sure it'll be certain building materials. So, interested in a bit more color on what's going on in the ground in those areas.
Okay. Thanks, Joe. Yeah, we're really pleased with our acquisition of nmcn. It's settling in really well. And on a margin basis, it's – on the business as usual stuff, so that's the design commissioning and construction of water and wastewater plants, we see the margins sort of typically where we expect them to be, 2.5% to 3%. And then they've got some other parts of the business, for example, the [indiscernible] (18:29) business who make the control panels and the chemical dosing systems and so on, where margins can be significantly higher. So, on a blended basis, they're very supportive of where we intend to be in.
On other acquisitions, it's certainly been a good experience for us, our first acquisition, and we – whilst our strategy doesn't rely on acquisitions, we are certainly open to acquisitions if something sensible comes along. And, of course, our balance sheet gives us the agility to do just that. So, we will keep our eyes open, Joe, for the right opportunities here.
On shortages, things are stabilizing across the piece, I think. Inflation has stabilized. I think it's not going down. It's stuck at probably 4% to 4.5% is my guess. But it has stabilized. Labor, again, has stabilized. And again, that depends on which part of the country you're talking about, Joe. The labor issue is, more general, an issue in London in the southeast than it is in other parts of the country. And the same thing in materials. They're almost stable. We are given more predictable supply, I suppose. And I'd say the odd annoyance is more than anything fundamental in the material supply.
Looking forward and with the issues happening elsewhere at the moment, there might be further inflation caused by energy prices and so on perhaps. But of course, we have prices into our tenders. We forecast what we think inflation will be and we take a view of that in our tenders. And so, as we go through the tenancy of those projects, we're only looking at the differential between what we thought would happen and what is actually happening.
And just following up on that [indiscernible] (20:12) what you are budgeting for energy prices going forward, roughly?
We don't budget the energy prices, per se, Joe. We look at what the impact of that will have on material prices. So, it's obviously, if you're looking at steel or glass, these are more [indiscernible] (20:27) energy prices into that commodity. If you're looking at something else like a timber, for example, then that's not necessarily affected by energy.
Thank you.
Thank you. We will now take our next question from Andrew Nussey from Peel Hunt. Please go ahead.
Hi. Good morning, Bill. Good morning, Andrew. A question from me. Just in terms of the commercial activity and obviously [ph] conscious of (20:58) about 10% of sort of the order book, the business now, but your thoughts on that end market over, I guess, both the sort of near term and what you might be sort of seeing in terms of customer hesitancy. But perhaps more interestingly, how you see that in the runway to your FY 2026 growth objectives, please.
I think, Andrew, it depends on where you are in the country. So, in the regions, we see quite a bit of commercial activity, particularly in PRS, student resi and some commercial offices, and it does vary by region quite a bit actually. And it is variable, yes. It's reliant on individual private companies taking a view on what they think is going to happen. So far, we've seen it fairly constant. We've not seen any diminishment in appetite. The pipeline of tenders coming through is fairly constant. And for us, it's mainly, as I say, PRS, student resi. The only change that I'd say is perhaps increasing a touch, but that might be a bit early to say – call it a trend, is the refurb of offices. So, you'll see more and more offices being taken back to the structural shelves, so to speak, and then completely recabined and refitted internally. And part of that is just to modernize, I mean, part of that is to lower their operational carbon and have an office building that clients want to be in because of their new credentials.
Got it. And just sort of follow-up. In terms of the investments portfolio and sort of the opportunities that you're seeing there to invest, I mean, should we think over sort of the next couple of years? Actually, we probably see a degree of net investment in terms of the portfolio moving forward. Maybe that's one more for Andrew, but just curious on how you see the shape of the investments portfolio, the investments activity developing in the group.
Yeah, of course. Good morning, Andrew. So, the investments portfolio on the books are £48 million. Of course, it's largely PFI-type assets, so we don't see big – there'll be some movement, but obviously the PFI market in England is not – is closed effectively. But what we are doing is repointing that business into private rented sectors, into PRS, and you'll see in the first half year, we got our first PRS scheme planning permissions that will go on to site later this calendar year. So, there is opportunity for us to continue to invest into the PRS space, which – yeah, which will then help us drive some of our margin targets as well as we go forwards.
Okay. Great. Thank you.
Thank you. We will now take our next question from John Fraser-Andrews from HSBC. Your line is open.
Thank you. Morning, Bill and Andrew.
Hi, John.
I'll have three, please. Firstly, can we come back to the PRS? Do I understand correctly that the investment, the planning permission, the stages before securing the construction of the building that's undertaken within the PPP business and then the construction business will then undertake the constructions on behalf of the investor, the forward funding investor? Is that right? So, that profit and margin that you've referred to earlier, Bill, that's all within the PPP business. So, that's the first one.
The second is on cash. You've stated that if Strategy 2026 plays out, you won't need to commensurately increase the average month in cash, and surplus cash will be returned to shareholders. If you could explain some parameters of what surplus cash is, that would be really helpful.
And then thirdly and finally, in terms of the pace of margin accretion and Strategy 2026, how do you see that playing out? Is that a steady progression, or do we see a jump in the near-term. Possibly, some thoughts on that would be also useful. Thank you.
Okay. Thanks, John. I'll take the first one, and Andrew can pick up the second too. The PRS market is a very much joint effort right from [indiscernible] (25:52) because what you're trying to do here, John, is first identify a parcel of land that's good for PRS scheme, and then looking to design and build a scheme that is easy and efficient and safe to build. So, as I always say, you can generally keep the planners happy by putting any skin they want on the outside of the building and changing the shape of it, but the inside of it, the fundamentals should be repetitive, easy, straightforward to build, and that makes it efficient and makes it a better and more profitable venture.
So, it's very much a joint effort from the investment side of the business and the building side of the business right from the start, and making sure that we get those things aligned. And of course, the construction cost has to – is one of the most important things in making sure that you can get these things over the line in the first place. So, very much a joint effort all the way through, John. Over to you, Andrew.
Yeah. And then – so on the second [indiscernible] (26:50) question, John, so on cash. So, I mean, I guess the first point is we're very happy with the level of cash and where our balance sheet is today. So, that is obviously the first and most important point. You'll see our average cash balance in the first half year is around about 15% of turnover on an annualized basis. And what we're saying, John, is as we grow the business from £1.1 billion in June 2021 to £1.6 billion by June 2026, so 50% growth in revenue, that we don't need our cash position to grow 50%, so that's why we see potentially, there will be some opportunity for us to return the excess cash as we grow the business. What we do though, John, is we look at that level in the context of the climate, the macro position, the uncertainties in the market and all the rest of it. So, it's not a question of sort of putting a precise number out for where we'll be in a year's time or two years' time because we just need to obviously look at that in the context of the current market conditions all the time.
In terms of the second point – in terms of margin growth, so we're very, very pleased. We've moved from 2% in last full financial year to 2.2% in the half year. So, that's good progress towards the 3%. We do think there's opportunity for the gross net margin to accelerate as the adjacent market's part of the strategy comes on board, and some of that will be towards the latter part of the five-year period. So, those adjacent markets are margin enhancing, so they will help us increase that. So, I don't think we should expect the margin to grow to 3% in the first half of the period. We'll expect that to grow towards the back end as those adjacent markets come through.
Thanks, Andrew. That's clear. Perhaps more, like, I've got your attention. There's one further question that sprung to mind, and that the current building safety crisis, fire safety crisis that the government is wrestling, the residential development industry and the building products manufacturers, the contributions to remediating the problem.
Firstly on that, are yourself involved in that? Is there any cost to yourself in terms of past projects, or is it providing a source of revenue to help be part of the solution?
Well, the first thing, John, is that we're not covered by the residential property tax because we're not a developer as such. That's the first thing. And in the same breath [indiscernible] (29:42) that we agreed that leaseholders should not have to bear the brunt of this. It should be the industry. But we are not covered by the tax, so we don't have to pay it.
And, of course, the type of work we do and did in the run up, because this goes back a few years, is very limited. So, we have a very limited exposure in the first place. And notwithstanding that, we did identify a handful of projects after that dreadful night at Grenfell and – which had this ACM cladding material on it. And we convened a task force the very next day. We identified every building we built in the last 12 years. As I said, there were a handful of ACM buildings in there. We approached the clients and we remediated all of those buildings over the past few years.
And from a cost perspective, in some cases, the client paid; in some cases, our insurance paid; in some cases, the subcontractors paid; in some cases, we contributed as well. But that was all dealt with as normal business as usual. And we don't expect – there are a few ongoing inquiries, John, but they're not material, and we don't expect them to be material going forward.
Okay. Thanks, Bill. Is it providing work for you in remediating for others? It seems to be that [indiscernible] (31:03) in the construction industry to get the work done seems to be an issue.
On very small basis, John, yes. We have one of our smaller companies, dry lining, does some work in this field and they do retailing of lower rise buildings where it's appropriate and the associated fire protection work. So, yes, we will benefit from a little bit of work coming through, but nothing of any substance.
Great. Thanks, Bill.
Thank you. We will now take our next question from Greg Pluton (sic) [Poulton] (31:37) from Singer Capital Market (sic) [Markets] (31:37). Please go ahead.
Yeah. Morning. It's Greg Poulton from Singer's here.
Hey.
Most might have been asked, but just on the labor shortages. I think, Andrew, you said it was more [indiscernible] (31:50) in London in the southeast. So, if you could expand a bit on how you're managing that and if there's any impact on build schedules and things?
And then secondly, on the exceptional charges, I think it was £6 million for that nmcn acquisition integration. Is that the extent of it for the year? I think on the ERP system, you've got another sort of stock of 3.5% in the second half, is that right?
Yes. So, just picking those up, Greg. So, on the exceptionals, yes, so that is broadly with [indiscernible] (32:27) integration, as Bill said, it's progressing very well, very pleased with that. And those costs included some of the downside costs immediately post the acquisition. So, [indiscernible] (32:37) brought it up for nmcn. You're right, the investment in IT systems will continue, so we'll expect more cost sort of right in the second half year. But just to be very clear, that's a positive strategic investment we make in our IT systems, which, two years ago really capitalize those costs. We're not allowed to do that anymore. So, that's the only reason those are going through as exceptional, but that is a positive spend by the group.
Do you want to get on labor, Bill?
Yeah. Yeah. So, on labor, Greg, as I said earlier on, it's more accentuated in London in the southeast than elsewhere in the country, and that's not across the piece that generally is specific trade at any one time. So, we mentioned dry lining a minute ago. That, for example, at the moment is one there's a bit of a – seems to be a bit of a shortage. But we get around these things by reprogramming contracts and by giving forward visibility of what's coming up to our supply chain so that they can plan network, and we generally manage our way through it. So, I think it's settling down a bit now. And as I said earlier on, it isn't having a material impact on the business. So, we're managing through, and I think it'll continue to stabilize [indiscernible] (33:47).
Okay. Thanks a lot. Cheers.
Thank you. We will now take our next question from Alastair Stewart from Shore Capital. Please go ahead.
Morning, gentlemen. [indiscernible] (34:02) balance sheet-related question from me. The first is, you mentioned quite rightly that a strong balance sheet is becoming a key differentiator for you, and one or two other companies are saying similar things. But are your clients kind of looking principally at the net cash, the average net cash? Are they drilling down deeper to, say, your bonding cover? The reason I asked was I'm hearing word from the industry that some of the less well-capitalized contractors are cutting corners because of build cost increases and reducing their bond cover. Is that something you're seeing and have you changed your surety considerations? That's the first question.
Should I take that one Alastair before – sorry. Good morning by the way.
Sure.
I mean, so clients obviously look – different clients look in different ways. I think the commonality is the value of a strong balance sheet and the value of a contractor who they've got confidence will be able to deliver the projects as required is common, but they will have slightly different ways that they look at it. I'm not seeing that feature you mentioned, the bonding market is not something I see. We've got very good relationships with our sureties. Yeah, we continue to use the surety market as required. With our clients, that's not a feature that I particularly see Alastair.
Yeah. I think just to point out, having talking to that section of the industry, and they say it is beginning to happen and stirring up trouble potentially for weaker companies, but that's an observation.
And my second question, it kind of follows on from John's question on capital returns. Perhaps looking at this from another direction. You said, Andrew, that if your revenue went up 50%, you wouldn't need to get to keep hold – you wouldn't need to keep 50% more average net cash. And you said, it's currently 15%. In terms of – I'm not looking at it in terms of how much you pay out, more in terms of how one should look at adjusting enterprise value. The £180 million of average net cash, which is almost your market cap. Obviously, some of that should prudently be taken off a cash-in enterprise value. I mean, you mentioned the figure 15%. Would it be more like 10% before – even before you consider this as operational opportunity? Just in terms of your prepayment. Is there a magic figure in your head that you wouldn't want to go down a percentage of revenue, you wouldn't want to go below?
So, I think, Alastair, the point is what we look at all the time is the context of the market and the outlook as we see it. And so, yeah, and the absolute priority for us is maintaining a strong balance sheet, strong balance sheet for all the reasons that we've set out is really important to us now. The point is that what we don't need is whether it's surplus cash, and that's when we would look to return that. But we wouldn't do anything...
Yeah.
...to put a strong balance sheet at risk.
No, I understand that, but is there a kind of just the rule of thumb – I've kind of always thought of it as being about 10% without any great scientific evidence, but is there some percentage of either revenue or net worth, whatever, that you [indiscernible] (38:31)?
So, Alastair, I mean, we haven't put a number in the statement because we look at that in the context.
No, I...
So, [indiscernible] (38:42) yeah, if you like, drawn into giving a figure, which is, I don't say arbitrary, but which is we have to look at it in the context of the market as we find it, and that's the context or the lens through which we need to look at it.
Yeah. All right. Fair enough. Thanks very much.
Thank you. We will now take our question from Jonny Coubrough from Numis. Please go ahead.
Good morning, and thanks for taking my question. Two, please. Firstly, [indiscernible] (39:17) if you're seeing any impact from the decision-making process from your building customers as a result of cost inflation driving up the fees, the cost of projects, whether that's potentially delaying decisions or anything else?
And then secondly, just a follow-up question, please, on the nmcn acquisition costs. Appreciate that, Andrew, you said that there's been some downtime, but would also just be grateful if you could just give a breakdown maybe of what the £6.3 million was and also whether that was expected at the time of the acquisition. Thanks very much.
Okay. Thanks, Jonny. I'll take the first one, and Andrew can pick up the second one. Yes, we have seen a bit of slippage in decision-making, both in the public sector and the private sector actually. In the private sector, it's more about inflation where, for example, we might put in a price and win a project. And if it takes the client, for example, a month, to say yes and then the price has gone up in the meantime. So, it is an iterative process.
We're very upfront with our clients with regard to the impact of inflation and the validity of the prices. And so in a few instances, it has delayed projects only by a couple of weeks, possibly maybe a bit more, as that sort of iteration goes on a few times. In all cases so far, we have arrived at a landing point, which is acceptable to us because obviously we won't allow our margins to be to be diminished or our risk to go up as a result of that process. So, we are being pretty robust here. Our clients understand that. And as I say, we've not lost any projects on the back of it, some have been delayed by [indiscernible] (41:04).
In the public sector, again, things just seemed to take a little bit longer at the moment. If you'd asked me the question a month ago, I probably would have been a bit more frustrated. But in the last couple of weeks, actually, we've had a whole tranche of projects that we preferred better on come through to contract. So, it seems to be picking up pace again now. So, yeah, there's been a bit of slippage, but they seem to come through in the end.
And then – morning, Jonny. Just on the acquisition costs. So, yeah, we did anticipate there would be cost. I think we said in October that we thought there'd be some additional costs, and of course put that in the context of the headline consideration in October was £1 million. So, yeah, that was always anticipated to be some additional cost to be spent.
The £6 million, Jonny, is a mixture of legal and professional fees. It's got integration costs and restructuring costs in there, as well as the cost of the – the staff costs at the time the sites were closed, and therefore we were – mostly carried on paying our staff, but they weren't productive in the sense of generating revenue. So, it is a mixture of all of those features.
That's great. Thanks very much.
Thank you. That will conclude our Q&A session. I will now turn the call back to Bill Hocking.
Thank you. Okay. Well, thanks to all for attending today and for your questions. Much appreciated. Just to reiterate, we're in good shape. We're really pleased with the progress we've making towards our targets, and we look forward to see you again in September. Thank you all very much. Bye-bye.