Shine Justice Ltd (SHJ) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today. My name is Allen Chan from Bridge Street Capital. And today, we have Shine Justice to deliver their FY 2025 full year results. Today, we have Simon Morrison, who is the MD; Carolyn Barker, who is the CEO; and Marc Devine, CFO. This is being recorded, and we'll also have a Q&A session after the presentation. So, if you can enter your questions at the end. Simon, thank you, and over to you.

Thank you, Allen, and good morning, everyone. Welcome to the FY '25 results presentation for Shine Justice. May I start by introducing our team. Firstly, Carolyn Barker, our CEO at Shine. Carolyn has a long association with the company. She was one of the first directors back when we were a private company in 2009. She was the only director to then move into the listed environment for Shine, got off our Board about 5 years ago, has done various project work since then for Shine, moved into a Chief of Staff role and then about 6 months ago, took the CEO role and has been very busy. I'll talk about that in a moment. Very experienced CEO. She's been the CEO in listed environments. She's a former CEO of the Australian Institute of Management. So, comes very well credentialed. Marc Devine, our CFO, has just celebrated 1-year anniversary at Shine. Marc has had very senior roles in health care services and more recently, CFO for more than 8 years at Alliance Airlines, again, very well credentialed. John George, our Head of Investor Relations. John is a former Director of Shine, Company Secretary of Shine. He is a consultant to private businesses these days, a former ASIC senior personnel. So good to have John with us. I'm the MD of the company. I've been with Shine 37 years. Since Carolyn's appointment, that's freed me up to spend a fair bit of time on our international mass torts strategies, which we will cover in some detail as well in the presentation today. So, if we can move to Slide 4. Firstly, there are 3 themes I just want to lay out for what we've been up to in the last 12 months. And the first theme is there's been a lot of work done to tighten, strengthen and clean up our personal injury practice and our class action practice in Australia. Carolyn has led much of that work, and she will go into some detail about that. Secondly, we have been very busy accelerating our international mass torts strategy. We've touched on it in prior presentations, but we've had a very active year, and we'll let you know what we've been doing there. And thirdly, we have made a commitment to a significant investment in emerging technologies in FY '26. Carolyn has led a team that has prepared us for the role of emerging tech in a litigation law firm, and I think there are some exciting opportunities ahead. I'll start with some headline numbers. It was a year of strategic organizational restructure for the company, and I'm very pleased at the significant work that both Carolyn and Marc have led through that process. Notwithstanding all of that, our revenues were up in FY '25, $204.4 million on a PCP of $195.7 million. Our adjusted EBITDA was down on PCP at $38.4 million versus $45 million, but a significant portion of that delta was the strengthening of our balance sheet with some increased provisions, which Marc can talk to in a moment. Our adjusted NPAT followed those numbers, and we were pleased to declare a final dividend of $0.035 fully franked indicating our great confidence in our cash position moving forward as a company. Operating cash flows were $30.6 million down on PCP, largely because of some one-off injections of cash in the prior year of some class actions. So, in summary, some initiatives that went on during the year. We restructured the team. I've introduced our new CEO and CFO, who are doing tremendous work. Carolyn has been very busy on the process side inside both the legal and business support arms at Shine, which she will talk to us about. We've talked previously about exiting noncore practice areas at Shine so that we can focus on the 2 areas of work that we know well and can scale up. We've been very busy on the international mass sports front with our hub in the United States, which we'll talk to a bit later. Carolyn will speak to us about some groundwork that has been done to grow organically, a number of our branches across the Australian network. She'll also speak to some of the emerging tech work that we've done. Let's move to Slide 5, and I'll just touch on some highlights that we've been focusing on around how we position Shine competitively and to get strategic advantage. We remain the largest personal injury firm in the country, which is a good opportunity for us to platform from. We still have the largest footprint across the country with 46 offices and just under 1,000 staff. We have zeroed in on the 2 core parts of the business being personal injury and class actions, and we have accelerated our work in international mass torts. The industry is still ripe for consolidation, notwithstanding that we are the largest player in Australia, some 75% of the market is still occupied by boutiques. Carolyn and her team have been doing some very good work in '25 to position us to infiltrate that part of the market. And then finally, a lot of work has been done behind the scenes, particularly with international funders to develop a superior funding opportunity for Shine to fuel our class actions and international mass tort cases. Three pillars that we've sort of anchored our work on. One is our efficiency and technology work. Second is our people. It remains very competitive in the legal industry. Salaries remain high, and there is a war for talent. One program I do want to call out that is working very well for Shine is what we call our Alumni program, where people who have left Shine over the years are coming back to the organization, and we track those numbers and the growth of people coming back who previously worked with Shine is really encouraging. And then finally, there have been strategies to develop our market share growth. Let's move to Slide 6 and a little bit about our vision beyond '26 and beyond. So, the first is fortifying our foundations or I use the frame, get the base right. And the base of our business is the Australian PI and class action practices and putting them in the type of shape we need to consistently deliver good earnings and cash for the company, and Carolyn will walk us through that. The second is realignment to market needs. So, our customer needs are changing, how we engage with our customers, how we source our customers is a moving target and a fair bit of work has been done to understand that changing market so that we can capitalize on it. And the final, of course, is to accelerate our growth strategies. Shine was listed as a growth company. We have significant growth opportunities ahead of us that we have been quietly planning. On that note, I'll hand to Carolyn to walk through the personal injury and class action business. Carolyn?

Thanks very much, Simon. Our mantra is that we are a personal injuries and class action business. After exiting and divesting a number of business units in family state law land, commercial litigation over the last 2 years, we've now settled into the rhythm of personal injury, class action. An extension of that is international mass torts, which Simon will talk about further into the presentation. On the PI side, this is a deep Shine DNA and we all started here in Queensland. We now have a national footprint through acquisition in Western Australia, now fully back-end integrated through New South Wales and Victoria and a new office in Adelaide, we moved from primarily detaining matters into a AI office in downtown Adelaide. So we have 46 offices around the country and these are the backbone and the heartbeat of what we do day to day. We follow a very informed process of embedded case management processes. We want to ensure the best outcome for our clients and consistency in doing so. So as Simon said earlier, we are the #1 personal injury firm in Australia. We know that the growth can come from 2 areas as the segment of business stand. One is that our footprint grows organically that is via our community interface that is via our advertising and promotions, that's via our call center taking inquiries to the branches. And a lot of work has been done on allowing us to do that through our customer intake systems, we'll talk about that a little bit later. However, another area of growth is to look at the roughly 70% of the market that is populated by smaller players, boutique firms often in the backyard of our regional and rural and suburban environments. So we are looking at strategic acquisitions in terms of file acquisitions and where very attractive business acquisition opportunities come our way, of course, is always on the table. On the slide here, you can see that we're looking at organic growth being achieved, which I just mentioned earlier by looking at the recoverability for our legal work making sure that we hit budget and better. Obviously, that is a very key metric for us. Our fee earner utilization, we've been doing a lot of work on ensuring that fee earners are utilized in the best way and deliver best for the client, for the business and for themselves throughout all of our programs to -- that underpin that. New file intake is incredibly important for us as is the quality of those files. And after a very significant restructure that we did mention at the half in our customer services team fueled by sales force and some front-end AI capabilities about to be launched very soon into our offerings. We are concentrating on that particular. Obviously, we're looking at as a result of all of that, our revenue and our market share growth. So the outcome, as we've said here is that we want to run a sustainable network KPI driven by operational efficiency. This is something that's very important to us. Just want to mention here our Victorian operations. We've been in Victoria 20 years. We started in Victoria by acquisition. And we have an extensive network there of regional offices, very important that we have that reach in that particular state. Victoria now is being looked after by COO, Jodie Willey, who has a very, very well experienced, well-known player in the personal injury market and she is working with the people there, our people there to ensure that we continue to turn around the Victorian operation and to embed ourselves there in a more productive way. So, our broad base of portfolio through all of that covers just for the sake of saying the obvious, motor vehicle accidents, workplace injuries, public liability, medical negligence, disability claims, abuse and dust diseases. So I've already talked about on the right-hand side of the slide, strategic acquisitions and talked about why that is important to us as well because we want to manage the velocity, which is basically the payback period. So we will do that by really looking at those acquisitions and getting good quality files in. Digital innovation, we've touched on and we will talk later on this slide about that and our emerging technology center. And talked about talent development is the that's one side of the coin and the joy, the other side of the coin of running an organization such as this. And we have spent a lot of time and effort and understanding to see how we can be not just the old phrase of attracting to the market the best talent, getting the best talent out there, but how we can absolutely keep our people pay them appropriately and make them stick. Simon did mention our Alumni program in the last 5 years because we measure this, we measure everything at [ chance ] , we think that we have had nearly 8%, 8.5% people returning to us. That is a very significant statistic in relation to the general environment. Moving on to class actions. Primarily before we get to IMT, International Mass Torts to this slide from a primarily domestic class actions perspective. We briefed the market before on our class action business. Just to update you, we have 59 files action 29 cases in the investigation phase, so the -- talk of what class actions will have laid the forecast and have clients and we investigate how this might be undertaken, we then fund and then after that successfully has occurred, we went to an action on behalf of us. You can see here the very interesting sort of wheel there, colorful wheel about the type of showing the type of class actions that we play in, the type of fields that we play in consumer, financial services, medical product liability, which is an important one for us. First Nations and social justice a lot of successful outcomes there and also a lot of dialogue about those outcomes. And we talk about those landmark wins over on the right-hand side of the page. Shareholder and environmental. So, we have a deep, deep DNA about social justice, who we are and why we do -- the things we do at Shine, pre listing, free listing, up listing right now. And so it's really important to us that we can use our methodologies, I call it that in order that we focus on some social justice cases and classes. And certainly those landmark wins in the Northern Territory has been has got $202 million settlement for indigenous workers and also the WA total wages in $180 million for indigenous workers. I'm going to stop there, Simon, and over to you.

Thanks, Carolyn. Let's move to Slide 11, talk a little bit about the International Mass Tort practice in some more detail than we previously reported. So, the appointment of Carolyn as CEO role has freed me up to spend much more time in the last year accelerating this strategy forward. And so I just want to share with you what we've been up to and why. So firstly, International Mass Torts are typically very large class actions that can be run in multiple countries against the same company for the same role. And most of those companies are large multinational U.S. corporations. We have run mass tort litigation in Australia as class actions for over a decade. We have now commenced in New Zealand running class actions, and we are looking to other territories where we can effectively run the one case in multiple countries. Shine is an early adopter to this strategy. There are a couple of U.S. and U.K. law firms that are in the same phase, I guess, of development, but we've taken that decision to be an early adopter. The second part of it is that scalability opportunities of these cases provide significant forward growth revenue opportunities for the company, which is a key cornerstone to the strategy. Implicit in that is litigation funding at significant scale so that we can remove risk and improve cash flows, and I'll come to the funding side a bit shortly. And then the third piece to the strategy is to work with the best lawyers around the world. So we've spent a lot of time in the United States developing working relationships with the best of the best in that country, and I'm pleased that we've got some of the best on board working with Shine. Let's move to Slide 12, and I just want to unpack our litigation funding strategies at Shine. So in addition to our current litigation funding we have on domestic class actions, which are typically structured in what we call a silo environment, which means we have a bespoke piece of funding for a bespoke piece of litigation. We have been in a very mature dialogue with very large international funders, predominantly United States-based who have the balance sheets and the investment capability to provide us what we call portfolio funding, where in one transaction, we can be funded for multiple cases at once. The reasons we're moving into the strategy, firstly, the cash flow predictability for those who followed Shine will come as no surprise that this will be a big change to our cash flows moving forward. Secondly, the earnings volatility that we've seen over the years with funding of cases and the timing of cases will change. So, we will smooth out the volatility we've seen in the past. And the third, and I think one of the most important elements to the funding strategy is capacity. When we were a self-funder of class actions, our constraint was financial capacity. Our balance sheet just wasn't geared to support the high volume of cases that we're currently in a good position to be able to run. Having a portfolio funding structure behind us changes that capacity very quickly for the company. If we move to Slide 13, we'll just talk a little bit about what we've been doing. So firstly, we currently operate in Australia and New Zealand on the class action front. And the IMT cases that we are developing out of the United States are fed into those 2 countries to litigate the cases. As I touched on earlier, we are looking at other opportunities very carefully at the moment about what other jurisdictions we could feed class actions into. The cornerstone of the strategy is to develop a base in the United States, which we have done. We have secured an operating license in the state of Arizona, which permits us to practice law in the United States and move the strategy forward. And thirdly, as I said, we have developed partnerships with the U.S. leading plaintiff law firms who are working in collaboration with us. I'll now leave to Carolyn to talk a little bit about emerging tech.

So, actually covered this pretty much, everybody is talking about AI and how it's going to affect business. The time we connected achieving strategy what we call an emerging technology center. That is where we can talk and test out the AI and other systems that take a different approach, technological approach to the way we do business and we are using proof of concept methodology to do that. Reason, we are annexing to prescribe AI class actions is very business studies driven by systems and while not complex vast and we want to ensure that we understand the impact on this technology as it is emerging quickly and over time. So, the emerging technology center is run out of our under by [indiscernible] as Simon has said, and we have a lot of really smart people that we have at Shine and refocus them and brought into Shine. That is going to roll through 2026. And we will see -- I imagine when we get to '27, we will see benefits in '26, but we will see how we've hard hit in the next 2 years. When we talk about Salesforce, we mentioned it before. It's our new marketing system and it is fully embedded now. Salesforce does have some -- we have created a number of AI agents that will be utilized through the salesforce mechanism. And those are in the process of testing and will go live soon. That will further enhance the quality flow and activity around our inquiry in edge flows, credibly important especially in AI, but also for class actions in the ability so that we can handle the incoming, which can be tens of thousands and hundreds of thousands depending on the class action. So that has been a key thing which comes with market activity and that has occurred. It is now going to flow through in '26 and of course, '27. We also have done a lot of work on our advanced analytics so that we are done which either, but we wanted to be able to manage the company in terms of the outcomes and the needs and the implications on both happen direct and which be applied. And we now have a meaningful, what's head them, basically even more meaningful dashboards providing us the insights and analysis for our legal leaders, particularly on a daily basis and an hourly basis if they want to get specific reports. So, basically what we're talking about in terms of our technology is not a big bang large installation revolution. We are talking about a proof of concept methodology, clearly project management, clearly targeted at the elements of our business that can make the most impact. So, I think that's all to say there, Simon.

Thanks, Carolyn. We'll now pass to Marc through capital management and results.

Good morning, everyone. Just correct on nearly another month we got, let me have that so very quickly [indiscernible]. Obviously a big focus in the past 12 months, both on the pure capital side, but also on our debt structures and borrowings and how best to structure those both in the short term and the longer term. So, I'll touch on the one that is pleasing I think for all of us is the dividends for the year. So at the half, we declared and paid $0.015 dividend. And then for the full year dividend, we will pay another $0.035. So, $0.05 fully franked dividend, which represents the stability of the cash flow. There still were some lumpiness in cash during the year, mainly result of those class action settlements that we get the timing of those. But it's good to say the cash flow supported the payment of that $0.05 dividend. At the same time, we did have a share buyback program running, and it will continue to run till mid- September when the Board will then review further future programs. We bought up to 2% of the shareholder shares back, managed as best we could, I guess, with some of that lumpiness of the cash flows over the past 12 months as well. And obviously, probably the piece I'm pleased with is the debt structure. So, we refinanced majority of debt with the Commonwealth Bank, extended the tenure 3 years, we sort of lock and load for 3 years. We also moved some disbursement debt that we had with one of our funders into the CBA, which gave us quite a significant interest rate savings. So, some of that was in FY '25. We'll get the full year impact of that on FY '26. And I guess just overall, just to want to make sure the capital structure we have the debt structure we have supports the business as it is now, but also as it is and how we think the future, so we've tried to get efficient and load for 3 years. And the idea now is we continue to focus on that capital management side shareholder value. Moving to the next slide. This is a summary of the debt position, probably the first [Technical Difficulty] the $53.6 million net debt number, I think last year was $21 million. That's been impacted by us moving $18.8 million across from -- I think into borrowings. So it has increased the net debt hasn't moved the liability, the balance sheet just shifted from one market to another. But as I mentioned, quite a significant interest rate saving, which flow through below the EBITDA line. Gross borrowings $71.6 million, we still got a fair amount of headroom there, and we're comfortable with that level for now. As I said, reduction of interest expense come with that $18.8 million now become borrowings. Average cost of debt around 7%. Obviously, we've had a couple of rate reductions through the year. Historically, Shine hedging in place. I think the last one came off towards the end of last financial year or early this financial year. We will look at what we do with a hedging perspective moving forward. But at the moment, there is no hedge in place something we don't look at in the future. And just also the CapEx is $2.3 million lower than previous years. I guess a lot of the projects that have been underway over the last couple of years have also finalized now. So, we don't expect any major or any material increase to the CapEx number probably be around that mark again for the current view. So, maybe just a summary of the financials. This slide, earlier, revenue was up $204 million. Now included in that revenue growth number was an increase in the constraint that we carry with. So, I think the constraint over the period increased by 3.1%, which equates to around $14 million. And I guess that was included in the current year just to give us a bit more balance sheet strength and, I guess, conservatism in some ways around that constraint number, but we think it's at the right level now. And as recovery improves over time, hopefully we constrain percentage down, which will obviously have a massive effect on the P&L. So, everything we talk about efficiency and focus is all trying to get the recovery higher than the constraint level. The adjusted EBITDA number, the only thing we adjusted out this year was the fair value loss on consideration, which you'll see at the bottom of that table, $9.6 million. So, when you look at the -- sorry, the $38.4 million to $45 million, the majority of that delta is that increase in the constraint. You can also see that the employee expenses are up by $3.7 million, which is basically the CPI movement increase in salaries. We do have less staff than what we had the previous year. So that's a good sign heading into some expense. Overheads in the same vein, only up by $1.2 million, which again, a focus of ours that we don't increase our overhead cost base. We wanted to sort of stay pretty stable whilst increase the revenue. I guess just a general, we ranked obviously in capital to class actions probably in future as well as in company growth in the current year. Moving to the cash flow, just a couple of cash flow suites, cash flow is lower in the current year and as Simon mentioned earlier, that's related to some major class action lumpsum receipts that we received in '24 that were repeated in '25. Obviously, in the future with portfolio funding and getting out class action cases funded to smooth out cash flow amount to be lumpy we'll see coming in at more with the cash flow as we move through the year. And just as well as pretty well stable some of the expenses and fully that [indiscernible] repaid $3.9 million in FY '25, which related to FY '24 tax obligations being in tax payable position for the foreseeable future. We've also paid $2.3 million for FY '25. So, there's a big delta there last year and current year. Financing cash outflows, there's an internal movement there from borrowings towards earlier the net cash outflows from investing activities terms could be low, because it's -- the reason behind that is we did spend some money on CapEx, but we also from a previous fall out trends around which we received funds and also the money received fall out actually offset the amount of CapEx that we spent. So, I think that's coming to an end, so that will be the last time you see that as a low or 0 number. Just turning to the balance sheet. Again, a couple of major callouts there. Cash is also reduced in the period in the main. Again, we've invested a lot of money in class action investigations, which haven't yet filed or funded. So, we're sort of carrying that cash on our balance sheet. We hope to get those funded and we'll get cash back in for those. The financial -- sorry, financial assets fair value that takes into account the write-down asset we had from a previous sale of the business, we still are looking to recover those funds, look for throughout we think we might recover we can -- brought back as noted and just on the liability side probably that maybe have been called out you could see us fund the year just as for creditors and the borrowings which is just $18.8 million come out of disbursement credits and borrowings, but otherwise fairly sort of stable balance sheet. And I think we've got the structure now and just as long as we got a platform for growth that's what we want to see in the future.

Thanks, Marc. We'll move to Slide 23, the outlook for FY '26 and I'm going to finish where we started the presentation, which is you will have heard that the lion's share of FY '25 activity was to lay those foundations in the core part of the business and accelerate the strategies for the next half of growth in the business. A significant part of that with the leadership changes that have gone on in the business in the last year. So, the appointment of Carolyn and Marc that I spoke to, me moving more of my time into the IMT work. Our COO, Jodie Willey, was honored to run the Victorian business to improve that efficiency faster. Our Chief Legal Officer, Lisa Flynn, was responsible for much of the structural work that went on in the PI business and class action business in '25. So, the key strategies for the next year, we want to move to the next phase of that structural alignment that Lisa was working on. The emerging tech opportunities that Carolyn spoke to, we will see that investment occur in FY '26, and we expect good returns from that. We have been able to reallocate a lot of our resourcing to focus more on just the PI and class action businesses, and we expect to see gains from that. We saw some great late signs in FY '25 on the fee recovery front, which we expect will flow through to '26. We will move to the next phase of the international mass torts strategy, and you will see some significantly larger cases out of the U.S. filed into Australia in FY '26. And finally, we are at quite a mature stage in our negotiations with international funders. So, we expect to see that come online during the course of the '26 year. So, to round that out, we -- the year for us is to execute on the '26 growth plan, expanding opportunities in those 2 significant parts of our business, the personal injury and class action. So, that concludes the formal presentation. Carolyn, Marc and I are happy to take questions.

Fantastic. Thank you, Simon, Carolyn and Marc. First question, how are the new marketing and conversion systems performing in the PI business? Has this had much of an impact in the second half?

Thank you, Allen. Thank you, Daniel, for asking the question. I think I did cover it by talking about those new marketing and conversion systems. And then Simon mentioned this in closing, too, that is our second half quarter uplift in '25 is a result of those expense gaining through this, fully embedded, it is we have a full proof of concept methodology through our emerging technologies center how the AI agents can be most productively and authentically use at the front end of the incoming on those systems. And as I said previously, they will be released during this period FY '26. So, we've talked before about Salesforce. We've talked about embedding, it is done, and we are now fine-tuning it and developing better quality inflow and a better front-end relationship with the clients face.

This one is again for you probably. The PI segment has reported a steady revenue of $80 million to $85 million over the past 4 halves, the combination of office footprint additions, targeted fee utilization improvements, improved new tech and conversion rates with new Salesforce platforms, essential strategic acquisitions that can file the business. What sort of revenue growth are you targeting in AI FY '26?

I'll take that one. Obviously, we are targeting growth. I think some of those things that we have spoken about as example file acquisitions, some of the office footprint changes we're doing that probably weighted more towards the second half of the year. It takes time to get the files and get them going. So, there will be growth. And probably in addition to that, the recovery aspect, which I touched on earlier, some of the more I'll call it low-hanging fruit that's a hard to reach. But it's probably more of an impact in some cases to get the recovery rate up. And then in addition to those things, we do expect the revenue growth. I'm not going to go into exact numbers for you at this stage. But we've laid the foundation they are all the things we're targeting along with that recovery rate. We should see a quite good growth in '26 and beyond.

EBITDA margins rebounded to over 20% in the second half. You previously stated that the target EBITDA margin range for PI is 2025. Is this still the case? And can we expect further improvement in FY '26 given the work completed during FY '25?

Yes. Probably the mirror answer of my last comment, we've taken the additional provisioning in FY '25. We've laid the foundation for all those improvements with offices and [ field ] utilization and new file intakes, file acquisition strategy and then again, the recovery rate. So I think 20% I'd call it the baseline and we can only grow from there ideally into 25%. Hopefully, we can get up to 30% at onetime in the future, but all those strategies have to come off flat to a curve.

On class actions, the segment reported very strong revenue growth over 20% FY '25 with strong pipeline of cases in the investigation phase in FY '25, how should we expect revenue growth to evolve in FY '26 in this segment?

Yes. So with class actions, I think we've been pretty open at the half and probably before that. A lot of the key to the class action revenue recognition is around having cases funded, filed, laid out [ for, get ] signed up and a whole range of -- obviously, we've got to tick before we can actually recognize the revenue. The key to all of that is the funding in the -- I don't think once you secure the funding, everything else just falls in place. So obviously, we got [ still a lot of ] investigations that we're working now where they've got matters out to funders that takes time. There's sometimes the sense of urgency we've got match with what someone else has on the funding side. So the key to it is getting the funding in place. If some of the things that Simon is working on from a portfolio funding perspective come into play, that will be a real game changer for the class actions segment that allow us to run investigations, have the funding there to basically file and push into the action immediately. So there will be revenue growth when the funding is locked in, that will increase again. So we're obviously working on now, probably again weighted more towards the second half than the first. But we do see that growth in class actions as and when that funding is coming.

Next question. There is a $4 million of revenue relating to insurance services in the class action segment note. What does this relate to? And is it recurring?

Very good question. And I'll start the answer with if you'd like to read AASB 17 insurance contracts that will put you to sleep even early in the morning. The reason there's an insurance revenue amount noted is that where we are indemnity -- or where we are carrying the indemnity for cost, under the standards, it's classified as insurance contract and we need to recognize both insurance revenue and insurance expense. So the outcome for the P&L and the balance sheet is a zero-sum game. However, we do have to recognize a portion of those class action matters where we've got the cost issue or cost of indemnity, we've got to recognize those insurance contracts. We're actually trying to talk to the auditors to see if there's a way that -- it's basic for an insurance company, which we are not. So we're going to try and talk to the auditors to see if there's a way that we can actually tackle it, so we don't have to record it as such. Purely it's just the movement from legal work revenue to insurance. So it's not -- there is nothing else about that.

Just a question on head count, we talk to not having PTF staffs at in year, do you expect that will almost go down in FY '26?

We expect them to go down as we get more utilization from our fee earners and as of course, AI just start kicking in through our emerging technology centers and also some of the other work that we are doing on the applications that will help that. So, we don't expect it to go much.

A question from [ Sherly ]. Can you please go, what detail around recovery rate and the constraint rate, which greatly impacted the P&L and how we are currently tracking on these metrics objective? And what is your path to growing on these, do you have lot of as you can go on and [indiscernible].

Yes. So, when you talk about recovery rate, I guess the starting point of an endpoint being the recovery rate is as Carolyn mentioned earlier, the file intake. So, there's been a really big focus on what files we're bringing in, what files we know, the quality of file I guess some and the quality of the work so and so fall in take making sure we bring the right files, moving outcomes ourselves and obviously, important client. Those files are runs done in the processes of a legal mine to actually run those files efficiently and effectively. How those files are settled, how the negotiations with the defendant sort of come into play as well. So, it's a lot of different things that go into trying to uplift that recovery, but it all starts at the beginning being the file intake.

A couple of them actually and also regards to the legal fees, any update on that and basically has shown what invaded that situation?

So the update is the application work is still pending and it's been slower than we expected in '25, but we will certainly report back to the market on developments, but now Shine has not abandoned it.

Is there any potential regulatory changes on the horizon that could have an impact positively or negatively on the business, particularly in your core market in Queensland?

So, there are no positive regulatory changes that I'm aware of. We don't see them very often, but they come along every now and again. There are no negative ones that I'm aware of. Actually, there is one reform that is being sought in Queensland at the moment, which is largely neutral to Shine, and that is in the CTP space, one of the larger insurers in the CTP market in Queensland is seeking a form of equalization on premium from the government in respect to the insurance of older vehicles. But as I said, that's neutral to Shine.

Thank you, Simon. And I think we've covered most of the questions here. If there's any final questions, please enter them now and I'll address. Otherwise, we can back to Simon for closing remarks.

Thanks, Allen. Thank you all, and we look forward to talking to people on the road show. Thanks very much.

Fantastic. Thank you again, Simon and yes, speak soon.