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

Good day, and thank you for standing by, and welcome to the Johns Lyng Group, JLG FY '24 Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Scott Didier, Group's CEO. You may proceed, sir.

Good morning, and thank you for joining us for this presentation of the Johns Lyng Group's FY '24 results. My name is Scott Didier, and I'm the Group's Chief Executive Officer of JLG. Before I introduce our other presenters joining me today, I'd like to provide some commentary on the 2024 financial year. FY '24 was another stellar year of growth and progression for the group, achieving a record-setting BaU EBITDA. We are winning new clients and contracts and strengthening our relationships both across Australia, New Zealand and importantly, the U.S. We have been very clear with our growth strategy since 2004, growth has been at the center of everything we do. It's our DNA from the front door to the back door, and we're a sales-based organization. To put some context around that growth, since we listed in late 2017, we have achieved a remarkable expansion of our revenue base of $286.8 million in FY '18 to over $1.159 billion today. We're proud of that growth and value we are delivering for and the value we are delivering to our shareholders, and I thank you for your support. I'd like to take this opportunity to expand out on our progress in the U.S., which presents a significant opportunity for the Group and constitutes one of the key strategic growth pillars. FY '24 was inflection point of Johns Lyng, USA, and we have now grown the business by 34% over the past 2 years, alongside completing significant strategic work. The introduction of our core business service line, Johns Lyng Makesafe, John Lying Express Builders into the U.S. is advancing our strategic vision of offering comprehensive and complementary services across the country. We also continued the rollout of our proven equity partnership model during the year with a total of 25 business partners across 5 key states at present. These partners are all aligned to our core values and equity partnership approach ensures that they are committed to growing the business and delivering success. In the second half of FY '24, we appointed Tyson Barber, the CEO of JLG USA, and we thank him and his team for delivering 22% BaU growth first half versus second half. Under Tyson's leadership, together with the investment in business partners and the business development team, we maintain great confidence regarding the organic growth in the U.S. We are excited and energized by the progress we are making in the incredibly large U.S. market, having hastened slightly. We are now at a point where we're seeing our growth strategy pay off. In short, FY '24 was another fantastic year for the group. Financially, we are achieving solid results, particularly in our IB&RS BaU. We are executing on our growth strategy with several strategic and complementary acquisitions, consolidating our position in the highly fragmented strata market and other key strategic growth pillar for the Group. We are expanding our footprint and operations in the U.S. with significant work expected in FY '25. We continue to support communities impacted by natural disasters and with these events, forecast of increasing frequency and intensity are working with governments to develop community resilience. We enter FY '25 with strong momentum and registrations and are very excited about providing an update on our progress throughout the year. Joining me on today's call, I'm joined this morning by Nick Carnell, Chief Executive Officer of John's Lying Australia; Matthew Lunn, Group Chief Financial Officer; and Adrian Gleeson, Executive Director, Investor and Corporate Relations. I will now pass over to Nick, who will provide some more detail on our achievements during the year. And Matt will then expand upon our financials and provide FY '25 forecast. We will then be happy to take any questions. Thank you, and I now welcome our Australian CEO, Nick Carnell.

Yes. Thank you, Scott, and good morning, everybody, and thanks for joining us. As Scott mentioned, financial year '24 was another strong year for the Group with total revenue of $1.159 billion and group EBITDA of $138.3 million, excluding commercial construction. While revenue was slightly down in last year, it's important to point out that financial year '23 included a record contribution from our CAT division following several large-scale natural disasters. Pleasingly, our BaU operation achieved a record financial performance, which Matt will expand on in just a moment. Our continued deliberate growth since listing is a testament to our strategic investment thesis centered on defensive growth and consistent execution. We target opportunities where we see strong fundamentals that align with our core capabilities and offer nondiscretionary annuity-style revenue profiles. This plus the fact that the majority of our insurance building restoration work is on a cost-plus basis helps insulate us from the economic cycles and inflationary pressures. We have a diversified and large client base, mitigating concentration risk while our blue-chip insurance counterparties indicate credit risk. This insulation from risk has helped drive our bottom-line growth amidst challenging conditions of recent years, and we'll continue to see opportunities that align with this thesis. Closing June with [ $20.9 ] million in net cash and more than $80 million in undrawn revolving credit facilities, we have the balance sheet capacity and ample liquidity to execute on M&A opportunities rapidly and dynamically. Our strategy for organic growth also remains unchanged and during financial year '24, we made good progress against it. We expanded our geographical footprint with 159 locations globally as at 30 June 2024. A broad coverage, combined with our growing network of local subcontractors allows us to engage with new clients, deliver work on time and to a high standard, increasing efficiency. We win new clients and contracts, which is increasing our IB&RS top pipeline. During financial year '24, we were pleased to achieve several new contracts wins and extensions with blue-chip insurance counterparties. This included Tower Insurance, Safety Culture Care, RIA, Auto and General, Hutch, Longitude, MAS New Zealand and Allstate and the U.S. amongst several others. These are significant contracts that speak to our strong reputation, the depth of our relationships and our ability to deliver. We look forward to watching volumes from these contracts ramp over the coming periods. We also completed several important acquisitions during financial year '24. Strata Service is a key growth pillar for the Group, and we're pleased to acquire 2 leading strata management businesses, Your Local Strata and AM Strata. Your Local Strata is a leading Sydney-based strata management company that added just over 3,000 lots to our portfolio as well as subsequently acquiring AM Strata based in Queensland grew our portfolio by just over 4,000 additional lots. In the first quarter of financial year '25, we also signed an agreement to acquire 100% equity interest in Brisbane-based SSKB. It brings an additional 44,000 lots into our portfolio. Therefore, we now manage just over 145,000 lots across 4,800 schemes and the second largest market share nationally in this space. We still see tremendous opportunity in this highly fragmented strata market, which has an inherent revenue synergies across the group. We will continue to consolidate our position and enhancing our offering to the market. I'd now like to speak to the 2 other acquisitions we made during financial year '24 Smoke Alarms Australia and Linkfire, which created the foundation for our essential home services growth pillar. We're excited about this new pillar as its potential to generate strong returns for shareholders is fantastic. Occupancy and completion certificates and a raft of other regulatory mandates, rest on providing evidence of working smoke and fire alarms amongst other services. These are mandated to be completed regularly. We know that insurers, owners, corporations, government and regulators are increasingly mandating these are delivered by reputable and registered service providers. The revenue model is annuity or subscription based, meaning we have forward visibility as to the earnings we should see from our existing client base. These earnings are stable, growing and not affected by input price inflation. Furthermore, the 2 businesses are non-systemic growth characteristics. By that, I mean, when you combine them with the businesses that sit within our portfolio that provide strategic adjacencies. Combined, these come together in a strong value proposition, and we continue to grow through our management and our vast network. Post year-end, we also announced we have acquired an 84% controlling equity interest in Chill-Rite, a regional New South Wales-based provider of heating, ventilation and air conditioning. The acquisition creates a strong foundation for further organic expansion and build the capacity of our subsidiary air control to service large national contracts, creating a solid runway for growth. Financial year '24 was also another significant year for hard work. Having established ourselves as Australia's leading provider in crisis response, recovery and reconstruction solutions, we are applying our skills and insights to other markets and have seen strong results. In the U.S., we continue to carry out reconstruction works following 2022's Hurricane Ian. The scale and destruction caused by Ian cannot be understated. The total loss is estimated to be $119 billion, the third costliest disaster in US history and our vital work is expected to carry into FY '25 and well beyond. In Australia, we supported recovery efforts following the Murray River floods, tropical cyclone Jasper and the East Coast storms that hit during Christmas and New Year. In New Zealand, we continue to respond to insurance claims after Auckland was impacted by several flooding and wind caused by Cyclone Gabrielle. These weather events are expected to increase, both in their intensity and frequency with workflows covering multiple periods and when they do, JLG is in a strong position to work closely with government and our insurance [indiscernible] to restore homes and businesses their former glory and supporting communities through the recovery. Our 16,000 strong networks of local subcontractors across Australia is key to this. We continue to grow those networks throughout the U.S. and now New Zealand. Our work in FY '24 builds upon recent periods to create a strong platform for growth and with the strong start that we've seen already in financial year '25. We look forward to building on that momentum throughout the rest of this financial year. Now I'd like to hand over to Matt Lunn, CFO.

Fantastic. Thanks, Nick. So, perhaps just on Slide 4, I'll take you through the financials. The first point to make is that FY '24 was a record BaU financial performance. Group revenue was $1.16 billion, and that includes BaU revenue, excluding commercial construction of almost $930 million, that's up 10% on FY '23. From an EBITDA perspective, group EBITDA excluding commercial construction was $138.3 million, and importantly, that includes BaU EBITDA of $111.2 million, up 18.2% on FY '23. That 18.2% growth in $111.2 million EBITDA from a BaU perspective is a record. And that really underscores the strength and profitability of our core insurance building and restoration services operations. Really pleasingly in the U.S., Johns Lyng USA up from expectations. At the half year, we first shut out an expected revenue result of $247 million. We've delivered just above that $250.2 million, which is great. That's up 7% on FY '23, but importantly, it represents 34% growth on FY '22, which is the year of acquisition, so, we've significantly grown that business since acquisition. Also pleasingly, we've delivered on exactly what was foreshadowed at the half year, which is 22% growth second half versus first half. So, those issues with the preconstruction period and protracted lead times, that bottlenecks being expanded, and those shops have flown through, and we've delivered 22% growth second half versus first half. That's also led to strong pro forma cash conversion from EBITDA at approximately 90.3% and operating cash flow of $112.5 million. That's given us the confidence to declare a second half dividend of 4.7 cents per share, which is in line with the first half. That brings the total FY '24 dividend to 9.4 cents per share, which is also a record. That equates to a payout ratio within the order of 55%, which is towards the top end of our stated dividend policy, which is between 40% and 60% of NPAT. By design, our balance sheet remains very strong with net assets in excess of $460 million, representing an increase year-on-year of over $66 million, but at the end of the financial year '24, we had net cash of about $21 million. In terms of FY '25, we're very excited about the prospects for FY '25, and we're now projecting conservatively revenue of $1.13 billion, which includes BaU revenue, excluding commercial construction of $1.07 billion. That's up 15.1% on by FY '24. We're also projecting group EBITDA, excluding commercial construction and published company OpEx in the order of $138 million, excluding CAT, just on a pure BaU basis, $131.8 million is up almost 9%, which is fantastic. So, again, consistent with prior periods, our CAT forecast within that number from a revenue perspective is $51.1 million, and that is comprised exclusively of contracted work in hand. So, hopefully, there's some upside from a CAT perspective and again, there's a strong pipeline of continued M&A, which we hope will complement and also that very strong forecast BaU growth. I'll pause there on the financials and hand back to Scott for any closing remarks before we open up for Q&A.

Thank you, Matt. Before we open the floor to questions, I'd like to thank our team for their dedication and hard work throughout the year. I'd also like to thank our investors for their continued support. The JLG executive team and I are poised for the opportunities that lie ahead confident in our strategy to drive value creation, delivered continued growth for our shareholders. We look forward to providing an update of our progress at the upcoming AGM. I thank you for your time and we welcome questions.

[Operator Instructions] And today's first question comes from William Park with Citi.

Could I please start with why there was such a discrepancy between what you guys have reported in FY '24 versus what you guys have guided to? Just wondering what's effectively changed over the last 6 months?

Yes. Fantastic. Thanks. I'll take that. It's Matt speaking. So, I think from a guidance perspective, we're there or thereabouts, group revenue, as I said, was $1.16 billion. Our company guidance from a revenue perspective was $1.207 billion. So, ostensibly, it's 4% short, but importantly, from an EBITDA perspective, we've delivered $138.3 million and our company guidance was [ $123.5 million ], we've outperformed our EBITDA down by $1.9 million or 1.4%. So, again, from an EBITDA perspective, we've actually outperformed.

Just on the margin that you're guiding for FY '25, looking at Slide 26, it's effectively stepping down versus PCP. Can you just approve -- how we should be sort of thinking about margin profile, not just in FY '25 but beyond that, but also why there's such a step down in '25?

Yes, absolutely. So, on Slide 26, as you can see, the FY '25 forecast EBITDA margin, the average IB&RS forecast margin is 12.3%. And you're absolutely right, it's stepping down from 13.2% in FY '24 to more sustainable levels. So, FY '24 was a record EBITDA margin of 13.2%. And note that margin expansion was driven by multiple things; one, acquisitions, but if we strip out the acquisitions, it's still really great margin expansion. What's really driven that record is massive job volumes flowing through the business off the back of the major CAT events, mostly in FY '23, but then also continued BaU growth through FY '24, but a rebasing of investment. So, in FY '23, with the initial mobilization scaleup to be able to respond to all those CAT events we had to create a step change in capacity. So, we were investing in [indiscernible]. In FY '24, notwithstanding we've maintained very, very high job volumes we've rebased that investment in more BaU growth levels. So, that obviously allows utilization to increase and not [indiscernible] expanded margins. Going forward, we have maintained 13.2%, we are forecasting 4.3%, again, is a significant step up from 11.9% in FY '23. As the business grows and we generate greater scale, some of these scale efficiencies will become more permanent. The operating leverage will flow through more permanently and margins will continue to expand here. You can see back in FY '22, margins 11.3%, growing into '23 of 11.9%. FY '24 is a record of cost, but then growing again into FY '25 versus FY '23. So, we expect margins to continue to increase, but there will not be a [indiscernible] because, again, the business is very defensive, low operating leverage, our cost base is mostly variable. We outsource the work to subcontractors, but importantly, that gives us [indiscernible].

And just one last one for me. This is more around how you approach your guidance. I mean, given that you provide guidance down to a decimal point, I would have thought a lot of the work that you have, looking basically, your guidance implies that a lot of work that's sitting in your guidance is effectively locked in. But just wondering whether -- I know CAT is mostly locked in, but can you just give us a sense as to how much of the BaU work is locked in at this stage as you look ahead to the end of FY '25. And if it's not close to 100% locked in terms of BaU, just wondering why you wouldn't provide a guidance range as opposed to a single number?

No, it's a great question. Perhaps I'll unpack it in collaboration with Nick. So, I think the first point to make is you're absolutely right. From a CAT perspective, that is contracted work in hand. So, that's locked in. If you were to ask me what the CAT at this time next month, it will be higher than $51.1 million. From a BaU perspective, when we look at work in hand, anything that's contracted work in hand is locked in and then outside of that, we look at the empirical evidence from the panel allocations. And we've got really good visibility and really good granular visibility over panel allocations, albeit probably only and I'll defer to Nick, but probably 50% to 60% of our BaU forecast is kind of locked in. We can't predict the weather, we don't know what specific job volumes are going to flow but we do know that if we're receiving X number of allocations each month from a particular panel, then subject to weather events, it's going to be a similar level as long as we maintain our KPIs. I think the one swing factor which goes back to your initial question on the company guided revenue versus the actual revenue is weather. And it's been a particularly benign period in the second half of '24. Now, ordinarily, the number of jobs that we handle with the portfolio affected smooth things out, but we've had abnormally benign weather in the second half of '24. And that's negatively impacted our Express business. Express, as you know, is typically higher volume, lower dollar value projects and so, they are disproportionately affected by benign weather, and they also benefit from inclement weather. So, it's really the Express business in the second half but again, we're forecasting strong growth in Express going forward. And this concept of benign weather it's validated in some of the recent publications by Suncorp and IAG, Nick?

Yes. I think the other part, the way we think about budget just in particular, it sums up to our house guidance is the fact that the 130 operating subsidiaries that we want a budget, and I guess some of that work direct from allocations from large insurers, but also, they have local relationships they need to go at and outperform. So, I think for us, it's about making sure that each of our business units perform in line with their own individual budget. And that hasn't changed for the last 20 years, the same way we've always looked at summing up our overall budget comes down to the business partners all growing their little patch. And you do get some consistency with BaU. That's why we call it BaU, business as usual. Business as usual as you're every day, every day small planes, someone's run over a letter box at [grades], [indiscernible] is falling down, the tree falling on a gather. There is consistency with BaU work that we can draw on.

Next question is from Russell Gill with JPMorgan.

Handful of questions. Just to get clarity on that margin guidance. So, obviously, FY '24 guidance, the margin was quite high and your guiding has been lower. You're also bringing in, I guess, businesses like the acquired businesses that are on 20% EBITDA margins that are coming into it. So, are you seeing that new 12.3% number as, I guess, the bottom? Have you thrown everything out that number and that's how lower it goes? Because I would presume you can't really look back to the FY '21 and FY '22 comparable years given you're acquiring higher-margin business. How should we be thinking about that level of margin for the business going forward?

I think, Russ, going forward, and if you were to draw a line of best fit through the margin profile over the next 5 years, it will continue to increase. Now, obviously, margin in any given period, any half year or full year financial period will be impacted by the level of investment. So, if we do, and I'm sure we will, respond to future major categories, there will be a mobilization period and there will be additional exponential investment required, which will temporarily suppress margins, but then margins will then expand as we grow into that capacity and increased utilization and margin. But over time, over the next 5 years, and you can see this historically over the last 5 years, our plan is to make acquisitions, which are margin expansive as well as EPS accretive. But also, a business of greater scale creates more efficiencies, and those scale economies allow the operating leverage to come through. So, whether it's back-office staff or whether it's rent or other fixed or step fixed costs, the benefits of scale will drive increases in margin. But again, as I mentioned in response to Will's question, we do have generally low operating leverage. Our cost base is mostly variable, it adds to how defensive we are because it creates a bit of a flow on the margin, if [indiscernible] points were to drop, but equally, it means there's no step change up in margin. But again, from our perspective, our strategy is about market share and it's about volume. And the kind of punch line here is that we will see margins expand over time with acquisitions, but then also with scale economies and operational efficiencies.

Maybe another one if I can ask the question. Are you in your guidance, are you presuming BaU volume growth across the business? So, you basically said that the second half was weak, but you're expecting, I guess, the second half annualized, are you expecting, I guess, growth off that second half from a volume standpoint?

That's a fantastic question. And the answer is, we are expecting growth in BaU and you kind of interpolate this from the numbers that we've published. But if you look at the second half '24 BaU revenue, excluding commercial construction and acquisition, it was about $455 million. If you were to annualize that by multiplying it by 2, you get to about $911 million. The full year '25 guidance is $1.02 billion. So, that delta is about $110 million. That represents about 12% growth on the annualized second half. So, yes, absolutely, we're forecasting increased job volumes and therefore, margin is growing as well.

Can we just switch to the cash flow. The first half was weak. Last year, obviously, it was quite substantially large. But I guess in FY '23, it was undoing some weak cash conversion from FY '22 given some of those mobilization challenges. You've normalized some adjustments here for '24, should we be expecting, I guess, some unwind of those adjustments and therefore, FY '25 reported operating cash flow will, I guess, outperform?

Yes. That's a fantastic question. I'm on Slide 16, where we've presented a pro forma cash conversion bridge, and there are effectively 3 adjustments. The first 2 adjustments have all been shown before in previous presentation. So, the first adjustment there relates to a nonrecurring customer prepayment in the second half of '23, that was published and explained in the first half '24 results. So, effectively, we were prepaid $21 million on the 30th of June '23, and that adjustment is literally unwinding of that prepayment. The second adjustment there relates to our commercial construction business. It's been discussed at Noosa that business is now in the final stages of runoff, that business will be wrapped up by Christmas this year. So, in the first half, the negative working capital in the commercial construction business, and it's negative working capital because it receives stage payments, so it's effectively deferring from income in advance. So, as the business unwinds that negative working capital has to be created as you settling creditors that manifests in a cash outflow. So, in the first half, the suppression to operating cash flow was about $8 million on a full year basis, it's 15.3%. I suspect it will be about the same again into the second half of '25 as that working capital goes to 0 in commercial construction. And then the only new adjustment is item #3 there, which relates to disaster management. So, disaster management work is predominantly CAT historically. So, as you can see, FY '23 CAT revenue, $370 million or so decreasing to about $206 million in FY '24. It's got a similar negative working capital dynamics of commercial construction that the government contracts in disaster management are paid when paid. So, the cost-plus arrangements would effectively repay the subcontractors when the government pays us. So, with the reduced volumes, we're effectively settling those creditors because we've already been paid, hence, the reduction in negative working capital manifesting a $10.6 million cash outflow. But when you piece the jigsaw puzzle together, you get back to very strong pro forma cash conversion from EBITDA of 90.3%, which is broadly in line with expectations.

So, this stage is the only pro forma adjustment you're expecting in FY '25 will be another, call it, $7 million drag from commercial construction?

Correct. I think it will be about $7 million from commercial construction. And then there'll probably be another, I'll call it, x million dollars from disaster management, depending on where the CAT number is. Nick?

Yes. Obviously, subject to no further events, correct right. Another major event if it hits on again.

Then while we're on commercial construction, you've guided to a further loss in FY '25. It looks like there's more revenue going to be coming through than you actually reported in the second half. You reported 5.8% in the second half but then you guided to 7.1% coming through with an additional $2 million loss. Two questions. Is that just because of the timing of the job and releasing of work to complete? And then secondly, if we just take that $2 million out, are there any stranded costs from that business that we actually should be, I guess, repacking back into the rest of the group?

Yes. I think it's a fantastic question. The revenue is purely timing. It's just that $7 million relates to the final 2 projects getting ramped up. We've got 2 projects remaining.

Yes. Last week, September, 1st week of October and the last week of November is the second job. So, again, as we spoke about it in the half year, by the end of the calendar year, will be all wrapped up.

Yes. So, we've obviously recognized all the known project losses in FY '24, the $2 million forecast loss into the first half of '25 represents overheads to be incurred in the first half of '25 and then a very small amount of [indiscernible] just for any final wrap-up cost. But it's a great question around the redeployment of results. So, Nick, I mean, this process has been ongoing for 6 to 9 months in terms of redeployed resources on the rest of the business?

There might be 1 or 2. But really, the people that we've had to redeploy to sort of get some large loss opportunities of figure has already happened. So, I wouldn't imagine there's 2 on the other, there might be 1 or 2 that come out at the end of these last 2 jobs, but other than that, we wouldn't imagine there'd be anyone else.

But I guess it's the one silver lining is that we're terrified some great people that have moved into major loss in contract loss and now they're bolstering the growth in that business as well, which is fantastic.

I guess what I'm trying to say is that when you look at your EBITDA guidance ex-CC for the full year, there's not going to be a reallocation of $1 million out of that CC division into corporate overhead in the second half?

No, no.

And just finally, unpacking the growth guidance, just maybe between Johns Lyng USA, you're saying 10% organic ex acquisition revenue growth. Is it possible to break down what you're assuming for Johns Lyng Group U.S.A. in that number?

Yes. Yes. Just on Slide 26, the BaU revenue for CapEx in acquisitions is $1.02 billion is up 10.1%. That's about $93.4 million. So, the good news is that the line share of that growth is coming from the specific strategic initiatives that have been underway for the last 12, 18, 24 months. I'll just quickly unpack them and [Technical Difficulty]. So, in terms of strata services we're expecting continued very strong growth with respect to strata services to contribute an incremental $17 million revenue or so in FY '25. That's up 16% on FY '24, which is terrific. Incremental contribution from some of those new panel wins that Nick spoke to probably $4 million to $4.5 million, which is fantastic. Emergency broker response growing exponentially, so we expect an incremental [Technical Difficulty] $11 million that is 20%, and incidentally, FY '24 versus FY '23, grew 29%, which is terrific. And then really pleasingly in the U.S., a very strong result for FY '24, basically outperforming expectations, but also expecting continued growth in the U.S.A. into FY '25. We've been pretty conservative with our assumptions around the U.S. of course, but we'd expect somewhere between 10% to 15% BaU growth in the U.S. business. And then probably about 10% growth across our essential home services pillar, which is really pleasing, including both Linkfire and Smoke Alarms Australia, and the balance is general growth across the rest of the portfolio, which is terrific.

That does kind of answers some of the questions. So, Johns Lyng USA, you're assuming, call it, 10% to 15% organic growth. That's obviously a lower-margin business, around that 10% and presumably, you're keeping margins flat in that hence, bringing down the margin for the group as well.

Correct. We expect for the next few halves and the U.S. margins to be around that 10% mark. Over time, there's good operating leverage in that business and we can see margins expanding back in line with the average IB&RS margins in Australia and New Zealand. But I think whilst we're in a growth phase, we're investing heavily in the start-ups, we've launched all the service lines now in our home state, which are growing exponentially, but off a low base. So, really pleasing with some of those businesses broke even in the second half, and we're forecasting profit there into FY '25. But we're growing from a 0 start. So, it's a process.

And our next question is from Gus Ruberg with Macquarie.

Just following on from where Russell left. On Johns Lyng, USA. So, in terms of the Allstate panel, was there anything from that panel that consumed in the second half? And I can't assume there'd be too much in there? And what do you expect that panel to deliver into FY '25, noting that 10% to 15% organic growth?

Yes. It's really been small from Allstate, it's nothing material at this stage. They've been really slow coming out of the block. So, at this point, we don't really expect a great deal from them, anything probably in the second half that we will start seeing something there. They've been very, very slow.

And that 10% to 15% organic growth we've referenced doesn't heavily rely on Allstate, and so, there's other factors that are contributing that growth outside of that.

Maybe just talking about those factors, could you just give a little bit more detail what businesses outside that Allstate panel then contributed to the 10% to 15%?

That's all coming in our organic businesses Express and Makesafe in particular, being launched. We're having a really good push with some brokers in the U.S., which has been received really well. So, our traditional businesses are going really well.

And maybe just touching on M&A. There's obviously a lot of areas you're looking to grow. Is the M&A focus more on the home front in Australia or are you looking in the U.S. as well? And then just possibly the areas of your business that in Australia that you're looking at growing inorganically?

Yes. We look in the U.S. and Australia. And basically, we just look for good fits. We management can come forward where they're right in our wheelhouse. We started it IB&RS, that's where we look for in Australia and the U.S. We're looking all the time because what we look for is exactly quite challenging at times because we need management to come forward. They're there, and we're looking all the time, and we're very positive on that front.

The next question is from Tom Tweedie with MA Moelis Australia.

Just a couple from me. And sort of unpacking a couple of the previous questions. Can you remind us with the Express business, how much of that revenue or workflow is weighted towards BaU versus CAT work? Or I'm just assuming here that there's a bit of higher weight into weather-related events as well.

Tom, most of the Express work is in BaU, we very rarely get Express. Express work is your day-to-day smaller type work, patch and paint, a little leak in the ceiling, to set of letter box or blind falling down. There's very small everyday type work is expressed.

Every dollar in Express to was about $4,000, so it's limited scope and low complexity type repair as opposed to when you see catastrophe in particular, say, a hail of hurricanes or cyclones at North, are you sort of seeing averages around the $40,000, $50,000 mark for those top repairs.

And so, the benign weather events and the Express sort of drag a totally separate nonrelated factors that occurred in the half rather than being tied into each other.

You still find that even time of that we call them surges, they're not capped, but they're surges of weather didn't have an impact on Express. In particular, some of that benign weather, especially in the East Coast you're still seeing a slightly slower period of that. Even looking at some of our JLG results, they talk about the loss ratios improving in the second half purely because of that factor as well, which we've seen. And what I would also say is that 90% to 95% of work through Express comes from direct allocation from panels. Again, that just shows what sort of volumes coming through insurers sort of impacts Express more than the other business we've won.

And then I was going to ask just on the margins again, to see that margin expansion, Matt, that you mentioned, do you need sort of workflows and volumes to return to those FY '23 levels? Or do you think the current run rate at which the volumes are coming in that you can one, expect that $12.3 million to hold or 2, get margin expansion from the current volumes that you've got?

No, look, we can certainly deliver those 12.3% margins based on that forecast. I mean the forecast does assume 12% growth based on the second half run rate. But I think based on volumes being a little bit lower, BaU volumes being a little bit lower off the back of benign weather conditions in the second half we've got latent capacity. So, we're really just using that existing capacity. So, we'll basically just grow back into that resource base. Again, we're not talking ship stations there. Yes, volumes were marginally down in the second half, but it certainly wasn't material. We've got a good infrastructure base and enough capacity to be able to deliver that forecast whilst maintaining BaU growth levels.

We've seen that run rate return. Yes. For Q1, we've seen the run rate turn. It's been a good start. So, I think we've confidence we're in the outlook.

The run rate is fine. It’s just – it has come off in CAT, so the run rate is one, BaU is one.

And one last one, just on the CAT pipeline and into that $51 million guidance number. Just trying to get a sense of how much or how progressed are the storms from obviously Christmas? And then also, is there any date on the Victorian government work? Any further projects potentially coming down the pipe or how do we think about that?

Yes. So, yes, as we've always said, that $51.1 million in the guidance is locked in. That's always contracted work in hand. So, that's the effectively the starting point for this financial year. How far we've moved through those events over Christmas, I'd sort of say probably 60%, 70%. There's one of that in that 51%, that's work that's contracted. There's also still an element of quite work, you don't get an answer on. That always sit in a [indiscernible] and it sort of takes different times to see that come through. From a government perspective, we still can do continuous work for the Victorian government. We had a very motivating operational Board meeting at start of the week that spec around some future opportunity they're still looking at. So, I'd expect that to continue on even well beyond the first half is, I guess, the visibility. But that isn't in the guidance right now because it isn't a contract that we can put a number to so that doesn't fall into the guidance. So, we see some upside there. And I think, obviously, in the U.S., we spoke about the fact that there's a proportion of quite a work from Hurricane Ian and that we sort of expect to go over the next couple of years. We're just seeing how slow things can move over there from a homeowner's association perspective, I think that we can expect to see some of that work just drop in, but again, it's not in the guidance because we haven't got it contracted or an exit contract in place.

[Operator Instructions] The next question comes from Tom Chapman with Jefferies.

Just 2 areas. Firstly, on Slide 12, you called out the underperformance in New South Wales. Are you expecting any carryover issues related to this in '25? Are you kind of confident with this turnaround, so I understand like this is just people-related or industry-related?

Yes, we've had some experience business partners that perhaps but overwhelmed a little bit of the volume, so, we've rectified that, and we did that at the beginning of the half. So, we don't expect that to go into FY '25 at all.

You've had any kind of market share related issues or do you feel like it's very [indiscernible]?

No. Again, I think the infrastructure around that particular business unit sort of supports any sort of perception issues. But I think overall, we can, I guess, the visibility we've got and when we look at that business individually, it wasn't performing in line with expectations, so, we had to make change.

And then just on the Strata business, you might have already called it out, but what were the management and services revenues in '24 for the China business?

So in FY '24 as a growth pillar strata services delivered $115.9 million, which is up 12.9% on FY '23. It obviously includes strata management being the core business of Pricing Doug and the also Strata Building Services, which is predominantly IB&RS work for dedicated Strata insurers. So, within that, $115.9 million strata management contributed $69.7 million. That's up 20.2% year-on-year, which is terrific. We strip out the acquisitions during the year. It's still 14.2% underlying organic growth, which is a really, really strong underlying organic growth rate for a business whose clients are so sticky. We started building services, the business has been growing and scaling. So, total Strata Building Services revenue for FY '24, $46.2 million. That's up 3.4%, including CAT but the real growth is excluding CAT. So, when you look at the BaU component for Strata Building Services, $41.4 million is up 15.1%. So, growing those BaU revenues exponentially, which is fantastic. Again, total Strata Services as a pillar $115.9 million revenue or 13% year-on-year.

And then I think you may have said with another question, you're expecting about 16% growth into '25 in China?

Correct. Yes. Exactly. We've been growing at about that rate the last probably 2 or 3 years, and we would expect that to continue. I mean we're still scaling. So all the new panel wins and clients in terms of dedicated strata insurers, all those panels.

Geographies, they're moving the actual South Australia. So, there's a number of layers to that growth, which is exciting.

I think what's interesting without digressing too much is just the acquisition of SSKB, really opens up the Victoria market for us now. So, historically, we've been well represented through [indiscernible] and Strata management in Queensland and New South Wales, but effectively no premise in Victoria. So now, with the SSKB, we manage some 5,000 or so lots in Victoria, and that's a great base from what [indiscernible] from a strata IB and RS perspective as well.

And in positioning more generally in the Strata business, I think you could have a portfolio second largest in Australia with the new acquisitions. Has that made any material change or is there kind of small wins that over the long term has to be positive?

No, I think growth is about specific contracts and wins for about relationships with developers and owners co-operations. So, it's great to be the second largest player in the space and it's great to have a bit more scale and larger internal market to cross-sell but I think when it comes to growth, it's really about that traditional business development process.

Definitely, which you're seeing the result in.

At this time there are no further questions. And I'll now turn the call back over to Mr. Didier for any closing remarks.

Thanks very much, everyone. We really appreciate your continued support. Thank you.

That does conclude our conference for today. Thank you for attending today's presentation, and you may now disconnect.