Release Date: February 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Johns Lyng Group Ltd (ASX:JLG, Financial) reported a record BaU financial performance with Group EBITDA of $69.7 million, including IB&RS BaU EBITDA growth of 28.1% to $55 million.
- Group sales revenue for the period was $610.6 million, with earnings per share of $0.0847.
- The company has a strong balance sheet with cash conversion for the period at 95.8% and net assets increased to $460.3 million.
- Johns Lyng Group Ltd (ASX:JLG) extended contracts with Hollard and Suncorp and secured new contract wins with RAA, Safety Culture Care, and Tower Insurance.
- The company has issued an earnings upgrade, forecasting FY '24 revenue at $1.2 billion and EBITDA at $136.4 million, reflecting a 5% increase over previous guidance.
Negative Points
- Cat revenue of $120.4 million was $65.7 million lower than the previous corresponding period.
- The U.S. business saw a sequential margin decline by 1 percentage point due to investments in expansion and startup businesses.
- Commercial Construction segment reported a loss of $6 million in the first half with an additional $1 million loss expected in the second half.
- Revenue in the U.S. market was down year-on-year, with first half '24 revenue at $112 million compared to $114 million in the previous period.
- The company faces regulatory and permitting delays in the U.S., slowing down the start of projects and impacting revenue growth.
Q & A Highlights
Q: In terms of guidance, particularly focused on the BaU side, do you expect any further upside to BaU compared to what you have factored into guidance you handed down today, or is that effectively constrained by capacity?
A: Scott Didier, Group CEO: I don't think there's any capacity issues at all. The upside comes from the new contract wins as outlined. As these new contracts mature, there could be some upside in the back half of the second half and more material in the next financial year.
Q: Can you step through what's changed since you handed down guidance around commercial construction back in FY '23 results?
A: Lindsay Barber, Group COO: We've closed out all but 2 projects. Initially, we thought we may have 3 running through to the end of '24. We've now only got 2 projects, and they're both confirmed to be completed, one in the second half and one possibly into the first part of '25.
Q: Can you explain the sequential step down in the U.S. business margin by 1 percentage point?
A: Scott Didier, Group CEO: The margins are still good in the U.S.A. We probably dropped a point investing in expansion, particularly in the Customer Connect platform.
A: Matthew Lunn, Group CFO: The 10% margin result was foreshadowed at the full year. Temporary suppression is due to startup businesses and underutilization, but margins will expand as these startups break even and start contributing profits.
Q: How much of the first half included substantial government contracts, and how does this impact the current half?
A: Scott Didier, Group CEO: We don't break out government contracts specifically, but there's a component of it. We have significant work-in-hand and volumes are strong, with recent announcements adding to the forecast.
Q: What is the real cat margin, considering the illustrative purposes margin was 11.5% last year and now it's up to 12.9%?
A: Matthew Lunn, Group CFO: The real cat margin is about 12.1%, which is the average IB&RS margin. Cat margins are typically higher due to cat loading and no shared services allocated to cat projects.
Q: How did the essential home services business perform in the half?
A: Matthew Lunn, Group CFO: It's performing in line with expectations. We've owned it for 6 months, and the integration is strong. We're building out additional product lines and are excited about this pillar.
Q: Can you talk through the drivers of the U.S. business revenue being down year-on-year?
A: Scott Didier, Group CEO: A lot of jobs are slower to start due to permits and approvals. However, the pipeline is strong, and with the Allstate contract and new service lines, revenue in the U.S.A. will grow significantly.
Q: How should we think about the revenue for the U.S. business going forward?
A: Matthew Lunn, Group CFO: We're expecting a stronger second half, with a forecast of about $247 million for FY '24, consistent with FY '23. The Allstate contract and other initiatives will drive future growth.
Q: Is the working capital build a leading indicator of revenue growth and work coming through?
A: Matthew Lunn, Group CFO: Yes, typically increasing working capital aligns with increasing pipeline and revenue. However, the commercial construction business has negative working capital, which will normalize once it's fully wound up.
Q: Are there any differences in the working capital cycles between the U.S. and Australian markets?
A: Matthew Lunn, Group CFO: The working capital cycles are very similar between the U.S. and Australian markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
