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

Thank you for standing by, and welcome to the Johns Lyng Group JLG 1H '25 Results Call. [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 Scott Didier, Chief Executive Officer of Johns Lyng Group. Welcome to this morning's conference call, where we'll present our results for the first half of the 2025 financial year. I'm joined today by Australian CEO, Nick Carnell; Group Chief Financial Officer, Matthew Lunn; and Executive, Adrian Gleeson. I'll be giving an overview of the group's performance during the period and then provide an update on our U.S. operations. Nick will then expand on key drivers of our Australian performance and our progress against our growth strategy. Finally, I'll outline our strategic and financial outlook for the remainder of FY '25 before opening the floor to questions. A presentation with detailed financial data and commentary is available online. In FY '25, the group delivered $573.1 million in revenue and $54.2 million in EBITDA. Revenue from business as usual, BaU activity increased by 9% on the prior corresponding period to $534.3 million, whilst BaU EBITDA increased by approximately 6% to $50.3 million. These figures include contributions from acquisitions, reinforcing the strength of our defensive investment strategy and the resilience of our earnings base in a softer operating environment. Benign weather conditions in Australia led to lower insurance claim volumes and a reduced CAT contribution, with CAT revenue at $38.8 million and EBITDA at $3.8 million, well below the elevated levels of first half '24. Additionally, delayed project commencements in Northern Rivers region of New South Wales added further pressure to the results. Similarly, delays in the U.S. impacted revenue growth for Johns Lyng USA in the first half. As a result of these short-term challenges, the group has updated its guidance for the FY '25. We now forecast total FY '25 EBITDA to be approximately $126.5 million, down 4.5% on previous guidance. And the total FY '25 revenue to be at $1.16 billion, down 5% on previous guidance. While this is the first guidance revision in our 7-year history as a listed company, we remain very confident in our ability to navigate these near-term challenges and position the business for long-term success. We've conducted a detailed cost review and implemented a cost reduction program to maintain financial discipline, while preserving service excellence. We've also reinvigorated our sales strategy, sharpening our focus on client engagement and market opportunities. Importantly, we anticipate stronger performance in the second half of the year as the operating environment improves. While weather patterns remain unpredictable, the long-term trends point to increased climate volatility and more frequent and severe natural disasters. As a result, demand for restoration and recovery services is expected to grow in the long-term. Already in second half '25, we have responded to major weather events in Australia, including storms in New South Wales and flooding in Northern Queensland. In the United States, our teams are on the ground in California, assisting with the recovery efforts following the devastating wildfires, which are among the costliest of the nation's history. While the full financial impact is still being assessed, these events reinforce the essential nature of our services and our strong positioning in the market. Moving now to our progress in the United States, first half '25 saw Johns Lyng make good progress expanding its market presence. Our successful pilot program with Brown & Brown, one of America's largest independent insurance broking firms, has now been scaled across additional locations. We anticipate increased job volumes and revenue contributions as this relationship matures. We've introduced our Emergency Broker Response service in the U.S.A., a model that has proven highly effective in Australia in capturing market share. Early feedback from the U.S. brokers has been really positive and we see significant growth potential in this area. As I touched on earlier, our teams are actively engaged in disaster recovery efforts in California, providing critical mitigation and rectification services on major properties. The scale of the devastation underscores the importance of the capabilities in this market and we'll continue to assist insurers, homeowners and government on the road to recovery. As we move into the second half FY '25, we remain confident in our strategy and execution. While first half FY '25 presented short-term headwinds, we have taken decisive action to mitigate their impact and we are already seeing positive momentum. Our BaU growth remains strong, supported by several strategic acquisitions. Our relationship with key stakeholders across each of our strategic growth pillars are growing and strengthening. Our cost efficiency measures ensure we remain agile and financially disciplined. We are well positioned for the future and our commitment to delivering sustainable growth and value creation remains unwavering. I thank you for your continued support. And I will now pass over to Nick Carnell.

Thanks, Scott. Our Australian business has made significant progress on our strategic priorities we set in first half '25, laying a strong foundation for future growth. We have expanded our business portfolio with earnings accretive acquisitions across our IB&RS, Strata and Essential Compliance & Home Services pillars. New contract wins and extensions strengthened our pipeline, while continued diversification within our Disaster Management Australia business ensured we remain well positioned for future opportunities. As Scott mentioned, despite the challenging operating conditions, including acquisitions, we still delivered growth in our BaU performance. Underlying this, we're pleased with the performance of the portfolio navigating these conditions, while we remain focused on the strong momentum and operational improvements we've made in support of the recovery of the New South Wales business. At the financial year '24 full year results call, we outlined that we expect the New South Wales business to be back to run rate by Q4 FY '25. Although, due to stable weather conditions and low industry volume over the past 6 months, we now expect workflows to normalize in the second half of the year and early into FY '26. Several acquisitions within IB&RS further cemented our position as Australia's leading provider of insurance building and restoration services, enhancing our scale and capacity to respond to future CAT events. In September '24, we acquired an 87.5% controlling interest in Keystone Group, a leading Queensland-based provider of insurance building and restoration services. With strong defensive growth characteristics and excellent reputation and experienced management team, Keystone has already contributed positively to our first half '25 results with further benefits expected into the future. Our strong and growing relationship with blue-chip clients are a testament to JLG's reputation, not just here in Australia, but on the international stage. Our unwavering customer focus, deep industry expertise and proven ability to deliver exceptional results on time have positioned us as a trusted and preferred partner. These new and extended contracts further reinforce that standing, and we're excited about the opportunities they bring to the group. In the first half of FY '25, we were pleased to secure a 3-year national building works contract with Aidacare, as well as a 3-year agreement with TIO for building and restoration services across the NT. These partnerships add to our already significant pipeline of work and strengthening our long-standing relationships with leading clients. The key contract extensions with Hollard and Market Lane Group further underscore the confidence our partners have in JLG. Meanwhile, our Disaster Management Australia business continues to play a critical role in supporting communities, securing 2 major contracts with Queensland's Department of Housing. These include a 2-year agreement for temporary accommodation and 1-year contract for caravan rental and project management services. Additionally, our ongoing work with Emergency Recovery Victoria has expanded to include rectification projects for the state emergency services. While the period was marked by relatively mild weather and no new catastrophic events, our DMA teams remained active completing carryover work from Tropical Cyclone Jasper and the East Coast Christmas and New Year storms in December '23. Post period, our teams have been engaged in recovery efforts following the severe storms in New South Wales and major flooding in the Northern Queensland region. Registrations we've seen have been a notable step-up on the average of the first half of '24 with this full scope of works still being determined. As always, we stand ready to support these impacted communities. Our strata management growth pillar had strong performance in first half '25, achieving revenue growth of 48.4% to $49.7 million, including acquisitions. Underlying revenue growth of 9.3% underscores our continued focus on business development, organically growing our properties under management. During the period, we acquired Brisbane-based FSKB Strata, adding approximately 44,000 lots across 970 schemes to our portfolio, which now sits just over 145,000 lots. Strata remains a key growth area for the group, given its attractive market fundamentals and the opportunity to provide integrated insurance-related and direct building and restoration services to Strata managers and owner's corporations. Strata communities grow in scale and complexity demand for specialized solutions increases. We're at the forefront of these meetings and ensuring not only to comply with the evolving regulations, but also to set new benchmarks for service excellence in this highly fragmented market. Our Essential Compliance & Home Services pillar also saw significant growth with revenue reaching $52.4 million, up 55.4% from the prior corresponding period with underlying growth of 12.9%. On the 1st of July 2024, we acquired an 84% equity interest in Chill-Rite, a leading provider of heating, ventilation and air conditioning services in regional New South Wales. This acquisition not only created a strong foundation for expansion into regional Queensland and Victoria, but also developed the group's capacity to service larger national contracts with blue-chip clients through our existing air control business. With compliance requirements becoming more stringent at both state and federal levels, this pillar presents strong tailwinds for future growth, and we will continue to explore both organic and strategic opportunities. Overall, we're pleased with the strong progress in first half '25, which underscores the resilience of the business model and the validity of our investment strategy. While operating conditions have been challenging, we're expecting them to ease into the second half and into FY '26. We're confident in our mitigation strategies and remain focused on the long-term growth trajectory. I'll hand back to Scott to make the closing remarks.

Thanks a lot, Nick. Looking ahead, we expect a stronger second half as operating conditions improve and our mitigation initiatives take full effect. As previously stated, we are forecasting FY '25 group revenue of $1.16 billion and FY '25 EBITDA of $126.5 million, a reduction of approximately 5% from our prior guidance. However, our BaU operations remain really strong, and we expect FY '25 BaU revenue of $1.1 billion and FY '25 BaU EBITDA of $119.6 million, representing a 15.9% and 17.4% growth, respectively, on FY '24 levels. The group ended second half -- the group has entered second half '25 in a very strong position with momentum further bolstered by several severe weather events occurring after the period's end. We remain committed to executing our growth strategy, capturing significant market opportunities across all 4 of our IB&RS growth pillars, both domestically and internationally. I'd like to thank our investors for their continued support and our team for their unwavering commitment to excellence. We'll now open the floor to questions.

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

My first question is relating to your comments around benign weather conditions impacting New South Wales operations. Can you just step through how much of an impact this has had in your IB&RS ANZ business in terms of margin? And I guess the second part of this question is, you guys are talking about second half uplifting from first half levels. But the feedback that we are hearing is the policyholders opting for higher access, which poses risk to work volumes going forward with some of the work being cash settled and so forth. Just wondering whether if you are -- how -- what you have observed in first half and second half? Are the work volumes likely to remain sort of structurally lower?

Just in summary, Will. Benign weather conditions have affected us across the board. And New South Wales, as in the first half, we were off a couple of panels until we tied up the Northern Rivers problems last year. That's all now been restored. We're back with Suncorp. We're back with IAG. There's no problem now being restored, and that's being validated by the registrations. We're currently getting in are exceeding even last year's registrations at this time. So all good now on the correction in New South Wales, but we did suffer benign weather conditions and lower volumes in the first half. That then affects the -- everything, affects the revenue, affects the margin, effects everything.

I think also probably just building on that, Will, when we talk about benign weather, one, it's provided a headwind to the New South Wales recovery, which is progressing, but to Scott's point, it's about 6 months behind. But also when we think about the financial impact of the benign weather, if we take New South Wales as a starting point, New South Wales was down about $33 million from a revenue perspective on first half '24. We delivered about $25 million revenue. That's ramping into the second half, and we'll see growth back to $120 million per annum BaU business throughout the course of FY '26. But New South Wales, down $33 million. From a benign weather perspective also, if we isolate a few specific items, surge events, for example, in the first half of '24 contributed just over $12 million of revenue. In the first half of '25, it was 0. Interestingly, we're now responding to 2 major surge events, which haven't been declared CAT. So the flooding in Far North Queensland and also the severe storms in Sydney over the last few weeks are both surge events that we're responding to right now. So over $12 million in the first half '24, down to 0 first half '25. If we look at the impact on the Express business and the higher businesses, as we all know, Express is lower dollar value claims. It's disproportionately negatively impacted by benign weather. You don't get the dirty weather, you don't get the gutter leaks, the overflows, et cetera, et cetera. And the higher business tends to be tied to the CAT business where we're providing caravan rental and such like into major responses. Across those 2 businesses, we were down about $12 million, and that's really a function of benign weather. If you isolate those impacts, the rest of the portfolio in IB&RS and said that was up $15 million, which is about 9.5%. So we have seen growth outside of those specific issues. The key point is these issues aren't pervasive across the whole portfolio. We've had issues in New South Wales. We've fixed them. We've made changes to management, and we've rebuilt relationships. The first half result was disappointing. It was compounded by a lower-than-expected gross margin of about 15% because the rectification work we had to undertake eroded that gross margin. That margin will rebase back to 25%, 26%, 27% in the second half. But the really good news is when you strip out those specific items, the rest of the business is up 9.5%. And really pleasingly, Emergency Broker Response continues to grow, up $9 million period-on-period to 40%. The business in New Zealand is ramping quickly. It was a start-up 2 years ago. It's grown $3.5 million on the prior period of 140%, the Strata Building Service is up about $2 million. So we acknowledge, we've had some challenges that's been compounded by benign weather, but other parts of the business have performed well within that. It's just a shame, it's been overshadowed by New South Wales.

And just staying in Australia, look, the Strata management revenue -- I'm sorry, margin, has there been any sort of meaningful movement in the first half that we should be aware of?

There's been no structural changes from a margin perspective. When you see -- when you look at the margin decrease period-on-period, which you can see on Slide 11, when you look at the CAT margin. So the contraction in the CAT margin, which is the average IB&RS margin of about 3.5%. Of that, about 1% was forecast that was included in the FY '24 results presentation. So we forecast 1%. Another 1% was a function of the Keystone acquisition, which is a great business. But as a smaller business does not have the economies of scale that Johns Lyng has. So that business delivered a 7.5% EBITDA margin in the first half. So that's had a group-wide impact of about 1% and the balance of about 1.5% in terms of margin contraction is across those specific issues that we called out in terms of the New South Wales gross margin at 10% -- apologies, at 15% versus 25%, so a 10% reduction, and then the balance being the negative impact of operating leverage. So we carried resources through the first half on weaker revenue and that underutilization suppressed margins.

And then just one last question I had is with respect to the U.S. Can you just provide what the U.S. margin in the first half was? And how you're thinking about, I guess, sequential growth into second half from first half? Can you just step through some of the building blocks that make up that sequential growth that you talked to and whether there has been any sort of early indication from Allstate at all in terms of work volumes being allocated to you guys?

Yes. So in relation to margin, we're not breaking the margins out by growth pillar, underlying still 10%, as we've previously indicated, Will. In relation to the difference between first half and second half, it's sort of a similar theme to last financial year. We've had some project delays. Pretty much $25 million of work was scheduled to start through September, October that's now been delayed to start in March, April. So again, we'll see from our perspective, a large uplift in Q4 and a second half weighting. That sort of gives us the confidence in the first half -- second half split. Matt, do you want to expand on that anymore? But I think it's a function the start-up's still progressing. We're seeing an increase in the volume of work we're doing. So that again is on strategy with lowering the average dollar value of jobs to higher volume. But I think other than that, it's just been a timing issue with a couple of these jobs having kicked off in October as we originally expected.

I think, that's exactly right. I won't build on that too much, because Nick summarized everything, but we saw this phenomenon play out with the FY '24 result. We had 22% revenue growth into the second half in FY '24. Reconstruction Experts, its portfolio of jobs is larger than our average Johns Lyng Group job size. And with that, you get a bit more specific project concentration risk. Over time, as we build out the other service lines, Makesafe, Express, Domestic Restoration, et cetera, that will dilute that specific project concentration. So the average job size will decrease. So on a portfolio basis, job start delays will not have as material an impact, we're expecting strong catch-up into the second half. Full year in the U.S., probably $230 million revenue, and that's partly a function of the catch-up from the delays in the first half, but also just general growth. We've been successful with new clients. Scotty, I don't know if you want to talk about Brown & Brown insurance brokers, but we've been successful with new counterparties and cementing relationships there and volumes are flowing in particular, as a response to the fires in California.

Yes, they've gone really well. In the U.S.A., they're really expanding. Brown & Brown has been fantastic. They're the third biggest insurance broker in the U.S. We're well supported by them. They're over the moon with what we provide because no one else provides it. Alliant is another broker that we're working with in trial going really well. And then making good headway with loss adjusters with these Californian fires has given us a real opportunity to get in front of a lot more people. So U.S.A. is going really strong.

Your next question comes from Russell Gill and JPMorgan.

Sorry, just to go over some stuff, I must have translated it incorrectly. So just on that $42 million revenue delta in the BaU business in ANZ, you called out New South Wales was $33 million of that decrease. The other decrease is weather related. Can you just basically call out what that, I guess, what you deem weather-related within that $42 million?

Weather related. We get so many insurance claims that are weather-related, Russell, when you think about it, hail or wind, weather just creates damage. So that's what we refer to when we say weather related.

Yes. In terms of the waterfall of numbers, they're from that $42 million, Russell, New South Wales, $33 Surge events of $12 million decrease from the first half, movement across Express and Hire of about $12 million and the balance is an increase of about $15 million across Emergency Broker Response, New Zealand, Strata Building Services and all the businesses in the portfolio. So it really is a function of the net impact of growth and benign weather.

And then you called out, I guess, the gross margin compression in New South Wales as you've basically got to correct some of the issues that you're facing. Is that all now done? Or do we expect that some of that gross margin compression to extend through second half '25?

No, it's all done now. So again, through the first half of '25, $25 million revenue at a 15% gross margin is more than 10% under where it should be, and that's a function of us absorbing the cost to rectify those jobs. Those margins will rebase into the second half, which will provide incremental financial contribution. And then, of course, we'll have some operating leverage kick in as well, because we've reduced the cost base in Australia and New Zealand by about 80 FTEs. The second half impact of that will be cost savings of about $4 million from people and then another $2 million across overheads, such as travel, marketing and admin. So when you flow all that through, there's probably incremental financial contribution across expanded margins and cost savings about $8.5 million into the second half, which will then bolster those second half margins. So implied second half margin in the IB&RS ANZ business, 12.7%, up from 9.9%, and you can kind of interpolate that from the full year guidance of 11.2%.

So just in, I guess, understanding the weather dynamic and market share, do you have any insights or any, I guess, qualification on your share of work across panels? Or do you have any insights across what's happened from your market share standpoint across panels that you're already on and the like?

I don't think our market share has changed, Russell. We've been -- let say, we were put on hold in New South Wales in the first half because we had to tidy up the Northern River stuff, and we told everyone that last time we reported. But our market share hasn't changed. It's just that the quantum has been reduced. And that's evident by the fact that, insurance companies are going pretty well at the moment because they haven't had to pay out claims.

Maybe just on trading in Jan and Feb, because there's -- based on this new revised guidance, there still is a very big, I guess, skew to the second half. And Matt, you called out, obviously, those cost saving benefits you expect to flow through. Just on the top line, can you talk through how, I guess, the weather events that occurred in the New South Wales Coast is -- how is January, February trading, I guess, relative to the PCP?

Yes. I'll give an indication of registrations as the lead indicator, and then I'll let Matt unpack, I guess, the other drivers. If we average the registration rate for the first half, what we've seen in January and February is a 50% increase on that. So again, just through some of these surge events, they do make a difference, mainly in regional New South Wales and Sydney, we've seen some increase to volume there, which is fantastic and then North Queensland. Both of those scenarios aren't classified as catastrophes. So they are surges, as Matt has spoken to. But that step-up in registration rates gives us confidence around what the second half would look like.

I was just going to say, I'll build on that by perhaps just confirming what's not in the guidance. So we haven't got anything in the guidance for our response to those surge events. So the floods in Far North Queensland or the severe storms in Sydney. It's still too early to quantify. Yes, we've completed a large volume of lower dollar value make sales, but the real work is yet to come through. So that's not in the guidance. What you can see in the guidance is obviously a stronger second half, but it's predominantly margin driven. So when we look at the group's incremental revenue into the second half, it's about $21 million. So when you kind of run the math through the enhanced margin, we're looking at $21 million of incremental revenue. We can deliver that incremental revenue with the existing cost base, so we get some operating leverage benefits. So those revenues can be delivered at the gross margin of approximately 25%. So that will drop to the bottom line. Then if we rebase New South Wales' first half margin from 15% to 25% because all those rectification jobs are now complete and then overlay the cost-out program. So globally, we've reduced headcount by about 120 FTEs, 80 of which in Australia and New Zealand, 20 in Keystone being the acquisition and then 20 -- sorry, the balance in the U.S. that will provide on a group basis, second half cost savings of about $6 million and then the balance of the cost savings across, as I mentioned before, travel, marketing and admin of about $10 million. When you put all that together, the second half incremental financial contribution of about $16 million across incremental revenue and cost out and rebasing of margins and that basically bolster's the second half group margin to about 12.2%. So full year margin, we're forecasting 10.8%. We delivered 9.5% in the first half implies the second half of 12.2%, which again is predominantly driven by the incremental revenue and the cost out.

So just to understand with the surge events occurring out, is the New South Wales operation back to full operating capacity so you can actually, I guess, win your market share worth of registrations that have occurred in New South Wales? Or is there a chance you kind of miss out some of this stuff, because the business isn't where you want it to be?

We're flat to the boards in New South Wales, again, because our registrations are showing that. They're up 50%, which is really, really good. Yes. So New South Wales is really back to the board. I will say one thing that, on a positive note, when low volumes come through, it gives you a chance to recalibrate and really tidy up and cleanse the business. So we've reduced headcount. We've tied up some efficiencies. So there's real positives on the other side to just bounce, again, the way registrations are coming in, that's what we're doing. So it's quite positive.

Final question, Matt, just on cash flow. The cash flow of the business is pretty volatile. And there's, I guess, a lot of normalizations, particularly around CAT events and with acquisitions and working capital movements alike. Should cash flow be better replicated by EBITDA because CATs basically have disappeared from the earnings profile, the acquisitions were done from the second half and then, I guess, FY '26 basis, could there be better, I guess, more normalized operating cash flow coming through? Or will there be other one-offs that could influence that?

So I think, Ross, when we think about the volatility in the cash flow, it's a function of our event response or other specific issues. So historically, we've had a very high percentage cash conversion from EBITDA. It's been skewed in certain periods because of our mobilization costs and responses to large CAT events. And then, of course, it's normalized. I think what we see right now in this first half '25 cash flow is a cash flow that still needs a bit of explanation. And on Slide 22, there's a bridge. And perhaps just quickly, we delivered $29.1 million of operating cash flow before interest and tax. And to that, we've made 2 adjustments to get to a pro forma cash conversion of 86%. Both of those adjustments were foreshadowed in the FY '24 results. So the first adjustment is a $10 million adjustment in respect of commercial construction. We discussed in detail the commercial construction business is in the final stage of runoff. The last job will be completed in the next couple of weeks, and the business will be fully discontinued into FY '26, but it has negative working capital. So we received stage payments. So when you're running a business to 0 with negative working capital, you have to settle those creditors. So that's had a drag on cash flow in the first half of about $10 million. There's about $4 million left to go in the second half of FY '25 and then it's finished. And the second adjustment is a $6 million adjustment in respect of the disaster management business, which is a similar phenomenon to commercial construction. Now it's got negative working capital because it engaged with pay when paid contracts with government counterparties. So essentially, we receive cash from the government. And when those claims were certified, we then paid the subcontractors. So with the big decrease in revenue, which is in the disaster management business, we've got a reduction in negative working capital of about $6 million, and that's now finished in the first half of '25. So you won't see that adjustment going forward. But when you bridge that and you get to $45.1 million operating cash flow before interest and tax, which is about an 86% conversion from EBITDA.

And then I guess, looking forward, you called out $4 million in the second half. There is no other normalizations unless there's big CAT events or maybe some even stuff around surge, the cash flow profile of the business ex that $4 million and those surge events that should actually be more normalized?

Correct. That's right.

Your next question comes from Tom Chapman at Jefferies.

Just drilling down on the New South Wales result again, I understand New South Wales was $33 million down on the PCP. Can you just talk to how New South Wales performed versus 2H '24? And then following on from that, in the guidance, how do you then expect New South Wales to track in the next half? I just kind of want to understand, I guess, half on half on half, how it's progressing if the Northern Rivers is actually returning or if the ramp-up is sort of more expected into FY '26?

I'll let Matt unpack the numbers. But again, looking at the registration rates and again, for me, before registrations come through, it's having a look at the operational indicators to say their scorecards are healthy. So from that perspective, it's a tick. That then leads to increased opportunity through the allocation that you receive from insurers. So that's progressing well. And then obviously, the registrations start to flow through January and February. Like I said, that step-up of roughly 50% in New South Wales gives us good confidence around the second half. I don't know the split. Matt can unpack that. But those operational indicators and the registration as a lead indicator suggests that the second half has got some really strong momentum.

In terms of the historical performance, if we go back to first half '24, we did $58.5 million of revenue. So that's the target to get back to about $60 million per half. So New South Wales is geared up to be $120 million per annum BaU business, circa $150 million CAT business, the infrastructure is there to support that. So, first half '24, $58.5 million. Second half '24 was about $32 million, and then we stepped down to the $25 million or so. So we believe we're at the bottom. New registration is very strong. I won't repeat everything Nick said, but we're at the turning point now and the recovery is in progress, notwithstanding we're 6 months behind schedule.

I'll say we're at the front of -- we're in front of the turning point because registration started to come through in January, quite solid. So it's okay in New South Wales.

Yes. Yes. I mean, obviously sounds positive with the registrations. I guess, it would be good to understand, I guess, the time line if you got most of the registrations now up 50% on PCP. When do you find out the dollar value of that? And then when do you expect to kind of complete and book the work?

We just take average dollar value of what we know with our BaU work, which...

It's going to -- that will flow through into a stronger Q4. So we're still probably getting a handle on the exact quantum, but going through our meetings, which obviously I understand the structure for that, forecast to reflect that over the next month, we'll get a better indication. Again, to Scott's point, applying some averages to that volume in different pockets and different service lines will drive forecast up. But again, the lead into that is the registration. So my expectation is a material impact on sort of March, April, May, June.

Okay. So in terms of you find out how much the work is, you probably don't necessarily see -- because it's not baked into the guidance is what I'm saying is you expect it will impact more later in the full year and maybe book a bit more into next year? Like I'm just trying to understand, is there a whole lot of upside to guidance from these events expected?

The last half of this year, we'll capture all the registrations we've got at the moment, but the registrations are still coming in. So the registrations are now getting back to consistent levels of what we've seen in the past. So they'll just keep flowing through now, which we took a dip. The dip has been corrected, and we're back buoyant. But the positive is that we're back buoyant on a lower cost base, which is really good. So it's allowed us to recalibrate, clean out some probably substandard personnel that we incurred during the Northern Rivers flood. So it's really allowed us to cleanse and get really quality people back in there and wait for our volumes to come through.

Yes. That makes sense. How much does the Northern Rivers actually make up of the kind of your New South Wales base earnings revenue?

Well, the Northern Rivers was all the CAT work. I mean, that was $300 million, yes.

Resolving CAT.

That is massive.

And that's all been in the prior period for like CAT work.

But you know the infrastructure that we had to put on to support that Northern Rivers, we've now had to clean that right through and pair it all back. So it's been a job, but it's really good now because our cost base is really low, quality personnel back in, and we've got the registrations in now to be supported by all these good people.

Yes. And just one quick last one on the case on acquisition. I think you said around 7.5% EBITDA margins when you acquired it. I understand the cost out has already kind of been underway. Do you expect -- is that already now running at segment margins around 11%?

No, we're working towards that over a period of time. Again, first half, you can see this in the numbers, we delivered about 7.5% margin. Over time, it will align with our IB&RS ANZ margins. But in order to do that, one, we've got to take some cost out, and we do that by plugging its back office into our infrastructure. That doesn't mean more reductions in headcount or anything like that. It just means driving those efficiencies through shared service.

And I'd suggest in my view that will take 12 months. That's not an overnight exercise, Tom, so at least 12 months.

That 12 months from acquisition or 12 months from today?

Probably 12 months from today. If we can achieve that by the end of this calendar year, I think I'll be pretty happy. And noting that over time, we will step up. It's not just a moment in time that will step, but we're making changes every day. But to get the full benefit, I suggest it will take the balance of the calendar year.

Your next question comes from Chenny Wang with Morgan Stanley.

Maybe just the first one on the U.S. And you guys talked to, I guess, project commencement delays again, I guess, the first half of '25. What's exactly happened there? Is the similar reason for delays as in the PCP? Or I guess, have different reasons emerged this time around? And then kind of secondly on the U.S., did I hear you right on about $230 million for FY '25 revenue in the U.S.? Because yes, like that's just a shade lower than the $241 million BaU that you guys did in FY '24. So I was hoping you guys could also rectify that as well.

I can talk to perhaps a couple of jobs, and then I'll let Matt jump in. And maybe just to give you an example, Chenny. We've got one job in First Creek. It's in Denver, so in our home state. It's $7 million. It's a roof and cladding replacement of the entire community. So call it, 70 buildings with -- funding has been secured by the insurance settlement, so the money is there. It was originally forecast. And when we talk about originally forecast, this job was known as we're building our budgets for FY '25 and the indicated start date was October. Now due to the inclement weather in Denver and massive snowstorm to conduct a large roof replacement and was chosen then by the community that would then pause over that period and now scheduled to start in April. So a job like that and the opportunity to have significant progress claims into that first half is what shifted. And that's sort of lost job. That job will still be completed and the team is gearing up. But at the same time, we've tried to redeploy resources into other projects because you want to retain your talent knowing that job is going to come online. It's scenarios like that we faced probably across 5 or 6 jobs that I could riddle off, but we have similar scenarios where there's just been an indicated start time that's now been pushed into calendar year '25. Do you want to unpack that a bit further, Matt?

Yes. I mean, I think that's exactly it. I mean, I think probably the only other point I'd make, Chenny, is, yes, I acknowledge $230 million FY '25 rolling forecast now is slightly lower than FY '24, but it's kind of there or thereabouts. I think the other point to call out is that the U.S. business is in a transitional phase. So the business we bought, Reconstruction Experts, its exclusive focus was large loss or complex loss reconstruction work for homeowners associations. The business we're building over the long-term is a business that will mirror Johns Lyng in Australia and New Zealand, and that means lower dollar value jobs. So job volumes are increasing, but the average job size is also decreasing. That's by design.

For the average. Construction experts increase for the average.

Correct. So that's by design as we dilute that specific project concentration risk as we increase the job volumes and lower the average job size. So again, we expect to grow over the medium-term significantly, but we're in this -- we're halfway through this transitional phase as we reposition the business.

And then I guess maybe just on that, your business partners in the U.S. have stayed at that 25% mark. But have you replaced any of them? Has there been any churn, but then potentially you guys hired again to keep that 25%?

No, our business partners are really good, Chenny, over there. We've set them up. We're really pleased with the talent we've got over there. I was actually talking to 2 of them this morning. They're really buoyant. They're pumps. They drive their businesses, and we couldn't be happier with the talent we've got, to be honest in our business partners in the U.S.

And then maybe just one last one from me. So I guess on the call and in your opening remarks, you guys talked about some of the positive trends into the second half after a weaker first half '25. But maybe just to kind of help us understand potentially what can go wrong here. And also as you kind of look at the second half of '25 and some of the building blocks that you have talked to, what do you think is most volatile relative to your expectations?

Good question. I think we've come out of the most volatile thing what we experienced last year at the back of the Northern Rivers exercise. I mean, that's sort of what probably started this is just some bad jobs in the runoff, probably overcommitting with Suncorp be hindsight taking too much on, which at the time they begged us to do, but we handle that different now because owner's have to draw-in in the end, unfortunately. So there's some lessons learned from that. But I think the volatility is all gone, and we're steady at the moment, recalibrated our cost base, recalibrated our staff and registrations are coming through in a very positive way, and we're getting good outcomes again. So I think all of the volatility is gone, and we're up and away.

Your next question comes from Tom Tweedie from MA Moelis Australia.

Just a follow-on from Tom's question just on the average dollar cost per job. Can you just give us a sense maybe in the first half, the movement in that dollar cost per job average? And then again, sorry, I wasn't clear, just get registrations are up 50%, but is there a sense of what we would be thinking in terms of dollar or mix shift there? Is it going to services that are potentially lower dollar value work? Or is that mix shift pretty consistent with the first half '25?

Really hard to answer that question, Tom, because the registrations are coming in. We've still got to assess and put budgets on everything. But if we take -- if we go our BaU, average dollar cost on everything across our business, nationally in Australia is about $30,000 a job, but that's just a guesstimate on what we do.

Some of this volume, Tom, is related to hail. So that can constitute obviously for roof replacements. So they're typically, call it $100,000, $120,000. So they're significant. And then obviously, flood, we've obviously spoken that in the past. That again is significant in the context that the property is still intact and there's a lot of restoration works to be conducted. And that typically goes across 3 of our brands. It goes across Makesafe, Restorx and then our repair arms. So I think to look at the makeup of the registration increase we've seen and across those 2 surges, the demographic of them probably go towards the higher end of the average, I'd say.

And obviously, some of the growth domestically is a bit out of your control with weather events. So what are you seeing across maybe some of the -- I know it's quite fragmented peer set? And is there potentially opportunities emerging given some of the other operators in the market might be struggling a bit more than you guys are and also maybe even in the commercial space as well, sort of to expand that off the back of the recent acquisition?

I do know that other companies -- some are a lot quieter than us. Other companies are quiet. The whole market is quiet because of the weather. And again, as I said before, that's evident by the insurance companies reporting record profits because their claims costs are down. So I do know other companies are probably doing a bit tough than us, to be honest, when they're setting.

No, I think we've obviously got a good view through even rise on, right? We obviously haven't owned that business for long, but it gave us a good indication of the volume they're seeing as well. And then just general market sentiment, to Scott's point, we do talk to others in the market and getting understanding of where they're at. And then also clients, to be honest, we sit in scorecards and we'll talk around opportunity and the good operational indicators that we're seeing and access to further opportunity. It's really -- the response has been -- we're pretty quiet at the moment and everyone is saying the same thing, so.

We still are most insurance companies and most of our providers first point of call. Our Makesafe product is second to none. Our Makesafe product is the best in the industry by a mile, and we do lead with Makesafe. There's not a Makesafe in Victoria that we generally don't get the call on. Like so we still are front and center with all of our clients to mitigate the loss, mitigate the cost and be their preferred provider. No other company gets Makesafe like we do. And that's a lead into why we get the other work. There's also a lot of opportunities in the M&A space presenting ourselves to us at the moment more than we've ever seen before. So we're looking at a lot of those. Yes, it presents opportunities.

I think it's fair to say though, Scott, we'll stick to our discipline from an M&A perspective, we've always been very disciplined in terms of allocating capital to M&A. We've never made an acquisition for volume. We've always been conscious of the potential for revenue cannibalization, and we'll continue to target great management teams and geographies where we're underweight and maybe an expansion of the service line capability, it won't just be because they're available. Scotty?

No, I think that's a given. I think that doesn't need to be said. We went right into the M&A -- our M&A thesis. We turned away at 30 out of every 1 and don't even entertain talks. So we're very disciplined on M&A.

Brilliant. And just moving to the U.S. Can you give us a sense of -- I know you're talking a medium-term sort of big opportunity there, but just what you need to do to ramp Allstate contract volumes? I mean my understanding is there is a part of that market over there that's driven by the homeowners sort of working with the insurer to sort of choose who does the repair work. So what opportunities, what initiatives are you doing there to try and ramp that sort of maybe second half or into FY '26?

The U.S.A. is going very well as far as the inroads we're making. We're not talking about Allstate anymore. We don't forecast it. We don't budget it. We're very frustrated with that because they haven't delivered on their promises when we built the dam thing for them in conjunction with them. And one of their personnel moved and consequently, that moved the needle for us. So we're not talking about Allstate anymore. We're building the business without Allstate. The guys are doing everything possible, and we couldn't be happier with the inroads they're making. To give you a little example, CEO, Tyson Barber took some clients out to a very big charity event on Saturday night and picked up a $2 million job and a $7 million job on the back of compliance to that event. So they're doing everything over there by rule book #1. They can't be doing it any better. It's just amazing what will happen over there. I'd just say, watch it basically doing everything right in the U.S.

[Operator Instructions] Your next question comes from [ Gus Frieberg ] and Macquarie.

Just wanted to touch on the Keystone performance. At the time of acquisition in September last year, guided for 9% EBITDA margins. I get that you're cutting the headcount there now. But could you just explain a little bit more to us what sort of drove that miss versus expectations in September, please?

Was the question more in case I'm referring to 9%?

Correct. Yes. So look, look, I think -- the short answer is, it's -- the business is carrying a disproportionate amount of overheads. Yes, you're right. Our forecast was a 9% margin. It's delivered 7.5%. But again, at the risk of repeating myself, I think over the next 12 months, we'll rightsize that cost base relative to revenue and you'll see margins expand beyond that 9% target back to align with the group margins.

And maybe apologies if I missed this before, just related to FTE cuts and cost out more broadly, when do you expect the bulk of this to happen? I'm just thinking about amortization effects into future periods.

Its's all done.

So it's all complete.

Yes.

Your next question is a follow-up from Chenny Wang at Morgan Stanley.

Just maybe a quick follow-up. Just on the U.S. in terms of some of the insurance brokers, one that you mentioned and maybe a few more you're working in the background as well. I guess what kind of visibility do you have there on volumes? Because obviously, we kind of know how the Allstate experience has panned out over the past year or so. But yes, can you give us some sense of with some of these newer insurance contracts, whether there's anything kind of different in those contracts in how volumes are dictated?

That's a good question, Chenny. Let me try and get that for you. We do know with the brokers, the volumes that are coming in, and we do know the broker response. So again, like our Makesafe product, our Emergency Broker Response product is -- we are the only one to present that. Now as you can imagine, the insurance companies #1 -- the number -- there's 2 things insurance companies aim to do. The #1 is retention of customer. They don't like to lose customers, so they want customers to renew their policies. And 2 is a good claims experience with lower cost. With our Makesafe product, which is essentially our Emergency Broker Response product, we mitigate loss. So we attend quickly and we mitigate loss. That's been received really well, and we're the only ones presenting that in the U.S.A. and Australia for that matter, with elements within U.S.A. and Brown & Brown are over the moon because we've proven to them that we mitigate cost by getting there quickly. So they're dispatching us every week there at the moment, giving us more work, and they're over the moon. We're being inundated by their claims managers over there because we're mitigating the cost and the loss because they're dispatching us quickly. So we can only go on that. What volumes are coming, we have no line of sight on, of course, because we don't know what happens. But we just know on how it's been received and they're all over us like a rash. So it's working. As the Makesafe product has worked in Australia for 20 years, and still we're the leader of that, this product is working in the States because it mitigates cost. It has to work.

Yes. And then maybe just in terms of that trial with Brown & Brown, like I was hoping maybe you could just unpack some of that. Is this trial just in one city at the moment? Is it in one small zone? Like how widespread is this at the moment actually?

Same trial in the 5 states we're in. Right now, we're doing a lot for them in the L.A. wildfires, which is good and Colorado. So we've actually got a hands full at the moment with this trial. So yes, it's great.

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

Thanks very much, everyone, for your support. Please be assured that we're at the bottom of any volatility. We're at the bottom of any recalibration. As a group, we're still growing, and we look at ourselves as a group. There's a couple of issues in New South Wales mainly that we're on top of and we're in front of. So while a little bit disappointing, yes, we're back on the road to recovery, and it's very positive on the outlook. Thanks.

That does conclude our conference for today. Thank you for participating. You may now disconnect.