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

Results webinar after the period ending 30th of June 2025. 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 presentation followed by a Q&A session. Investors can submit questions and can assumption at the bottom of the screen. I'll now pass to Peter. Thanks, Bill, and warm welcome to

Thanks, Mel, and everyone for joining us online for our full year presentation. We've got a few slide decks to get through or slides to get through. And as Mel noted, we will have Q&A at the year, but you're welcome to add Q&A as you go. And if we can see it, it's pertinent, we'll address it on the run as well. So FY '25 has been another record year for Shape on many fronts and pleasingly continue to deliver strong shareholder returns, which is fantastic to see. I'd like to start by acknowledging the hard work and dedication of our teams all around the country with over 700 shape ions who really are the backbone of the success that we've had in the backbone of our business. I'd also like to acknowledge our subcontractors and supply chain without them, we wouldn't be able to deliver on the amazing customer experience that we do for our clients. Obviously, I would also like to thank our clients who have remained loyal to us through the year. We have a really strong Net Promoter or and high repeat business level with our clients. So we think it or putting your fade in us for delivering your construction services. I'm proud to see our successful and sustainable growth continue this year, really underpinned by our 3 strategic pillars, which is sector geographic footprint and capability expansion. So it's great to see that deliver on continuing results. Our continued focus on a constructive culture through exemplary leadership across all of our operations, which in turn allows us to drive exceptional customer service and leading to that higher Net Promoter Score. So thank you to everyone for joining us, and we'll go through the slide deck now without further ado. So financial highlights. Scott, take us away.

Thanks, Peter. As Per mentioned, this year has set a number of new records for the business. I might just start with revenue. So we finished the year for SHAPE of revenue of $956.9 million. This compares with $838 million for FY '24. So that's a significant increase, up 14%. That has then flowed into EBITDA. We've managed to improve some of our operating leverage. So if we take overheads as a percentage of revenue, our overheads have gone from 7.1% of revenue down to 6.9% of revenue. And together with some increase in our management fees coming from our DLG SHAPE, which is an associate of ours. That's allowed us to improve EBITDA by 26%, up to $32.7 million. And of course, that's then flowed down into the net profit after tax. So a significant increase on the prior year of $16 million. This year, we finished at $21.1 million, which is a 32% increase. Project wins. So the difference between a project win and revenue project win once we've secured a project, we record that as a project win. That's not a statutory number. It's a management number. If we do win a project, for example, we pick up a $1 million project, and as we work through that project, once we're 20% complete through that project, we would record $200,000 of revenue. So that's the difference between revenue and project wins. Again, a record number and again, up 4% on the prior corresponding period. Moving across to backlog orders. So we finished the year with a very strong backlog order book of $492.4 million. So that's work we have won that we are still yet to deliver. That number provides a level of a bit of an indication on future revenues because obviously, that's the starting position for the new financial year being FY '26. Over the last 5 years, to put it into perspective, the ratio of turnover to backlog orders ranges from 1.7 through to 2.5% with an average of around about 2.2 of revenue to backlog. And again, that backlog order book and the way that turns over, it does depend on the composition of the book. Obviously, the larger the projects within that backlog, the slower they get turned over and vice versa. Moving across to the identified pipeline. So these are projects that they are known projects. They have an approximate value, an approximate start date. And should they come to us on the right terms and conditions, we would tender for that -- those works. And again, up 25%. That pipeline is more than we could actually tender or take on at the moment. given the number of staff that we've got, our real constraint with growth is our ability to hire and retain good people. So that's just a nice way of saying that there is plenty of pipeline there as we move into FY '26, very strong order book and a very strong pipeline. From a balance sheet point of view, cash and marketable securities marketable securities. They are in highly liquid investment-grade corporate bonds. We've got $128.3 million at the 30th of June 25 and another significant increase. That's up 30%. And of course, earnings per share up again to $0.255. And moving across to the dividends, the Board have just declared the dividend for of $0.125, and that brings the total dividends in relation to FY '25 to $0.225. And of course, another significant increase up to 32% to the prior corresponding period. Peter?

Thank you, Scott. Had some great numbers there and very -- something we're all very proud of. So this slide just goes to reiterate our continual growth, I guess, over the years. So for 35 years, we've continued to grow in by profitability and revenue. And with only 2 real blips in that being GFC and COVID, which we had strong recoveries from. Moving on to our execution of our 3 growth and diversification pillar. So as I mentioned sort of in the opening, that is across non-office sector expansion, geographic expansion and service offering diversification so the capability side of things. So when we talk about non-office sector expansion, that is not to say that we're going to move away from the commercial office sector. We've got a strong DNA and track record in that area, and we'll continue to have that as a major focus of the business. The diversification pillars enable SHAPE to future-proof our revenue growth, as Scott mentioned earlier, we can only grow as quickly as we can hire and retain great people. But on the back of that, we want to be able to have a diverse work book and diverse pipeline and capability such that we can pivot to follow the money. So if you look at nonoffice sector, we certainly focus there from moving outside of the commercial office sector, which we'll go into a little bit further. You can see the project wins versus the revenue with some good success there. From a geographic point of view, over 173% increase in revenue coming from different geographies that we've opened up in the last sort of financial year, particularly probably the last 6 months as well. and 2 new offices have been added to the portfolio in the second half. Those offices are start-up organic offices. So no real capital injection. It's all about having fantastic people and following clients into different geographic regions. And the last one there, sector service offering diversification. So a big increase in revenue was 66% increase in revenue there, 20% in mine project wins. And you can see there, both revenue and project wins continues to grow from FY '24 and into FY '25. And then again, we'll continue to follow that trajectory. Delving in a little bit deeper into the non-office sector. I'd point out a couple of particular ones there. which is health, education and defense. So typically, whenever we see a downturn in the economy and/or a hiccup or financial instability or uncertainty from a global macroeconomic point of view, the government tend to spend money in health, education and defense. So we're well positioned there. Those numbers will move around a little bit. You can see FY '25, some significant project wins in the education which will flow on to revenue. So we'll see those go up and down across the various years. As we pivot to the most commercially attractive projects. So just because there's a whole heap of work in education doesn't mean we'll continue to focus there if we had other projects in different sectors that had a better commercial profile. The key takeaway there is that we want to be able to choose where we work and the commercial conditions upon which we work. But importantly, each of those sectors continues to grow and continues to avail ourselves to be able to future-proof that revenue growth. On the geographic, I mentioned we opened a couple of new offices there. You'll see both Geelong and Townsville with much smaller pieces of the bar chart, given that they're only sort of 6 months old, starting to see some good success in each of those. Some really good strong growth in Newcastle. Tasmania remaining very stable, but we sort of got a good piece of market share down there, but all cost has mainly in Lancet and in Hobart. From a Gold Coast point of view, you can see there are a drop off in the project wins from FY '24 to FY '25. That doesn't mean that we're going to have less work in the Gold Coast necessarily. The big spike in FY '24 from a project win point of view was a very large commercial fit-out project that we secured for Gold Coast City Council. It's not every day that you get those types of commercial office spaces in the Gold Coast. So you see a bit of a blip there, but it won't be impactful to results. And we continue to secure work in the Gold Coast. We're able to pivot from office into a lot of the hotel work, F&B, that type of stuff as well. So again, it continues to give us a robust footprint on which to be able to pivot to the right projects as we go forward. Finishing off on the last growth pillar there, which is the service offering diversification. So that picks up things like new build modular facade. We talked in those who followed us in the previous financial year around [indiscernible] dropping off a bit -- that was mainly based around commercial conditions. So we knocked back a few projects because we weren't comfortable with the commercial conditions that they came to market with. You can see that's sort of retracted a little bit in FY '25. We're starting to see some more project wins coming through. which will again face through in revenue. New build coming off slightly on a very strong base from FY '25 from a project wins point of view. Again, that comes back to balancing our workbook, which we'll go into a little bit later, but we are somewhat fascinated with our risk profile of having the majority of our work carried out inside spaces i.e., with limited exposure to where their industrial, et cetera, et cetera. So that new build component will stay there. But again, it will be somewhat opportunistic as we follow clients and look for the right commercial conditions. Modular there, you'll see really strong certainly in the last half of 2, some really strong sales on the back of, I think, delivering some fantastic projects around from the modular businesses, continuing to reinforce SHAPE modular as a brand and continuing to develop that pipeline. I will caveat that I would anticipate that modular will be somewhat volatile both from a revenue and a pipeline point of view, as Australia is a less mature market in the modular market. It's getting better every year and every sort of 6 months as the market gets more educated, but we do anticipate that to jump around a little bit. But certainly, we've had some really good strong success in the last 6 months as well, remaining with a good strong pipeline going forward as well. So that will support our growth and diversification into the future. Just on the business model. So I talked a little bit there about our fascination with internal projects. So you'll see 86% of our work is carried out inside of building. The good part about that are very limited extras to weather typically and also limited exposure to other items such as cash or and also a stronger ability to control the safety aspects on site with less, I guess, moving environmental pieces to have to worry that. So we look to continue to maintain that. External may become a bit bigger than 14%, but we're certainly very that exposure. You can see there our new clients, 15% of new clients, 85% of our work is repeat business with clients that have known and trusted us for some time. that high percentage of repeat work is on the back of those trusted relationships, which our amazing teams deliver day in, day out. Again, our clients typically are in ASX 100, 200 and blue-chip companies. So we operate at the top end of town, typically, where the finishes a higher-end finishes, probably more complex and perhaps quicker projects is where SHAPE really sort of thrive in delivering that point of difference. We've talked before also about our ability to win projects through all office sector market conditions. So in a growing market, depending on which you're in, the states are in different cycles. Growing market, we are typically helping clients move into additional space and to expand. In a stable market, we're helping building owners maintain their buildings and keep them up scratch and also look for new end-of-trip facilities and that sort of stuff. In a declining market, we see sub tenancies, we see make goods and we also see normally a significant focus from building an asset owners on repositioning B&C grade assets into way grade assets to attract tenants. So across all levels of the cycle, we have a strong ability to future-proof and protect our revenue growth. On the left-hand side there, you'll see a short duration of projects with 82% completed under a year. That 18% of work over 12 months, that has increased from prior year and certainly from corresponding period or certainly the first half of FY '25. That's not a significant change, whilst the percentage has increased a bit. It's probably more projects going from 12 months to 13 months or 14 months rather than a significant change in the type of work that we're approaching. So we would anticipate that will come back down. Typically, work over 12 months is less 2 of our book, I would anticipate that will normalize over time. And again, because whilst we do 350 projects a year, our average project is $3 million in 16 weeks. So across that diversification, diversity of projects is protect $100,000 to $100 million, but the average project remains there at 16-month piece. Backlog, do you want to talk about it?

Yes, I can work through this. So project wins. So you might recall on the front slide there, we had project wins of $980-odd million. So that's $1.05 billion, that includes our associate DLG shape, we're the capability partner for that work. And the backlog order book $530 million, that includes DLG, whereas the $492 million is shapes component. I guess the key with this is it's just showing the diversity of the backlog, and it's also showing the diversity of the pipeline. So you can see there that office inside of the backlog there only makes up 37%.

Moving forward in the pipeline, it makes up 49%. Historically, that used to be up around 70% or 80%. So as we've continued to diversify our book and protect those revenues so that we can pivot into other sectors depending on how each area is performing at the time. It's just we are able to build and create experience, regimes and all those things that are irrelevant at the time, and it just gives us the ability to undertake additional work and continue to grow that pipeline. So the pipeline has grown from a sector point of view, but also from a geographical point of view and a capability point of view. So I think the key there is really that both those pies have grown, and there is significant diversity to protect our book. Moving on to our capabilities, demonstrated ability to win and execute work across all our regions and our capabilities. So you can see there the split with regions. So New South Wales continuing to be the larger component of that pie. The other piece of the pie move around a little bit. with Victoria coming off from sort of 22% in the prior corresponding year. That's more around a dip in approvals to start and probably perhaps related to local conditions from government point of view and delays there. We've done it. We would anticipate that to flip around over the coming 18 months with a lot of work coming through there. Some really strong performance out of South Australia and Queensland and WA and AT&T in Tasmania, again, continuing to hold their piece of the pie as well. From a revenue point of view, we can see there that 83% of our work is in fit-out and refurbishment. So we continue to have a strong focus there. New build close to 10%, which is similar to what we had last year. Facade had come off in the prior year, which I talked about earlier. And then you can see modular maintaining 3% we'll probably see that come up a little bit over the next 12 months given the strong backlog of sales that we sold in H2 of FY '25. Importantly to note, there's strong tender conversion rates, so 53% by number. So we do a lot of work with Salesforce, our CRM, on not just entering pipeline and works but also in making sure that we've done everything we can to increase our chance of winning it. So we have a [indiscernible] rhythm system in the background that sort of looks at the way we enter 27 questions. around our approach to the sales and marketing of that particular project. And depending on how we answer it, that will give us an opportunity win rate, which is -- just helps to guide where we put our resources and where we focus that investment in our people from a tender point of view. Operational highlights. So there's a lot to talk on this screen, and you all have availability in the deck. So I won't read it the baton but just to pick out a couple of items. So from a TRIFR and LITFR point of view, very importantly, we continue to trend in the right direction. Let me start from the onset of saying there is no level of incident or injury that we find acceptable in our business, and we have a strong desire and building our culture that we want every single person that comes into contact with our sites to leave in a better state than when they came. So whether that's through better learnings or better environment or better safety or bit of physiology, we want to have a positive impact on our stakeholders, our people and our clients. So whilst we are still seeing incidents and injuries, we are pleased that those are continuing to trend down. Recordable injuries decreasing from 28 in the prior corresponding period down to 25. That's driven by a number of things. Obviously, our exposure is actually increased because we're doing more hours but we're still managing to drive those incidents down. Over 57,000 proactive safety, quality and environmental observation observations logged, which is an increase of 10%. And we really have a strong focus on getting our teams and our management out and about on sites leading from the front and identifying issues before they become safety issue. Interestingly, we've come up with a few really good uses of technology using risk management, impartial call out our approach to hazardous materials where we've implemented a new system, which just makes it easier for our teams to get quick access to hazardous material data sheets, just enabling, again, continuing to use technology wherever we can to enhance the safety of those on our sites. From a people and culture, a 7% increase, 686 people. 551 hours were allocated to training. So again, we continue to really focus on hiring the right people, but also continuing to help them develop their careers so that they stay with us. and we can retain those people. Our unplanned churns down under 11%, which is fantastic because we don't hire a fire, we hire, develop people female participation above industry. It's actually up at about 30% now, 29% at the June 30. Continue to focus on not just gender diversity but diversity in general because we find diverse teams are more successful, both from a commercial safety and a client satisfaction outcome. Partnerships, really strong performance through securing that amount of orders with the repeat business, which is fantastic. Net Promoter Score, plus 85, which is again integral to our ability to attract and retain those clients going forward as well through delivering exceptional customer service. And you see they're a really large network of our subcontractors. From an environment environmental point of view, our corporate operations have again maintained climate active certification, and we'll continue to focus on that, delivering 7 Green Star certified projects. We also do a lot of work on trying to both furniture and waste out of landfill. So over 6,000 furniture items are either donated or raised on projects will continue to really drive that because I think the construction industry is still too big a contributor to landfill. And over 1,450 tonnes of waste recycled on our projects, which is fantastic. We have established a new ESG manager role. That's to support state teams going forward. Obviously, there's more reporting requirements coming out for businesses as well. So gearing up for that. and it remains a strong focus of Shape as well. Back to our communities and supporting our teams and our employees in achieving CSG. We've delivered over $1.3 million worth of value in good label services. as we've worked through with our Community+ programs. From a safety point of view, I talked earlier around a lot of those statistics. It's pleasing to see the graphs go down and to the right. As I say, there is no level of incidence that we find acceptable, but we find through not only introducing continued evolution of our safety teams and how we support our site with additional site roles but also in how we support the sites by having management at end site and issuing proactive safety notifications and observations to again lead from the front on all those EHSQ items. Sustainability. I've talked a little bit about that already. So we're preparing for the SHAPE ESG plan developed to help comply with the mandatory reporting coming in For FY '26. So we're well ahead of the curve there. Carbon neutral, our operations remain carbon neutral. And it's interesting there that you can see across all of our projects, a total of kilowatts of energy source from green energy providers, which is fantastic to see. And again, we continue to offset where we can as well. I think we've covered off on the circular economy and the Green Power part there. Just a brief snapshot just to some of our projects. And again, you've got the deck, you can sort of draw back on that. But if you look across the diversity, whether it be refurbishing of hotels across 24 weeks, whether it be refurbishments in Geelong across 12 weeks, 12,000 square meters, modular buildings, project duration of 41 weeks. That includes obviously the manufacturer of the module as well. So just a bit of diversity just to give you a bit of a taste of the type of work that we've completed and/or are completing down to Hobart into Adelaide with some health care. And then in the graph, the other portion of revenue in the graph did include transport, which would bring in projects such as Sydney Airport, busing terminal, where we're still there working for cycle at the moment. Under financial management, which Scott is getting excited about.

Thanks, Peter. So as we mentioned before, we certainly have very strong liquidity. We still pay very much a very high focus on diligent liquidity management. So we are consistent -- constantly chasing up all of our clients to ensure that they pay on time and that we meet all of the prequalifications and external financial assessments to place us in the best position when we're tendering a project to secure that work. We have positioned ourselves in such a way that we have the ability to secure single contracts of $100-plus million projects. As we mentioned before, total cash and marketable securities is $128.3 million. On that slide there, it shows you what the high and the low was, but most importantly, our average position throughout the course of FY '25 was $98.8 million. So the best part of $100 million. Very strong cash conversion. So if you look at your operating cash flows to EBITDA ratio. We're about 160-odd odd percent. That's up a little bit against last year. For those of you that have gone through and have a look at the financial statements there. Operating cash flow this year, $53 million versus $30 million last year. Primarily, that's made up of obviously an increase in EBITDA in this year. but also with the Security of Payment Act that dictate the payment terms in the relevant jurisdictions of which we operate. We had ACT and WA last year, effectively having to make monthly payments rather than the 12%. So they are the 2 key differentials between this year and last year. The graph there on the right, a lot of people on the call have probably seen that before. But for those that are a bit newer to the story, really, that's just showing you a typical monthly cash flow cycle. So where you can see sort of towards the back end of the month, there's a couple of dips there. There's a bigger dip sort of around the 23rd, 24th of the month. Again, these are when the payment runs are made. So ACT, for example, has a 15-day payment term, business day payment terms, New South Wales ACT and WA 25, and then everybody else is paid on the first business day of the month. So you can see we're constantly collecting cash during -- throughout the month from clients, and then there's a few dips there that correspond to the payments. This graph has been put into the deck. Just to illustrate for those people that are new to the story, it's just illustrating how the margin sort of falls out over the life cycle of a project. And again, it's just illustrative purposes. Let's assume that you have a $1 million project, we have an entry margin of 5% and an exit margin of 10%. So what that's saying is when we tender for a project and we go in, we have a starting margin. That's starting margin will generally build over the course of the project. That can happen through trade lettings. So as we work with the subcontractors and we start to pull out the risk and we do some value engineering with the subcontractors. We can extract a little bit more margin out of that. And of course, as the project continues throughout the life cycle. Generally, the clients will want either additional work or changes and that will constitute variations, again, increasing the margin on the project. And then as we tend towards the end of the project. We're closing everything out, removing all of the risk or the contingencies in relation to risk and then we get to where we talk about an exit margin. But what that does is when you're looking at the first half of a project versus the second half of the project, so if you cut the project into 2, we're still doing $500,000 worth of revenue in the first half and $500,000 in the second half. But because the margin is continuing to build, what ends up happening is that particular project would record a margin of 7.5% at the first half and 12.5% at the second half to get a blended margin of 10%. And the reason that we're going through that is because at times, depending on if we have larger projects or the projects are closing out over a particular point in time, that can move the needle a little bit and bias towards a lower or higher gross margin percentage. In saying that though, our margins have been very consistent over FY '24 and FY '25. In fact, they've ticked up just slightly in the back half of FY '25.

Thanks. And just finally to finish off. So we're nearly there, just a bit of outlook and growth. As those who follow us, we don't generally provide sort of outlook, we will own the analysts covering us to make the assessment. And obviously, we're correct if we think incorrect. But -- so as we enter FY '26, I think we're in a really strong position, underpinned by a solid backlog there, $492 million. And again, that pipeline of up over $4 billion worth of work. And that pipeline is actual projects that we know the name of, we know the estimated start date and the estimated sort of value of the work. So it's real projects that if it were to come to market under the right commercial contractual conditions. And we had a team available in the relevant state or geography that we would price that work. So it doesn't include a fuel refinery out of [ Kernel ] or something like that. It only includes the work that we would classify a SHAPE work. So again, looking at non-office sector. So in addition to expanding the commercial office sector, which, again, we will continue to expand. We will continue to grow in those nonoffice sectors. As I mentioned, that will include education, health, hotels, defense, transport. Aged care is a new one for us as well that we're starting to have a look at and community in entertainment and recreation. Macro trends, such as population growth, aging population, the political tensions are expected to drive ongoing investment in these areas. So I think it will position and SHAPE well going forward. From a geographic expansion, the current geographies that we've expanded to, we expanded very quickly across Australia as a private business. And then as a publicly listed business, we've continued that growth. We'll continue to evaluate additional regional locations, but typically, we than population and also our clients. So we'll follow clients in the regions, and we'll continue to look for those opportunities going forward. And then finally, the service offering. So target short duration newbuild projects. So we will do those new build projects typically for key clients that we value them, and they value what we can offer because again, I mentioned before that SHAPE deliver a better value for money where it's at the upper end of the quality spectrum. So highly complex projects that require a lot of a lot of planning and preplanning and supervision is where we sort of can put our talents to the best use. Continue to focus on growth in the modular industry, and as I mentioned, Australia's market for modular is growing day by day, albeit is less mature than perhaps Europe and the U.S. and those sorts of markets, but we'll continue to see growth there, which is very exciting. Design and build, we have introduced that in the past. So we will continue to expand our design and build services. So that is where we're a one-stop shop for our clients. where we can provide, and we use a lot of our design and consultant partners to do so, but provide a one-stop shop for our clients, which is gaining in popularity. We will continue to grow our aftercare and facilities maintenance service. So that's where we will stay behind after we've completed a larger project and provide ongoing maintenance provide care. So when there's churn or changes that are required. Just say sticking with our clients to provide that additional level of customer experience and customer service. And then finally, they actively evaluate M&A opportunities. So we've talked about in the past that M&A will be part of our growth. We've carried out one acquisition in our history. The Board have looked to continually assess the skill set on the Board. And as a part of that, you will have seen the announcement today that we welcome [ Peter Massey ] to the Board. So Peter has got some significant M&A experience, which will add to the existing board capabilities. And we'll also management to another level of support when we're assessing those M&A activities going forward. So we're not sort of ready to talk about a particular deal, so to speak, we are about making sure that we've got the right skill set capability and experience, both in management and on the board in order to be able to ensure that M&A is a part of our growth. strategy going forward. So what's the space on that one. And that was the end of the slide deck. So we can open now for questions, and I'll hand back to you, Mel.

Thanks, Peter. So we've got a few questions through. [Operator Instructions] So on the pipeline, you achieved $800 million in year-on-year growth in FY '25. What is the potential for further growth in FY '26? Would it be similar? And how should we think about traction in the vertical segment expansion?

So with the growth, so you would have -- remember the pipeline there. So the pipeline has grown quite significantly, as you mentioned million year-on-year growth. So really, that does provide opportunity for further growth. Our growth, the speed at which we do grow outside of M&A would be the ability to hire and retain good people because, as Peter talked about, the culture that we have embedded within the business and as we bring in new people to learn and understand the systems, processes and the way that we operate, that requires other people to be showing them those systems, and that means they wouldn't be able to take on necessarily as much if we brought in too many people too quickly. So it certainly provides an opportunity for further growth.

And I think just to add to that, if we look at the pipeline, obviously, in the last 12 months or 18 months, we've had a number of sectors and diversification strategy. So that pipeline today includes Geelong, it includes Townsville, it includes Newcastle include Tasmania, whereas go back 2 years, it didn't include those. So whilst we've had that strong growth in that period, that is also linked to our diversification. So would we anticipate another $800 million year-on-year, not necessarily. However, suffice to say that, that pipeline is in excess of what we could service anyway. So it's not going to be the preventive of growth, as Scott mentioned.

I guess just continuing with the pipeline, Patrick asks, what's the main driver behind the 25% growth?

Yes. So I think that's -- as I sort of mentioned at the end there, there's a couple of things there. One is we've -- as per our 35-year slide graph that we put up, we've continued to grow year-on-year typically. So the country grows, net migration typically increases, et cetera, et cetera, GDP. But certainly, with those diversification, so the expansion both in the sectors because again, go back 2 years, we weren't doing a lot of education work, say, in Victoria, for example. So therefore, because we weren't chasing it, we didn't have that in our pipeline. So now if you look at everywhere where we go to diversify into whether it be sector, geographic capability expansion, that opens up additional pipeline to us. So it's a combination of both general growth in the economy as well as our diversification strategies.

And just talking to the diversification, John's asked, there's been some changes to the team in Victoria. Is the mandate different? Could it get back to 22% total contribution in FY '26?

Yes. I think so -- and the changes in Victoria is mainly GM [ Adam Head ], who has been with us for, I think, 17 years and remains a good friend of the company's. So he will continue to, I guess, do what he does going forward. The team had a meeting very, very mature, very established and have been there for some time. So I don't see too much change in the team, probably the reflection in the revenue dip from 22% down to where it is now, it's probably more a reflection of the local economy and construction starts in Victoria. If we map constructions, nonresidential construction starts as sort of published on Oxford Economics, for example, nonresidential construction starts matches the revenue that we have in Victoria. So commensurate with the activity in saying that going forward, our pipeline for Victoria is much stronger than it was in the last 18 months. So I would anticipate that Victoria will certainly get back to in excess of 20% of the revenue piece of pie again with a caveat of -- as the other states continue to grow as well, it's a bit of a positive fight who's got the bigger piece of the pie.

Pete, just on DLG, how should we think about the DLG earnings contribution going forward? It did have an impact this period and you flagged $200 million of pipeline, the duration profile is the same.

Yes, Mel, it's Scott. I'll jump on that -- so with the DLG earnings, so what John would be referring to there would be that primarily the management fees that are coming through DLG shape, which is our associate. So us being the capability partner and providing effectively all of the back office support there's a management fee that flows through into that. The DLG management fee jumped up quite significantly this year. That was primarily because of the makeup of the project. So historically, we've only done BAU work. There was a large modular project that went through that business that generated a higher management fee that was coming through that line item. Had that job have gone through SHAPE rather than DLG SHAPE, then that would have gone through the gross margin line item rather than the DLG SHAPE management fees. And as far as the type of work that we undertake in DLG. It's probably more of a bias towards defense works. But as far as the duration profiles of that work, fairly similar, again, depending on the size of those jobs, but generally fairly similar. And obviously, still remains a very strong pipeline of work there and because there is a bias towards defense or set aside work. We're starting to see more and more defense works come back on. There was obviously a push away from the jobs in defense that we once did and that all got pushed into August. That's now coming back online, and we're starting to see that pipeline open up and more opportunities in that space.

We also have from [ Abe from Jaws Online ] who would like to add some questions. So I'll just pass to Abe.

Just got a few questions on my end. I guess you mentioned the great performance in regards to EBITDA year-on-year in the accounts, I noticed labor expense was down $2 million in the second half of 2016 versus the first half, but head count was up overall about 6% in the same time period. Do you mind providing some color as to, I guess, how labor expense, I guess, was down? And is that the new base into FY '26?

That moved around a little bit, primarily because it's -- in relation to the provision of bonuses. So there's a bonus scheme amongst every single person within that business, and there's certain gatekeepers that need to be met, and then those gatekeepers apply on a state-by-state or a branch-by-branch basis. And of course, as each branch performed differently across that year, there was effectively a release of some of those provisions in H2 compared with H1 and that's why you're seeing that movement because we generally provide at the start for full bonuses, and then they can move around depending on the performance of each state.

So it's normalized employee expenses, I suppose. Is the first half a better number, that $22 million annualized that will fall into FY '26?

So we've also got to take into the full year effect of new people coming on. So you've seen the headcount, as you mentioned, have gone up 7%, and our head count continues to rise. And so whilst you've got the base there, you've got the effect of continued CPA pressure on wages but also that increase in headcount. So you will see that rise into FY '26. And as I mentioned previously, there is a level of leverage, though. So as we continue to grow the revenues, we don't anticipate that the overhead line items will grow at the same rate.

Yes. I've got another question here. I guess, pretty mitten, I suppose, a proportion of 12 months project in terms of duration jumped quite a bit in the second half of '25, feet triple the numbers versus the first half. You said it was due to the project extensions, not nuance, I guess, taken on higher duration projects. I guess my question is, what is the -- I guess, what's the cause of the extension or engagement of these projects? And if it's due to variations, should we expect a gross margin boost, I suspect, in FY '26?

So I think the way you're talking about this is the 18% above 12 months and I think last time we reported, that would have been 9%. So that's doubled. But see, 12 months is a cutoff point. So we may have had projects in there before that were, say, 11 months and now they've tipped over to 13 months. So for example, we've got -- we had 3 projects that were in Canberra that totaled $27 million. There's been a lot of stop start on that works. So there's been state elections, federal elections. There's been a lot of design changes and the like. So they've been extended out. We've also had a new build project up in Queensland. And again, there's been some pretty horrendous weather up in Queensland and then that has also extended out. So you're seeing that just tip over the 12-month line if we had another line item, I guess, another break in that way and well at 18 months, then that would probably alleviate some of the concerns that you may have there. So there's not a significant change, but it's just that ticking over of from, say, 11 months to 13 months. So there's not a significant change in relation to that. So most of that stuff delays rather than new variations or extensions of work. Part of it is some variations like that Gold Coast City Council that Pete mentioned before, yes, that's a $40-odd million project with some significant variations in relation to that. And so that project obviously pushed out a little bit as well.

Yes. Understood. And I guess lastly for me, I guess, both of you gents have been mentioning about people being constrained regarding how much of that pipeline you guys can chase being an analysts love to find out the potential revenue opportunity, I guess, given the number of people we have on board, is there an average metric I can average revenue per employee going through time. I've noted $1.56 million is the high in the first half of '23. Just curious as to what do you think the upper range is or revenue per employee?