Thank you for standing by and welcome to the NRW Holdings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jules Pemberton, CEO. Please go ahead.
Thanks very much. Good afternoon, everyone, and welcome to the presentation for the acquisition of Freedom, which delivers a highly strategic fourth pillar to the group, which we're calling EMIT. I'll go through slide three, and then I'll pass over to Pete Brighton, who's also with me here, our CFO, and we'll have a Q&A at the end. Very pleasingly, we have announced this morning the acquisition of our business, Freedom, which is part of the fourth pillar EMIT, which we are citing. Freedom is a 100% Australian-owned multi-service electrical, mechanical, HVAC, infrastructure, technology, and maintenance service provider with a long track record of strong revenue growth and cash flow generation supported by a capital operating model. It operates across four divisions: electrical, mechanical, infrastructure, and technology. These are core capabilities with a proven delivery platform with scaled access opportunities driven by the energy transition, electrification, automation, and digital innovation.
The business was established in 1968 in Sydney and led by major shareholder Alan Lippman since 1987, who's grown it with his team to the business it is today. It employs 2,500 technicians, project managers, engineers, and operational staff. It has a broad footprint across Australia and an established position along the East Coast and expanding presence in South Australia, Western Australia, and also New Zealand. In FY2025, it generated $840 million of revenue and normalized EBIT of $38.6 million. It's had a strong record of delivering a positive earnings contribution. The executive management team will remain in place under the leadership of CEO Scott Olson, who joined in 2019 after holding senior leadership roles at Lendlease Engineering and John Holland, where he managed large-scale infrastructure and building operations.
We have good visibility on earnings via Freedom's existing contract portfolio and order book, which I'll touch on later, including $840 million in revenue scheduled for delivery in FY2026, and we expect a step up into 2027. The business aligns with NRW's strategy to grow through expanding our service offering, delivering a step change in new capabilities and entry into addressable markets. We expect the completion to occur on or before September 30, 2025, and we'll update the group guidance post-completion. I'll just hand over to Pete, and then I'll be back on again.
Cool. Thanks, Jules. For the second time in two weeks, I'd certainly like to welcome everyone to the call. I'm pretty excited to be here with Jules today talking about what I think is without question another pivotal point in the evolution of NRW. I'll spend the next couple of minutes running through the transaction structure, the economics, then I'll hand back to Jules, and he can provide, as you said, a bit more on the background of the business and alignment with our strategic objectives. I'm on slide four. NRW will be acquiring 100% of Freedom for a maximum consideration of up to $200 million. I say up to as the purchase consideration includes an earnout component that won't be known until the end of the earnout period. There are two key dates to be aware of: the economic effective date and the completion date.
The economic effective date, which is 1 July 2025, is, I guess, in simple terms, the date from which NRW will receive the cash generated by Freedom. The completion date is, as the name suggests, the date the transaction completes and Freedom becomes part of the NRW group. We're targeting completion to be on or before the 30th of September. Completion will occur after a small number of conditions have been met. Hence, we can't be definitive on what the completion date will be. Importantly, NRW's FY26 results will only consolidate the earnings of Freedom from the completion date. Perhaps a bit simple, but assuming it's 30 September, we'll have nine months of Freedom revenue, EBIT, etc., in our results.
The purchase consideration of up to $200 million has three tranches: $122 million payable on completion, an earnout of between $45 million and $60 million payable in Q3 of FY26, and a deferred cash consideration of $18 million payable two years from completion. The earnout payment will be based on the EBIT generated by Freedom for the 12 months ended 31 December 2025. The earnout has a cap and collar with zero earnout payable if EBIT is below $30 million and a maximum earnout payment of $60 million if EBIT is $40 million or above. Fair to say, we are confident, based on the numbers we've seen, that the earnout maximum target will be achieved, and we will happily part with the $60 million maximum earnout payment when that occurs.
This confidence comes from the numbers Jules ran through: $38.6 million normalized EBIT for the business in 2025 and clear visibility to FY26 EBIT of, call it, $40 million. A maximum consideration of $200 million, the implied acquisition multiple being the EBIT to EBIT, will be 5.2 times, which represents exceptional value for NRW and its shareholders. By comparison, other ASX-listed businesses in the sector, like Southern Cross, Genius, IPD, and SKS, are currently trading on much higher multiples, reflecting the equity market's understanding of the value of this sector and its very positive outlook. The acquisition will be funded from our available undrawn debt facilities and from cash generated by the business subsequent to the initial payment, but before the payment of the earnout and the deferred consideration.
As you would expect, we will see gearing and leverage initially step up off the back of the acquisition, given it's debt funded, but due to the high cash generation of Freedom and the broader NRW group, we see NRW returning to its targeted gearing levels in the not-too-distant future. I'll hand you back to Jules now.
Thanks, Pete. Now I'm on to slide five, strategic rationale. I mean, the acquisition of Freedom represents another transformational milestone in implementing our growth strategy and delivers a lot of benefits we expect for shareholders going forward. It gives us an expanded service offering, new capabilities, and the addressable market via a brand new pillar in EMIT. Proven delivery platform with scale. If you look at the size of the other businesses, it has immediate scale to access opportunities driven by this energy transition, electrification, automation, and digital innovation. There's an increase in further diversified maintenance and service-generating annuity-style revenues also that come with this business. It is a capital light, cash-generative model with exposure to major infrastructure projects offering a stable and scalable growth. I'll just touch on a couple of points on the Freedom business itself, and I'll try not to repeat myself too much.
Again, established in 1968, which is a repeat, but a long track record of strong revenue growth and cash flow generation, obviously supported by this capital light operating model. Two and a half thousand people, technicians, project managers, engineers, operational staff, apprentices are all joining the group, and we're very happy to have them as part of our group. On that slide, you've got the sort of the four divisions that they have from electrical, mechanical, HVAC, and the capabilities that they bring, infrastructure, and also the technology business. Again, that's supported by this national service and maintenance capability, which supports all of the construction part of the group. I'll go on to the next slide and talk about some of the specifics in their key markets. Freedom's broad technical expertise covers design, installation, maintenance, and turnkey solutions, supporting industry leaders and complex projects around Australia.
The diverse sectors it covers: commercial government, large installation projects, building services, facility management for commercial buildings, government infrastructure and public assets, data centers and technology, digital innovation, energy transition, electrification, and automation, health and aged care, major projects for hospitals and aged care facilities requiring very complex HVAC, electrical, and technology integration, defense, mission-critical, serving federal and state government departments, including defense with secure, highly reliable installations and sensitive environments, infrastructure and industrial, participates in infrastructure projects spanning power, water treatment, transportation, and food processing, in education, engineering and technology for schools, universities, and educational institutions, and also in heavy industry, electrical, mechanical, and technology solutions for mining, oil and gas, power generation, mineral processing, and related infrastructure, although that part of the business currently is at relatively low levels.
You can see also from the map the broad reach that Freedom has around Australia in terms of its delivery capability. I'll pass back on to Pete just to go through the Freedom financials, and then I'll go through the rest of the presentation.
Thanks. I'm on slide nine, and I know we've already touched on the FY26 numbers, but to reiterate, we have clear visibility on FY26, which should see Freedom deliver EBIT of circa $40 million. We've got a high degree of confidence around this number driven by both the outcomes of the due diligence process we've just concluded, but perhaps more significantly by the fourth bullet point on the page. 75% of Freedom's forecast FY26 revenue is secured. If we assume normal run rates for Freedom's maintenance and minor work service offerings, that coverage increases to 100%. We all know revenue is for vanity and that the business needs to manage its projects and its cost-based world to ensure that revenue ultimately generates the targeted EBIT and beyond that, the all-important cash.
That said, having 100% of the revenue effectively locked away is a very nice position to be in as we head into the third month of the financial year. The reputation Freedom has with its clients is reflected in the final bullet point on the page. Freedom has, over the last five years, generated 70% of its revenue from relationships that have been in place for over 20 years. Relationships don't last this long unless you deliver, in fact, exceed your client's expectations, and unless you are professional and reliable in the way you work. Although not called out on the slide, cash generation has been a strength of the Freedom business. Work and capital management is front of mind. Projects and business units show their net working capital balances as one of the key KPIs presented in Freedom's monthly reviews.
This is an important metric, and to be honest, it's not one that always gets the prominence that it should get. It was great to see it prominently used by the Freedom leadership. I was also impressed in an early meeting with Freedom when I saw a phrase or the phrase, "Revenue is vanity, profit is sanity, but cash is reality," appearing front and center on a strategy deck. Impressed because it's true and because a couple of months earlier, I had the same phrase on the front of my first presentation to the NRW leadership. Back to the slide. The graph on the right-hand side reflects historic revenue generated by Freedom. Not bad when you remember we had a couple of years of COVID during that period.
Importantly, when we look to FY27 and beyond, we see significant opportunities to grow that revenue and, in turn, the profit and cash contribution that the business will make to the newly expanded NRW group. Last, but by no means least for me on this slide, the acquisition will see Freedom's workforce of approximately 2,500 join the existing NRW workforce of approximately 9,000, which will bring the new combined group workforce to 11.5 thousand or thereabouts, making NRW a significant employer. Any business is only as good as its people. Whilst I've only been at NRW for a short period of time and to date have only met a very small number of the Freedom leadership team, I can tell you collectively we have some exceptional people and we are very aligned and supportive in terms of our culture. Jules.
Thanks, Pete. Onto the next slide on the Freedom pipeline. As Pete has said, we're very pleased with the outlook of the business, the tailwinds that are behind this business, but this slide really sort of sets it out. We have $1 billion of work in hand and the pipeline is $3.5 billion currently, which is projects that could be awarded and commence within a 12-month period. Out of that, Freedom has $2 billion of submitted tenders currently. The pipeline graph, which is demonstrated below, shows the diversity of the client base and also the activities that they are performing in that pipeline, which is considerable. If you look at the right-hand side of that slide, mining at the moment, which is obviously a strong suit for NRW Holdings, is at a very low point.
It is one of the areas that we can obviously assist in growing the business in the future. Pipeline across division by state, again, pretty diverse, giving us a very good base in the eastern states and the ability to cross-sell across clients both ways. The next slide just sort of talks a little bit about, it's one of the stat slides from the reference that we have down there, but it kind of demonstrates the activity levels where Freedom can participate and obviously NRW Holdings as well to a lesser extent. Significant activity and a lot of increased activity, particularly across the areas that Freedom specializes in. A very positive outlook. That brings me to the combined outlook for the group. Pipeline as a result has grown to $20.9 billion.
The current active tenders with the $2 billion from Freedom has grown to $7.6 billion with $7.1 billion work in hand and $3.8 billion of that, including $0.8 billion from Freedom, already secured for FY2026. We're in a very strong position for not only this year, but obviously into 2027 and beyond. As Pete mentioned, a group workforce now, the combined workforce is around 11,500 people. As we look forward, guidance is per our guidance from two weeks ago. We will not be updating guidance until completion of Freedom. As you can see from this presentation, we're incredibly pleased and very positive about the outlook for the combined group. Happy to hand over now to questions if we have any. Thanks very much. Just one more point.
At the end of the presentation, there's a bunch of photos and other things which should again demonstrate the types of projects that Freedom's been involved in and really demonstrates the capability and depth of the group. Let's hand over for questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from William Park from Citi. Please go ahead.
Hi, Jules and Pete. Thanks for taking my question. My first question relates to synergies. I appreciate it's still early days, but just wanted to kind of delve, you know, just wondering whether if you could delve into how you're thinking about synergies both on the revenue and cost side and any sort of low-hanging fruits that you could potentially crystallize post the completion of the deal. Thank you.
This business is very different to the current business that we have in the group. This is all about opportunities and leveraging relationships to do more. I think, given the tailwinds and the dynamic in decarbonization, electrification, Freedom are in a very strong position to continue to grow and will assist the business to continue to grow. There are no cost outs. It's the same management with the existing people, and we want to grow it. That's how we view this acquisition. It's a new pillar and a very strategic one.
Thank you. Just thinking about margins, obviously the margin that you've called out in FY2025 for Freedom and what you're expecting for FY2026 seems to be a bit lower than the group EBIT margin. Just wondering how you're sort of thinking about that and is there a potential for the margin from Freedom or your new vertical to effectively reach the group EBIT margin as you expand Freedom into resources sectors. Is there an opportunity there?
100%. I mean, I think, you know, our view on margins, our target margin would be 6% for this business in time. That's where, you know, some of its other peers are at the moment. It's a large platform. For us, it's about maximizing the opportunities, you know, that NRW can bring to Freedom, but also supporting Freedom with its current client commitments as well.
Thank you. Just one last question on how it is with this. How did this deal sort of come about? Was it a competitive process or did you have sort of existing relationship with Freedom in the past? Just wondering whether it was a competitive process at all.
No, look, I mean, it's been a gestation probably since around this time in 2023. We re-engaged in 2024, October last year, and really it's been sort of the last 12 months that we've been talking to the team. These things take time. Finding the right business with the right culture, the right leadership, the executive team are all excellent people. I've been to sites, I've met people on the ground, I've talked to their key clients. I'm very happy with the transaction, very happy.
Thank you. Thanks for taking my questions.
Thanks, Will.
Thank you. Your next question comes from Evan Peratzas from UBS. Please go ahead.
Hi, Jules, Pete. Could you just get into how much due diligence you're able to do around the order book and the assumptions or the projects that they've got? You're now just speaking to your comfort it can deliver on its current order book and current projects.
Hi, Pete. Look, we had the normal due diligence team lined up that you expect. We had PricewaterhouseCoopers and others involved in the process. We had, I'd say, a reasonably thorough due diligence process in part because of the length of the relationship that Jules just referred to. I think, as I said in my call, a high level of confidence that they can deliver the numbers that we've spoken to.
Okay. Just one more. The 75% of FY26 revenue forecast is already covered. You're saying 100% if some of these minor works come through. Is there some large risk to that minor works being undertaken, or is this just a reflection, I guess, of a bit of conservatism at this point? Maybe, Jules, can you touch on just what underpins the growth expectations into FY27? Any sectors or something you can call out there as well? Thanks.
The maintenance business is just kind of adding on the run rate that they're currently doing. If you add on the run rate of work that they look and do in a normal year off the back of what we've seen, that kind of gets us to 100% of that FY2026 revenue target. If you look without any introduction of NRW to them, to resources, or anything else that we're kind of thinking of, the way that the order book is shaping up for Freedom suggests a much stronger FY2027. That's partly because we can see that, because we know what they've tendered and what the pipeline looks like. It's really around timing of projects and opportunities that we're working on now. We've got very good visibility on.
Okay. As you said, it doesn't assume anything for bringing it to mining or resources in that.
Not at all. That's a strategy that we'll have to have with the management team at the appropriate time. Clearly, there's an opportunity there because they have very little, negligible, if any, exposure at all to that space. That's the good thing about the acquisition. It's very different to what we currently do in terms of its clients and its focuses.
Yeah, good one. Okay, thanks.
Thanks, Seth.
Thank you. Your next question comes from John Campbell from Jefferies. Please go ahead.
Thanks, guys. Jules, I came on a few minutes late, so I apologize if you mentioned this, but just in terms of what roughly that FY26 revenue, what rough % does maintenance make up of that FY26 and what % sort of new build, I suppose?
It's probably about 15% of total group revenue, yeah, which is service and maintenance, you know, maintenance of the van and the service team going out and doing things for long-term clients.
You would be wanting to build that over time?
100%. 100%. I think there's a real opportunity there. As I said, the leadership team that have been involved in this business for many years are very capable, young, ambitious team. Absolutely, we'd be supporting them growing that business and obviously the broader projects business as well.
Yeah, the revenue that you, the five-year revenue chart that you gave us, does that growth that we've seen over time, which is probably about 30-35% growth over time, is there any M&A in that from Freedom or is this all pretty much organic?
There's minor, very minor M&A in there. You've got to remember those are COVID years as well. The impact on projects and timing and all those other sort of things, what that's really demonstrating is that it's had a consistent but growing from a very big base. It's a big business with very good capability across Australia. The areas that are now growing are things like WA, South Australia. There's hospital work coming, there's defense work coming. WA has got an enormous amount of defense work, again, hospital work and other things that they see in the pipeline. Having that diversity across the country, particularly when projects might be delayed in certain areas, is important. Surprisingly, Victoria is incredibly busy, even though there's challenges potentially in the budget there, but it's very busy. Just having that diversity around the country and their specialist capability is super attractive for us.
Yeah, sure. Last one, obviously, you spoke about synergies and, you know, obviously not a cost synergy style story, but you clearly think putting the capabilities of NRW combined with Freedom, you know, one plus one equals three, that you'll be, you know, able to offer in their services to a much broader or a broader sort of subset of industries. Obviously, you've got strong positions within the resource sector. Clearly, you see, you do see significant potential for revenue synergies over time.
Yeah, absolutely. I mean, you know, the relationships that we have, it's the missing piece from our business and by a long way, you know, buying OFI as a small electrical controls business in WA doesn't do a lot for, you know, the scale of the group and the ability, particularly with the sort of tailwinds that are behind, you know, electrification in general. You're talking about renewables on sites. You're talking about electric trucks, NPI infrastructure. There is no resources exposure really for these guys at the moment, but that's not an immediate priority. It can be a priority once we get through the next few weeks and start talking about all those areas, but they've got a lot already, which is going to help grow the business from where it is in 2026 into 2027.
It's just a matter of prioritizing those opportunities, making sure we've got balanced, you know, risk across our business. I'm very excited about what this can do. We bring obviously bonding strength, balance sheet strength, other things to enable, you know, ultimately better participation should we wish under the right contract terms with clients that are wanting projects built. One of the key skill sets is clearly going to be the skill sets that Freedom have going forward in the future.
Yeah, I presume that they're somewhat constrained in terms of financial capability and bonding capability from tendering on at a certain level of project. That now opens up more clearly with your financial position.
Yeah, I mean, not really. They're not super restricted. The business has been going for a long time and been obviously very well supported by the major shareholder, Alan Lippman, over the period. We add another level of strength in terms of our balance sheet projects that we might be able to look at in terms of, you know, where we sit as a group. Having gone around to the sites, meeting a lot of the teams on sites, as well as meeting their top key clients, I was very encouraged by those conversations in terms of what broader opportunity might come out of that.
Yeah, great. Thanks very much for that.
Thanks, John.
Thank you. Your next question comes from Matthew Chen from Moelis. Please go ahead.
Afternoon, Jules, Pete. Just wanted to clarify that Freedom work in hand. Does that include that minor works maintenance style work in there?
Pardon me, it appears we have lost connection with the speaker line. Please hold while we get the line reconnected. Pardon me, we're now reconnected. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Simone Grogan from The West Australian. Please go ahead.
Hi, both. Thanks for taking some questions. I guess I was just curious to hear about, I suppose, whether the timing of the acquisition for you guys maybe says anything about the pipeline of work you're seeing in the resources sector, or is it the kind of boarding of the business that you sort of always had a mind to do? It'd be good just to hear a little bit more about that if you could.
Sure. I mean, we only did a result a couple of weeks ago where we talked about a pretty robust pipeline across our existing businesses. Both the civil business and Primera have done very well, certainly through FY2025 growing where we've had challenges in mining due to the weather. It is not a synergy resource-driven acquisition. It is really about diversity in the business and having different exposures across a suite of services. What we can bring is obviously we can potentially bring those relationships into our resources heartland where we do use subcontractors as electricians. There is an electrical capability within our group that we normally have to subcontract. There is the ability to do that, but also to introduce them to our resources clients over time when we're ready.
I got you. I guess the big picture theme is it could, you know, diversify us as a growing business.
Yeah, it's a capability. It's data centers, it's electrification, it's new buildings, it's battery storage, it's all of the things, automation, AI, everything that's coming towards us is really the rationale behind this. We've been looking at this space for probably two to three years. It takes a while to gestate acquisitions and find the right opportunity and find the right cultural mix and all of those things and the right service delivery. I think we've absolutely found it in Freedom.
Cheers. Thanks, Nicole.
No problem.
Thank you. Your next question comes from Matthew Chen from Malas. Please go ahead.
Hi, Jules, Pete. Just wanted to check if that Freedom work in hand includes the minor works and maintenance in there. Thanks.
No, it doesn't, Matt.
Okay, great. Can you give us a sense of what that is, or does it kind of align with what you said earlier about the 15% of that revenue basis, that maintenance style, minor work style?
Yes, essentially.
Okay.
Yeah, service and maintenance work.
Yeah, just on the incremental CapEx requirements of the business?
Matt, CapEx runs at, call it, between $3 million and $5 million a year, and depreciation is a similar number.
Okay, yeah, so it's pretty light.
Yeah.
Great, thanks for that.
No problem. Thanks, man.
Thank you. Your next question comes from Mitch Sonigan from Macquarie. Please go ahead.
Yeah, hi, Jules and Pete. Just a quick one first on the submitted tenders at $2 billion. Are you able to give us any sense of if there is such a thing of an average size or duration? I guess I'm just wondering if all those tenders are finalized, say, in the next six months or by the end of calendar year 2025, will we be expecting all of that work to be turned, say, in calendar year 2026, 12 months after? Thanks.
Look, they vary a lot. You could have projects from small projects up to $100 million, and obviously different differing timeframes. They'll have more crews on if it's HVAC plus electrical versus electrical on its own. It's a real mixed bag of project sizes. They have a lot of specialist areas that they work in, you know, obviously historically, particularly in hospitals, defense, data centers, etc. It's quite a mixed set of contracts.
Thank you. Just one for Pete, just in terms of the extra debt being drawn down on the revolver, can you give us an update or remind me of what the current cost of that facility is? Thanks, guys.
Yeah, it's around 5.5%. I think in that four-year results, we called out the average rate of play was 5.8%, but go somewhere between 5.5%, 5.8%. Mitch, just to be clear, you've got to look at the sequencing of those payments too. If you're modeling up EPS, depreciation, etc., we'll be paying interest on the $122 million, then the payout of the earnings-related element, and then the deferred element.
Yeah, thanks, Pete.
Thank you. Your next question comes from Megan Kirby-Lewis from Barrenjoey. Please go ahead.
Afternoon, guys. I was just hoping you could touch on the customer base and just give us any additional color on sort of whether there's government work in there or if it's more private. Thank you.
Sure. I think it's the government-private split. It's probably more government versus private. It is on the pipeline slide.
It's slide 10.
It is on slide 10. To remind me, private versus public. Private's about 34%, public's 66%. A lot of that work is delivered through tier one customers if it's not delivered direct to the end party. Tier one construction companies, etc.
Got it. Thank you. Thank you. There are no further questions at this time. I'll now hand back to Mr. Pemberton for any closing remarks.
Thank you, everyone, for listening. I know we're on roadshow this week as well. I look forward to catching up with those of you that are on the call. Thanks very much.
Cheers.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.