Thanks for your time today, and welcome. Everyone popping in there. Thanks, everyone. Thanks for your time today, and welcome to the Intelligent Monitoring Group IMB FY 2026 Full Year Results. I will throw to Dave to kick us off. Introducing, sorry, Dave Cavanagh, our CFO of Intelligent Monitoring Group. Over to you, Dave.
Great. Thanks, Dennison. Thanks, everyone, for making the time, especially with all the competing companies that are going out today. I am just going to focus on two slides today. The first one is this one, and then the last slide after Dennison talks is slide 22, which is around cash and how this all moves around in the business. I think at a first level, I am just going to talk through each of these key tiles and then pass over to Dennison. First up, revenue up 16% year-on-year. That has been really positive. If you look at what is driving that, we have had an increase in our installations and then also an increase in our services side of the business, which you can see through the notes in the annual report.
It is also highlighted that we have about 53% of recurring revenue running through the business. You can see later in the presentation, New Zealand, whilst revenue is up, had a tougher gross margin position, EBITDA position. But the actual underlying business, the revenue, and what the guys have been able to achieve has been quite positive for the year. Underlying EBITDA up 14%. If you think about this, we again had positive momentum in our underlying businesses, pushing forward. I think last year, we were talking just about AUD 38 million. There are some one-offs that are taken out of that, which we have split out a bit later, and they come to about AUD 11.5 million.
They are focused on receivables, old receivables that we inherited as part of the business, customers, and we are just working through a structure on how to make sure that that is not repeated going forward. Then also some acquired stock that was written off along with restructuring and M&A activity, which has been a big part. In terms of adjusted underlying NPAT, I suppose this is the big one that we are the proudest of for the period. It has been a significant increase year-on-year. A couple of really big things driving that, which are below the EBITDA line. The first one is the financing cost. You will see in the P&L, financing costs come down from about AUD 19 million to just around AUD 8 million.
There has been a huge effort from an old punitive financing structure to a Tier 1 Australian-based position going forward. Also, you will see last year we had about AUD 6 million- AUD 7 million worth of tax impost running through the business. Because of all the businesses we have acquired, because of all the potential carry-forward losses and the flow through the accounts, you will see in the expense item that that is effectively zero this year. So you have got a combination of underlying business up, finance costs down, tax down, and that is what is really driving that cents per share underlying position. That one, effectively, the way that we got that number, and there are some notes down the bottom, is you take out the amortization.
The reason we do that is that you do not get a tax deduction for it and it is an allocation of acquired intangibles that are amortized through the business. In terms of operating cash, again, the big thing is, does this business make money? The next two tiles are a big indicator of that is that operating cash is up 100%, AUD 22 million for this period. There is a little bit of a working capital impost as well running through the business, and we acquired some working capital during the year. But there is, on top of that 22, there is some working capital that ran through the business as we take on more activity. The other thing is that we obviously had a whole bunch of one-off costs for M&A restructuring stuff that is also better than that AUD 22 million.
Really excited about that side of the business. Ultimately, how much money does this business make? If you look at operating cash, you take off your CapEx, you take off your AASB 16 leases, then this business actually generated about AUD 8.1 million worth of cash. Compare that to this time last year, it was a negative AUD 4 million number. Again, I will talk through this on slide 22 right at the end. The last big thing is leverage within the balance sheet. We drew down debt of about AUD 35 million in May to pay for the Wormald acquisition. So we took the full freight of the debt impost, going up from AUD 85 to AUD 120 million worth of NAV facility. But then we have only got one month of earnings from Wormald NZ.
So you would expect that that would continue to delever as we get the annualization of the Wormald acquisition and Red Wolf acquisitions flowing through the accounts. Again, that will change as we do the U.K. acquisition at a later point in time. I suppose on all metrics, up and to the right, which is positive. I will touch on the cash a bit later in the presentation, but I will hand it back to Dennison.
Great. Thanks, Dave. Just turning to the next slide, Shaneen. Versus guidance, I think it is important. Working your way, as Dave said, from EBITDA down to EPS. EBITDA at the bottom end of the range. It does include one month of Wormald, but still just above the bottom end there. Just to call out, New Zealand was our, I suppose, issue first part of this year, which we feel like we have well remedied now. The first part of it was actually just a currency impact, and we have been cruising along for three years at a very stable NZD 8 rate. That has stepped down. I think you will see that in other companies. Well, you will see that in other companies, just a translation effect, about AUD 0.5 million. The other thing is, and I am keen to make this point.
Through this journey, I keep emphasizing we are walking and chewing gum. We did actually put AUD 1 million of what I call growth OpEx back into the business around ADT Guard's commercial team. We introduced David Medhurst, who had come over to the market about a year ago, which has not yet returned its, I guess its OpEx cost. It did weigh essentially on the short-term results, but we are very, very happy to have done it, and we think it is a key part of our go forward. Then the other part there is just New Zealand itself. Which, as we know, had that weak first quarter, which as remedies we have gone through the year, which we will get to. As you flow down, though, what we are really happy about is that impact level.
We are trying to move focus, effort, energy, and everything we do to the actual net profit of the business. We do have to adjust for amortization because it is a non-cash charge, and we do not have to invest to return that, but it is a feature given the way we have built this business up. We do have to acknowledge the one-offs as well, which we will detail later. This year, primarily the biggest part probably just being the M&A costs of Walker, Wormald, Capital Raise, and then of course, ADT UK.
We think the way I would frame this is this is setting a really solid base. I think, we look at these numbers and these actuals as being a really solid base to which we can work off, for us to forecast off, for us to talk forward. In that regard, just moving to the next slide, Shenin.
We are keen to, I suppose, impart upon that so that there is clarity. We are not intending to give guidance today. We will do that as we always do at the AGM. But I think it is important that people that follow us understand that this company is going to have significant growth at a headline level over the next two years. This year is going to be driven by a combination of Red Wolf and Wormald, what we call Project Walker, being in the business for a full year. We have one month in FY 2026, which will be a full year in FY 2027, and we have put the pro forma bridge there, which is public and what we have disclosed before. The U.K., ADT UK, which we are expecting to settle on the 1st of December.
We have just received regulatory clearance this week to push forward.
We are leading to a pro forma number. Again, to look for a base here to think about IMG Group off, if we do nothing else than just execute the acquisitions of which we have done, Project Walker and U.K. is to come in December. We have a business that we think at a baseline level today is an AUD 0.08 per share EPS business. Turning quickly through the rest of the presentation, in terms of highlights and just to look at the year, I think it is the case that I think the thing that makes me and probably the board and those that have been with us on this journey happiest is actually to see the underlying performance of the business coming to pass.
Ultimately, we have had to and have done a lot to build this business to where it is today, but it has all been on the basis that we are building a business, not just acquiring things. It is nice to see, and we feel validated to see that actually starting to come through the business. In particular, you can see that in the revenue growth line, and we will dissect that a bit in a second. Cash flow and across the board on all metrics. To call out this year, we had Western Advance join us, and BNP. Western Advance added to our commercial business in terms of giving us true expertise and specialized expertise in oil and gas.
BNP was very much part of that core ADT Guard commercial strategy, and has been really fantastic, both of those businesses, and adding into our business and adding into the team. I guess highlights, the remote video monitoring gaining traction. The monitoring capabilities that come off this ADT Guard product have allowed us to apprehend over 75, in fact it is 77 this morning, 78 this morning, I think, after overnight activities of offenders with the police. Something that has not and does not happen in the intrusion security alarm industry globally, anywhere. We have continued to invest. We have continued to invest in technology, people, and we continue to try and strengthen our business so that we can become a really enduring and important industrial business. Further than that, we also did a lot of work in New Zealand over this year.
Red Wolf is directly, and I am really proud to have add the ADT, add two as the ADT New Zealand business. It gives us a much stronger commercial enterprise in New Zealand. If you track our journey, the success we are seeing in Australia today was born off us really reengaging in commercial security first, and then driving it down and across the different market sectors. Red Wolf allows us to do that in New Zealand, and is already paving and help us pave on top of the work being done in the ADT NZ business itself, widen and increase the opportunity set in that commercial business. Then further to give mass to New Zealand, but also to follow our monitoring pathway and expertise, wider the acquisition of Wormald in New Zealand. I think Wormald is a really landmark acquisition for us. It is a very old brand.
It's a very proud brand. It's a very highly esteemed business historically. We are getting the opportunity to essentially put a fresh bit of paint on it and reengage the team. I'm just absolutely delighted to see how they've done. Those two things had us on good step for what would've been a really impressive, I think coming 2027 year. Then, of course, back right at the end of the financial period, we announced that we are making the bold step into ADT UK, into the residential market there. A very tight market segment that we're focused on, but it is giving us the ADT brand in the U.K. too, which will potentially over time create options for us depending on how we go. So significant year in FY 2026. Just show me the next slide, Shenin. Now skip through the rest of them.
In terms of who we are today, what does this all really mean? I'd characterize us this way. We've got a really strong financial profile, and notwithstanding we are going to be taking on more debt again to go into the U.K. We are very comfortable inside the gearing ratios that we are in. We stand relatively under-geared to our industry. If you take the private equity and other public companies, we're probably in the middle of the public companies for our space globally. So, very comfortable position. We've got a scaled platform. This last couple of years, looking backwards, has been all about building out our platform in Australasia, understanding how it works, enabling it, finding the customer propositions, and now driving forward.
We've got a highly technical and specialized workforce, which is part of the secret to be able to drive and unlock this growth, is the people and their ability to deliver and to deliver on scale and with large customers across a broad network. That's giving us coverage that links back into our strategic assets being our four monitoring rooms in Australia. In terms of characterizing us, that's how I'd do it. In terms of the way we go to market, Shenin, just on the next slide. If you look at us, effectively, we have got four operating businesses today, or brands, I suppose you'd say. So ADT, Australia and New Zealand, of course, shortly, in December, the U.K. Signature Security, which is our partner brand. Wormald, which is our direct fire brand, which we monitor through our monitoring stations.
Intelligent Monitoring Solutions, which is our wholesale monitoring security brand and wholesale monitoring brand. Just jump to the next slide, Shenin. Just breaking down the performance a little bit. We did this last year, too. There is a tale, essentially, of, I suppose, three different parts to build up to the result today. There's Australia, New Zealand, and then the effect of acquisitions in the EBITDA and the revenue. So at a group level, as we called out, 14.5% growth. The part that I guess makes us most happy is that step up in organic growth in Australia. I think we're tracking sort of around the 8% growth over the last 18 months. So last financial year was about 8.3%, 8.4%, if memory serves. The first half, the half before that, was about 8%, the same sort of range, mid 8s.
We have seen this year's financial organic growth in Australia step up at 12.5%, which has been driven pretty significantly by that commercial rebuild and pipeline, which we will talk about shortly. We have an acquisition earnings effect, so these are just simply the earnings impact of the businesses that we have bought coming into the EBITDA line. Then of course, we have the New Zealand business. To just reiterate quickly what has happened in New Zealand, at the start of this year, the first quarter, we got a timing mismatch. It was a shallow commercial book of business in New Zealand, as distinct to the wide and diverse book we have in Australia. We had a timing mismatch between the end of a major customer long-term piece of work and the start of another major customer's long-term piece of work.
One was the Ministry of Social Development in New Zealand, and the other startup is the Auckland Airport Domestic Terminal, which is a lot of work over many years there. That caused us to show a gap down as we kept our expenses, but the revenue dipped back and came back. I think the important thing to note is that did form part of our understanding as to why we progressed our strategy around Red Wolf and bought Wormald in to give New Zealand mass. More than that, we did also go through some management change and refocusing just around skills particularly, more than, say, people. We are seeing that come through in the second half, with the second half being up 42% on the first half delivered.
So albeit it weighs on the full year result, the actual direction of what has occurred there and where we are actually at today versus where we were at at the bottom of the first quarter, very different places. We are happy overall with that. Next slide, Shenin. Again, just to keep coming back to how we end up here today and where we are today and what we are trying to do. Characterizing it a different way. The first couple of years of journey for IMB back to essentially when I took over as MD in 2022, was to build the platform. That enabled us to learn the lessons around a monitoring platform, enabling it for the modern world and being able to widen the services that it offers using available technology, but having to be really open to enabling it and bringing it into our business.
We have used that platform in phase II to enter much larger markets, which we will talk about shortly. Then this third phase where we stepped into U.K. is to recreate internationally. I would pause and say that is a little bit grandiose. We have gone to the U.K. by opportunity and strategic. That is not to say that we are looking to replicate our entire IMG platform on a much wider scale than this. We fully acknowledge that it is a big step for us, and we are going to be very focused over the next couple of periods and years to just prove up what we have acquired there, which is a very stable business we will talk to shortly. Just next slide, Shaneen. In terms of what we are really doing, we are talking about widening the services.
I think of it this way, the Australian security market, to just pick on that market, we have a slightly wider TAM now also with the fire piece being added in New Zealand. But the overall market size, about AUD 13.6 billion if you use IBISWorld numbers. If you look at pure electronic security in a historical context, that is about a AUD 2.3 billion, AUD 2.4 billion market. By using technology, by making the investments we made to put the platform in place, and now by leveraging it into services like ADT Guard and like the broad national network in our commercial business and the use of technology we are doing there for enterprise, we are able to broaden our market opportunity, our total addressable market, significantly.
From what was historically in the electronics, a AUD 2 odd billion market, we see it being a AUD 9 billion market, and it is a lot to do with human replacement. It is using technology as a positive beneficiary, I suppose, of the world we live in, and in particular around AI and the cloud. That is sort of how I would characterize it. In terms of the opportunity, if you look purely at the intrusion space and turning that into a, from intrusion being reactive to guarding being proactive, our starting market is 14.1 million premises. They consist of commercial and residential properties. That is very low penetration, particularly on the residential side in Australia to elsewhere in the world.
We think the solution sets we are bringing in today, again, particularly ADT Guard, will lead ultimately to much higher penetration given the quality of the service and the effect that it is having. Just jump to the next slide, Shaneen, please. In terms of those two drivers, I have said using technology to widen that total addressable market, the two key areas being commercial security. We embarked on this journey when we bought ADT in AU and New Zealand in 2023. We had no pipeline for growth at that point, and that business had largely been disregarded and shut down by prior owners. We have brought it back to life, engaged the workforce we have. We have hired a number of people.
We have also added to that business with acquisitions, and we have seen the positive impact of that with, I would also add, almost no marketing spend, just simply reputation, engaging in the market, a pipeline that has gone from AUD 36 million at the end of the first quarter of this year. Again, it was, I think, AUD 2 million in the year that we took over, through to ending this period at AUD 72 million. The growth rate there over the period, about 26% quarter-on-quarter. We would not expect that to continue by law of large numbers. But we are trying to show here really what is driving that underlying business and that 12.5% organic growth rate that we have reported in Australia. The second key driver for us, just on the next slide, Shaneen, is the ADT Guard bit.
At the moment, the really powerful impact on the business in terms of the economics and the reported profitability is that commercial piece. The prospective driver of this business for the long term and the mass market application is this Video Guard business. We started that just over a year ago, too, with no sites initially. We exit this year now with over 1,000 sites monitored with ADT Guard around Australia. I think a couple of key points to that, I have mentioned it already. We have had over, to the end of the period reporting against here, 75 arrests with the police. That is something that never happens, or seldom, if it has ever happened, off an intrusion alarm, an alarm where it is triggered when something is happening, you do not know what, but it is happening.
In our case, we are watching before an event happens and are able to respond and actually activate the police very quickly to react, hence why we are getting the arrests. More and better than that, we have deterred over 15 events on average every month off the base that we have today. By our reckoning, we have probably saved our customers over AUD 1 million in claims so far off this, what is a very small base of customers at 1,000. In terms of our overall business at the moment, it represents coming up to about 1% of our customer base. That sort of speaks to the opportunity as we continue to drive this and look to drive this out into our business and ultimately into our P&L and drivers.
Next slide, Shenin. Just turning to the future. As I say, the Wormald and Red Wolf businesses are in the business.
We have been underway for some time now and really delighted with how they are going. In terms of what is ahead of us is the ADT UK. I will quickly just restate it for the benefit of those that are not familiar with it. The U.K. business delivered around GBP 87 million of revenue for the year to July 2025. It has a margin that is quite a bit higher than our business, and has a much bigger recurring revenue stream. It is just based on residential security across the U.K. It is very broad, goes across the U.K. It has been in the U.K. since 1874, virtually since ADT really started as a brand out of America.
It has over 160,000 customers and is the prime and by far leading residential security company in the U.K. We will probably just jump to the next slide, Shaneen. In terms of the opportunity there.
Clearly there, as is here, and here being as much Australia as it is New Zealand as well, crime is prevalent. Crime is continuing, and it seems unlikely to abate any time soon. Even if it does not, I think people's awareness of it is only increasing. In the U.K., forecast market we looked at as part of this shows a really good, strong underlying growth just in application of residential security in the U.K. It is a much more accepted service right off the bat than it is actually in Australia or New Zealand. So we are buying a business we want to see participate in the market growth in the first instance.
In the second instance, what we are really looking to do, though, is take the lessons around ADT Guard, the platform, and all the work we have done over the last couple of years that have enabled us to be in the position we are in today, up to the U.K. and make ADT, by far and away, the leading security services company in the U.K. Very exciting for us to do that. It will be, as I said at the start, very positive financially right from the get-go, but it is also around what it does for us in the future, which is what we are focused on. Just jumping to the next slide, Shenin. I guess wrapping up this and trying to keep it tight. FY 2026 was another, I would probably say, significant year for IMB.
It feels like it has been a series of significant years, and particularly around scale and positioning. I think this year, I would call out we really feel like we have got our hands around the business, and we are starting to see the proof of that coming through. We have also taken another bold step in scale and I guess aspiration. It is a funny word to use in Australia these days, but we will throw it around. Particularly with the ADT UK acquisition, and I think because of the stable nature of that business and the relative price we paid, we see it as a very low-risk but high upside potential acquisition or potential for our portfolio, which we are looking forward to work on. We are seeing the commercial momentum.
If nothing else, sort of proving up our thesis that having a network of direct technicians and employees that are able to respond quickly, that are well-trained, that know what they are doing, does have value and is something, particularly in the enterprise and commercial world, I think a lot of customers have felt starved of for probably a decade or two now, is proving to bear fruit. That ADT Guard growth coming through is very positive seeing. We will really look to try to get that rattling along now over the next couple of years. Then just, I guess, wrapping it all up into that sort of comment around the underlying growth, stepping up from that 8% to sort of 12% this year would be a good wrap summary for this year. Next slide, Shenin.
Looking in the next couple of years, I break it down pretty simply for everyone. We want to keep driving the commercial pipeline and seeing that secured growth, and that was the secured pipeline that we were reporting against there, deliver, but also continue to step up over time. We want New Zealand to prove up the comments I have made this year around the importance and prospectivity of what we have put together down there coming through over the next couple of years, and particularly will be good to see how they go when the economy eases a bit on the fire side. I think that will really help that market along. ADT Guard remote monitoring core to our long-term value and ability to create something very special, I think on a near global basis. Then just the integration in the U.K.
That is sort of our four focuses for FY2027 beyond. Which, as I say, at a base level, sees us looking at a pro forma EPS before we start working and delivering on that of around AUD 0.08. Dave, I will pause there and just throw it back to you for the financials and we can take questions.
Yeah, great. I am not going to walk everyone through our P&L balance sheet or anything like that. I do just want to talk about slide 22, and then I will hand it back to Shaneen for questions, is ultimately, and this is what I was sort of talking about during the opening stanza is, did this business make money? Are we generating free cash flow? This is effectively just the cash flow statements in a visual form. You can sort of see the first part outside of the box is effectively your operating cash less your CapEx. Dennison talked about the CapEx that rolls through the business and what that is needed for. Then we have AASB 16 costs running through the business as well.
The gap between AUD 24 million and AUD 32 million is about AUD 8 million, which is the underlying business of what it did. Then you can see on the right-hand side, which is a whole bunch of activities here. We bought three businesses. We did a cap raise. We increased the debt. Then we moved around some really small other stuff, and that contributed about AUD 10 million. From the start of the year to the end of the year, cash is up sort of 18.7. If you think about it, really, it is AUD 8 million from the underlying business. Which included inside of that includes about AUD 5 million of the one-off costs. AUD 5 million of it is cash cost that ran through the business, like dealing with receivables and impairment of assets as a non-cash item. But there were M&A costs in there.
There were restructuring costs that we ran through the business to sort of stitch everything together. Then there is also the working capital impulse that ran through the business. I think, as the accountant in the room, I quite like the cash flow side and how much cash was actually generated. Then obviously trying to use this as our baseline that Dennison was talking about as we get a full year of Wormald and Red Wolf rolling through, and then also with the U.K. acquisition partway through the year. I might pass it back to Shenin and Dennison.
Yeah. Shenin, we will open the floor and you can take questions. Thanks very much.
Thanks, Dennison. Thanks, David. I have, yeah, no questions in the Q&A, so if anybody wants to-
Oh, perfect.
If you have any questions-
Easy
Please, yeah, raise your hand and.
Richard there.
Oh. Hi, Richard. Please, yeah, you can unmute yourself and ask your question.
Thanks, Shenin, and morning, guys. Well done on a great result and especially the organic growth starting to tick up, which is really nice to see. I think a lot of people have been waiting to see that in the business. My question is on the U.K. acquisition you guys have made. Obviously very transformational. A lot of EBITDA coming into the business now. I was wondering if you could just give us some color on cash conversion in that business and the EBITDA and how that relates to you guys and also the cash conversion, in the Australian business as well, and where you see that progressing going forward.
Yep. Look, Dave, are you happy to take that, or you want me to do that?
Maybe you do the U.K. one, and then I can talk about the Australian underlying business.
Yeah. Look, just the U.K., probably two features to this story. One is, EBITDA in the U.K. includes leases that we have restated. So it is, as we like to refer to it, old EBITDA rather than new EBITDA with AASB. So there, from EBITDA down, therefore you have really, in terms of free cash flow, it is CapEx interest and tax. The U.K. does have contracts, so they are selling. So contracts themselves are not necessarily the issue, it is whether you capitalize and/or whether you are subsidizing. We look at they, on a run rate basis in the last three years, there has been about AUD 21 million of CapEx against that business. So in terms of free cash flow from the U.K., I think the EBITDA, we have put at current exchange rates about AUD 79 million.
You take AUD 21 million off the CapEx, and that leaves you your free cash flow, which gets added to the business. Then obviously, just your interest costs across the business and then your tax. In terms of the pro forma, that is why we have been very clear to say we have fully taxed that pro forma. So we probably will not have a full tax rate, certainly not for some time, but we want to make sure that we are setting a base at the right level to give ourselves room to not disappoint, frankly, than achieve. So, free cash is, I would look at it at sort of AUD 79 less AUD 21 as a steady state, Richard, and then just interest, tax.
Yeah, great. On the Australian side of the business, this graph sort of is highlighting our CapEx at about 8 and then the Wormald business and Red Wolf businesses are quite low CapEx elements. Somewhere maybe between half a million and a million AUD of additional CapEx from those two businesses coming on. Then AASB 16 sitting at around AUD 6 million. Then with the Wormald and Red Wolf businesses, there will be up to AUD 3 million of AASB 16 on that side as well. Then at the moment, under our current NAV facility, our full freight debt is around AUD 9 million.
But as Dennison was just talking about, when we do the full repackaging of the debt facility with the U.K. acquisition, we transition to a different structure and we fully disclosed in the Amsterdam presentation, sort of talking about AUD 450 million of gross debt and rates about 6% above LIBOR going through. Hopefully that gives you the information, Richard, you need to sort of piecemeal it together to get a sense of EBITDA through to cash conversion.
Yeah, no, that is very clear and really helpful and positive on the cash generation there. Thanks, guys. Maybe just also, Dennison, on the U.K. business, I am just curious how similar it is to your monitoring business in Australia. Are there monitoring rooms sitting there? Is that where a lot of the CapEx is going? Also the potential of bringing Video Guard as a product there, and are some of the other security players in that market kind of doing similar work on the video side of things?
Yeah, no, all good questions. I think the way I would phrase the U.K. for people is, essentially around the world, an intrusion alarm system is an intrusion alarm system. There are a lot of different ones, actually, as it turns out, but they all do the same thing, and they have all done the same thing for 50 years, and that is the same in the U.K. Even Verisure, who are the leading growing player in the U.K. over the last decade, are just offering an intrusion system with CCTV cameras. So very standard vanilla thing, and we see that everywhere. I suppose that is sort of why our ears perk up as to the opportunity, given what we are seeing here and what we are doing. The difference in the U.K. to Australia, I think, is you have a thing called a licensed customer and an unlicensed customer.
A licensed customer, which takes a little bit longer to get set up as a customer, means that if two zones of an alarm go off in an intrusion, so somebody's walking around your property, they trigger your kitchen and your lounge, and we get that response, we are able to go to the police, and they may respond. I always say able to and may. It doesn't guarantee it. The police will say, "All right, well, it's a customer who we take seriously. They've been credentialed and indicated by us. Can we go? Should we go? We don't know. It could be a resent." It probably is a thing in that they have to weigh it up with what they're doing. What that means is that the service from the outset in the U.K. feels more valuable than it does in Australia.
You can make the case to a U.K. customer today that there is a sort of element of police protection, and I think a lot of customers feel that they have that, even though it's actually a small proportion of the overall base that's there today. That leads to higher starting penetration than what we have here and a slightly higher ARPU as well from a customer per month. Our opportunity, of course, is unique, and that is to take from being an intrusion situation to essentially patrolling and prowling the perimeter with our cameras when they are turned on, which is actioned by the customer. That allows us to go to the police directly, either before an event or right when it's starting, and the police take that very seriously.
It's a completely different response mechanism and feeling from the police if they actually know something's happening versus there could be something happening with a customer that could be at risk. Hence why we have the arrests. I think that's the big difference. In terms of us enabling it, part of all of this is, of course, in life generally, is a bit of luck. Our core technology platform that ADT frankly uses around the world is about to be enabled with video monitoring.
Now, I don't believe most of the ADT businesses probably even realize that, but we do by virtue of the partnerships and journey that we've had, which means that within about the first six months, and I want to be cautious here about setting expectations because there's time to do these things, and it will take a bit to get the customers used to what we're doing. We'll be able to enable ADT Guard by quite simply just going back to that existing customer base, as we will be able to do in Australia if we wish as well. It's a little bit more complicated here because of the historic customer mix, and actually offer them the service. In terms of delivering it, the room, funnily enough, is enabled for a form of video, and so there will be training and things involved.
We don't own the room itself, just to call out. We are using ADT's, sorry, Johnson Controls' room. That's the very end of our chain, though we do everything else for the customer other than the literal response bit. But that room is able to do it. The big game, as I said, in the U.K. is two things. One is let's get ADT back to market growth. It has fallen off. It's been unloved, and very much a sort of out the sides very small business for Johnson Controls. The other part is to enable it to actually grow addressable market and grow share and use ADT Guard, which we think we can start to do within the first 6 to 12 months.
Super helpful. Thanks very much, Dennison. Maybe I'll just ask one more as well. Just on the commercial pipeline that you guys have seen in Australia and New Zealand, obviously continues to grow rapidly. What's the sort of vertical or sector mix of that pipeline, the customers? Are you seeing some pretty strong demand from, I guess there's a lot of working on in digital infrastructure and data centers and the likes. Maybe you can just give us a flavor of where that growth is coming from.
Yeah. No, I'll take that one. Look, again, it's very broad based. I don't think any one customer group area would represent more than 25% of the book, which is, as we actually, we did sort of disclose a deeper split in that first quarter result this year, and I think it's largely held the same. I haven't actually run the work, but I haven't noticed any differences. In terms of, I suppose notable things, we are a beneficiary of data center growth. We do have one customer in particular who's very well capitalized, is a long-term player in Australia, who we are, effectively, we like to think and been told their preferred partner. They have a big development pipeline, but it is only sort of proportionate to all the other opportunities we have.
I'm sort of loathe to become a data center proxy growth story, because it's actually much wider for us than that. I think generally speaking, what's really happening is these, on a commercial and enterprise level and an intrusion and/or access control system, data and control can lead to a lot more applications and enterprise help and functionality, if it is integrated. If you're running it as one system across a big business, and I think that's what we're seeing when we see, for instance, Sydney Airport looking to tender to try and bring. They have different access control systems spread throughout the site, which means they don't have one source of truth. Information of somebody quits, leaves, they have to restart something. They've got to get them on multiple systems. They can't really take much from that data or understand it, learn it, control it.
I think they are looking to integrate, as an example. It's a broad thing. I think what I'm really interested in, I guess, and to a degree, it's validating, is that right at the start of this journey when we got ADT, it was because we had large enterprise customers saying, "If you had direct technicians and the capability you have in your monitoring rooms and you could do all of our work for us, we'd want you. We'd want you to do it all." By virtue of just getting ADT, which did have a good reputation in this area, albeit it had a poor finish because of a strategic decision out of Milwaukee and actually enabling it, the customers have come back. We've not been out seeing ADT all over the world for us to be reporting this growth.
What it is our reputation's already established and people understanding. A lot of it is actually existing, sort of essentially customers who touched ADT at one point, and/or that we've acquired but now engaged a different conversation with them and said, "We can do more than what we were doing, or we have been doing for you," has led to all of this growth. We think there's a lot more left in the commercial security tank, over the next couple of years as we continue to build. We've got to build it, though, as we go, and we've got to make sure our talent is matching our words, which it has to this point, which is great.
That's great, Dennison. Great seeing the progress. Well done, team.
Thank you.
Thanks, Richard. Thanks, Dennison. We've got a question on the Q&A. Dennison, line of credit for the U.K., is there an opportunity to save on financing costs once it is done?
Yeah, that is a good question, Freddy. Yes is the answer. We have not announced it as part of this result, but we are happy to talk about it. As part of our facility agreement with the Ares, they have allowed us to introduce a senior secured lender to the mix, I guess. We have been having discussions with a range of parties. There is high demand for it, and we are looking to close that out. It is over the next few weeks. What that will do is it will allow us to bring the funding costs down a little bit more. At the moment, post U.K., they are sitting just over 10% all in. With a little bit of luck, we might be able to bring that under the double digits, which just makes us a bit more comfortable on a more medium-term basis.
But obviously, we want to see those. Having worked hard to get to senior, it was a serious decision for us to go to the U.K., not just for the strategic reasons, but also for the financial ones. The plan is to see that funding rate fall back to more of a senior level again over time as we execute, and I suppose watch this space.
Thanks, Dennison. I have Paul, who has his hand up. Paul, you can unmute yourself, please, and ask your question.
Dennison, first of all, congratulations on the good numbers. I got a few questions more or less on the financial side. I have seen that the, wait a second, the receivables went up like 30%. I just want to understand what is happening there. At the same time, I guess you already touched it, but I think I missed it. The impairment of receivables is something I would like to understand as well, and the impairment of assets that you have in the adjusted EBITDA reconciliation. If you could shed a little bit of light what is happening there, would be quite nice.
I am happy to take those, but I will see if Dave wants to have a crack at it.
Yeah. I will have a go and then, yeah, if you back us up, Dennison. The receivables balance, you are right. So on the face of it looks like receivables have gone up by a lot. We did acquire three businesses during the year, and part of the acquisition is that you acquire your standard working capital that is running through. If you think about the three that we bought, WAPL and BNP, which were right at the start of the year, and then we had Walker, which is the Wormald and the Red Wolf ones. We did that literally on the 30th of May. I would have to go back and check my numbers and it will be in the purchase price accounting methodology that we run through. But effectively, the majority of that is to do with the purchasing.
There is some working capital, impost and we have got transparency on what that is, and we are trying to seek how to make sure that as we grow and the installations grow, that we are billing, getting the WIP out to an actual invoice amount and collect it as we go through. Once we have got stabilized positions, Paul, you shouldn't see a violent movement in the items like the invoicing elements going through. In terms of the receivables, obviously a big part of what we have acquired has come out of the JCI framework, and we have both residential and small to medium customers and commercial customers. So majority of the receivables are to do with the resi and the small to medium enterprises. What we are seeking to do is move people away from physically paying invoices into more of a direct debit sort of approach.
I am assuming everyone on the call, and me myself included, is, when you set up the direct debit, it sort of rolls through pretty quickly. If you do not have that, then it becomes an afterthought as we roll through. The comment in the one-offs is saying we have inherited a structure, we are seeking to clean it up. As we go forward, we need to make some pretty fundamental changes about how we engage with our customers on that side of things. It is front of mind of management's action items as we go through forward. The impairment of assets, a big chunk of that is to do with the assets that were part of previous acquisitions past the 12-month period.
You have a 12-month period to adjust your purchase price accounting under the accounting standards, and you would move your opening balance sheet item and post that 12-month period. A full review of aged stock has been undertaken this year in FY 2026. Dennison was saying, "Let us get a clean balance sheet. Let us get everything sorted out. I do not want any obsolete or recalcitrant assets sitting around in warehouses." A decision was taken, Paul, to impair any assets over a certain period, that we could not see line of sight in terms of deploying to customers. We have not thrown the stuff out. We have not sold it. It is sitting there for the operations teams to use if there is an opportunity. But we wanted to represent the inventory as the best position going forward.
Got it. David, sorry, just one more question. I did not understand exactly the impairment of receivables. You have AUD 3 million this year. You have AUD 2.9 million last year. So, it is like two years in a row that your non-recurring are actually recurring, so to say.
Yeah.
Yeah. Could you maybe-
No. Yeah.
Rephrase it, where it is coming from?
Yeah. The way I would describe it, Paul, is it is our historic ADT customer base, so it is not new customers.
It is not things we are doing now. It goes back to the customer has been there for a while, where they are generating a receivable. I think last year I saw it was a bit sort of like this. It popped up. I was like, "Oh, not that again." This year we have sought to draw a line under it, and to Dave's point, this is sort of ceasing at this point, but it relates to long-term historic customers that are not on direct credit, that are difficult, that we have to chase. We wanted to just kind of clean the books, if I put it that way, and just draw a line under it and then we will go from there. It is not new customers, not business as usual. It is not the stuff we are doing.
It's the stuff we inherited that it's taken a while to get on top of. I'll just step back because that comment sort of does feed into that impairment of assets one, too. Albeit I know time moves on for everybody. ADT AU in particular was a hell of a mess when we bought it in 2023.
I always described it as an onion. I said, "Look, there's layers of stuff here we're going to have to work through." You can see that in the receivables because that is all historic and we just haven't drawn a line under it, which we are doing now. The impairment of assets was the same. This year we've implemented a complete reprocessing of procurement. We've brought in experts, we've realigned our warehouses, we've gone through everything. Frank and I just said, "If it's not got a useful life, throw it out, burn it, write it off. I just want it gone. I want a clean house." Therefore, we did. I said, "And don't spare anything.
I want it to be clean and clear so we can move forward." I think, in a sort of conceptual way, that's what I'm sort of trying to say about these accounts this year for 2026. These accounts for 2026 now represent as clean our accounts as we've ever had and will probably have on the go-forward basis, so that we feel comfortable about forecasting off them and moving forward. The impairment or receivable one does come with a little bit of work still to do, to Dave's point. We want to move more people on to direct credit to work through that. Our expectation, or the expectation we've set on the business is, it doesn't lead to more impairment on the go forward.
Okay. Understood, Dennison. Just so I understand rightly, if I would ask you about what would be the impairment of receivables and assets be in fiscal year 2027, you're more or less saying those shouldn't recur again, right?
Yeah. Look, it's-
I mean, at least within that size.
Yeah. They shouldn't, and we are going to put the onus back on. I would be cautious about absolute comments and this sort of thing in life. We can make it not appear again, but it also might not be economically fair. We are trying to present accounts that show the underlying true cash profitability of the business and impact of it. But I am giving myself a little bit of wriggle room because I do not feel like we feel like we are 100% in control of it, but we are now very-
on top of it, aware of it, and we have just got to drive it out. So I do not expect to be having a significant conversation about it, if any at all next year, is probably the way I would put it. It will not be like this again.
Appreciate it, Dennison. Yeah. That is it. Thank you very much.
Yeah. No problem at all. I will just take a point on that too, though, just to Dave's comments at the start about cash flow, operating cash flow and free cash flow. They are headline numbers, and so again, within those is transaction costs for, frankly, the M&A. So we had capital raising costs and advisor costs and all that sort of stuff this year. Obviously, when we see the kind of uplift the business is going to get, that was an an investment we made now for the future. But also, it does have working capital from these acquisitions and things. So, I am quite optimistic about the cash flow continuing to build as, again, these things continue to shake out. The trajectory for us is probably the most heartening thing.
We feel like we are doing what we said we would do, and sometimes timing can skip and miss or be ahead, but the direction of what we are doing is spot on and gives us a lot of comfort and confidence and frankly, excitement, too, about what we are doing here.
Well, one last question, Dennison. Just came off my mind. Sorry if someone else wants to ask another one. On the CapEx side, I think this second half, I think it was about AUD 2 million, as far as I remember, compared to the first half year. I wanted to get some thoughts from your side on the, I forgot what it is called, from 3G to 4G transition in-
Yeah
New Zealand and how it is going. I have seen you invested like AUD 1 million into the Video Guard, and I was wondering what exactly is
That-
the AUD 1 million spent in?
Yeah, that is OpEx. So that, to be blunt, that is wages. It is tooling up a team to go after opportunities and the sales pipeline times on commercial around guarding. It does take a little bit of time to generate. We are changing an industry. We have got a new service, and we are also having to train people how to sell it. So, it was a definitive, we want to go after the opportunity, so we are just trying to run the balance of over-investing, under-investing, vis-à-vis the growth we want to deliver over the next two and three years. So, we are just trying to run that juggle, and the point with the AUD 1 million bucks just over was, we actually went ahead and said, "Let us just stand up team. Let us get some good people. Let us try and train them.
Let us learn the lessons and let us go." It did not return on itself this year, but we are really confident about what it has shown us and the pathway forward now. We just wanted to call that out. CapEx, yeah, it has trailed. Basically, again, it has done what we said it would do. If you go back to when we bought ADT, we had to go through the 3G transition in Australia. It cost us money, distraction, time, paying for on top of everything else. We got through it. Then we were left with New Zealand, which was 3G shutdown was later. That is now largely complete. They are shutting off the networks, going around the country bit by bit. To all intents and purposes from our perspective, it is done.
The capital we needed to spend there was around our medical business, where it was all on pre-3G technology, so we had to refleet the entire medical fleet in our business. We are the second-largest medical alarms provider in New Zealand. It is about, well, of what I call old ADT pre-Red Wolf and Wormald was about a third of that business. We had to do that. That CapEx is all complete now. There is, I guess the proof statement, as we said, as CapEx comes down over time from what had been some big numbers down to your point. I cannot validate this, but it sounds right to me, Paul, that AUD 2 million. On the go forward, the way we look at CapEx is there is a stay in business kind of CapEx level for IMG group pre the U.K., which is around AUD 3 million a year.
We will put another AUD 1 million in for Wormald just to cover our bases there, and we do want to actually spend some money as well there. We think there are systems improvements and things we can do there to help the business. Then there is about AUD 4 million of recurring CapEx now in medical. It probably will be less than that for the next year or two because we have just re-fleeted. But on a normalized basis, you are talking at a group level of an EBITDA business of about 55, about AUD 9 million of CapEx. You have then, of course, got the AASB leases you have got to take off too and down. CapEx pre-U.K., AUD 9 million. With the U.K., I will go back to the pro forma levels. We are talking about a sort of 133 million EBITDA.
CapEx across New Zealand, Australia and the U.K. for the group on a pro forma is about AUD 30 million. You are adding in sort of 21 million from the U.K. to do that, and then flowing down. Is that helpful, Paul?
Yeah, very helpful, Dennison. Appreciate it. Might follow up with some-
Yeah, no.
for more questions via email then. Thank you.
Perfect. Thank you.
Thank you, Paul. Thanks, Dennison. That's it for our questions.
Great. We will wait for a second in case anybody has anything else. We are available. Our numbers and contact details are, I think, on the slides. I would like to thank Dave for joining us. I should have noted Dave's first CFO performance for IMG Group. Dave is known to many in the market through his Mayman Marine days. Really great to have him on board. Thank you, Shaneen, for your help. I guess the summary to wrap up here is we feel really quite good about these results. We feel like we have got a really good base here. We feel like the direction of the business is largely doing what we hoped it would do and I suppose expected it to do.
As we look out to now 2027 and 2028, we think we have got a really exciting, not just story, but actual business and hopefully one that will be of increasing value over time to all stakeholders. So appreciate the support, interest. Happy to take questions offline and if we are not, we will see some of you over the next week or two as we travel around. Thanks very much.
Thank you