Good morning, everybody, and thank you for joining the call today. With me is Malcolm Ashcroft, our Chief Financial Officer. I'll begin with the highlights from the first half, then hand over to Mal to cover the financials in more detail, and then conclude with an update on our progress to improve margins and outlook. So it's now 12 months since we announced significant change at Downer and six months since we launched our new purpose, enabling communities to thrive. I believe we have a compelling narrative that highlights the intrinsic value of what we do and the importance of our work. It is resonating strongly with our people and customers and forms the foundation of our strategic planning process, which we will cover later in the update.
Moving now to slide four, we have achieved improvement in our headline metrics, delivering improved EBITDA and NPAT growth backed up by solid underlying cash conversion, and I think these are all good reference points for measuring our progress. It is still early days, but I believe we are on the right track in all parts of our business improvement program. Statutory NPAT of AUD 72.1 million is up 6%, and EBITDA of AUD 149 million is up 29% on a pro forma basis, and this is when we adjust our results for divestments on a like-for-like basis. We have improved our cash conversion, as I said, to 88%, and this is the second consecutive period of improvement. I believe our back-to-basics approach to cash collection is gaining traction, and we also continue to strengthen our balance sheet, by further reducing gearing.
Now net debt to EBITDA is trending favorably to 1.8x, which is down from 2x at June and 2.3x this time last year. So overall, we are right where I expected us to be, and we have made good progress addressing the underperforming parts of our business. What we need to see now, and I believe we will see, is more ongoing improvement in our EBITDA margin, and I feel confident that we are focusing on the right operational and financial disciplines to see success on this front. So on slide five, we've outlined some of our key highlights. At the 2023 half-year results, I said that Downer needed to address areas of underperformance, we needed to stabilize our business, and we needed to reposition for future growth.
As I've just covered, we are now seeing improvement in these metrics while progressively de-risking the business and working through the resolution of commercial issues. A key contributor to our earnings growth was the return to profitability of the Utilities business. Now, Utilities has faced challenges, and the turnaround in this part of the business has been one of our top priorities. While the recovery is ongoing, we are making progress on the resolution of problem projects, and the structural organizational changes we have made are showing progress ahead of where we expected to be. We have also made good headway in our strategies to realize shareholder value, and we are progressing our Full Potential planning process. We are on track to achieve our AUD 100 million cost-out target and have continued to simplify our portfolio with the divestment of six non-core businesses.
Importantly, we do have a lot of potential for further improvement at our margin line, for the project outcomes, and our cost-based efficiency. My key message is we have a lot to do, but we are happy with our progress so far. If we turn now to slide six, we'll look at our operating segments in more detail, beginning with Transport. This segment includes our road services business in Australia and New Zealand, our rail business, and New Zealand projects business. In the first half, revenue is up 15% to AUD 3 billion, with EBITDA up 23% to AUD 98.1 million. While revenue and earnings have rebounded with improved weather assisting all of our operations, this was partly offset by lower spending by transport agencies in Victoria and South Australia.
We have also reassessed and settled outstanding claim positions for some of our smaller rolling stock refurbishment projects, and these impacted our overall EBITDA margin, which was 3.3%, just a bit up from the prior corresponding period. It is an area, though, where we expect to see improvement in the second half. We've spoken a lot about the Queensland Train Manufacturing Program that was awarded to Downer last year. We've got through the mobilization phase. It has been successful, and we're now well into the design phase. Importantly for me, we have established a highly collaborative relationship with our customer, which is key to the success of these sorts of projects, and we are developing a local industry supply chain.
At the same time, we have also manufactured the 65th High Capacity Metro Train in Melbourne, and this now completes the Victorian government's initial order, and we're now nearing completion of the 5 final additional option sets. And so the highly successful HCMT commercial model that forms the basis of what we are doing on QTMP, works well in terms of the ramp-down of one project and the ramp-up of the other, and it enables us to provide continuity of work to our highly experienced project team. And on this front, I'm really optimistic about what the future holds for our rail business in the passenger space, with more local content and focus on local industry, to support customers with our unique engineering offering, particularly around the decarbonization and diesel locomotive retrofitting to fleets, as well as our leading digital asset management capability.
In New Zealand, the Transport Rebuild East Coast Alliance is progressing well, we're into detailed design, and we have now just commenced delivery of the physical works. As previously announced in November, we completed the sale of Repurpose It, of which Downer owned 45%. Overall, our transport businesses are well positioned, with strong customer relationships and a healthy forward pipeline. While the timing of transport agency spending, have a level of uncertainty in Australia for the short term, our assessment is that this can only be temporary in nature. If we now look at slide six, Utilities, where we had revenue up 7% to AUD 1.2 billion and EBITDA at AUD 17.9 million, which is a really good result considering where we were with this business 12 months ago.
We have been disciplined in the application of our new risk appetite parameters, meaning that we've had to be more selective about the projects we pursue, and we are prioritizing bidding opportunities that allow us to aim for the higher margins with customers who value our technical capability. Importantly, we are still seeing good win rates with work that meets our new risk appetite. The commercial reset of our power maintenance contract is on track, and we are confident that it will keep improving in the second half. We continue to work through the loss-making Australian water projects that we have previously discussed and believe that we have taken a balanced, risk-weighted financial position for the completion of these works. We also saw our meter reading business recover from loss-making to break even off the back of significant restructuring and commercial resets with our customers.
So Utilities has navigated through a difficult period, and I have a growing sense of confidence in the outlook for the business. We hold dominant positions in the power and water sectors, which will present further opportunities in the future. In January, we completed a landmark project for ElectraNet, delivering the South Australian component of Project EnergyConnect, which covers over 200 km of transmission line, making it one of the longest ever constructed between Australian states. And I think this project highlights our market-leading position in the design and construction of power transmission and distribution networks in Australia. As expected, we do not see the ramp-up of the larger projects for another 12 months, so the focus of our power business is to keep our highly skilled crews utilized on smaller projects until that time that these larger projects achieve their regulatory and environmental approvals to go ahead.
We are also the preferred proponent on a significant new 10-year water contract in Queensland, which is based on a highly collaborative commercial model. Downer, as I said, is the dominant service provider to water infrastructure owners, and this award will see our presence in the water market extend to servicing assets that collectively deliver water and wastewater infrastructure to over half of the Australian population. So where are we at? The Utilities turnaround remains a really key area of focus, and while there is much more work to be done, I have confidence in the continued recovery and that Utilities is turning the corner, and I'm excited about what the future holds for this part of our business.
Now onto Facilities at slide eight, where the result was very much in line with our expectations, contributing AUD 1.6 billion in revenue and AUD 87.9 million of EBITDA, both slightly down, but of real importance is the EBITDA margin percentage is trending up. And this is off the back of the business having done very well to reduce overheads and control cost and deliver efficiencies at the contract level. While, as previously announced, there was a decline in defence activity in the half, we were still able to secure two important defence contracts wins over the past six months. One of those were part of a joint venture that was selected to deliver the planning phase for the Woomera Defence Base Redevelopment in South Australia, and pending parliamentary approval, the project will be to deliver a significant program of building services and infrastructure works.
In October, our Estate and Operations Services contract was extended by 12 months out to July 2025 at a value of approximately AUD 400 million. We have a major tender underway for the Richmond Defence Base redevelopment in New South Wales and also a major Facilities management contract for Defence Estate FM Services underway. Our portfolio of health and education PPPs are going well, and we are also the preferred bidder on a significant contract renewal in New South Wales, which, if awarded, will see us win the maximum number of regions. Our industrial and energy business performing in line with expectations, and while a smaller earnings contributor to the group, I see a good pipeline of near-term opportunities that will support sustainable growth.
Continuing our focus on portfolio simplification, we have completed the sale of our mechanical and electrical commercial contracting business in Australia and now the equivalent business in New Zealand, marking our full exit from HVAC and electrical commercial contracting. There are other potential divestments on the cards that are similar, being minor non-core businesses, and those which don't meet our risk-reward profiles, and we will prioritize these in the second half of 2024. Overall, this was a consistent performance by our Facilities business. We have a clear line of sight on targets for the second half and have confidence that there is an efficient operating model in place to support our ongoing competitiveness. Slide nine, work in hand. Work in hand sits at a substantial AUD 37.5 billion. It's long-dated. It gives us great visibility of the future revenue, and it's more than 90% government-related.
It's diversified by industry, and 88% of our work in hand relates to services contracts, most of which are longer term. The small reduction in work in hand partially represents our risk reset. After having requalified all of our opportunities, I'm pleased that we still maintain a strong forward pipeline of work. On the ESG front, slide 10, we are committed to being a leader in the integration of sustainability with operational outcomes, and our performance is consistently recognized by external ratings and certifications. In December, we announced the successful completion of refinancing AUD 500 million of our AUD 1.4 billion syndicated sustainability-linked loan, which materially improves our debt profile and highlights our commitment to strong sustainability performance. We have set clearly defined greenhouse gas emission targets with a current focus on initiatives that will lower our Scope 2 emissions.
Like many organizations, our ability to deliver our longer-term targets will be heavily dependent on the broader energy transition mix and emerging technologies. On safety, our total recordable injury frequency rate for the half was below target at 2.77, but our lost-time injury frequency rate exceeded our target of less than 0.9. Sadly, we experienced two workplace fatalities. A staff member was fatally injured while conducting ash handling operations in regional New South Wales, and the employee of a subcontractor died while operating a dozer in regional Queensland. I extend my condolences to these workers' families and colleagues. These events are tragic, and we have initiated a company-wide intervention to reinforce our focus on critical risk controls. We have continued to prioritize the enhancement of our financial and operational control environment.
We have achieved recertification to ISO International Management Standards in quality, health, safety, and environmental management, following an external recertification completed in November. Lastly, we still await the findings of the ICAC inquiry in New South Wales. Pending these findings, an important change we have made is to accelerate the replacement of our existing pre-qualification process and implement a new technology solution that provides an end-to-end platform for pre-qualification procurement and contract management. This will add greater rigor and drive independence in the supplier and subcontractor verification process, and the implementation of this pro-platform has commenced and will be ongoing throughout 2024. I now hand over to our CFO, Malcolm Ashcroft.
Thanks, Peter, and good morning, everyone. Today, I'm going to discuss a summary of our results, our statutory to pro forma bridge, our portfolio update, the cash flow and debt profile, progress on our cost reduction initiatives, and an update on our financial priorities. So we'll start with the results. As Peter mentioned, we've seen a positive turnaround in our financial results relative to the first half of 2023. To ensure comparability of the results, we've presented a set of pro forma financials, which excludes the revenue and earnings contribution from the various divestments completed in the period and also adjusts for the ISIs. The reconciliation through the statutory results is in the appendix to the presentation.
On a pro forma basis, we had revenue growth of 7.3% to AUD 5.8 billion, reflecting the strong demand and secured work in the sectors we operate in and the embedded escalation mechanisms in our long-term contracts. EBITDA of AUD 149 million is up 29%, driven by the turnaround in Utilities and the rebound in transport off an unseasonably wet first half in 2023, which Peter referenced, and the commencement of our savings from our cost-out programs. This all translated into a pro forma NPATA of AUD 74.9 million, up 39% on the prior period, and a Statutory NPAT of AUD 72.1 million, up 6% on prior period. Our normalized cash conversion was 88%. This is normalized for cash outflows associated with FY 2023 and first half 2024, ISIs, together with a GST payment on the divestment of Australian Transport Projects , which we flagged at our FY 2023 results.
This is another improved result, which reflects the increased organizational focus on cash and cashback, profits across the business. Our balance sheet position strengthened in the period with net debt to EBITDA of 1.8x, down from 2.2x at 30 June, as a result of improved free cash flows and the benefit from the divestments in the period. This reflects our commitment to a conservative balance sheet posture as we work through the early stages of our margin improvement and turnaround plans. Peter has spoken to the segment financial performance, but I will just touch on corporate costs. Corporate costs of AUD 54.8 million, which are outlined on slide 30 of the PAC, represent a 5% reduction on the second half 2023 run rate versus the comparative period in first half to first half.
We had a 12% increase, but it's important to understand this was impacted by a AUD 4.1 million negative variance from lower contributions from a non-core joint venture investment. If you adjust for this AUD 4.1 million, the increase is circa 3.5%. Otherwise, our cost increases have been predominantly driven by increased technology expenditure, including SaaS development costs, which were committed to in previous periods, and they're currently subject to management review. We had some adjustments to employee provisions from updates and assumptions. Our transformation savings to date have partially offset these cost increases, but with the programs underway that we're targeting to materially reset the organization's corporate costs, with further progress expected in the second half of 2024.
It's also important to highlight that the half-year result announced today includes the de-risking of a range of positions in our portfolio, either via commercial settlements or holding additional contingency against risk provisions. So looking at our bridge of statutory to pro forma EBITDA, we've adjusted for AUD 1.5 million of earnings from divestments and net individually significant items before tax of AUD 11.3 million, which included the following. So we completed six divestment transactions for which the net result of AUD 33.8 million gain has been called out in the bridge. The largest component of this gain relates to the Repurpose It sale of AUD 51.5 million as announced in November. This was partially offset by losses recognized on other divestments, primarily on Asset and Development Services , which was first announced in our full-year results in 2023 in August.
Transformation and restructure costs of AUD 12.3 million relate primarily to AUD 4.3 million of costs associated with our transformation program and AUD 8 million of accelerated amortization of IT assets where the useful life was reassessed. We have regulatory review and legal matters of AUD 15.4 million recognized during the period, which include costs associated with regulatory reviews, including the class action, and provisions for certain commercially sensitive matters not in the ordinary course of business.
Impairment and other asset write-downs of AUD 18.6 million relate to IT and other assets that will no longer be utilized or provide future benefit. As part of our ongoing strategic review of our capital investment programs, we ceased an IT upgrade project in our Australian roads business requiring significant further investment that was not supported by expected benefits in the future. This resulted in total costs being written off of AUD 14.3 million.
So if I move to our portfolio update, we've completed six divestments during the period, as mentioned. Those divestments were linked to strategy and were made to either unlock unrealized value in the portfolio, such as Repurpose It , or to further refine our portfolio from a cyclicality, risk management, sector exposure, or aspirational margin perspective. While we've made good early progress in simplifying our portfolio, we are currently finalizing our strategy work and our Full Potential plans, which will establish the operational and financial parameters for our portfolio going forward. We continue to evaluate non-core divestment opportunities, and given our strengthened balance sheet position, we will remain disciplined to ensure we realize value for shareholders if we transact. We are also finalizing our work on our capital management plans and our capital allocation framework, and we'll have more to say about this before the end of fiscal year.
We'll continue to keep the market updated on our progress. On cash flow performance, this bridge outlines the key movements between opening and closing cash. As previously indicated, the normalized cash conversion was 88%, generating AUD 168 million of operating cash flow in the period, which was a significant improvement over the prior period. Net CapEx for the period was AUD 46.4 million, which was down from AUD 70.1 million in the comparative period, reflecting in part tight oversight of capital spend, which was primarily spent in the transport segment on completion of asphalt plant projects and maintenance or replacement CapEx. There has been limited growth capital expenditure allocated in the period.
Closing cash of AUD 553 million and drawn debt of AUD 1.2 billion meant that net debt, excluding lease liabilities at the end of the period, was AUD 0.7 billion, down AUD 19.4 million on 30 June, and down AUD 252.4 million on the corresponding period. Moving on to our group debt profile, consistent with our comments at the FY 2023 full-year result, Downer is prioritizing the maintenance of our BBB investment grade credit rating with Fitch, which is currently on negative watch. So balance sheet strength and prudence around our gearing levels will remain important while we undertake the turnaround and achieve progress on our performance. We are compliant with all of our covenants and have headroom against our key measures.
And turning to our debt profile, the group's weighted average debt duration has increased to 3.3 years as a result of the recent successful refinance of the sustainability-linked loan announced late last year, with the maturity profile shown on the chart in the deck. The group has total liquidity of AUD 1.9 billion through undrawn debt Facilities and available cash consistent with prior period. Moving on to our cost reductions, Peter mentioned earlier, we've identified approximately AUD 80 million of our AUD 100 million target gross annualized cost savings, which have been achieved. And there is a clear line of sight to the remaining AUD 20 million, and we're confident that this will be actioned by 30 June, as previously committed.
While this cost out was spread across the entire business, the majority was in the operating business units and was able to be removed as a result of the Trans-Tasman operating model change. We expect to see increased run rate benefit of the cost out program in the second half and into 2025. We've recently completed the next phase of our operating model review, and today, we have announced an additional AUD 75 million-plus cost out program target, with cost reductions to occur in the balance of 2024 and into 2025. These savings will come from further clarification of the role of the center, further standardizing support services, consolidating systems, uplifting commercial management of supplier costs, simplifying our entity structures, and further optimizing our property footprint. It is also critical we transition internally to a continuous improvement culture where we target net rather than gross cost reductions going forward.
As part of our path to 4.5%, we will be targeting a net cost reduction contribution to our margin recovery of at least 1%. We are confident that significant opportunity exists to further simplify our operating model, identifying efficiencies, and improving our service delivery to support our project and contract teams. We are focused on the management target of 4.5% EBITDA margin in 2025, and cost out is a critical component in our plan to hit that target. Finally, just onto financial priorities. The three categories listed here are consistent with those I raised in August of 2023 as part of our full-year results. Our first priority is to continue to strengthen our balance sheet and maintain the conservative approach, with an appropriate level of gearing and flexibility until we have further progressed with our turnaround.
As I previously mentioned, the maintenance of the group's investment credit rating with Fitch is a key priority. Pleasantly, we've reduced our net debt to EBITDA metric of 1.8x. The next priority is improving the consistency and quality of our earnings. As I said back in August, Downer needs consistent to consistently achieve strong cash-backed earnings. This period, we've delivered a normalized cash conversion of 88%, and we're committed to ensuring a continued focus to maximize our cash conversion going forward. The cost initiatives I've mentioned earlier are also key to the quality of our earnings. Recently, the recently implemented business performance management framework and broader portfolio changes are supporting the objective of increased consistency of future earnings. The divestments referenced have also reduced portfolio risk during the period, and this will be an ongoing focus area.
The final focus area was to elevate our capital return focus and disciplines. We're now well advanced in our Full Potential strategic planning process. This will outline the opportunity set, inform our capital allocation priorities, our portfolio management parameters, and our operating businesses will have a clearer focus on the cost of capital employed and returns expected. I look forward to sharing the output of this work ahead of the end of year. With that, I'll hand back to Peter.
Thank you, Mal . Now, looking at our progress on EBITDA recovery, 12 months ago, we announced a management target of 4.5% average EBITDA margin in FY 2025. Now, this target was set with the objective of incentivizing and measuring progress as we execute our transformation. I remain convinced that we can make considerable improvement in margin performance from historical levels.
The 4.5% margin is now incorporated into our revised long-term incentive plan with a management scorecard and a margin hurdle requiring average 4.5% EBITDA across both FY 2025 and 2026, with a minimum threshold of 4.2% in FY 2025. We are very clear on the drivers that will bridge the gap between our current and target margins. Project margin performance and overhead cost out initiatives are the key, and we have strategies to address both these areas, and the opportunities in front of us. So on average, project margins are currently being delivered below the tendered margins across the group. Now, in saying this, we need to be clear on the reasons for the leakage because they're not all straightforward, but a large part does include planning and execution as well as external factors.
So I have no doubt the margins we are tendering are achievable, and we have examples of many jobs that are achieving above the tendered margins. The core process in place with the Downer Standard and our delivery management methodology are sound. Now, it's about ensuring the discipline to consistently apply them. This is something our executive team is prioritizing and will continue to reinforce in conjunction with the work that we bid. We have also enhanced our governance processes to ensure we are applying the appropriate focus and attention to project delivery. We have established quarterly business reviews and have evolved our Tender Risk and Evaluation Committee into the Project Governance Committee , which is chaired by Mark Menhinnitt, our Chairman. It now has a broader governance remit across the full life cycle of our projects.
Delivering to and above targeted margins is of the utmost importance and will complement the work we are doing to achieve our cost out targets. We said we would take AUD 100 million of cost out, and we are on track to achieve it. Having now been in the role 12 months and with a very clear line of sight on our original AUD 100 million cost out target, we believe we have a pathway to another cost reset, as Mal outlined just before. That's why we have set a target of AUD 75 million cost out in FY 2025. Finally, onto outlook. At the FY 2023 results, we said that Downer's first half 2024 would be affected by the runoff of existing low-margin contracts and the timing of our Utilities recovery, with stronger earnings targeted in the second half of FY 2024. This is still the case.
We anticipate continued EBITDA margin percentage improvement in the second half as we look to build towards our management target of 4.5%. FY 2024 remains an important transition year for Downer, but as we have demonstrated today, our new operating model is delivering improved results, and this gives confidence that we will continue on our upward trajectory. We have an outstanding portfolio of businesses with leading positions and exposure to sector growth trends. Our focus is now to optimize the performance of these businesses and become an organization that's more consistent in our performance and, ultimately, more profitable. In the near and medium term, our focus is on delivering targeted margins across the group and achieving more cost out efficiencies. I will now open the call to questions. Thank you.
Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset before you ask your question. Today's first question comes from Rohan Sundram with MST Financial. Please go ahead.
Hi, Peter. And Mal , I might just start on the issue or the where you identified the Victorian and South Australia transport agencies spending less in the first half. What are you seeing around that? Is there much visibility as to what gives you confidence that that might be temporary, and what indications have you got that they might look to resume that spend soon? Thanks.
Yeah. Look, I think the, you know, the observation around this point was in November at our annual general meeting. And we did see almost an instant sort of drop-off on volumes related to spending programs in Victoria. And, you know, that has continued. The reason for my comment around volumes and it being temporary in nature, you know, what I would say is whilst you may not see volumes rebound up to some of those higher levels that we saw with the catch-up of, you know, flood-damaged work and the pent-up requirements to deliver maintenance services, you've got to remember that what we do is an essential service. And if you look at the degradation of roads and some commentary that actually is coming out from that road agency around recommencing spending, we do see that pathway back.
It may not be as quickly as we would like, but I have no confidence. I have very high confidence that it will be temporary in nature.
Okay. Thank you. Understood. And with the problem projects that impacted FY 2023, will there be any residual impacts, or how material will they be in the second half based on what you've flagged so far?
Yeah. Look, again, you know, when we provided commentary on our outlook in August of last year, we knew that the first half was going to, you know, have a significant sort of impact, as we went to flush that lower margin, nil margin work through our books, to put it that way. There will be some runoff continuing into 2024, but not as material as what we saw in the first half.
Okay. Thank you, Peter.
Our next question today comes from John Purtell with Macquarie. Please go ahead.
Oh, good morning, Peter and Mal . Thanks for the presentation. Just a few questions if I can, and just sort of following on from sort of Rohan's question there. In terms of the water contracts in Utilities, when do they physically complete? I think the expectation was that they'd be pretty much done by now. And I think you talked about the Vic, you know, the power maintenance contract in Victoria sort of being break-even in the second half. So do you still expect that to be the case?
Yeah. So, you know, again, just backtracking to what we said last time, you know, the water projects we said would be, in the main completed in the first half. But we expect all of them, bar one, to be complete in the second half. And we're down into that sort of, you know, that end phase of testing, commissioning, and handover where you have a higher level of sort of visibility on cost to complete. And there's one that will continue into calendar year 2025. Now, to the second part of your question on the power maintenance contract, so that you know, that continues to improve. And you've got to say the collaboration with that customer, since we first identified the underlying issues, has continued. It's a mature relationship. Losses have reduced materially in the first half.
You know, we still see continuous improvement and a clear line of sight on break-even and beyond.
Thank you. And just the second one, in terms of more a macro question. I mean, obviously, we're seeing state budgets under some pressure at the moment. You've obviously called out SA and Victoria there. But are there any other parts of your business where you're seeing some pressure there in terms of as it applies to your different end markets?
Yeah. Look, it's, I think the first point is, you know, being in that part where, you know, we're very focused on essential services to critical infrastructure, the volatility, you know, that we're seeing is around the discretionary side of things in the main. The VicRoads situation is probably just the exception that we did want to call out. But still, we see that as temporary and that they will get back to a base level of essential maintenance work, soon enough. In other parts, it's interesting when you look at sort of infrastructure more broadly. You know, there is a pause on some of the larger sort of transport infrastructure construction, and that's, you know, but, you know, the projects still continue to be announced. You've got, you know, Sydney Metro West.
You've got Suburban Rail Loop in Victoria. Now, we're not exposed directly to those businesses anymore, but I guess it's just an observation that you'd make more broadly around the sector. I think defence we've called out previously. And, you know, it's more about those more discretionary levels of spend and, you know, likewise in other Commonwealth and state agencies. If I look at New Zealand, you know, we, the New Zealand business performance has been really good in the half. And they've got what you would call an infrastructure and maintenance deficit that, you know, they continue to eat into, which is good. But you would have seen comments from the NZTA that, you know, if you look at their forward medium-term plan, you know, they do have funding constraints.
You know, that will be, no doubt, something that industry will need to address in the medium term.
Just last question, if I could. In terms of the targeted lifted margin, you're expecting 1% from better project margins. From your comments, Peter, you sort of, I think you're sort of messaging that a lot of that's expected to come from improved in-contract performance as opposed to having to wait for contracts to come up for renewal. Just be interested in kind of what's driving that, you know, expectation of improved in-contract performance.
Yeah. Look, I'm glad you asked the question because the terminology is important. It's actually from both. So you've got a significant amount of work that is delivered in the short term that's burning up. And then you've got the new work that's being bid consistent with our risk appetite parameters and how we sort of price escalation and risk. And then we've also got improvement programs in those longer-term maintenance contracts where you get the chance to, you know, turn up and the teams have the opportunity to be more efficient, come up with better solutions so that you can work those margins up from within the contracts with the relationships and deliver better outcomes for the customer that improve our bottom line as well.
Yeah. John, to give you a sort of just a sense of what Peter's saying there, our forecast revenue in 2025, about just a little over half of it will be new work that's not currently on the books. So you get the opportunity to replenish margin in the through the new tendering and risk parameters that Peter spoke to. And then we've got the performance improvement aspect of the existing secured work. And I think, you know, particularly if you look at the service sort of long-term orientated contracts, as we're demonstrating in some of the underperforming contracts, there is a really meaningful opportunity to enhance the performance in those areas as well.
Thank you.
Thank you. Our next question comes from Megan Kirby-Lewis with Barrenjoey. Please go ahead.
Oh, morning, guys. Just in terms of the cost out benefit realized during the half, are you able to help me with the number for what was actually realized rather than that annualized rate?
Yeah. So if you think about the number, the 80 is an annualized benefit. They were essentially achieved progressively through the half. So the number is sort of, you know, in the sort of just south of AUD 30 million range in period.
That's really helpful. Thank you. And then, Malcolm, just your comments around de-risking a range of the positions. Just came to understand the extent to which that project that process is complete, again, across the whole project portfolio. And any further detail on the types of projects that were impacted would be great.
Yeah. Look, we don't really like to talk to specific projects, particularly if they're ongoing and we've got ongoing commercial resolution processes with clients. But, you know, I think if you look at where we've started from, what we've talked about, parts of the portfolio that were underperforming, we've been really clear about those areas. And Peter's spoken to the progress that we've made. I think in businesses like ours where you've got such a large number of projects and contracts, you have a level of risk and opportunity across the portfolio. And essentially, you're making judgments all the time. Now, we've tried to take a balanced view both at the full year and at these results. But we have taken the opportunity to build some additional contingency against risk positions that we've identified as we've gone through our business reviews.
It's really a statement, just to be clear, that we've got a real focus on reducing the risk profile in the portfolio. Some of that's really clear. Some of it's what I'd call business as usual.
Fantastic. Thank you.
Our next question today comes from Nathan Riley with UBS. Please go ahead.
Morning, gents. Question just in relation to the transport division EBITDA margin. You know, up slightly on the PCP to sort of 3.3%. But just given the rebound in road services volumes, we are hoping for a better outcome than that 3.3% margin. And also, to what extent have those rail commercial settlements just been a drag on the margin in the half?
Yeah. Look, I think, Nathan, the, I mean, the first point is that there has been significant uplift in revenue and earnings off a, you know, a lower base from the prior year. Are they as, as in terms of an EBITDA margin, you know, would I like them higher? Absolutely. There is a skew to the second half that we called out. And that's based off, you know, very clear historical seasonality that we expect to continue. So I do expect that uplift. Mal spoke, you know, just around, you know, the impact of rail and refurbishment projects that, you know, is another contributor to that along with the drop-off in some of that southern state maintenance volume spend.
So, you know, I remain convinced, though, that the second half, we will see, you know, improved EBITDA margins.
Okay. Understood. And, you know, I guess also you know, I guess an extension to that, you know, at a group level, you know, taking into account your portfolio of projects, you know, an increased discipline around risk management there, can you give us an idea of, you know, to what extent that group margin this half was impacted by additional provisioning activity?
Yeah. Look, I mean, again, probably not something, Nathan, that we're going to go into specifically. What I would say is in the areas that we've sort of talked about very clearly, in the underperforming areas, I think it's very clear. And you can probably reference back to, particularly in the first half last year in utility, some of the performance elements that were called out and the progress that Peter's talked to, back against that. I think all we're really flagging is as we're going through the business review processes, we have actually made a, you know, a number of adjustments that are in period that relate to perspectives on risk. You know, we've called out specifically the rail refurbishment projects, to your earlier question on the transport margin, because they did have an impact. So that's probably an area where it's clear.
But I think if you sort of looked at it generically, Utilities, you look at that transport position, and then at a group perspective, we've, we've certainly, I wouldn't say taken significant adjustments, but we have made adjustments along the way to, to de-risk the portfolio. I don't think we'll say any more than that.
Okay. No problems. Thanks for taking my questions.
Our next question comes from Roy Harrison with Bank of America. Please go ahead.
Thanks, guys. Maybe just one on labor availability. I mean, you touched on it in the presentation. But maybe more specifically on what kind of benefit we're going to see to EBITDA margins once kind of labor availability improves.
Yeah.
Cheers.
Yeah. Look, I think the macro point of headline here is, you know, stability is a good thing. When we talk about labor availability for business like ours that, you know, employs a large direct workforce but also relies on really good sort of technically oriented specialist subcontractors, when we have a better line of sight on availability, albeit in sort of, you know, more challenging sort of elevated levels, so do our subcontractors. And, you know, that also contributes to our better productivity. I think it also, you know, what we're seeing is, you know, our ability to price work. We're seeing less qualifications to price because, you know, we do have an improving line of sight on labor turnover rates.
You know, we have a higher level of confidence in the allowances that we make for those sorts of factors. And then I think, you know, how you then convert that into just improved margins. Well, we know that turnover rates impact margin because of the cost to induct and train. And also when you have a higher reliance on premium labor hire, that can have an impact. You've got, you know, then you've got, you know, sort of offsetting factors, you know, CPI and all the rest of it. But fundamentally, you know, it we will see, I think, continued improvement. It, you know, it may be slower than we would like.
But that will eventually, you know, have an impact on either value for money or our ability to actually hold on to some of those pass-through gains and allowances that we've put into our contracts. So, you know, while we're not jumping for joy just yet, it's good to see a period of stability in what we see in the labor market.
Thanks. And just following on from that, have you seen turnover rates step down materially in the last half?
Look, I know, I think they're still elevated. You know, I wouldn't call out improvements, other than in, you know, perhaps some parts, you know, perhaps in the Facilities management space. But if you're a, you know, a project director, site engineer, supervisor with great skills and experience, you're going to be in high demand for a very long time. What I get, you know, a growing level of optimism about is, you know, when you can talk to potential staff around what we're doing, you know, how we're really embedding, enabling communities to thrive, and building those stronger customer relationships, a really strong view of what we do, how we do it. And that ultimately converts into job security for our teams. You know, being a tier-one organization, that puts us at a significant advantage.
Yeah. And just back on the EBITDA margins again, I'm looking at the margin recovery slide. And the simplified portfolio component, the bars are about halfway full. So does that mean that you're looking to, you know, divest another six or so businesses over the next year? And could you maybe describe what type of businesses you're looking to divest? Would they be more on the loss-making side? Or would you be looking to unlock a value that's sitting there in the business?
Yeah. I'm glad we got the chance to talk to that little graph. The way you should look at it is, you know, phase one where we've, you know, been able to do those, you know, what we referred to as no-regret divestments. You know, that's phase one. So just think about it more as that being complete. We're going through our Full Potential planning process at the moment, which is phase two. But that doesn't mean that it's going to be another six. It just means that we've, you know, been satisfied with our progress through the phase one. And we're going into our strategic planning process now.
Yeah. Okay. And last one from me, maybe one from Mal . Are you looking to, I mean, you mentioned the net debt to EBITDA is down. Are you looking to reduce that even further to, say, something like 1.5 times? Do you have any explicit targets out there?
Yeah. So, look, it really relates to where Peter was just at with the strategic planning process and our review of the portfolio, to your earlier question. We are actually revisiting all of those parameters with the board at the moment. You know, I think really what you should see when you think about where we are on leverage is I would expect that it continues to trend down as we get our uplift in performance in the second half. And we're expecting that. We're expecting that the cash flow to come with it. You know, really, what we're also referencing against is our negative watch and really needing to get a little bit further progress in our margin recovery.
I think you can start to see then that from a capital planning and capital allocation perspective, we're already doing a lot of work on, you know, what those opportunities look like, where the accretive opportunities are for shareholders. So it's really about timing and sequencing of the recovery and just balancing all those elements. But we've certainly got the work well and truly advanced and have a view looking forward on those elements. So it's just premature to come back and guide you to your question on, are we going to be at 1.5? Is that the sustained level? What I would say in the short term is we're going to be directionally heading south from 1.8. But there is a reset coming in relation to our capital management, capital planning, and balance sheet views that'll be driven by strategy.
Gotcha. Thank you. All that's all from me.
Our next question today comes from Scott Ryall with Rimor Equity Research . Please go ahead.
Hi. Thank you very much. Thanks for slide 20 in particular. I think that's a very clear one that, that's very helpful to me at least. My question's not on that one, though. It's on, I'm going to refer to slides six, seven, eight, nine. In a business that was not, you know, you. I'll classify you as in turnaround mode, if you like, for want of a better term. If I was just in a normal operating rhythm, the transport business where revenue is up and your EBITDA margin is up, your Utilities business where revenue's up, your EBITDA margin is up, they would be the two divisions I would expect to see, I guess, a business put more capital towards them and therefore have your work in hand going up. On slide nine, those two divisions, their work in hand is reducing.
And Facilities, which is the one where earnings have gone down a bit, has work in hand going up, which I get that there's a turnaround going on. And Peter, you mentioned in your prepared remarks that you've got more discipline around contracting that's led to some of that adjustment in work in hand. I guess my question is, how long do you expect that to go on for before you get back into that normal rhythm of the best the businesses that are performing the best get the capital and therefore do start to increase work in hand?
Yeah. Look, I will piggyback off what Mal said just around the enterprise strategy, which links in capital allocation, you know, ultimately linking those parts of the business that have the best opportunities and where we want to invest capital. You know, historically, we have invested a lot of capital into our roads business in Australia, in terms of, you know, as best-in-class asphalt manufacturing Facilities. And that's. That will continue to always, through the cycle, be a very, very good business, right?
But then in terms of how you think about, you know, deployment of expansion capital, look, I think you, the Utilities business, in fact, all of our businesses, where you want to grow them is, in my mind, just as much a question around hard dollar capital as it is management bandwidth and, you know, risk allocation commercial models. And, you know, that applies for the Facilities business in particular, which is, you know, typically CapEx light. And it, you know, it is that more steady state, business that you would expect to see in a Facilities management context. I just want to pick up, though, on a comment you made around work-in-hand and just make sure that we're seeing that work-in-hand profile on slide nine the same way.
You see Facilities as a big chunk of that chart, because of the, you know, long-term, you know, 20-plus-year PPPs, which, you know, go out beyond 29-plus. And you've also got our rail maintenance PPP contracts in there as well. So I look, I think, you know, what is steady state for these businesses right now? You know, we've got work to do in all of them, as we've outlined. We're really optimistic about the prospects of the businesses. And I think we'll have a lot more to say, you know, once we get through our strategic planning process around capital and capital allocation.
Okay. Great. Sorry, just, I think Mal mentioned the timing of that prior to the full year. But where, what's the timeline in terms of your internal discussion? Can you just clarify that in case I missed it? I apologize if you've talked about it too much.
Look, I think it would, I think, you know, it will be in the second half. It'll be probably, you know, sort of, fourth quarter, I guess. But I don't want to, you know, at the same time sort of, you know, put a big reveal kind of theme out there. Well, this is something that we've been working on since, you know, pretty much September last year. So we're doing our work. We've spent a lot of time understanding through a strategic lens, you know, that point that you quite rightly make around what are the valuable parts of the business, when do you see the steady state. A big part of our strategy is what we're calling our Go North so that we ensure that each business is run as efficiently and as profitably as possible.
And then we overlay that with some of those other factors that we've been talking about on the call. So, you know, we think that, you know, that will be concluded, you know, certainly by the full year. And then I guess if you want more specifics on that, it's in the fourth quarter sometime.
Okay. Great. That's all I had. Thank you.
Our next question today comes from Rohan Sundram with MST Financial. Please go ahead.
Just, just one follow-up. With the recent extensive flooding we saw in parts of the country, are you able to just confirm just talk us through how that may have impacted the business? I appreciate it's a very diverse business. But, if you can just provide comment around that, would be great. Thank you.
Yeah. Well, yeah. No, great question. You know, let's start, you know, New Zealand that was significantly affected by flooding as, as was Australia, last year. You know, it, it's had a really dry run, which is great. You know, I, I would call the impact of weather this time around more localized. You know, just, I guess, as an example, reflecting on what you've just asked, in South East Queensland where we saw, you know, really sort of fast-moving weather patterns, in January, we lost, you know, just under half of the available shift time. Now, what is the impact? Well, there is an impact. But it was at a period of time where, you know, we had lots of teams on annual leave. January, seasonally, is a lower-activity month as well.
So, you know, I think the point is the right one. When you have these sort of intense weather patterns, they do affect the productivity of the businesses. If I sort of step back and give you a few reflections on the roads business, you know, we've been more affected by the agency spending in Victoria. Weather's actually been okay. You know, if you look at spray seal volumes in the main across most of our geographies, you know, volumes have been really good. So at the moment, I think you're right. That's a good question. And the example in Southeast Queensland is one that's come up a bit, with our stakeholder group.
Thank you, Peter.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tompkins for closing remarks.
Yeah. Look, thank you, everybody, for joining the call. Really appreciate your interest in the company. Look forward to providing our next update down the track. Thank you.