SHAPE Australia Corporation Limited (SHA) Earnings Call Transcript & Summary

Good afternoon, and welcome to SHAPE Australia's Full Year FY '24 Results Webinar for the period ending 30 June 2024. Presenting today is SHAPE's CEO, Peter Marix-Evans; and CFO, Scott Jamieson. Today's format will begin with a run-through of the results followed by a Q&A session. Should you wish to submit any questions, you can do so by the Q&A function at the bottom of the screen. I'll now pass to Pete.

Thanks, Mel, and good afternoon, everyone, and thank you for taking the time to join us this afternoon. I'm Peter Marix-Evans, and I'm joined here with Scott Jamieson, our CFO. So, as Mel mentioned, there is a Q&A section and we will endeavor to get through any of those questions before the end of the presentation. However, if we don't get through to them, we can certainly follow back up with you. So, very pleased to announce our financial results today to the market. The FY '24 results, see the company delivered the most successful financial outcome that we've had in our history. And so we're very -- we'd like to start off by sort of saying how very grateful we are to all of our staff, subcontractor suppliers and clients who have supported us in achieving this. So, we've got a few slide decks to get through. So, we'll move through them efficiently. But again, please remember to ask questions as we go along. So, to start off just a bit of a recap. A lot of you would understand the SHAPE business, but just for anyone on the call who is not as familiar. So SHAPE is a natural construction services company. We've got 13 operations across the country, including 2 modular manufacturing operations. We've completed over 7,000 projects and 34 years of experience. So, a good strong track record of delivering high-quality projects for our clients. Tender rates. So, conversion rate by number is around about the 50% mark. I'm very proud of that and it's an industry-leading average. And we're also very proud of our Net Promoter Score at plus 88. So that really ties into our repeat business and everything we do with our clients. So, I mentioned on the right there, repeat business is circa 85% and we've completed in excess of $10 billion worth of projects in value sectors. Sector, we'll go into that a little bit deeper later on, but suffice to say, we work across a number of sectors, including the commercial office market. From a capability point of view, I talked about SHAPE being a construction specialist. So, we specialize in Fitout and Refurbishment, but we also carry out works over Modular, New Build, Facade Remediation, Aftercare and Maintenance and also Design and Build, which we'll go into a little bit further later on as well. Just our brands there, you can see SHAPE, DLG SHAPE, which is our majority indigenous owned business that SHAPE our partners with the DLG group in. Modular by SHAPE, our modular business and AFM is our facilities, Aftercare and Facilities Maintenance operation that we started up in the last year. Just a bit of history and not to give you a history lesson, but I guess, we often get asked around the growth of the business over time. So, we've got over 34 years of industry knowledge and experience. And importantly, you can see there across the 34 years, the resilience in the cycle and through the market. So, despite -- you can see there in FY '13, '12, 13, dropping off as we had the recession or the global recession and then you can see the effects of FY '20 going through the COVID period. So, despite global macroeconomic conditions, SHAPE had demonstrated track record in bouncing back very quickly and again, we're gaining that trajectory of growth across our business. Scott will take you through some financial highlights.

Thanks, Peter. As you can see there, we've had strong revenues of $838.7 million. Whilst that's down 2.7% against the prior year, FY '24 saw some contracted tender periods and some delayed project commencements on some of our larger jobs. So, that in round numbers was probably about $50-odd million down on expectations due to that. That work hasn't gone away. That work is still there, but instead, that will be coming through in FY '25. EBITDA of $25.9 million, which was a significant increase of 33% on the prior corresponding period. Prior corresponding period was $19.4 million, which then transferred into the net profit after tax. So, a significant increase. Last year was $10.5 million. This year is $16 million. So that's up 53%. The project wins. So that's projects that we have secured throughout the financial year of $947 million. In brackets there, you can see $1 billion. That $1 billion includes our associate DLG SHAPE Proprietary Limited, where we hold a 49% interest in that business and that's up 18% against the prior corresponding period. And through the success of all of those project wins throughout the year, that's provided us with a backlog order of $457.4 million, again, a significant increase against the same time last year of $343 million. And that really sets us up well for FY '25, having such a significant amount of work in hand still to complete. The identified pipeline. So that's projects that we know they're known projects. They exist and they're projects that we have the skill set and expertise to undertake on the right terms and conditions. So, whilst you're seeing that as a decrease there against the pipeline we recorded last year, there is still such a significant amount of work out there that we couldn't possibly undertake all of that work with the current levels that we have by way of staff. Cash and marketable securities, so very strong liquidity position, balance sheet. So, we have $98.6 million. The break-up of that is $69.9 million in cash and $28.7 million in marketable securities. Those securities are highly liquid investment-grade corporate bonds. And then we move on to the earnings per share of $0.192, significant increase on the previous year. But very importantly, to shareholders, we just declared a dividend, a final FY '24 dividend of $0.09 per share, and that brings the total in relation to FY '24 to $0.17, which again is almost a 50% increase against FY '23. Peter?

Thanks, Scott, and we'll come back to a little bit more detail in the numbers a little bit later on in the slide deck. So, just talking about how the business is set up. So, diversification of our business really drives our resilience. And so I guess what we aim to do is deliver high-quality, cost-effective solutions while minimizing disruption to clients' operations. And we do that across all stages of the office life cycle and talk a little bit more about the resilience of the commercial office life cycle in another side. Extensive and diversified range of customers. So, our typical customers that we work for tend to be blue-chip ASX 100, 200 companies, but obviously, we work across a broad range. A little bit about our work and a little bit of our resilience comes from our workbook. So we've got a very short duration of project work overall. So, if you look at 88% of our work is completed under a year and 40% of that work is done in less than 4 months, so in 16 weeks. So, it just gives us a level of resilience towards cost of goods escalation. Typically, most for the majority of our projects within a couple of weeks of being awarded the project, we have secured back-to-back with our subcontractors. And so we take on that risk, but then we pass it on very quickly, which gives us a very high level of resilience. Also on the resilience side of things is a lower risk from 12% of our work is external with 88% of our work being predominantly inside a building, not exposed to whether industrial and any of those sorts of delays that you might get as well. So, the quality of the book is very much focused around making sure that we have a good blend of risk, but also that risk is very manageable. On the right-hand side there, you can see that we rely heavily on our repeat clients. As I mentioned earlier, our Net Promoter Score of plus 88 really helps to do that. And as I mentioned, that we aim every day to deliver high-quality and cost-effective solutions for those clients. So, we still pick up new clients, 16% of new clients each year, but we're very focused on maintaining and nurturing those relationships that we have with existing clients.

So, just a little bit more on the project wins and some more on diversification. You see on the left there, we've spoken about the project wins, but in addition to that, as at the 30th of June, we had decisions pending of almost $400 million and we were currently tendering $300 million. So again, looking at that, looking at conversion rates, it certainly sets us up well for a very good and strong start to FY '25. The backlog order book there, so you can see that there's quite a bit of diversification across there. We're still heavily weighted or primarily in the office sector, some of the reasons that Peter talked about before. What that also says is that the office market is not going away. We're not doing less work in the office market, but what we're looking to do is undertake more work in the other sectors and continue to diversify that book. We also then have the ability to pivot into different sectors as we build our skill sets and experience and expertise amongst the 630-odd staff that we have. And you can see there that the pipeline is starting to diversify a little bit more, particularly you'll see the orange section there, defense and also into health. So, with the Defense Strategic Review that was undertaken, FY '24 had a lot of work, particularly in the defense area, put on hold. And now that's all coming back to market as we speak.

So, I mentioned earlier, the commercial office sector resilience. So, we are certainly heavily weighted in commercial office sector and that's not by chance. It's a very resilient part of the market that sees work at all ends of the spectrum. So, in a growing economy, we see a lot more new fitouts in a shrinking economy. We see a lot more sub-tenancies and make goods that sort of stuff. So, there's work at both ends. But I guess if you look across the property cycle, we work in the new build side of things in constructing the assets. We're very particular about which clients and who we work for, but we do carry out that work. Bid out long-term occupancy and typically a lease is 7 years or 7+3. So, we tend to have a cycle in that. And again, we rely on that repeat business in coming back to do our clients' fitouts at the end of their tenancy or at the end of life with their fitout. There's also the ongoing maintenance and refresh of assets and that's both for tenants, but also for building owners as well. Tenant churn and increase in vacancy and then reposition of assets, which, again, if you look at the moment, A grade, B grade premium assets in the city are all vying to get quality tenants, so they tend to continue to keep spending money investing in their asset, making sure that they can attract those long-term tenants. Just a bit across our capability. So, demonstrated the ability to win and execute work across regions and capabilities. So, our revenue by region there, you can see on the left-hand side for the pie is split up across the country with New South Wales and Victoria being the largest with the other states following closely behind. Those numbers do move around from year-to-year as we follow sort of the cycles in various states. However, the takeaway there is that we're able to pivot to different states and move our workforce where required to partake in boom-and-bust type operations in each of the states. Revenue by capability, just showing there that we remain heavily weighted in the Fitout and Refurbishment in saying that we are diversifying and continuing to build on our capability across New Builds, Facades and Modular, which, again, both now and into the future, gives us that ability to follow the money and to follow the spend, whether it's coming from government or from private sector. I mentioned earlier our strong conversion rate. So, we mentioned they're 50% by number. Again, that's a very high percentage for the industry. We don't price for practice. So, we're very particular about which clients we work for and about which opportunities that would pursue and they need to be under the right contractual conditions to make sure that they fit within our risk management framework. So, from an origination point of view, I have spoken in the past about our bespoke CRM. So, we use Salesforce as a CRM and we've really taken that system and spent time integrating algorithms, which actually give us an opportunity to predict the model, which helps to keep those win rates up nice and high. And we're also able to track our lease expiries across the commercial office market, which gives us a great level of visibility into that forward pipeline. From an execution point of view, we've got a really long history of investment in systems and process. So that's across financial, project delivery, EHS and HRIS. So, the company has always invested heavily in making sure that our 630-plus people are well supported in everything they do. And then also there, we've opened or started an AFM, Aftercare and Facilities Maintenance team focused on maintaining those client relationships whilst we're in different stages of the leasing life cycle. Operational highlights, a lot of words on that page. So, I'll just pick out some highlights for you. Starting with safety. I do note that our TRIFR has increased this year from 3.8 to 6. I caveat that with when we compare that to the most recent industry average that we can access from The Office of the Federal Safety Commissioner, the average is sitting at 10. So, we understand that we're still doing better than the average company. In saying that, please don't take that as me ever accepting any level of incidence or injury. So, every day, that's the most important thing that we will do with our workforce is to make sure that every single one of them goes home in as good a shape or better than when they were out. However, we do note that increased exposure with our additional hours and revenue across different sectors. So that expansion into different capabilities comes with some nuances around different types of operations and risks. So, we continue to develop our systems and our training and our people to be able to help us to cope with that. I would note that whilst it's an increase, again, from a TRIFR or LTIFR, from the previous corresponding period, that PCP was an all-time low as well. And if we go back to our sort of trajectory, we're still on a trajectory of decreasing the injuries and incidences that we have on our sites or our people when we look over a sort of 5-year period. And again, nothing is more important to us. I note they're 52,000 proactive safety, quality and observation logged. And we really see that as an indication of a resilient safety culture across the business. From a people and culture point of view, we've achieved, again, a Cultural Achievement Ward from Human Synergistics. I think that's our 7th year in a row. Very proud of that. As I've mentioned many times before, our only assets are our people. So, we'll spend an incredible amount of time making sure that we nurture and promote those employees from a career within SHAPE. 11.5% increase in our total workforce. So, we continue to build that workforce of SHAPE-ians. And importantly, we continue to invest in those people. So, over 5,700 hours were allocated to training and that resulted in 19% of our employees being promoted through the business. So again, we want to promote, we want to hire at a junior level and then give people strong careers through the company. Maintaining our 29% female gender diversity. And if we look at that from a going forward point of view, whilst we've maintained 29%, our new hires from a female diversity point of view has been at 33%. And we have a strong focus on DI across not just gender but across all aspects of diversity. From a partnership, I've already mentioned our very high Net Promoter Score of plus 88. 90% of our projects achieved Perfect Delivery. Perfect Delivery being an internal measure that we ask our clients to certify after we finish the job based on a number of pillars that we deem to make up Perfect Delivery. And we're also very proud of our extensive network of trusted subcontractors that again provide repeat services with us of over 2,000. Finishing up there on environmental and social impact. So, we maintained our Climate Active Certification for the year, which is very good. We completed 3 projects with Green Star accreditation. 2 of our office achieved 6 Star being Brisbane and Melbourne. Importantly, over 1,500 items were donated or used on projects on the Circular Economy as part of our ESG commitments and 1,725 tonnes of waste diverted from landfill, which again, very, very important. And with our staff, our community and our subcontractors, we've managed to donate more than $1.2 million in goods, labor and service to local charities and through our Community+ program. Just a little bit more on safety. I feel I've covered quite a lot of this slide already. But I guess, SHAPE continued to focus on safety leadership. Our investment in systems in the pursuit of efficiencies in safety administration through technology also through training. So, this involves the development of predicted project performance reporting and AI generative tools. So, keep an eye on that as we go forward and continue to invest in that. As I mentioned, there are 52,000 proactive safety, quality and environmental observations logged. So, you can see on those stats there, I mentioned that if you look at the 5-year trend or you can see that whilst we've had a set back from the prior corresponding year, typically, the statistics continue to trend down since 2020. And again, nothing is more important to us than keeping those trends going. Just touching on our new capabilities in FY '24. I mentioned earlier the AFM. So, we launched that in November of '23 and that's the focus on commercial office clients in Sydney and Melbourne at the moment. We will expand that to our other regions. Just wanted to get the model right. It's basically to ensure the safe and efficient operation of buildings, equipment and systems through scheduled maintenance and immediate response to work. So that's in response to clients asking us to provide that service, which typically we would come and do a larger project or a fitout or a refurbishment and then we move on to the next one. So, it's about trying to stay in contact with those clients and assisting them with their asset or their ongoing facility. There's an opportunity to expand that through new clients and to contract maintenance agreements as well. And in the future, it could provide an annuity stream to revenue as well. So certainly, that's complement the current SHAPE business and it's something that we've launched recently. Also launched in FY '24 is our D&B, so Design & Build business. So, delivering end-to-end service for bespoke workplace strategy and designed to defect-free delivery. So that's not to compete with our existing clients or consultants in the sort of the larger end of town. This is mostly for projects sub, say, $1 million. And it's again where a client would normally go to a D&B builder. They have the ability to come to SHAPE and we can be a turnkey operation for them. So, very positive. It ties in with everything SHAPE talked about with having strong relationships over a long period of time with our clients and continuing to deliver on that excellent customer experience that we strive to deliver on. Just across projects, that's just to give you a bit of a flavor of some of the projects we've done over the last year. So, if you look on the left-hand side, the Wallan Secondary College, so it's a modular construction of a classroom there, 26-week duration, repeat client and again, just ties in with the growth of the Modular business. The middle one there, Albert Hall Renewal. So that's still going now in Tasmania. So, one of the new offices that we've opened in the recent period. Again, that's a combination of new build and refurbishment and also on a heritage building as well. And then on the right-hand side there, one of our projects that we're doing in Newcastle. So, you can just see again across the different durations from 26 weeks to 15 months to 14 weeks, the diverse nature of the types of projects that we carry out. From a sustainability point of view, again, I've touched a little bit on some of this already. But I guess, good to note that from a carbon footprint, we have total emission offset continues to reduce down, down from 2.9 in the prior corresponding period. Carbon Neutral, we've -- as I mentioned, we've maintained Carbon (sic) [ Climate ] Active certification for the period. GreenPower, 59.5% of all corporate electricity is provided through Green Energy providers. And basically, every time we reposition or do a new sort of fitout or refurbishment for our offices, we look to change that GreenPower going forward. And the middle one there, carbon accounting software embedded for corporate. So, actually putting in place the investment in technology so that we can carry their reporting. And that includes Modular by SHAPE and AFM by SHAPE. Go back to a bit more detail in the numbers.

So, we covered most of these numbers at a high level previously. But I guess the key to this slide is although the revenue was marginally down, there was significant increase in EBITDA and net profit after tax. And this is primarily because of the gross margin increasing by 19%. So, gross margin moved from 7.6% up to 9.1%. And that's due to a combination of things, but part of that is improved trading conditions. So, as we've come out of the COVID period because FY '23 obviously started in the 1st of July 2022. So, we were still working through that. So, as we've come out of that period, trading conditions have improved and gross margins have followed with that. In addition to that, though, the way that the project life cycle works and the margins that come out of the project life cycle, we continue to generate -- generally, we have a going position, we have an exit position and we continue to generate margin as the project moves through its life cycle. But throughout FY '24, because we had some of those projects that would have otherwise have started and been delayed, what that meant was there was a slight bias towards projects that we're finishing compared to projects that we're starting. So, putting that into some numbers that -- of that $50 million that we were talking about earlier in the presentation, had that $50 million have come through, that would have started closer to the going margins than the exit margins and that can move that gross margin of 9.1% around sort of 0.2% to 0.3%. So, those margins are at a position that is almost normalized, if you like. And there is certainly opportunities for gross margin to improve moving forward as we look to take on different business units or different capabilities and blend higher margin work with our current works. The other thing that I just wanted to point out there was the returns on the -- that $98.6 million of cash and marketable securities. So, we generated about $3.5 million in FY '24 and that compares to $2.4 million the year before. Just a little bit more on the liquidity position. So, we continue to place a strong emphasis on diligent liquidity management. So, we have a great bunch of people as far as the other project teams, project managers, and they're very diligent as far as managing the cash on each and every single project. We also need to make sure we manage that in such a way that we set ourselves up the best possible way we can to support about all of our pre-qualifications and external financial assessments. That graph there just shows you the breakdown of the cash and marketable securities. But it also shows the movement looking at the high of $104 million, the low of $42 million and it's showing the average position of $74.8 million. Included in those numbers at the 30th of June was restricted cash of $6.8 million, and restricted cash is primarily in relation to project trust accounts and retention trust accounts. We do continue to generate interest earnings on the majority of that restricted cash. And then just moving across to the right-hand side of that slide. This is a typical monthly cycle of our cash balance. And you can see there that the first dip is in relation to payment runs that we make. The payment runs correspond with the security of Payment Act legislation that dictates the payment terms. So for example, ACT has recently changed where we need to make payments in 15 business days. New South Wales, 20 business days and Queensland and WA is 25 business days. So, you can see some slight dips as they sort of work themselves through the month. But you have your initial payment run on the first business day and then it builds up and then you can see the corresponding payments throughout the months.

Moving on to growth and strategy, and thank you for all bearing with us. There's not too many. I think there's about 4 or 5 slides left, so we're getting towards the end of the deck. Outlook and growth. So, we've got 3 pillars that we've talked about for a number of years now. And those pillars are highlighted on the screen. So, growth in the non-office market sectors. So, whilst the bottom bullet point there, whilst investing in the growth strategies, we do remain very focused on maintaining our significant market share in the commercial office sector. In saying that, we continue to grow into alternate sectors. So, significant opportunities to continue growing into non-office markets, so hotels, health, education, retail and defense. And we need the skill set, capability and the track record in order to be able to do that. So, this is a future-proofing type of growth as well. Macro trends like population growth, aging population, geopolitical tensions are all expected to drive ongoing government investment into many of those sectors. So, we're well positioned. We talked earlier about Defense and Defense Prime. So, defense prime, the consultants and contractors that work around the defense industry. So, when Scott mentioned earlier about the Defense Strategic Review, we were able to pivot and you'll see that on future pages in the deck, pivot from Defense into Defense Prime. It's a very key part of our growth there. Second pillar there is continued diversification of our capabilities. So, we remain focused on implementation of our modular growth plan. And in FY '24, we expanded our modular capability with the addition of a new 5,000 square meter facility in South Australia and we've invested in several key modular professionals to strengthen that revenue, both in South Australia and in Victoria. We're also building on early success that we've seen with the design and build service offering, which I mentioned earlier and also look to expand Aftercare and Facilities Maintenance services across multiple market segments as well. And also in the diversification is we remain, what I call, opportunistically acquisitive in that we will also continue to monitor for opportunities for merger acquisition opportunities that are synergistic to the SHAPE business. The third pillar there being geographic expansion, and I'll go into some detail on the numbers in future slides, but we continue to focus on the expansion in 3 key areas in the last 12 months, being Gold Coast, Newcastle and Tasmania. We've recently established a permanent office in Hobart for the Tasmania team and also looking to securing a new location for the Gold Coast team having already grown out of our original office there. We also remain, again, opportunistically looking at additional regional locations that would have the GDP, population and growth to support our SHAPE office as well. Getting into a bit of the detail in the non-office market sectors. So, I won't necessarily go through all the numbers there, but you can read them on the screens. Typically, we're seeing a trend of both revenue and project wins increasing. And going back to the terminology revenue being turnover, project wins being projects that we have secured, doesn't mean we've sort of started the alternative. So, project wins grew by 41% and revenue by 15% across non-office market sectors. So that doesn't mean that we needed to grow outside of the office market. That means that we're looking to the future to continue to diversify that pipeline and also that puppy that Scott talked about earlier. Revenue in Defense Primes surged by 135% and that does reflect our ongoing investment in our defense team and our internal capabilities and I mentioned previously the ability to pivot from government to private regardless of the government's strategic review and we are seeing that defense work starting to come back on with the Australian Defence Force as well. Revenue for health and retail also saw some good strong growth, 25% and 179%, respectively, and we continue to see investment both by government and private sector in those areas. And noting there that while we maintain our office market position, wins in the office market now accounts for approximately half of our order book. So that's compared to 25% to 30% a few years ago. And again, reiterating that we're not moving out of the office market. We continue to have a strong desire to maintain our significant and dominant market share in that market. Outlook and growth. So, that's just on our diversification of capabilities which we've talked about the new build, modular and facade. Again, a typical trend there of an increase. You can see facades haven't followed that increase. As Scott mentioned in one of the earlier slides, we have finite resources. So, we do very much follow the money. But we are seeing, at times, the general delay in facade remediation projects coming to market. Landlords are certainly focusing on making sure that their buildings are presentable to tenants and are attractive to attract and retain tenants at the moment as they're seeing employees return to the office. So, I think that facade will come back on. But again, we have the ability to pivot. New build project wins increased significantly by 256 to $112 million. A lot of that is in the Queensland branch where we picked up significant staff and expertise, is a strong track record in delivering those types of projects. And as I mentioned earlier, we're very particular about which new build projects we take on and the risk profiles associated. And then the third middle bullet point there, investment in modular capabilities sort of growth in both project wins and revenue in FY '24 compared to PCP. And we have continued to invest in the overhead required to support the growth in that business. Last slide, I think it is. So, expansion into new geographies. Our 3 regional operations experienced again significant project wins and revenue growth, increasing 211% and 60%. So, some very strong growth in those regions. I think again, listening to our clients, they're crying out for someone like SHAPE to provide services in those locations and areas. Gold Coast, 310% increase in project wins, reflects just a very strong diversified order book with both new build along with refurbishments, securing the region's marquee office project in FY '24 as well being an office refurbishment for the -- down in the Gold Coast. Gold Coast and Newcastle experienced significant increases in project wins. And since establishing offices in both locations, the local teams have invested in the network, the relationship building and expanding those market opportunities. So, this strategic effort has enabled us to invest in additional people and thereby enhancing our capabilities and our ability to deliver more work for our clients. So that was the slide deck going through the results for the business for the year -- for the annual report and annual presentation. So, thank you for bearing with us. We do have a few questions. So, I'll hand back to Mel to...

Thanks, Pete. We do have a few questions. So, our first question is, how is FY '25 NPAT margin going to trend relative to FY '24?

Yes, I can probably answer that one. Whilst we're not providing any forward guidance in relation to the profitability at this stage, what I can say is that there's a lot of moving parts in relation to what produces gross margin. And of course, then you've got your overheads. But we don't see any significant deviations to the current financial year.

Thanks, Scott. Why is the company holding marketable securities this year when they were not previously held? Scott mentioned they were highly liquid corporate bonds. Is there a requirement to hold these under any of our projects? Or is it a decision by management to maximize the return on cash held?

Okay. Yes, that's a good question. We have moved, as you saw, obviously, some money into those marketable securities. And we've taken the view there. And because of the inverse relationship between interest rate movements and the value of those securities. Because the interest rates had moved and they've moved up and then the view taken certainly when you listen to the various economists around the country and sort of forecast on interest, we then took a position there and we took into account, obviously, the risk with the potential capital movement of that. And so we took the view that, that's an opportunity for us to move into those corporate bonds. And because they are highly liquid in the event that we need to access that cash, you can basically get that money in T+2 or Trade -- 2 days after selling those. And again, it's enhanced our earning ability. So, in rough numbers, the current running yield on those bonds is producing about 200 basis points more than the cash rate. And so that's the primary reasons why we did that.

Thanks, Scott. Okay. Gross margins were a real highlight. How should we think about gross margins in FY '25, given a higher-than-usual percentage of projects closed in FY '24, boosting the margin profile?

Yes. As I mentioned that because of that weighting and that other $50 million that we expected to come through, that has the potential to move those margins sort of by 20 to 30 basis points. Again, that's just in general terms and there is a lot of moving parts as to what constitutes margins. So, it's -- there's a number of things around the procurement method, the amount of variations, the duration of the job, there's things that are there. So, that is very sort of high-level general terms on that sort of 20 to 30 point movement.

I think there's also a number of factors in the type of work as we've talked about with our 3 pillars, typically, for instance, modular tends to attract a higher gross margin. So, as we continue to burn those works, the intent is to continue, obviously, to grow gross margin by percentage, but as Scott mentioned, there's a number of factors that sort of depend on quarter-by-quarter.

Thanks, Pete. This is our last question. So, if anyone has any further questions, just remember to send them through. Liam says congratulations on another strong result, hoping you can elaborate on AFM, implementation costs and expected ramp-up to revenues, the revenue model and pricing relative to competing CRE services and what you would like to see before broadening the service into other areas?

Yes, sure. Thanks, Liam, thank you for the congratulations. So that AFM business was started up on the back of requests from our clients and we've opened the sort of the business unit up in predominantly Melbourne and Sydney. So it basically, equates to a technician and a van in Melbourne and Sydney. The -- like with all of our sort of growth initiatives, we look to make sure and it's not imperative, but we look to wherever possible make sure that they're earnings accretive from day 1. So that business is not something that we're going to invest heavily in as a sort of a lost leader. It's basically to respond to requests from clients. We will look to grow that business organically and sustainably. So, I don't anticipate a huge investment further to what we've already invested going forward and any investment would be commensurate with the revenue that we can derive from that. So, we will look to, as we mentioned, expand it into different markets and to look to different clients and different buildings. So, it really is -- that's more of a slow burn and I'll watch this space rather than sort of it's not going to start to compete with the modular business in the next year or 2 from a revenue point of view?

Thanks, Pete. Monty asked, were there any specific areas of health growing? Example, hospital or aged care. Anything worth calling out?

I think it depends on each region where you are. For instance, in Canberra, they have a very strong relationship with and track record with Major Projects Canberra, with the Canberra Hospital or Calvary. Each state has different uses. We are definitely seeing an increase with the aging population, not just in aged care per se, but in the services that are required to provide aged care. So, it's not necessarily in one specific area at this stage across the country.

Thanks, Pete. We just had a few people raise their hand. So, I'd remind everyone to type your question in, we won't be allowing people to ask verbal questions. And another question has come through. Are you expecting corporate costs to grow much into FY '25?

So, corporate costs will grow as we continue to grow the business. Whilst there is a level of scalability, we will need to add head count as we build the other businesses. And you obviously, have the general CPI increases that come through. So, we do expect corporate costs relative to revenue to be less as a percentage increase.

Caveat on that is, again, ongoing investment in if you look at in the last period, we have invested significantly in a new facility in Adelaide. So, in the normal course of business, that's what's saying is the efficiencies should continue to materialize in saying that we will continue to invest where it's prudent for growth.

So I guess, to clarify that, I was talking solely just in relation to the corporate or head office expenses rather than the general overhead. So, the general overhead, obviously, we continue to invest in, as Pete talked about, with the AFM business, the D&B business, the modular capabilities. So, there is some additional spend that gets allocated there with a view that we'll get the return on that spend as we move into the future.

Thanks, guys. Next question is have project delays continued into FY '25?

So, I think at this stage, we are still seeing a continuation of a conservative approach to projects. So, we are still seeing some delays. In saying that, we've actually got a backlog of delays. So, those delays that we had, so the $50 million of revenue that we thought we would have done last year, that's starting to come on now. So, whilst we're still experiencing some delays, it's almost playing catch-up. So, I wouldn't, at this stage, anticipate it impacting our revenue in any material form.

Thanks, Pete. A couple of more questions have come through. Will the modular be, the Modular segment be able to monetize the new factory in FY '25?

So, the investment in the modular in -- and I'm assuming new factories, so, you're talking about our Adelaide operations because there is Adelaide and Victoria, Victoria is already earnings accretive. We would anticipate that providing there aren't delays in the projects that we are securing and pipeline coming to market that, that facility will be earnings accretive in FY '25.

Thanks, Pete. And then will the defense wins start back to previous levels in the upcoming year?

I would certainly hope so. I mean, obviously, SHAPE can't comment on what the Australian Defense Force and Australian government do. So, there were 249 projects that we were tracking prior to the Defense Strategic Review a year ago. That Defense Strategic Review channeled all of the money towards AUKUS and a number of other things, obviously, depending on where the government sees fit to spend money. All of those projects were required to be carried out, whether they were refurbishment or maintenance or new builds. So, they need to happen. It's a matter of when. So, we are seeing the tap if you sort of will turn back on for those defense projects. It's certainly not back at what it was, but we are seeing a continual growth in the number of defense projects coming to market again. So, I would anticipate that, that will return, whether it's returning over a 12-month period or a 2 to 3-year period will very much depend on the state and federal government or probably, federal government.

Question here on are there any research analysts at broking firms covering SHAPE on an ongoing basis?

Yes, we currently have 2 firms that are providing research coverage on us at the moment.

And the final question has come through. How is the health of your subcontractor today? Has any gone out of business?

Yes. So look, there's obviously been a lot of insolvencies, particularly in the construction industry of late. So, we're not immune from that as far as our subcontractors becoming insolvent. In saying that though, there is very few. We do have a very good and strong subcontractor base that we do a lot of work with. Our systems and processes, we do a lot of due diligence, financial checks and our teams know that the subcontractors well. So, also whilst they have gone broke if you like, because of the duration of our projects or the shorter duration of the projects and the way that the payment claims and payments thereof are set up, we certainly are very well protected from any insolvencies of our subcontractors.

It is something we spend a lot of time talking to our subcontractors where we have good, strong relationships with them, as Scott mentioned. And we certainly do require them to be in good financial health to be able to deliver the amazing projects that we do. So, we do spend a bit of time making sure that they are doing okay as well.

Thanks, Pete and Scott. That looks today the last of the questions at the moment. If anyone does have any additional questions, feel free to e-mail me. My details are at the bottom of the release. I'll pass back to you, Pete for final comments.

No worries. Thanks, Mel. So, as Mel mentioned, if there are any other comments or whether your channel through Mel or Scott and myself, very happy to have some discussions with you or to answer any further queries you have. So that concludes our presentation this afternoon. So, I hope you found that valuable in getting a more fulsome understanding of our FY '24 results and the performance of SHAPE. Again, really pleasing to present such an outstanding set of results. We're very proud of that. Very proud of our teams across the country that have helped us and who have driven those results. I would like to say thank you to our shareholders for your ongoing support and now our growing shareholder base, which is great to see. And also thank you to our Board of Directors for their ongoing support, guidance and assistance. So, I look forward to keeping you all up to date and communicating as much as we can in the future. And yes, I'll see you soon. Thank you very much.