Company Interview / Johns Lyng building on its growth strategy

Nick Carnell from Johns Lyng Group (ASX: JLG) confirms that the group achieved a record performance with a 9.7% increase from the last financial year, with one of the key factors being the performance of their US business. He admits that there is a challenging macroeconomic environment currently and that the year marked an inflection point for growth in the US. However, he insists they've seen recovery despite some challenges, these being mostly focused on job delivery. He also asserts that economic cycles and interest rates don't strongly affect their trades.

Regarding their strata services division, Nick claims to have made a couple of important acquisitions, one of them being a Brisbane based strata management company called SCB, increasing their entire lots under management to about 145,000. This makes them the second largest player in the space. He discusses their continuous plan to increase their portfolio size, and provide more services, with their underlying revenue coming from their substantial client base.

In terms of their disaster management, Nick says they focus on supporting communities, especially during natural disasters. The firm plans to continue expanding geographically to be of assistance during such occurrences. He confirms their balance sheet and relational position is in a good state, allowing them to respond to M&A. On dividends and shareholder growth, he indicates their future goals to slowly increase dividends while focusing on acquisition opportunities. He commits to focusing on growth and controlling what is controllable despite recent negative reactions in the market.

Full unedited transcript below:

0:00

I think some of the highlights for the year was the fact that the group delivered a record, um, EBITDA and a record by year performance, uh, 9.7% increase on last financial year. Um, some of those contributors were ramping of new contracts here in Australia. But I guess in particularly pleasing was the performance of our US business. We guided the market to, uh, a result of 247 million and we outperform that, um, to the degree of 250 million, which is, I guess, a factor of the organic rollout strategy that we've spoken a little bit about. Um, it's a delivery of our full service model in the US. Um, and it's been a big focus of the market. So really pleased with how the US has performed. It is, though, a challenging macroeconomic environment. And you did point to the fact that the year marked an inflection point for growth in the US. How are you just faring amidst the economic cycle as we kick start full year 25? Yeah, I think if we're talking about the US in particular, um, we saw a first our first second half result at

0:59

22% increase. Um, we made some changes from a leadership perspective in the US, which had a media impact, and some of the challenges we face in the US was around job delivery at the beginning, in particular of getting jobs started. And we've seen that ease. Um, now, whether that's got anything to do with the economic cycles or trade availability, um, we don't think so. And I was fully in our control and we've seen that recovery. Um, you know, for us, from a domestic perspective here in Australia, um, trades in particular, I've never been a real issue for us. And I think the nature of our contracts in particular from an insurance perspective, um, a lot of the work we do is cost plus, um, and from a strata management perspective, um, we obviously pay ourselves first. So the economic cycles and interest rates don't really affect us. And I think that's part of the defensive thesis that, uh, that investors have enjoyed over the last couple of years. When you talk about your strata services division, a couple of acquisitions in the year. Tell us about those and I guess plans for further growth.

1:56

Yeah, we said this is a really exciting space to, um, continue to consolidate. Uh, we completed two in FY 20:04 a.m. strata. Um, and your local strata. Um, both of those contributed about 7000 lots under management. And in the first couple of weeks of FY 25 were announced, um, that we're taking 100% equity interest in a Brisbane based strata management company called SCB. So it'll take our entire lots under management to about 145,000. Um, so we're now the second largest player in the space. And I guess the opportunity we continue to see there is that both it's very fragmented. Um, so there's opportunity, um, to, to continue almost like a bio M&A strategy, if you like, but also to continue to provide services to that, um, to that portfolio of assets. We manage just over 4800 buildings now. Um, so we're looking to continue to increase that portfolio size and continue looking for opportunities for, uh, for services to, to, um, to form trades and services and repairs and maintenance inside that portfolio.

2:56

A lot of your underlying revenue coming, though, from your blue chip client base. Just tell us a little bit more about the forecast for Kat for full year 25.

3:06

Yeah, we've taken the same approach as we've always take around our forecast for Cat. Now we're guiding the market to 51.1 million of Cat revenue, um, in FY 25. Um, yeah, that's that's contracted work in hand. It's the same method we've always used. We don't forecast for any future weather events. That's work that we've we've got locked in and signed contracts for here and now upon the release of these results. So really that's a flaw. Um, our expectation is that we'll continue to see that rise. And you're looking back over time. We've we've continuously, um, well, outperformed our Cat forecast. Um, we've obviously got a backlog of quoted work from a catastrophe perspective that will look to get answers on over the coming weeks and months, and there's still a lot of recovery work that needs to occur in particular parts of the country, in the Northern Rivers, but also after Hurricane Ian in Florida that, um, caused mass devastation, um, to the degree of some 119 billion as some of the reported numbers. So that'll that'll continue over a number of years, which will continue to deliver. Well, let's talk about your disaster management because you talk

4:06

about the hurricane there. But also it is a country here in Australia, with natural disasters expecting to occur more regularly. How are you positioned to, I guess, hedge against this?

4:17

Well, I guess for us it's not so much about, um, you know, what perhaps might happen. We can't forecast that. What we can control is, is how we continue to support communities from a bow perspective. Um, for us over the last 15 years, it's about getting into more regional communities and providing a really stable value business in those areas. For us, it is about, um, having local trades and services that we can continue to feed with volume that in times of those natural disasters, unfortunately, when they do occur that we can we can rely upon to recover those communities very quickly. It's important part for government. Um, they want to see that funds from a federal and state government perspective are reinvested in the communities that are affected. I think my best place to do that, we've seen over the last couple of years, we've we've completed works across five major government contracts in four states. And really, the ability for us to have that funding redeployed into trades and services in those local communities is a really important factor. So for us, what we can control is, is continuing to expand geographically. So when

5:16

these storms and large natural disasters do occur, we're already in these areas before they do. Now you talked about the potential for further M&A. If it if it meets your strategy, what's your cash balance or your balance sheet looking like?

5:31

Yeah, the balance sheet and relational position. We closed the year with net cash of about 21 million and revolving credit facility of about 80 million. Um, so again, the balance sheet is in a really strong position. Um, we're ready to respond to M&A. We've got a couple of things we've been working on for for a little while now. So, you know, I think we're really, really strong position. We look forward to coming back to the market with hopefully some announcements over the next couple of months. When it comes to your dividend payment, 54% of an Pat, I believe attributable to what you earned, what sort of I guess, future growth you're expecting for shareholders?

6:02

Well, I think we've just we've again, um, you know, four and a half cents in the second half, the same as the first half. I think we'll continue to see that salary increase. But at the same time, we want to make sure that we're, um, preserving enough, uh, for some of the acquisition opportunities. Um, you know, I think people see this as a growth stock, not a yield stock. So we're just going to just continue to manage that. Um, so I think, you know, we'll continue to see and we want to continue to increase the dividend. Um, but it will be on a, on a half or half basis on how we can best use that, that capital on, on how we can deploy it. And given where your share price is sitting today and over the past 12 months, do you think you are sort of being unfairly punished or where do you see further potential return for shareholders?

6:43

Uh, look, I think yeah, we can't. That's one thing we can't control, obviously. Um, yeah. It's obviously disappointing to see the reaction that we have seen this morning, but, um, what we can control, um, we continue to focus on, on growth, um, from the front door to the back door where sales based organization will continue to grow. Um, I think it's obviously people can can look at it as opportunity, um, today. But, um, you know, for us, what we're, what we're focused on is continuing, um, the organic rollout strategy, um, here in Australia, here in the US. And from my perspective, we continue to say really good opportunity as well. So we just really focus on what we can control.