Thanks @Rick and @mikebrisy. Good insights on the changing revenue, costs and splits between halves this year.

I am still not sure about these guys. No shareholder questions in the AGM meant the governance issues and their thinking weren't addressed for another year. And some of the ways Michael responded to the shareholder questions after his market update didn't inspire confidence for me, that we are getting a Buffett like full and frank picture of what's going on and what they are going to do about it.

I'm paraphrasing but their narrative that the future will be great and there is so much upside and we are market leaders etc, isn't matching the guided proforma result for FY25 of non-specific revenue growth and about a 10% decline in profits.

Happy just to keep on my watch list for now.

@mikebrisy on a different topic, I see you were with BG . I recall having a meeting with some BG executives that was arranged post the QGC bid by a broker, I don’t think the ceo was there but maybe the coo. Possibly we met then???? Richard cottee what a strange cat had jumping jack flash as his ring tone, it’s a gas gas gas , good on him did well

@Karmast I haven't had a chance to listen to the AGM but my understanding is the guidance given was for 1HFY25 only and not for FY25? They are expecting improvement in 2H.

Reflecting on @mikebrisy post I'm thinking integrating a company like IPD with a market cap at the time of about $400m with CMI purchased for about $93m is a big deal. Streamlining the operational processes and improving efficiency and hence scale will take some time. Probably longer than 1H25. CMI had about 190 employees prior to merger with IPD sorting this will take months?

This is a big test for management. They have laid down the expectation for a return to growth. They will build trust with the shareholders by delivering on what they said they would do. Failure to do so within the time frame management set out will erode trust and breaks the thesis. They have an excellent track record with their acquisitions but CMI is a big one.

The next 12 months will be interesting!

(Held)

@Shapeshifter - yes it is guidance is for 1H only.

Guidance

I just did the calculations on a FY basis, to allow a FY-on-FY comparison, as we don't have a Pro Forma HY comparison. In my post yesterday I explained the reason I did this was to form a conservative assessment of the guidance, i.e., what was the downside if 2H doesn't improve? To be clear, I don't expect that to happen.

Integration of CMI

You are right about acquisitions. Depending on how skilled the acquirer is, the profile can vary quite a bit. To date, $IPG have not said anything about cost synergies. They've explicitly said the accretive EPS outlook excludes any synergies. The only synergies I am aware of that they've spoken about to date are revenue synergies, i.e., a project they'd won that each on its own would be unlikely to have won.

Because this is a much larger acquistion than the recent previous ones, I expect them to process cautiously.

A rapid integration would be to get this all done within one year of closing. However, in this case, I expect that CMI will be kept running as a separate operating unit for some time. Therefore, the integration will focus first on management and corporate functions, then migration onto common systems - importantly in the supply chain, including rataionalisation of offices, warehouses, logitics contracts, suppliers (for lower value items) etc. Integration of the CMI business unit into core legacy IPD comes later.

In any event, in my experience, integration in year 1 will not see much net benefit, as increased costs early on offset any savings. Year 2 should see net savings.

$IPG booked $1.2m of acquistions costs in FY24, but for an acquisition of this size, that doesn't buy a lot of "integration". So I think there are more costs to come in FY25, and therefore, I am not expecting management to say much about cost syneriges until FY26. 2H FY25 would be an upside, in my view.

@Solvetheriddle drop me a line at [email protected] and we can compare notes. I didn't land in QLD until Sept-2010. Cottee and others were long gone by then. But, yes! He did well. Conoco Phillips upped the ante by snatching Origin away from us in doing the APLNG deal. The implied export gas price in that deal upped the price tag on QGC. Heady times. There was deal fever all round.

@Shapeshifter and @mikebrisy Yes sorry, it was guidance around the first half only. Correct me if I'm wrong Mike but Michael did also say though that the second half should be better but he also wasn't saying it would make up for the first half.

Personally I wish all of these companies that aren't super forecastable would just stick to running the business and not get involved in specific guidance. No doubt analysts and brokers etc push them to do it. However I haven't seen any evidence that it helps over time and lots of examples of where it hurts in the short term. Deliver a good business result but its a couple of % off guidance and the share price gets whacked. Or beat it by a good amount and the share price jumps way more than it should.

It's fine as I have got better at handling those sentiment driven moves over time and it is an edge we can take advantage of when we really know the business well.

I have also started asking CEO's or Chairs "Do you think giving guidance is necessary and helpful?" and pointing to examples like Berkshire, Apple and Data#3 who don't give guidance that are doing just fine! I am yet to have a good reply. Normally just "but people expect us to do it".

@Karmast @mikebrisy I had a listen to the AGM and took away a few key points.

Data Centres, Water & Water Waste and electrification are driving growth within the business. Data Centres at 12% was the third largest source of revenue. This is expected to grow 25% this FY. Water infrastructure spend is expected to CAGR at 7.0% over the next 4 years driven by aging infrastructure and climate change and water security. Electrification is bringing chunky project work in the backlog eg $5m Kingsgrove EV bus depot.

The increase in the proportion of project work from daily trade (now at 50%) comes with a lower margin as it is a more competitive tender like process. They are expecting about a 1% decline in margins for two reasons: the increase in larger project work and the investing in the cost base. One change Michael noted was an increase in investment into specification design work which is work designed by a consultant and is specified for a particular facility or construction. This is different from their more common design and construct work where the electrical contractor has more autonomy in selecting the products that go into that installation. From Michael Sainsbury, "It is a very different approach. The salespeople are working with consultants to get products into the design, into the specification. So when it comes out to the market, the market has to use the product that is written into that specification and we have put some of our cost growth into this space." This was interesting because this space is currently owned by Schneider Electric who are their largest competitor and have the largest market share.

They have become a well diversified business. Despite commercial construction being the largest component of their revenue at 37% in FY24 the drag from this has been mitigated by their other end markets.

Michael flagged the move from permanent IT staff to contractors as a way to save $500,000pa off the cost base. I have some concerns about potential decline in quality of this service with this move.

They are currently in advanced discussions with two more potential acquisitions.

@Shapeshifter you make a good point about the portfolio diversity and its impact on the quality of earnings. I'm interested to see what tomorrow's Q3 numbers for Australian Building Capex, Private Investment, and Plant Machinery Capex show - it will give some indication of the strength of the macro headwind $IPG are facing in commercial and industrial.

On the IT-staff-to-contractor question, I have a different perspective.

For functions outside a firm's core capability, it can be a challenge to maintain quality with an in-house unit, particularly if you are a medium sized enterprise and the area is changing rapidly. You can end-up paying well above market rates to retain staff who, other things being equal, could work at more innovative/leading edge firms. And even then, you likely face a high turnover, which means you end up trying to fill positions at even higher rates. In his answer, Michael refers to the challenges of paying up for IT staff, so I think that's clearly been a factor for them.

Of course, it would be interesting to know what Michael means by "IT", because IT/datacomms - for example - is a core capability in their design / specification / support of automation and control solutions. Looking at the transcript, Michael cites the problem being due to intermittment IT Project work, having to staff for a peak of work and then having people sitting around when projects roll off.

So, it really can make sense to do a deal with a specialist IT firm to provide resources under a service contract, because they then deal with managing resourcing peaks and troughs, staff turnover and training etc. Of course, you need a good supplier, so that you don't end up suffering the worst of all worlds. But IT is definitely an area where IT can make sense to move from in-house to out-sourced resourcing.

Whatever they do comes down to how well the CIO sets up and manages the outsourced relationship. Current CIO Ben Allwood has been at $IPG for 7 years, and has a control systems background. He looks to have a pretty good CV, including from his time prior to $IPG.

In conclusion, from the outside I have no way of judging this. But my point is, there can be many positives to doing this, if its managed well.

All good points @mikebrisy. My concern is "outsiders" ie contractors can sometimes fail to take ownership for IT systems. There is a risk that legacy systems get patched over rather than the appropriate overhaul/modernisation that may need to occur. Importantly the flags that would normal trigger concern may be missed with no in house staff IT.

Anyway the stock is doing well today and I'm glad I toppped up at it's lows. It seemed too cheap to me.