Good morning, ladies and gentlemen, and welcome to Service Stream's half-year results presentation for FY 2025. As for the introduction, my name is Leigh Mackender, Managing Director of Service Stream, and I'm joined today by our Chief Financial Officer, Linda Kow. To the agenda today, I'll start by covering the group's highlights and provide a brief update on Service Stream's operational and financial performance. I'll then hand across to Linda, who will talk through the group's financial performance in greater detail. We'll then move on to Service Stream's FY 2025 full-year outlook, and then finally, we'll open up the call for questions. I first wish to begin by acknowledging the traditional custodians of the land on which we meet today, paying respects to the elders past, present, and emerging. Okay, I'll direct you to slide three, and we'll touch on some of the key messages for the half-year.
Look, from the outset, I firstly wanted to express how incredibly pleased we are with the group's progress and the strong results, which reflect an excellent start to the 2025 financial year. The business has continued to diligently execute against our strategy, which aims to deliver improved and sustainable shareholder value through our focus across three core pillars being delivery, optimization, and growth. I believe the half-year results are most notably defined by the delivery of strong and improved financial performance, and that's headlined by growth in revenue, earnings, and profit. Business has not only successfully navigated through the tail end of this inflationary environment, but we've identified and realised a range of operational improvements while successfully securing and mobilising new contract opportunities, which each have contributed to the positive results we're releasing today.
One of the key achievements, I think again, was another period of exceptionally strong operating cash flows being generated and the group further strengthening its balance sheet, concluding the period with an improved net cash position. High cash flow conversion rates, combined with improvements delivered in working capital as part of the group's discipline capital management strategy, have continued to contribute positive results in this area. A major priority for the business, which we've touched on many times, has been on driving improvement across the quality of earnings within our Utilities segment . We're really pleased to have delivered a significant improvement in the Utilities division's margins, and the results of the first half are ahead of the expectations we'd set. Business still has further work to do here to reach our FY 2026 short-term goal, but we're really pleased with the progress that the team have made.
We have absolute confidence that they'll continue to make solid improvements as we progress through the next 12- 18 months. The half-year also marked a very successful period where the business has re-secured a number of major agreements, which proceeded to the market as part of reaching their natural term. Importantly, Service Stream has also secured a number of new contract opportunities. The securing of these works has certainly strengthened the group's work in hand balance, over what reflects, I think, a high-quality work order book of low-risk annuity-style revenues. And finally, the business has a strong pipeline of maintenance-related activities that are targeted in both our core and adjacent markets. As I reflect back on the results and the positive progress, I think the significant momentum has been generated across the first six months of FY 2025.
Again, we're genuinely excited that Service Stream has a sound strategy, a strong platform, and has exposure to attractive markets, which will support the business to deliver growth in 2025. Moving on to slide four on the group's financial highlights, and Linda will expand further on these later in her presentation. Group revenue for the half was AUD 1.26 billion, reflecting another positive period with strong growth of 7.9% on the prior corresponding period. More importantly, however, underlying EBITDA was AUD 73.6 million, reflecting a significant increase of 16.5% on PCP, and NPATA was up 49.9% on the prior period, with the group achieving AUD 37.7 million. I mentioned a few moments ago, highlight for ourselves is certainly that generation of strong cash flows, which further bolstered the group's net cash balance.
The group generated OCFBIT of AUD 19.6 million over the first half and achieved an EBITDA to OCFBIT conversion rate of 126.3%. Again, this result is testament to the nature of our client base, the positive terms that we've negotiated under our contractual agreements, and that strong importance that we place on the work-to-cash cycle right across the business. The further improvements to the group's balance sheet have been significant, with Service Stream's net cash position closing the half at AUD 55.4 million. That reflects an improvement of AUD 52 million on PCP and AUD 47.5 million on the immediate preceding half, concluding at 30 June 2024. We're pleased to see another strong result ahead of expectations while the business had to cater to both increased dividends and supporting further organic growth across the group.
On the back of these results, the Board were pleased to increase the group's fully franked dividend by 25%, reflecting AUD 0.025 per share dividend being paid. Moving to slide five and just touch briefly on the operational and strategic highlights. We've previously talked about a primary focus for Service Stream and all service businesses is the retention of existing contracts as they reach full term and they proceed to market, as well as securing new growth opportunities. Over the first half, the business had another positive result in both of these areas, successfully securing AUD 1.1 billion of works, which reflects a retention rate of 94% across our existing contract base. Group's level of work in hand has increased to approximately AUD 5.9 billion, and that reflects growth of about 17% on PCP.
But importantly to note, this number only reflects the initial term of our agreements, and many of our contractual agreements have multi-year extension options, which I'll talk further to later in the presentation. And finally, business has worked diligently over the last two to three years to improve the quality of our contracted operations, successfully pivoting away from major design and construction works, which are delivered traditionally under lump sum arrangements, and instead, we're focused on securing long-term operations and maintenance agreements. And we're very pleased to see that the O&M works now reflect 87% of the group's future work in hand, and that provides improved visibility and a lower risk profile into the future.
As I mentioned at the outset of the call, one of the business's key priorities has been to drive improvements in our Utilities division's margins and increase its level of earnings to support a meaningful contribution to the Service Stream group, and we're really pleased to have delivered increases in both of these areas during the half, with the results delivered ahead of the expectations we'd set last year. EBITDA increased by 38%, AUD 6.2 million on PCP to reflect AUD 22.4 million for the half, and EBITDA margins moved up 80 basis points on PCP from 3.4% in 2024 to 4.2%. Now, we've consistently delivered incremental improvements across these areas, but we're really pleased to see that margin performance achieving or even exceeding those expectations we set for the year, which was to achieve a 4% in front of our EBITDA margin.
Important to note, the business still has further works to deliver in this space, but as we've discussed previously, we have a very clear plan, and the team are working diligently through a range of initiatives, and we're confident that further progress and improvement can be made in half two as we progress towards our short-term target of having an EBITDA margin across our Utilities operations starting with a 5% in FY 2026. I think more broadly while I'm on the utilities area, I again just wanted to express I think I'm very excited about this area of the business and it's contributing more to the group's financial performance in the future. I think the division represents a very exciting opportunity for us in terms of its unique capabilities and one of the strongest areas for growth as we look into the future.
Rounding out some of the highlights from a workforce perspective and people perspective, we've continued to deliver industry-leading safety performance, and that's been headlined by major reductions across all lag indicators, including a 20% reduction in total recordable injury rates. This is fantastic to see, particularly as our operations continue to expand, and we really genuinely remain committed in our commitment to provide a safe operating environment for our people working right across the country. And finally, some insights in terms of the labour market, which has continued to improve across each of our industry sectors. We continue to see those positive trends in terms of reduction in attrition rates, and the business hasn't experienced over the last six months any significant challenge in attracting or retaining resources to support our expanded operations.
We continue to invest heavily, though, in expanding our entry-level programs, including those that relate to graduates and apprenticeships, which have each grown over the last six months. Moving on to slide six, and we've again provided insight into the group's diversified revenue profile that continues to incrementally improve and represents another of what we believe are very positive attributes to Service Stream's business. Over the past six months, we've seen an improved mix of work across the group, with a slight uptick in our annuity-style operations and maintenance-related revenues, which now reflect 72%. Minor capital works, reflecting 27% in half one, I think feels like an appropriate balance for Service Stream, provides our business with positive exposure to our clients' capital expenditure programs, with the work most commonly delivered under multi-year panel arrangements.
These offer the ability for our business to review and then selectively bid on specific projects that fit our criteria at the time. If we look at the commercial models, we continue to see incremental and positive improvement, with more work being secured and delivered under lower-risk models, such as alliance-style agreements as opposed to fixed-price lump sum. In fact, if we look at the revenue profile for the last six months to December, 94% was delivered under either a lower-risk schedule of rates or a cost-reimbursable model. This marks a really positive transition away from where the business was only a few years prior. Finally, if we look at the revenue profile today, the business has an average contract term of five years. That's an uptick and improvement on what has historically been a three-year duration only a couple of years ago.
Importantly, if we look at the average contract tenure, it is 17 years, but we have many long-term client relationships which have exceeded 30 years, meaning that even though our clients regularly test the market, have to go through those market processes, we have a strong reputation for partnering, delivering value, operational excellence, and meeting or exceeding our clients' expectations. Moving on to slide seven, while Linda will walk through the financial aspects of each reporting segment and the broader group in a few moments, I just wanted to provide some high-level commentary and insight into the performance of each of those segments over the first half. Starting with telecommunications, the division, as you'll see, had another strong half. It's benefited from continued and consistent operations and maintenance work across our expanded national client base.
It's also benefited from ongoing demand for fibre-related connections following network upgrades, specific wireless upgrade programs, and assisting with a backlog of remediation activities for one of our clients. This may be an appropriate time to also acknowledge that many will be wanting an update on the outcome of the NBN maintenance agreements, which are currently progressing through a competitive market process. These contracts reflect the only material agreements that Service Stream has proceeding to the market over the next few years. These have featured recently in the coverage of our peers and over the past few days, sorry, over the past few days. However, you note there's no mention in this presentation of the outcome as the business is still working with NBN as they progress through their diligent process.
Well, of course, update the market as soon as an outcome is known, and we expect it may likely occur within the next fortnight, but at this stage, we can't comment further until that procurement process reaches a conclusion. Changing focus, though, but continuing with telecommunications, we know that the federal government announced in January this year the extension of funding to the tune of AUD 3.8 billion in additional support, which will further support network upgrades across the National Broadband Network. These types of upgrade programs have certainly been a component of our current operations within telecommunications, and the business looks forward to taking part in a procurement process with NBN as they look to deliver that work.
Given the strong start to the year, which is ahead of expectations we set last year, and due to some upside in terms of those remediation works and wireless 5G program upgrades, we believe the telco division may have a small first half bias in FY 2025. Shifting to U tilities segment , in line with my earlier comments, it's been a busy period and a positive period for the Utilities division. We're really pleased that strategic repositioning has made further progress, as evidenced by the improved earnings quantum and margins that we announced today. In terms of the improvement program, we initially outlined three core pillars, the first being a successful renegotiation or, in some instances, the exit of low-margin loss-making legacy contracts, which we can confirm was successfully completed by the earliest months of the first half.
The team continues to work diligently through the second pillar, which focuses on a broad range of optimization issues: improvements in labour productivity, operational and contractual performance uplifts, which may contribute to realizing incentives, as well as securing procurement savings, indirect overhead savings, property consolidations, etc. And pleasingly, the division has continued its success in securing new incremental growth opportunities aligned to long-term maintenance agreements, which represents that important third pillar: supporting growth. The focus across these three collective areas supports an uplift in both the division's earnings contribution and margin, which in turn supports a broader Service Stream group, given the size of our Utilities business today is approaching AUD 1 billion in revenue. But as I said earlier, we still have further work to do.
The business continues to demonstrate incremental improvement, as we have done over several half periods, and we're confident of seeing further improvement as we work towards those margins I outlined previously, and finally, as I mentioned, a focus on growth. The business is incredibly proud to secure a new long-term maintenance agreement with Urban Utilities in Brisbane in the half. This was announced in early December, and they're currently mobilizing for a 1 July commencement, and finally, our transport division. We're really pleased the division has made further progress in successfully mobilizing the contract we secured with VicRoads for the delivery of road maintenance in the first quarter of FY 2025. While revenues this half have been small from that contract, it will incrementally increase over the second half of this year. The division successfully completed the buyout of 50% of the South Australia Road Services joint venture.
This is a joint venture between Service Stream and our partner, Boral. So moving forward, Service Stream will take over the full delivery of those services for the SA government. And finally, the business successfully negotiated a second three-year term across our ConnectSydney agreement with Transport for New South Wales, and that covers the provision of road infrastructure maintenance across the Sydney Harbour Zone. Moving to slide eight now and on to a major contract renewal for new business. I've spoke earlier about the importance of the business retaining existing contracts which proceed to market at the end of their respective terms, as well as securing profitable new growth. On this slide, we've provided some insights into just a few of the major agreements that were secured by the group across the half.
It's not an exhaustive list, and I don't plan on going through the detail of each of these, but there are a number of positive attributes that I would note. As said earlier, the group continues to maintain a strong renewal rate, reflecting 94% over this period. Some of those agreements not secured were those low-margin loss-making contracts that I previously mentioned in the Utilities division that would be targeted to support improved financial performance. And the securing of these agreements positions the business well with Service Stream exposed to positive market thematics. Our clients continue to invest more in their essential assets driven by aging infrastructure, technological advancements, the energy transition, and population growth. So I'm confident we'll continue to make further progress in securing new incremental works over the course of FY 2025, given that strong pipeline of opportunities that continues to present.
Again, I know many will be wondering the status of the NBN maintenance agreements, which reflects the only material contract we have to resecure over the next three or so years. As soon as we're in a position to provide an update, we will. Moving to slide nine now on the group's safety performance. As I've stated many times, the health and safety of Service Stream's workforce, our clients, and the communities in which we operate remains a number one priority for our business. There's nothing more important than the safety of our people. It's our commitment. It forms a major focus of our shared vision for all who work across the organization. We're very conscious of the safety of our growing workforce, which extends across more than 5,000 employees and a pool of up to 17,000 skilled subcontractors.
Over the course of the year, we're really pleased to deliver substantial improvements across all of our major lag indicators. Despite the business growing and our operations expanding, the period marked a significant improvement in our safety performance, and as I said earlier, that was headlined by a 20% reduction in our total recordable injury rates, which dropped to 2.15. As we move forward, the business is diligently focused on our high-risk work activities and ensuring that our workforce adheres to those critical controls. We also acknowledge the critical role of supervisors, leading hands, and operational managers playing in supporting our field workforce, and the business continues to support and empower them with additional training. I'll now hand across to Linda who will work through the group's financial performance in greater detail.
Great. Thanks, Leigh, and good morning, everyone on this call. As Leigh touched on in his opening comments, we've had a really strong start to the year, which is reflected across each of our financial metrics. Page 11 provides a bit more insight into our financial headlines. Total revenue for the group was AUD 1.27 billion, an increase of 7.9% on PCP. Revenue growth was achieved across all three of our operating units. Last year, our telco segment reached the AUD 1 billion annual revenue milestone. This year, the strong start to the year from utilities may see that segment also surpass that milestone, although they have been cycling off discontinued revenue, so it may be close. Underlying EBITDA from operations was AUD 73.6 million, an increase of 16.4% on last year. Group EBITDA margin has continued to improve, increasing by 40 basis points to 5.8%.
This was largely driven by Utilities' margin improvement, which has been consistently improving over the recent successive half. I'm also happy to point out there are no adjustments to underlying EBITDA this year, with reference to underlying EBITDA solely relating to the prior year only. The group's adjusted impact for the half was AUD 37.7 million, a significant uplift of just under 50% on last year. This equates to an adjusted earnings per share of AUD 0.061 per share. This improvement includes benefit from lower interest and D&A charges, but also includes another, yes, another, one-off benefit from historical transactions of AUD 2.7 million. Statutory net profit after tax was AUD 33.1 million. Cash flow and net debt were again the standout results for this half. Operating cash flow before interest and tax, OCFBIT, as we call it, was AUD 90.6 million, which is underpinned by an exceptional OCFBIT conversion rate of 126%.
This has enabled the group's net cash position to improve further since June by AUD 47.5 million to AUD 55.4 million. Finally, capping off the headlines, our directors have declared an interim dividend of AUD 0.025 per share, fully franked, which is a 25% increase on PCP. Now, on to segment performance: status, telecommunications on page 12. The telco segment had a strong start to the year, as Leigh mentioned, continuing the positive momentum built up over the previous financial year. Revenue for the half was AUD 626 million, which was AUD 30 million, or 5% up above last year. As Leigh also touched on earlier, telco revenue growth was driven by additional volume, clearing backlog remediation, and connection demand. Activation volumes were stimulated from retail promotions offered to increase connection uptake following the NBN fibre rollout program. Wireless operations also continued to deliver steady growth over the period.
EBITDA for the half was AUD 55.6 million, which was AUD 3 million, or 5.7% up. EBITDA margin was 8.9%, a slight improvement on PCP. Moving on to slide 13, utilities. The Utilities segment also had a good start to the year, with solid H1 performance reflecting the benefits of strategic repositioning undertaken over the past two years. Utilities delivered strong revenue growth of 11.4% to AUD 530 million. New contract wins and organic growth from existing contracts have driven this increase, particularly across the water and industrial sectors. This was despite cycling off discontinued operations and completed D&C projects over the past period. H1 revenue also benefited from a major shutdown maintenance program completed during the half. EBITDA for the half was AUD 22.4 million, up AUD 6.2 million, or a substantial 38% increase on PCP, with EBITDA margin also improving by 80 basis points to 4.2%.
Further margin improvement is expected over time as the business continues to execute against improvement initiatives underway. Slide 14, transport. Transport revenue for the half was AUD 110.5 million, up 8.4% on PCP. This includes revenue from the new long-term Victorian Road Maintenance Contract , which commenced on 1 July, as well as an additional 50% of the SARS JV, which services the South Australian Outback Zone in September. The ConnectSydn ey JV also delivered strong revenue growth, but this was offset by projects completed in FY 2024, such as the Burnley Tunnel Lighting Upgrade. Transport EBITDA was AUD 6 million, a minor reduction from 1H 2024. You may recall FY 2024 EBITDA did include a one-off benefit from the demobilisation of Inland Rail PPP. EBITDA margin for the period was 5.5%, which was in line with expectations for the rebased business. Slide 15 sets out our group profit and loss, both statutory and adjusted metrics.
We've already covered most of the headlines, so just a few more comments from me on this page. Firstly, group EBITDA for the half has continued to carry costs for the Defence tender, which are included in our unallocated corporate costs. With the delay in the Defence tender of approximately six months, we will likely now need to cover these costs through to the end of the financial year. Secondly, EBITDA growth was just on 50%, which is significantly ahead of underlying operational growth. This does include a one-off tax benefit arising from legacy acquisitions, with the effective tax rate going forward expected to approximate the corporate tax rate, allowing nuances on JV accounting and distributions.
The shift to a strong net cash position has reduced our finance costs, with ongoing finance costs now reflecting facility fees, bank guarantees, interest on operating leases, and to a lesser extent, interim months drawings. D&A has also reduced risks from further property consolidation and fleet refresh savings. Now moving on to the group cash flow slide on slide 16. As noted in the headlines, we delivered an exceptional cash flow outcome for this half, achieving an EBITDA to OCFBIT conversion rate of 126%, culminating in a net cash position of AUD 55.4 million. The business remains focused on improving our working capital management, which has steadily reduced over recent reporting periods to now 3.1% of LTM revenue. This has included ensuring active repatriation of excess cash from our joint ventures as they mature, either through dividends or working capital repayments.
I do note this result also includes timing benefits typical of December due to clients paying early ahead of Christmas shutdowns, which is expected to unwind over H2, and looking below OCFBIT, tax paid over half includes the refund, and we are now back to paying normal installments. Acquisition of the SARS JV was for a nominal sum only, with cash on hand at completion of 1.4 taken up in the cash flow that you see. Net CapEx for the half includes proceeds from the sale of assets. Nonetheless, combined CapEx and leasing cash flows have continued to track below the 2%-2.5% [audio distortion] outcome due to refresh timing and optimization benefits. We are expecting, however, to see some uplift in H2 with the mobilisation of new contracts and IT system investments. Now, moving on to our balance sheet and capital structure.
Preempting the question I know many of you will ask, which is, what are we planning to do with all of our cash? Slide 17 sets out our balance sheet and capital management strategy, which centers on maintaining a strong balance sheet with buying power to grow. Firstly, maintaining a strong balance sheet is paramount and is supported by Service Stream's capital-light business model. We generally target greater than an 80% OCFBIT cash conversion rate each year, which allows for working capital investment and mobilisation of new contracts, but obviously we seek to better that as our track record shows. The group has recently also successfully refinanced our debt facilities of AUD 395 million through to December 2027, which provides ample liquidity. The group now expects to sit comfortably in the net cash position ahead of deploying cash for future M&A opportunities.
Secondly, we intend to reinvest in the business to optimize operations and support organic growth. This includes new fleet and IT investments to help drive further productivity, efficiency, and insights across our business. The group target range for combined CapEx and leasing cash flows remains around that 2%-2.5% of revenue. Thirdly, strategic acquisitions. Service Stream has a strong track record of creating shareholder value through acquisitions and will continue to seek new opportunities to enhance service offerings to our clients and broaden our capabilities across expanded addressable markets. And finally, delivering sustainable dividends to our shareholders is important. This is reflected in the increase in interim dividend of AUD 0.025 per share. And that's all for me. So I'll now hand you back to Leigh to take you through the remainder of our presentation pack.
Thank you, Linda. Okay, we're at the tail end of today's presentation, so I'll move to the group's outlook and direct you to slide 19, work in hand. Just a couple of quick comments from me. As I mentioned in my initial highlights, the group has successfully secured a significant volume of work in the half, creating just AUD 1.1 billion in future revenues. This progress has increased our work in hand balance by 17% to reflect AUD 5.9 billion, but importantly, that only reflects the initial term, and if we add in the multi-year extension options that exist across the majority of our agreements, that would equate to another AUD 3 billion of work in hand. Group's operations are spread across attractive industry sectors and an invaluable blue chip client base consisting of government entities and major industrial asset owners.
Business continues to note elevated levels of new business opportunities being presented across many of our core markets, particularly the Utilities division, made earlier comments, with activity generally supported by that focus on upgrading aging assets, significant population growth, technological advancements, and the energy transition. As we commence the second half of the year, the business has 99% of our work in hand secured, so effectively what we're signalling here is we're very well- placed and we're not going to chase any blue sky opportunities to support revenue in the second half. And finally, looking at group outlook on slide 20, as I've outlined today, Service Stream is in an excellent position with a strong first half under our belt.
We have a clear strategy which is delivering improved results, and the business is confident to deliver further incremental improvements, most notably across our Utilities operations throughout the year. Service Stream's on target for a solid earnings growth and further improvements across our quality of earnings, supported by our strong order book and favorable market conditions. We're genuinely excited about the position of the business and the future opportunities that lay ahead as we continue to expand the group's operations. That concludes the formal aspects of our presentation. On behalf of the Service Stream Board, I'd like to express our personal thanks to our amazing staff working right across the country for their continued efforts and dedication, and I'll now hand back to the moderator to open up the call for any questions from those joining us today.
Thank you. We will now begin the question- and- answer session. To ask a question, please press star one one on your telephone and wait for a name to be announced. To cancel your request, you can press star one one again. Our first questions come from the line of Ian Munro from Ord Minnett. Please go ahead.
Good morning, Leigh. Good morning, Linda. Thanks for taking my questions. I just wanted to pick up on the telco segment. Obviously, you've made some comments around the NBN kind of contract, so we'll just leave that for the time being. Just looking at the seasonality of that segment, you maybe perhaps give us a sense of whether that's a kind of 52/48 type split or 55/45. What's, I guess, the magnitude of seasonality into the second half for telco? Thank you.
Yeah, no, thank you for that, Ian. Appreciate you joining me and making the question. Yeah, look, we did mention that there. We generally don't have a lot of seasonality, but given those comments, we think it could be one or two bits like you're talking about there. It's relatively minor, but we just thought we'd call that out as the first half did exceed those expectations. So it's not significant, but again, just wanted to provide that insight.
Yep, fantastic. And then just in terms of the corporate costs, some savings accruing, as you noted, from property and some of the consolidations. Just trying to understand, I guess, what's the go-forward number? There's obviously some kind of costs associated with tenders in Defence. So I guess the second part of the question is just probably understanding sort of where we're at from a run rate, but also, has there been any sort of upgrade on, or update, sorry, on those Defence contracts? Thank you.
Thanks, Ian. I'll take the first half of that question. Just for clarity, a lot of the optimization benefits through property consolidation and fleet and all those sorts of things, they're passed through to our business units because obviously they're the ones that reside on those properties. So the corporate cost narrative isn't really around that optimization piece. The run rate that you see in this half does reflect the fact that we have been carrying the Defence piece. We spoke about that last year, that we should take a bit off the numbers that we saw last year given the quantum of the workload was less, and that's true. However, what we're obviously seeing now is given the Defence tenders being pushed out six months, we'll need to carry those costs through for another six months ahead of being able to derive revenue.
So that's probably just an extension, more of the same for the next six months.
Ian, sorry, just in case I wasn't clear on answering your question before. Yeah, you referenced a split half and half. I think you, 52/48, 51/49, somewhere around there. It's not significant, but as I said, that was just to provide some insight to what we're seeing as we did expect telco to have a relatively flat year as we came in, as we talked about, and it did exceed those expectations. So hopefully that helps you.
Yes, absolutely. And just maybe one final question just around, I guess, the cost escalation, sort of alliance-style agreements, which seem to be the majority at this point in time. How much does that kind of give you, I guess, a revenue sort of growth rate at the top line into the second half and into next financial year as some of those new contracts sort of start to impact? Is that a sort of 3%-4%? Look, where's the kind of, I guess, market at the moment across the book?
Yeah, Ian, I mean, as you know, the majority of what we're going to call of our O&M contracts now have some form of cost escalation. Some of them are tied to indexes, some of them are based on conversations. So I think it would be fair to say that on a lagged basis, that it would reflect what the CPI or WPI may be.
Traditionally, historically, Ian, we've had that sort of 3%-4% type of support. As Linda said, you don't get that as a broad brush across all agreements. It could be a mix of WPI, CPI, all those discussions. But there is a couple of points there that we do see in terms of supporting organic growth across that existing base.
Right, thank you.
You're welcome.
Thank you for the questions. One moment for the next question. Next question comes from the line of Nicholas Daish from RBC. Please go ahead.
Thank you, Ian. Thanks, Leigh and Linda, for the result. Just a quick one from me on guidance. Obviously, first half, EBITDA up 16%. I'm just interested. Realize your guidance is qualitative at this stage, but what that may or may not imply about the second half. I mean, I think you've described it as solid earnings growth and improved quality of earnings in FY 2025. I mean, to the extent you can, I'd be interested in any comments you've got about what that implies for the second half, please.
Look, thanks, Nicholas. Appreciate the question. Yeah, as you point out, our business doesn't provide a firm quantitative statement or a range in terms of guidance for the full year. We have provided a qualitative statement, so we're comfortable seeing solid earnings growth over the quarter, over the entirety of FY 2025. I don't think I could comment further on first half, second half. I think we look at consensus across the market. We're comfortable with those numbers and where consensus sits. So you can sort of work backwards from where we sit today.
Nick, what I would say from my perspective, it doesn't necessarily. We've had a strong start this year, without doubt. It doesn't necessarily change our view on the full year, but what we have done is de-risk the year given that we've had such a strong start.
Okay, great. That's very clear. And then just another one, just on transport. We've seen some budgetary constraints in government transport agencies, particularly here in Victoria. I'm just interested in if you're seeing this dynamic play out in any procurement processes you're involved in, and then separately, to what extent that does or does not impact your road maintenance contract here in Victoria, I believe, that you signed middle of last year?
It's a great question, Nick. So I think broadly, for us, we should see growth in our transport area because of that incremental revenue that we have coming in from areas like VRMC at each road contract. We are seeing in some clients, not on quite anyone specifically, but some state-owned client organisations, we are seeing flat expenditure in line with last year. So obviously, under some budget pressure. But for us here in Victoria, there should be incremental revenue because that is mobilising. But what's happening across the broader market, I think, will moderate some of that growth.
Yeah, got it. Okay, great. Thank you very much.
You're welcome.
Thank you for the questions. Our next question comes from the line of Bill Park from Citi. Please go ahead.
Thank you, Leigh and Linda, for taking my questions. My question's related to, I guess, the adverse weather impact. I mean, in the past, you've talked about how that's a bit of a headwind for utilities, but there will be a catch-up afterwards. But it's more of a tailwind for telcos, so on balance, it kind of, those two segments kind of balance itself out in the event of adverse weather events. Given some of the weather events that we've seen across the East Coast, especially, could you just talk through some of the impacts that you've seen in the first half, back in the first half, and whether you expect some work, and whether there's any impact into work volumes that you're looking at into second half, whether you'd expect some type of catch-up work? Thank you.
Yeah. No, I appreciate the question, Bill. So you are right. Historically, adverse weather had been quite a challenge for us, particularly in utilities, because we were cycling through fixed price on some contracts. That's actually not the case now, and adverse weather generally is a positive for our business, given the elemental nature. And certainly, we have commented previously about sort of increased volumes or one-off benefits, if you will, associated with adverse weather, particularly in telecommunications. We didn't see any of that happen in telecommunications across the first half. We obviously support many clients with national operations. And if we think about what happened, I think, during that period, we didn't have those traditional tropical cyclones that we have across areas of Queensland, WA, etc. But I think this is one of the longer periods where they've actually only started in the new year.
So we have certainly obviously seen in New South Wales and Queensland some challenges there. So that will reflect, I think, into our second half, but didn't provide any benefit in the first.
Thanks very much. And just on utilities, I know for, I guess, telco, you've talked about first half skew, but in utilities, you talked about sort of the large shutdown maintenance work in the first half. So should there be sort of a first half, second half skew that we should be thinking about?
Yeah, that's a great question. Well, there may be. I mean, we don't guide at that level, obviously, but generally, yes, it is a valid point that you put in. We've had a major shutdown, and these things sort of occur every year, every second year. So we do currently see, I mean, a strong first half. Forecast for the second is slightly below that, but we've still got time. It may be if it runs through as we're currently seeing here, a slightly slower second half. But again, our focus is going to be on the quality of earnings. And the only other thing to note around first half, second half for utilities is we did just have some final run-off in July and August of those loss-making low-margin contracts. So those will also cycle down or will drag that revenue slightly compared to the second half.
It's not significant, but we're talking minor levels here. But it's just to note that that is a feature of what we may see.
Yes, thank you. And one last question I had, still relevant for the Utilities segment , is previously on the call, you talked about how the margin has progressively improved across the half. I don't know if you'd be open to this, but could you kind of talk about what the exit sort of run rate for the margin was? And I know in the past, you've talked about how you expect FY 2025 Utilities' margin to have 4% in front of it. Whether there are any swing factors that you could potentially see that could surprise to the upside from here. Thank you.
Yeah, thanks, Bill. We're ahead of our expectations. I think we exited second half 2024 with 3.6%. So we did 3.5% for the full year, 3.4% first half 2024, 3.6% second half. That gave us 3.5%. And we talked previously, we were aiming to get a 4% in front of our margin in 2025 and then a 5% in front of it in 2026. We cautioned everyone to say that the 4% would not be an entry rate and may occur over the course of the year. So certainly well ahead of expectations here in delivering that 4.2% in that first half. And as per my comment, I think we're hopeful of seeing some incremental improvement through the second half of this year. It's not going to get to a 5% in front of it. It's not suggesting that.
But we will continue like we have now for six halves, continue that incremental progress. So hopefully, that'll assist you in sort of understanding to be somewhere between 4.2% and towards the upper end of that number, but won't have a 5% in front of it.
Thanks very much.
You're welcome.
Thank you for the questions. Once again, to ask questions, please press star one one. One moment for the next question. We have a question from the line of Mitch Sonogan from Macquarie. Please go ahead.
Yeah, good morning, Leigh and Linda. Thanks for taking the questions. Congratulations on a good result there. Just a quick one, just in terms of the government putting in an extra AUD 3 billion into NBN to speed that up, can you maybe just talk to if you've seen any step change there, I guess, since that announcement's been put out about a month ago? But yeah, also just in terms of general activity levels in that part of the business. Thanks.
Yeah, no, no, thanks, Mitch. Appreciate it. Yeah, we were really pleased to hear the government announce that. We talked previously, as you know, and many will know, about the fact that we do currently deliver a portion of those upgrade works. And that current program of works for our business was sort of starting to decline with finishing, I think, sort of September, October of this year. So it's fantastic to see. But firstly, the federal government then did come out with a really strong package, so almost AUD 4 billion. I don't have any updates I can share yet with regards to timing. We have been engaging NBN. They will go through a competitive process like they do with all of their works, and we look forward to taking part in it. But as soon as we have any updates in terms of that, we'll certainly let you know.
I don't envisage that there's going to be any major change to this year. I think that that is something that will support us into the future, which is great because it's longevity there. And we've currently got an existing program to deliver for the rest of this year anyway. So hopefully, that provides some insight as to when we think we might be able to see some of that work if we're successful in securing it.
Yeah, very clear. Thank you. And maybe one just for Linda as well. Really good cash flow conversion in the first half, and obviously, AUD 55 million net cash is a great result. Should we expect? Yeah, can you maybe just talk to expectations on conversion in the second half? Anything out of the ordinary that we should expect or call out? Thank you.
Yeah, well, I know you won't believe me by saying it's 80% for the full year. We always target. But it certainly will revert, I think, closer to normal. We definitely did have some timing benefits over the December, which is quite normal. We've seen it over a couple of reporting cycles. Now, it'll be somewhere between 80%-100% in my view, but we always try and do better.
Yeah, very clear. And I know you talked about Defence as being pushed out to six months and obviously carrying some costs there. But yeah, can you just provide a little bit more color, I guess, on the latest conversations or updates in terms of timing and, I guess, what's pushing that delay? Obviously, government things are always delayed, but yeah, just any update there would be great.
Yeah, no, I appreciate it, Mitch. Certainly an opportunity that we expect to get some questions on. As many know, we're not party to any of the works with Defence currently. We're going through a process. I can't comment on the specifics around the procurement process other than to say we noted an updated timeline was provided, which indicated that Defence is making solid progress through many of the other aspects as part of the Base Services Transformation . So contracts have been awarded for fire and security, waste management, property and asset services, which is the area that we're targeting, is indicated to go through a process and reach an outcome in the first half, sorry, second half this year, first half of the calendar year.
So we would expect that we will be coming out and providing some update between now and July based on the updated timeframe with Defence released on their website.
Yeah, great. Thanks, and just a final one, obviously, you've talked about on the outlook page, strategic acquisitions again called out there. Can you maybe just provide a little bit of color on what might be of interest or just how you're seeing opportunities out there? That's all from me. Thanks, guys.
No, I appreciate it, Mitch. It's a great area, something that Linda and I have certainly talked to. And I think as Linda articulated very well, strategic acquisitions have featured heavily in the business's transformation over the last few years and delivered significant value. So we're still going through a very diligent process. Opportunities have come up and been assessed. We don't have anything that is going to be announced in the near- term, etc. But certainly, putting the fielders out, having a lot of conversations on some potential opportunities. Areas that we're looking at would be very similar to our existing business. So if you think about the nature of those, we're certainly favoring businesses that may offer annuity style or operations and maintenance work, not looking to get heavily into or move back towards design and construction or fixed price lump sum.
Think about industry markets that are attractive to us. I mean, we've got, I think, lots of opportunities to further expand our service offerings and capabilities within the utilities market. We are, as I've said many times, a small minnow in a very big pond there, and there's lots of opportunities in utilities. I couldn't see something happening in telecommunications. I think we've got all our capabilities there and continue to do well. But then you look at adjacent markets, and you referenced Defence earlier, that's an interesting area for us. I think while we provide downstream support on oil and gas, etc., upstream, there's opportunities there. Facilities management and hard facilities represents another area. So we are certainly looking at market segments and focusing on those where we may be underweight or they are adjacent areas that might provide some benefit.
But certainly looking at not moving out of that risk profile that we've now achieved across the business. We look at our future work really focused on O&M annuity style works.
Thank you for the questions. At this time, there are no further questions from the line. I'd like to hand the call back to management for closing.
Thank you very much. I really appreciate everyone joining. I know today is a very busy day in terms of releases. So that's it for Linda and I. We thank you for your support and look forward to engaging with you on the roadshow over the next couple of days. Thank you.
That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.