Johns Lyng Group Limited (JLG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Johns Lyng Group FY '23 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Scott Didier, Group CEO. Please go ahead.

Good morning, everyone. I'm joined this morning by Nick Carnell, Chief Executive Officer, Johns Lyng Group Australia; Adrian Gleeson, Executive Director; Matt Lunn, Johns Lyng's CFO; Lindsay Barber, COO; Pip Turnbull, EGM; and Gemma Sholl, Group EA. I'm going to provide an overview of the financial year 2023 results. Additionally, I will comment on the strategy we are executing as a group and how that strategy is shaping our forecast for the financial year 2024 and beyond. At the conclusion of my presentation, I, along with the executive team, will be available to answer any questions you may have. It is my pleasure to announce that the FY '23 was another record year for Johns Lyng. Since listing in late 2017, the company has grown substantially. At the revenue line, we have had CAGR growth of 39.8% over the last 4 years. And as I will outline later in my presentation, we are forecasting further significant growth for FY '24. The growth is no accident. We plan it and drive it aggressively, ensuring at every level we employ rock star talent who want careers. This forms our culture, which plays a significant role in our ongoing growth. Our aim is to continue growing our resilient earnings streams. All of our businesses are defensive by nature and provide annuity-style revenues related to insurance claims, weather events, natural disasters impacting individuals and households. Turning to our FY '23 results. Our revenue increased 43.2% over FY '22 to $1.281 billion resulting in EBITDA of $119.4 million, also a rise of 42.9%; EPS growth of 75.3% to $0.1794 per share as [ a salary outcome earning ] standard. In addition to the $0.045 per share interim dividend we declared, the Board has approved and announced a further dividend of $0.045 per share, bringing the total dividend amount up to $0.09 per share. This dividend is fully franked and represents a payout ratio of 52.9%. There are 2 points to make here. One, Johns Lyng is strongly cash generative. Cash conversion stands at 142.7% of EBITDA. The balance sheet of Johns Lyng is robust. There is net cash of $71.9 million and net assets of $394.2 million. For those of you who have followed Johns Lyng over the years, you will know that the complementary bolt-on acquisitions are part of our DNA and business model. This type of balance sheet strength and the flexibility affords us a tremendous advantage on negotiating acquisitions in an often competitive environment. The core of Johns Lyng is our Insurance Building and Restoration Services division, IB&RS. It is in this business that we see great futures and resilient growth in annuity-style earnings. Business as usual revenue growth of 32.2% year-on-year, this is outstanding for a service business and again confirms and validates our defensive earnings. Going forward, there will be further growth and we'll always maintain our disciplines over the past 20 years. Our earnings profile must be defensive and the annuity-style characteristics will not change. Our approach and strategy are unique. Our execution this past year and our vision for the future sets us apart to be able to build such consistently strong results. The outlook for BaU revenue and profit for FY '24 is very strong. As many of you know, Johns Lyng has become a market leader in disaster response recovery and restoration in Australia. Our company proudly and confidently supports Australian communities and families at their times of need. In FY '23, this work extended into New Zealand and the U.S.A. We're now operating in 3 geographical zones. Beyond the usual benefits of diversification, we are gaining invaluable experience and knowledge in this segment. We have learned that CAT events are happening more frequently. They're becoming more severe, and the response recovery and restoration work is bigger and longer lasting. Beyond working with our long-established insurer clients, we are now partnering with governments at a federal state and local level. These trusted partner relationships ensure that we not only provide services at the time of the event, but we are increasingly being asked to use our rich experience and consider strategies around remediation, resilience and prevention. We've established a division to service these clients, and we are the market leader in Australia. In FY '23, the consequence and the effects of the prolonged [ lending and ] weather cycle has affected the East Coast of Australia. The CAT division had a strong year. Revenue growth of 125.3% resulted in a 137.9% increase in EBITDA. Work that is ongoing in the states of New South Wales, Victoria and South Australia meant that CAT will make an important contribution to JLG's earnings in FY '24. I want to reemphasize that any earnings that we are forecasting for CAT from work in hand -- and we make no forecast about the turn of events other than to reiterate the observation above that -- of becoming more frequent and severe. The events that we have witnessed in Hawaii and California in recent weeks illustrate this point. In addition -- sorry, in our traditional IB&RS segment, we further cemented our market position with contracts and extensions across our blue chip client base. New contract wins with Youi and Austbrokers were augmented by contract extensions with Suncorp, QBE, Allianz, Comminsure, IAG and RACQ. One of our competitive advantages is having local presence by way of having bricks-and-mortar offices throughout Australia, especially in all our regional areas. It allows us to build solid relationships by being immersed in the region and working with the local community. During the year, we expanded our [ rural brick-and-mortar ] offices, opening further offices in Davenport, Shepparton, Moruya Heads, Noosa Heads and Auckland. As I mentioned, we have an office in Auckland. As a result, we were able to assist communities affected by Cyclone Gabrielle. We saw significant flooding across the North Island. The North Island presence complements our South Island exposure in Christchurch, which we established by the acquisition of 80% of Mainland Building Services in May this year. We will continue to grow our New Zealand footprint in FY '24. During this year, we also acquired 6% equity interest in A1 Estimates. I want to highlight this acquisition because it hits all the notes that drive our business model. Firstly, the DNA and culture of A1 is a great match for Johns Lyng. We've worked closely with A1 and their management team as we subcontracted expert insurance, repair estimating services from them. We know them and the quality of their work. What we also know is that we can take that service offering and leverage it across our national footprint and customer base. In simple terms, we can scale enormously well when required, especially in events. As you can see from our presentation, we have established Johns Lyng Disaster Management. By launching this business, we have the dedicated capability and service to service government and semi-government clients as they manage events when they occur. What we have learned is that as the severity of these events increases, governments at all levels are becoming increasingly involved in recovery, repair and restoration work. Additionally, governments are thinking about resilience and mitigation strategies. Inevitably, these require services in infrastructure and Johns Lyng is able to assist across the vertical. Because we are the leading national disaster response company, we have been engaged by 3 state governments and numerous local authorities, and we still have significant work in hand. This business is about reputation and service capability, and we're proud to have market leadership in this space. Moving now to the Strata Services, which comprises strata management, strata building services. There are many reasons we are attracted to this market. But the 2 key drivers are: firstly, consolidation. And we have the second largest market share in this sector with 4%. This highlights the opportunity that we see to consolidate. The second attractive factor is growth. As landlords outsource various often mandated and regular service work, we are uniquely placed to provide these services and cross sell relative adjacencies that are already part of our service offering. Indeed, part of the rationale for our recent acquisition of Smoke Alarms Australia, Linkfire was just this, selling mandated services into the sector. I'll expand on these acquisitions shortly. In January 2022, we acquired Reconstruction Experts in the U.S.A. In many respects, this business mirror the Australian business. This is why we were attracted to it beyond the natural mantra of a cultural fit. Since the acquisitions, we have worked very hard to extend Reconstruction Experts' geographical footprint and service offerings. We have leveraged our in situ business such as Steamatic, and we are enjoying a cross-fertilization of ideas between Australia and the U.S. Reconstruction Experts has been successfully integrated, and we have developed and finalized our strategic plan for the U.S. We launched new services and brands. And as of 30th of June, we have 13 new business partners in the U.S. These partners have local connections, expertise and knowledge. And given the cultural alignment I've mentioned, we trust to continue to deliver the results and provide positive customer experience that have made them attractive to us in the first place. We executed our first catastrophe response when Hurricane Ian made landfall in Florida in October, the fifth strongest storm to impact the U.S. and likely one of the costliest disasters in the nation's history. All of this talks to the wonderful progress, and we could not be happier with it. But importantly, as we grow, we have not lost sight of the bottom line. Our U.S. business contributed $246.6 million of revenue in FY '23 and a margin circa 11%. This is consistent with our forecast, and we're very excited about the future growth and prospects of Johns Lyng in the U.S.A. Post [ balance date ], we made 2 acquisitions by acquiring Smoke Alarms Australia and Linkfire. We have laid foundations for the fifth pillar being “Essential Home Services. This pillar is complementary to existing growth pillars of IB&RS, Strata, Disaster Management and Johns Lyng USA. These revenue lines are mandated under various federal state legislated organizations and building codes. Our prediction is that this federal government mandate activity will grow and will be largely immune from pricing pressure. I make no apology for continually emphasizing these characteristics. They talk to JLG's unique selling proposition for the company and investments. As I mentioned earlier, our capital position and balance sheet are very strong. It is a competitive advantage, and we have achieved this position because our business model is strongly cash generative and is not capital intensive. In short, we have the physical resources to move quickly but prudently when we see an opportunity. This level of cash generation and financial strength means that we are able to substantially increase our dividend year to $0.09 per share and a substantial rise of 57.9%. I want to finish by looking at FY '24. We will start by saying that after 7 to 8 weeks into the new financial year, we're off to a flying start. A very strong work in hand business means that we have started the year running, and I'll be able to provide a follow-up briefing in [ September ]. For FY '24, we are currently forecasting sales revenue of $1.17 billion. The key point to make here is that BaU revenues are forecasted to grow by 18.5%. This will be another record year for BaU revenue. Importantly, BaU EBITDA is forecast to grow 20.1% to $113 million. Let us take a moment to reflect on those numbers. We are a conservative company. We do not forecast CAT events. All of the earnings associated with CAT forecast relate to work in hand. Our observation is that these events are becoming more severe and frequent. We do not provide blue sky forecast, and we have a track record of beating forecast. I must stress our earnings are resilient, growing and defensive. Having an annuity-style profile, we believe that our business model is unique and compelling. It insulates us from the key negative macroeconomic forces of high inflation and interest rates. Our earnings are predictable and therefore, low risk in the service industry environment. This is why we are so excited about the near, medium and long-term future of Johns Lyng. Thank you for your attention, and we'll be delighted to answer any questions you may have.

[Operator Instructions] Your first question comes from William Park with Citi.

Can we just touch on your comment around the record job registrations and work in hand for FY '24? Can you provide some color around this and the timing around when these are to be delivered over the course of the year and how much visibility this gives you at this point in time. And just the second part of that is whether if you have sufficient capacity within your workforce and subcontractor base to carry these out. Or do you need to grow your workforce to undertake this work?

Yes, all we can say at this point is we've come out of the blocks really well. The first 7 or 8 weeks have been really busy. Registrations are up, and business is really, really busy, and we're under pressure. Are we under pressure with staff and subcontractors? Absolutely, we're under pressure. But that's a good thing, and we're always under pressure in that area for sure. That stretches us, and that's sort of how we work. The line of sight we have is really coming off all the work in the prior 12 months and all the events in the prior 12 months. Now a lot of it is still to be done because, mainly, we did assessments and cleanup and demolition. So there's so much line of sight that we have on work that has not been assessed and has not been reallocated back out to us. So yes, we can just see what's to be done. So that's why we're really, really confident of a big FY '24.

And if you were to sort of move to the U.S. part of the business, just looking at what you've disclosed there, it looks like the second half margin, a step back. Can you just talk to what's happening there? Is it purely the inflationary pressure? Or just wondering whether if there are other factors that we should be aware of.

Yes. Now the reason the margins stepped back a little bit in the U.S.A. is clearly because we've just allocated some costs for expansion. Our expansion over there is exceeding our expectations. We've been able to appoint 13 new business partners, and they're rolling out really fast, and we've been received really well. So there's quite a little bit of suppression that we've invested in growth over there, and we're really happy to invest in the growth because we've been received so well. You want to add to that, Matt?

Yes, sure. It's Matt speaking. I think if you look at that underlying 11% margin, it's a solid margin in the context of the revenue growth. So when you unpack that Johns Lyng USA result of $247.6 million, it's implied growth of 25% period-on-period. Of that, Reconstruction Experts was $239.2 million, which includes some CAT -- headline growth there from a revenue perspective, was almost 32%. In terms of the CAT in the U.S., $21.5 million is a great result from a standing start being the first CAT response we've ever initiated, and that means BaU was $217.7 million, which is 20% growth. Now the 11% margin result is an excellent result in the context of that revenue growth because that revenue growth is being fueled by investment. And when we talk about investment, we mean specifically launching the Makesafe business in Colorado, in Texas and in Florida and also launching Express as well alongside Makesafe. Just to put it into perspective, as an interesting data point, if you look at the headcount, the FTE headcount on acquisition, RE had about 300 employees. We've grown that headcount [indiscernible] 1/3. We've added 100 FTEs. As of today, we've got just over 400 employees, and that's all supporting that growth. So in the U.S., the strategy is about revenue growth. It's about market share at a good margin. So I think in the round, we're really pleased, and we're excited about next year's growth.

And just quickly on that, then do you expect the margin of circa 10% or thereabouts in second half to continue on? I mean is that a sort of a new base that we should be sort of thinking about given you're looking to expand -- continue to expand in the U.S.?

I think probably 2 points to make there, Will. One, when the hurricane hit Fort Myers in Florida, it effectively shut off business-as-usual work in Florida. Now obviously, the quid pro quo for that was a massive increase in CAT work. But by deferring some of those BaU projects, that added some temporary margin pressure in the second half, which is now rebounding. But as we've always said, over time, as we build out the full suite of services, we expect the U.S. margins to align broadly with the Australian business. So over time, we see the U.S. business margins aligning with Australia.

And just one last one. I mean if you were to sort of think about just focusing on Australia, just looking at some of the weather forecast in the near to, I guess, medium term, it looks like we are having too much dry conditions than what we saw in past periods. And while I appreciate your resilience through these weather patterns, just wanted to see how you're thinking about a potential pipeline for BaU and CAT if the dry conditions persist until and even after your current contracted work volumes are delivered.

Well, we never -- to be honest, we gave up thinking about weather many years ago. For 20 years, we've had record growth year-on-year. And 5 years ago, in Victoria, they were building a desalination plant because there wasn't enough rain. And then all of a sudden, they canned that up. They spent a couple of billion dollars because it was too much rain. We don't worry about weather because, you know what, experience tells us no one can predict the weather. So all we know is that we grow year-on-year and we get more registrations in, and we aggressively just seek new geographical areas. And we put more account managers on new business irrespective of the weather.

I think just expanding on that as well, Scott. Importantly, over the last, let's say, 2 years, for argument's sake, we've opened new subsegments of the CAT market. In FY '23, we went to New Zealand, and we're already responding to Cyclone Gabrielle. We've opened up other work streams with governments, state and federal governments through Johns Lyng Disaster Management, which had an excellent result in FY '23 and continues to grow. Have opened up the U.S. Over time, the U.S. CAT opportunity will dwarf any other market in the world. I think also just an interesting point is that, historically, and we expect this to continue going forward, we've only ever been limited by our own internal capacity. And when I mention that, I'm specifically referring to our estimators, our supervisors, our project managers. We've always fully used our headcount and our resources. So we expect that to continue. If the number of CAT events does decrease, and we do expect that it will especially because we've opened up new markets, but we still expect to fully utilize our resources. We'll only ever be limited by our own capacity.

Just big changes on the BaU, that's what we focus on internally, is making big strong value platform and foundation. And then when and if things occur from a capacity perspective, we attack them and approach them the same way we always have.

Next question comes from Russell Gill with JPMorgan.

Congrats on the results. Just a handful of questions. I know you obviously steer clear of your bullish CAT guidance, which seems that you underestimate by 250% over the last 4 years. Just to get a bit more clarity on your outlook for that, you guys obviously have a bigger business now in lots of different areas, and you've obviously seen a number of events. You've guided to, I guess, revenue 30% higher or a little bit higher than last year. In terms of the pipeline of work or the opportunity of work out there today over the next 12 months, how does that compare to, I guess, 12 months ago on -- I guess, on the visibility of potential work that you can see across different segments of your business?

It's as big as we've ever, ever seen and bigger than we could imagine, Russell. The event that happened in the East Coast last year was the biggest event Australia has ever seen. Most of our work in FY '23 was assessment and cleanup. All those assessments have to go back in to the relevant bodies, and then those assessments then come back out. 90% of those assessments haven't come back out, so that's why we know there's so much coming out because we know how many assessments are in there. So yes, so our vision on that is just enormous. What it lends to is just enormous amount of work.

Yes. So if we think about the East Coast event, are you feeling like it's got 2 more years to run before it starts tailing down? Like how do you see the cadence of the size of the opportunity, I guess, over the next couple of years?

I would say 2 to 3 years easy is what we can see.

The same in the U.S. [indiscernible] Florida.

Great. Second thing is you guys, given your business model, are beneficiaries of, I guess, high levels of inflation. The insurance industry has put up premiums by a lot and are continuing to do so. When you're thinking through FY '24, how are you thinking about inflation because you obviously benefit the last couple of years through inflation? How are you thinking about inflation in '24 and how it rolls through your business?

Any inflationary costs that we incur get passed through, but our average claim cost actually didn't increase that much last year. I think we looked -- it was only up 1.6%. So I think, to be honest, we're a little bit -- there is inflation costs, but we are a little bit insulated from inflation cost. Because all of our work is bespoke and not large volume type purchasing, we've never benefited from bulk buying or bulk material supply if you like. So our contractors have to go and buy their goods from Bunnings. So you don't get a massive wholesale price from Bunnings. So people that benefit from buying and they import from China and they import from overseas, they're doing bulk buys, so they suffer from inflation costs when they can't get goods in. Containers are stuck in ports and they can't get in. So they really suffer from inflation costs. I believe in our sector, most of the inflation costs are actually in there because they're paying premium prices, if that makes sense. Did I explain that right?

Yes. And I think, yes. The other way we think about it is our ability to control outcomes for our clients and customers is by being as close as possible to them, right? That then ultimately dictates scope. So the biggest issue for us is around getting more allocation and growing registration. We talked about record registrations is managing average cost. Now if there is some inflation inputs that are very minor within an overall scope, the way we manage those is by having more brick-and-mortar offices. I said [ we can get to a ] job within an hour versus 2 days, that's a very different scope, a very different end price, a very different end result, different scorecard. So irrespective of inflation or an inflationary environment or deflation, the way we manage scope is the most important output for us to getting more registrations. That's the way to think about it, Russell.

So just on that, Nick, I mean I think the comment was made before that the average claim cost was only up 1.6% on last year. Is that across Australia? It seems a very low number.

Yes, it is because, again, the more offices you're going to put in places, right, the quicker you can respond, the lower the average dollar value is of that particular client. So irrespective of even -- let's say, timber goes up 30%. You're not putting as much timber into the job because you got there quicker and you save some, but that's the way we manage it. So when we look across the portfolio of [ clients ] across different cost bands, we've seen a really strong performance from an average dollar perspective. That's when we talk about competing on volume, not competing on price. So we compete on volume, and then we've seen the registrations pick up.

I think also just having that local presence, Russell, it keeps the subcontractors honest, but we've got deep relationships with our subcontractors. In most cases, they've built their businesses off the back of Johns Lyng. They like working for Johns Lyng. It's recurring work. We pay them on time. So it maintains the integrity in the supply chain. So again, for all these reasons, that regional network is so important.

Great. And just a final question, just on how you're seeing, mainly as a general comment, I guess, access to labor and I guess, talent within your pool. So obviously, things got quite tight during COVID. And I was hoping maybe you could differentiate between your, I guess, Australian operations and your U.S. operations, what you're seeing both from a access to talent within your own business and then also on your subcontractor network just in terms of availability of labor from an overall demand perspective.

Yes, it's a good question. I think -- and I'll let Scott answer. I think the same issues, we've faced for 20 years. That's probably the -- COVID or no COVID, being aggressive growers, we're always on the hunt for talent. It's an everyday conversation in here, and that's how it goes right through from an administrator through a new estimator through a business partner, is at every level. And when you're aggressive growers -- and in especially environment we've been able to create, we're always progressing talent internally too, so they keep topping that up. So it's not an issue that's new or has come because of COVID or there's any changes in the business, from my perspective, the last 10 years and from Scott, for the last 20. So it's ongoing. What I'd say is that we've been able to deliver amazing outcomes, another record year result. I don't expect anything to change this year. We had 3 meetings this morning on talent, so it's not anything that's new. And I think that, from a subcontractor perspective, we continue to onboard trades. We talk about new offices opening. That gives us a loyal trade base around that office that is new. It improves service standards. It improves average cost. It increases registrations in that local area. So that's the way we think about the ability to bring new trades on. It's just not they sign up and register, and we [ will chuck ] you a job. It's just there's going to be deep relationships long term here with these trades because they've seen opportunity to build businesses with us. So that's the way we think about it.

And same dynamic in the U.S. that you're seeing? That question comes back to -- I mean you've seen some challenges by the new build fixed price contract industry and whether that's led to, I guess, some supply coming into that subcontract network. So any different comments on the U.S. business?

U.S. is the same, Russell, to be honest. While we're growing -- and as Nick said, we've grown for the last 20 years, while we're growing, talent is always what we're looking for. Our restriction on delivering more work and any more revenue is on the talent we put on. It's not the work. The work is there. We said this many times. We've touched wood. In 20 years, we've never said we're quiet. Our acceleration and speed on that is how quickly we can get good talent into the system. The U.S. is the same. As I said on the call, we've been received very well in the U.S. Now it's just about finding people. The work's there. It's just about finding people. And that's while we're growing aggressively, we just need more people all the time. That's the good problem we have.

The next question comes from Piers Flanagan with Barrenjoey.

Just a couple from me. Maybe just firstly on -- just on the BaU performance and the performance in IB&RS. It looks like that was probably a little bit ahead of expectations. Can you maybe just break out sort of within that sort of core IB&RS versus Strata contribution throughout the period?

Yes, sure. Matt, speaking again. IB&RS, very, very strong result, a record result for IB&RS, total revenue, $1.157 billion, up almost 53% year-on-year. And that includes BaU, business as usual revenue of $775.3 million, up over 32%, which is about 14% growth excluding acquisitions and CAT obviously contributed the balance of $371.3 million, up over 125%. So in terms of that BaU revenue growth excluding acquisitions of about 14%, we had fantastic growth in Johns Lyng Strata Services of about $10 million, almost 13% year-on-year. We had about $20 million growth with the continued ramp-up of those new contract wins over the last 18 months, specifically RACQ, Westpac, Chubb, Honey, Blue Zebra and Steadfast, so on a combined basis, over 45% growth with the continued ramp-up of those contracts, which we expect to see continuing to ramp up through FY '24, which is fantastic. A great result from other strategic initiatives like Emergency Broker Response. That product continues to go from strength to strength. It's a real snowball effect, so incremental revenues there of almost $5 million, up almost 12% and then just general growth with allocations and organic growth across the rest of the portfolio of about $30 million or 10% or so, so a really fantastic result from IB&RS. And whilst the CAT result was fantastic, a record by a country mile, it shouldn't overshadow the BaU result, which is most important.

And then maybe just continuing on from that, Matt, just looking at the guidance next year and the BaU guidance sort of excluding commercial construction and excluding acquisitions sort of 12%. Looks strong. Maybe some of the building blocks behind that guidance forecast?

Yes, sure. So in absolute dollar value terms, that's the $102 million revenue growth. As you say, Piers, just over 12%, which is very, very strong. Whilst -- we're actually maintaining in percentage terms our forecast growth year-on-year, but obviously, as we grow in absolute dollar value terms, that dollar value growth is increasing, which is fantastic. In terms of the building blocks there, the key driver is Insurance Building and Restoration Services, as you would hope and as you would expect. Of that $102 million, IB&RS is expected to contribute about $92 million of that growth. And really, it's a continuation of the same theme in terms of the FY '23 versus FY '22 results. So expect continued growth in Strata Services of about 17%, which is fantastic, so incremental $15 million to $16 million; continued ramp-up across those panels, those new contracts, so 8% to 10%. Emergency Broker Response, conservatively estimated to grow at 10%. The U.S., again, conservatively estimated to grow between 10% and 15%, scope for outperformance, but we're always conservative with our guidance; and then 8% to 10% growth across the rest of the portfolio. So -- and we've got a track record for being conservative. We follow the same principles. We build our budgets bottom-up. Everything is based on current run rate from a BaU perspective, what we can see in terms of the pipeline. We've got strong visibility, strong empirical data from the panel allocation. So we're comfortable with the forecast and the task now would be to try and outperform.

That's helpful. And then just on the cash conversion, sort of very strong at 143% and even normalizing for a prepayment at 100%. Can you maybe just talk about prepayment and then sort of how to think about that cash conversion on sort of a go-forward basis and expectations around that level?

I mean it's quite pleasing that this year, it's exactly the opposite conversation of last year. We have temporary cash flow suppression this time last year because of the massive mobilization to certain CAT events. This year, the balance sheet has acted in exactly the way we foreshadowed. So it's released that cash, which is terrific. In the presentation on Slide 15, there's a reconciliation of operating cash flow. You're right. Cash conversion from EBITDA was very strong, about 143%. If we made a couple of normalizations for that prepayment of about $21 million and then also the reduction in working capital, so accrued income decreasing by some $28 million, you get back to about 100% conversion from EBITDA. So in a normal period, if there is such a thing as a normal period, we would expect cash conversion from EBITDA to be between 90% to 100%. It's very strong and cash generative business. We don't have massive working capital impacts and CapEx is light. So we are incredibly pleased with that cash flow, the operating cash flow before interest and tax for FY '23.

Great. And then just the last one for me, just on the margin, pretty stable throughout the year. And Scott, you mentioned you won a few contracts and you renewed a number throughout the period as well. Just as part of those discussions, I mean, has there been any change to sort of the cost plus margin profile? Or just how is the discussion with insurers at the moment in the current macro environment?

It's pretty much the same, Piers and no real change in margins. Margins are consistent. Terms are consistent. A couple of those are just really extensions as well, so no real change there at all.

The next question comes from Julian Mulcahy with E&P.

Just a few for me. Firstly, with the RE business, what did it actually make? It is a little bit confusing on this slide versus a few notes to the account there.

So in terms of RE -- it's Matt speaking of course. In terms of RE for FY '23, revenue was $239.2 million. That comprises business as usual of about $217.7 million, and the balance being CAT at $21.5 million. So that's about 20% BaU growth. And obviously, it's the first CAT we've ever responded to. So we delivered $21.5 million CAT revenue, which is really fantastic from a standing start. And really importantly, we've got the infrastructure now set up, and we've got the CAT plans in place to be able to respond more aggressively to future CAT events, which is terrific. Underlying margins for Reconstruction Experts were about 11%, which is a little bit lower than perhaps we were expecting 18 months ago, but we are investing for growth, as I said, during the [ advent ] call itself. So really importantly, we've added 100 FTEs, so we've increased headcount by 1/3. We've launched Makesafe, and we've launched Express, and we're investing for growth. So it's the real opportunity in the U.S. It's about market share. It's about revenue growth. And obviously, we need to maintain reasonable margins. But we said from the start, from the acquisition, we expect margins in the U.S. to align with the Aussie business over time as we build out that full suite of services.

No, I get that. What was the actual EBITDA?

It was 25.6.

25.6. And that's, I mean, compared to what you're just going to look at in your first maybe acquisition, it's sort of tracking below. So how does that sort of fare with the earn-out based on this year's earning?

So as we kind of foreshadowed at the half year, we've written the earnout provision balance to 0. We do not expect to pay the earnout. The final test for the earnout will be based on CY '23, so calendar year '23, so the trailing 3-year average EBITDA to 31 December this year. We don't expect the earnouts to be paid. But notwithstanding that, the business is tracking well. You can see the revenue growth. You can see the margins are solid. And it's a massive, massive market going forwards.

Okay. And the CAT revenue forecast for this year, $138 million, how much of that is the U.S.?

The U.S. CAT forecast is a conservative $8 million. So that's literally the contracted work in hand.

Right. Okay. Cool. And just finally, so with -- I mean when you bought that -- the RE business, there was an expectation that you'd follow up with some pretty sizable acquisitions quickly but we haven't seen anything. Is there an underlying reason? Or is it just a bit harder to find similar sort of businesses?

Harder to find, Julian. We are in discussions with a few at the moment, but it's really hard to find where management want to stay on sort of there. And we'll land a couple. No worries, but they are really hard to find and our disciplines of retaining management that are motivated want to come forward.

Right. So it's going to be more like an organic growth story.

It will be both.

A combination.

Organic has done really well. And just -- we've just got to land a couple of these acquisitions that we're in discussions with. Going back over in a couple of weeks to talk to a couple, Julian. It's ongoing.

Your next question comes from Ronan Barratt with MA Financial.

Just with regards to disaster recovery, are you able to split out the revenue that came from that segment in FY '23 and how you expect those revenues to trend into F '24?

Ronan, that particular subsegment is not something we're disclosing separately. It's all government counterparties. So the vast majority of that work is included in the CAT disclosure, but we're not going to break out CAT between insurance counterparties and governments.

Okay. No problem. And obviously, it's early days for you in New Zealand, but just roughly what level of revenue you got from New Zealand in F '23 and I guess growth expectations in '24 from that region?

Yes. I'll let Matt talk to the numbers in a second as he gets his note, but we couldn't be happier. Ronan, I think I made mention of the business partner that we opened the office with over there and his ability to get out with the support of Josh Barnes and Pete who have spent a fair bit of time over there as well to build a really strong organic opportunity and be ready for the catastrophe team to capitalize. It's been fantastic. Josh is behind our [ insurance team ]. He's heading back over in a couple of weeks to have really meaningful conversations with a couple of major insurers. We're now receiving work from probably the top 3 to 4 insurers over there, already on a BaU basis as well. So he's done an amazing job setting that up, ready for growth in the future and have a location in the South Island now to just opens up more possibility. I'll let Matt talk to the exact numbers of the financial year results there.

Yes. I mean we've only been on the ground over there for, what, Nick, some 6 months or so. But to be able to deliver $5.5 million, $6 million revenue in New Zealand in this financial year from a standing start is really terrific. That's a combination of BaU and workup costs, and we expect that to continue growing through FY '24 and the forecast, we probably got somewhere between $10 million and $15 million of revenue in there. I think what's really important is that it's -- the whole CAT response to Gabrielle, it's fast tracking the BaU business in New Zealand. So it's fast tracking relationships. It's cementing relationships, and it's allowed us to scale up the operation probably 50% quicker than we would have done ordinarily.

[Operator Instructions] Your next question comes from Tim Lawson with Macquarie.

Just one in particular. In terms of the cost comments you made in terms of the claims inflation, how is that helping you in regard to panel [ competitions ] and versus your competitors?

No, really strong. Tim, I think that's -- we talked about that's been a strategy that we've, I'd say, invested in. But it's been the last 10 to 11 years' worth of regional expansion that are provided. I guess that ability to manage the outcomes a lot closer, it's not just cost. It's service as well. It's timeliness. It's building capacity. So there are a number of factors that allow us to continue to perform well on panels. And when we talk around BaU growth and going back to some of the questions I had earlier around strong organic growth next year, the confidence we have in that is the current position we have on scorecard panels and the conversations we have with insurers, new offices we're going to be opening. So they're all sort of intertwined to yielding a strong result.

There are no further questions at this time. I'll now hand back to Mr. Didier for closing remarks.

Thank you very much, everyone, for joining the call, and I'm sure we'll catch up with a lot of you over the next few days. Thank you very much.