Full Year 2022 AMA Group Ltd Earnings Call Sydney, New South Wales Aug 23, 2022 (Thomson StreetEvents) -- Edited Transcript of AMA Group Ltd earnings conference call or presentation Tuesday, August 23, 2022 at 1:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Alexandra Holston AMA Group Limited - Director IR & Corporate Affairs * Carl S. Bizon AMA Group Limited - Group CEO * Geoff Trumbull AMA Group Limited - Group Financial Officer ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the AMA Group 2022 Full Year Results Conference Call and Webcast. (Operator Instructions) I would now like to hand the conference over to Carl Bizon, Chief Executive Officer. Please go ahead. -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [2] -------------------------------------------------------------------------------- Good morning, everyone. On behalf of the AMA Group, I would first like to acknowledge the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders, past, present and emerging, and I extend that respect to all Aboriginal and Torres Strait Islander Peoples today. I would like to acknowledge the Bunurong people as the traditional owners of the country where I'm joining you from today. Thank you for joining us as I present the AMA Group results for the 12 months ended 30 June 2022, which I'll refer to as FY '22. For those of you joining us via webcast, you should be able to view the presentation on the screen. If you are joining us via teleconference, you should have access to our Investor Presentation via the ASX platform or our company website. I will begin by providing a summary of the FY '22 results and operational highlights. As CFO, Geoff Trumbull, will then take you through the financial results of the business in greater detail. And I will finish off with a review of the outlook for the business before we open for questions. If you could turn to Slide 6, please, I will start by recapping the business environment in FY '22. It is fair to say that the first half '22 saw the most challenging conditions experienced since the onset of the COVID-19 pandemic with both New South Wales and Victoria experiencing depressed mobility throughout much of the half. We expected things to improve in the second half but moved from experiencing repair volume scarcity to labor scarcity over the second half of the year. The impacts of the well-publicized tight labor market was exacerbated by significant absenteeism from close contact rules early in the half as well as direct COVID-19 infections and a high incidence of flu and other illnesses, which extended through the entire second year. The market also saw significant inflation, which impacted the cost of consumables, parts and paint. Issues with parts availability also drove lengthening repair times. Further, the increasing complexity of repairs combined with a trend towards higher insurance policy excesses saw a continuing trend toward higher average claim size. On a positive note, we did see borders reopen and overseas migration recommenced. Now to Slide 7. Despite an incredibly challenging operating environment, the group delivered a normalized post-AASB 16 EBITDA of $21.8 million and ended the period with cash on hand of $52 million. Both of these exceeded guidance provided at the Investor Day in May. Importantly, the group's focus on safety saw a 17% reduction in LTIFR. Throughout the year, the group navigated the challenges of operating in a COVID-19-affected environment and successfully completed $150 million capital raising. We have a long-term focus on building the workforce of the future and achieved a record apprentice intake despite difficult market conditions. With the management team fully established, the corporate head office transitioned to Melbourne and the focus on strategic execution increased significantly. We commenced our group procurement strategy with $10 million of annualized savings expected and opened a new ACM Parts warehouse in Victoria. The significant inflationary environment saw us approach all insurers on pricing, and we commenced network optimization activities to ensure a focus on profitable work. I will come back to these strategic elements later in the presentation. Now to Slide 8. As previously mentioned, we saw a reduction in the LTIFR as we continued our focus on safety. Repair quality was relatively stable overall, while average repair days increased in both Drive and Non-Drive due to parts supply challenges and customer satisfaction increased across the group. We are committed to quality and service and look forward to continuing to develop these metrics and focusing on the service and overall value we provide our customers. Now to Slide 9. I won't cover the financials in further detail as Geoff will talk to these later. However, I will highlight that the covenant regime has been revised for the next 12 months. The Board is committed to delivering shareholder value while maintaining the ability to invest in the growth of the business. As such, the Board has not declared a dividend for FY '22. Now to Slide 10. People are the key to our success. In FY '22, our retention and engagement focus saw the launch of our health, safety and environment program called Take the LEAD. Our employee value proposition was structured around building better as we work toward a One AMA culture. And finally, we had the inaugural gift of shares to employees as we seek to reward our employees and enhance the link to shareholders. In a very tight labor constrained environment, we take our position as the largest multisite operator in the business seriously, which means we are committed to building the workforce of the future. This means a commitment to apprenticeships where we had a record intake for the year, skilled migration and a commitment to training and developing our people. With this background and context, I will now hand you over to Geoff to take you through the key financial information. -------------------------------------------------------------------------------- Geoff Trumbull, AMA Group Limited - Group Financial Officer [3] -------------------------------------------------------------------------------- Thanks, Carl, and good morning, everyone. I'll now take you to Slide 12 for a summary of the year's financial performance. FY '22 financial performance was unfavorable compared to FY '21, reflecting reduced repair volumes due to COVID-19-related lockdowns, increased cost of raw materials and consumables and also noting the prior year included $28 million of JobKeeper subsidies not received in FY '22. Importantly, the second half was an improvement on both revenue and EBITDA as the impact of COVID-19 on repair volumes reduced, although the anticipated return to normal was significantly impacted by absenteeism and the nationwide skilled labor shortage. The group recognized noncash goodwill impairment expenses of $81 million related to Capital S.M.A.R.T. and our other Drive operations and $25 million related to sites planned for closure, hibernation or consolidation with other sites. In the case of Capital S.M.A.R.T., the goodwill impairment results from a more challenging near-term performance outlook and a more conservative view on the expected recovery to normal volumes and pricing. This reduces AMA's proportionate share of goodwill to $58 million, noting the original valuation of the Suncorp customer contract is captured separately on the balance sheet. Turning now to Slide 13 and the summary financial position. In FY '22, the group reduced its debt position with the capital raise in the first half while the impairments previously mentioned have reduced the net assets of the group. We ended the year with $52 million in cash, which exceeded the guidance provided at the 31 May Investor Day. This provides us with sufficient liquidity to manage through this FY '23 transition period. Turning now to Slide 14. As mentioned, the net debt has reduced from prior year following the first half equity and convertible bond raising, with net senior debt down 35% on prior year. There is one remaining earn-out expected due in FY '23 with provision in the accounts for $2.4 million in cash and 0.5 million in shares. The covenant regime on our senior debt facilities has been revised for the next 12 months, and I'll talk to that in more detail later in the presentation. Please turn now to Slide 15. Net operating cash outflows of $28.2 million for FY '22 reflected the challenging conditions experienced over the period, with the movement from prior year increased by the absence of the JobKeeper subsidies received in FY '21. We saw improved cash flow in the second half due to EBITDA and working capital improvements, with positive operating cash flow recorded in the fourth quarter. A focus on cash conversion of revenue was partially offset by inventory build in supply as we look to broaden stock ranges of both recycled and parallel parts. Interest paid was unaffected by recent interest rate rises due to the hedging and fixed rate on the convertible bonds. Earn-out payments were within acquisition expectations with only 1 earn-out remaining on hand as previously discussed. I'll now hand back to Carl for further detail regarding the segment performance. -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [4] -------------------------------------------------------------------------------- Thank you, Geoff. As we've already spoken to the key drivers of the results, I'll focus now on the operations in our Vehicle Collision Repairs segment, Drive and Non-Drive, now to Slide 18. As repair volumes began to return, we were able to make a full assessment of the terms under which our sites are operating. Inflationary pressures drove us to approach all our insurer partners with new pricing, which I'll talk to in greater depth later. Given the tight labor environment, which was further affected by COVID-19 and flu-related absenteeism, we undertook some network optimization activities to focus our team on profitable work and locations. We maintained tight cost control and progressed a number of revenue enhancement activities, including private work and the appointment of a General Manager of Direct Sales, who has commenced with a focus on expanding our fleet-based work. Now to Slide 19. While subject to the same cost pressures as the Drive and Non-Drive businesses, Heavy Motor maintained consistent revenue in FY '22. Increased labor rates commenced in late FY '22, and we expect to see that bring margins to a more appropriate level. A strong contributor, the Heavy Motor business unit has a strong forward workbook and was recently awarded a New South Wales bus refurbishment program. We are also currently evaluating a new heavy motor location in Southeast Melbourne to relocate and extend the existing operations in that region. Now to Slide 20. As our Supply business is a key strategic focus, you will see that we have executed a number of initiatives and are continuing to build out this strategy. We're focused on key elements of the supply strategy enhancing the delivery model and ceasing the complete vehicle rec agreement and low-margin brokered business sales. Parallel imports improved with increased inventory and availability as we continue to build out range and expand our sourcing footprint. Pricing remains a focus here with well-publicized increased supply chain costs being passed through with active price management. Further, as part of our commitment to recycling and parallel imports, we have increased the number and volume of SKUs carried improving the breadth of service delivered to our customers. We have also established a consumables business to service both internal and external customers. A one-off cost of $1.7 million was recorded to provision for obsolete inventory in this area. Now to Slide 21. Corporate costs increased as a result of the combination of one-off items and the centralization of corporate functions. Employee costs increased by around $5 million in the corporate business unit, largely driven by centralization of roles from other business units. There has been some duplication of roles through the transition to the Melbourne head office from the Gold Coast, which will continue -- which we will continue to manage over time. One-off items in the year included employee option write-backs included in FY '21 but not in FY '22, the introduction of the employee share scheme, increased recruitment costs as we renewed the leadership team, and increased legal spend and marketing and industry engagement. Now to Slide 22. You will see that we have included an update on the absenteeism, which has had a negative impact on the business. And while you can see that it remains elevated relative to 2019, it is declining. This will assist in improving throughput at our sites. Now to Slide 24. I won't cover this slide in depth as we presented our FY '27 strategic targets in May, and this is just an affirmation that those targets still hold. So too do our objectives, strategic pillars and broad focus areas, which are included on Slide 25 for you. Now to Slide 26. We have added an additional short-term focus area since the May presentation, which is adjustments to the organizational structure. I'll talk to that shortly. Our other focus areas remained as presented in May. Now to Slide 27. We have previously said that we are committed to ensuring fair payment for the value of work delivered. To that end, in late May '22, we approached all insurer partners with new labor rates, average cost models and additional charges applicable to the Non-Drive and Drive networks, excluding Capital S.M.A.R.T. There was broad recognition by our insurer partners of the need to realign pricing to reflect the current environment, which is characterized by labor force constraints and significant inflationary pressures on input costs. We chose to exit some contracts, which represent less than 10% of revenues, where insurer partners were not willing to adjust pricing adequately. There have been some adverse volume impacts could be recovered in the future. But overall, negotiations have led to an outcome, which moderately exceeds the estimates, which were built into the previously provided EBITDA guidance. We will continue regular discussions with our insurers with shorter formal review cycles. We are also assessing the ongoing viability of average pricing models as we go forward. Finally, we are committed to early engagement for the 1 July '23 repricing of the Capital S.M.A.R.T contract. Now to Slide 28. Historically, the group has chased absolute site numbers, repair volumes and revenue. However, we are no longer willing to accept profitless work and revenue at any cost for the sake of building scale. This change in philosophy has resulted in the selective loss of some repair volume and us redeploying our highly valued and scarce labor force to focus on profitable volume. A number of sites were rationalized in FY '22, and 20 are currently under assessment as we await the eventual outcome of the repair volume movements following pricing discussions. Further, we have decided to close the Gold Coast support office, which will result in a saving of around $0.3 million in occupancy expense for the corporate office. Now to Slide 29. As we continue our commercial discussions, redeploy labor and optimize our network, we expect to see a continued improvement in our network's performance. It is important to note that while we expect to see margins shift towards mid- to high single-digit full run rate pre-AASB 16 EBITDA, ongoing price increases will be required in order to maintain profitability in the face of inflation. Now to Slide 30. As we focus on network optimization and assess a number of sites for hibernation to maximize the productivity of our network on our most profitable sites and contracts, we expect to see an ongoing increase in utilization. As you can see from the theoretical capacity outlined in the presentation, the sites currently under assessment only account for a very small portion of the total potential capacity of the network. Now to Slide 31. As we work to correct the historical commercial legacies, we will adjust the support structure of the business. We are actively focusing on cost reduction as we align fixed overheads to expected revenues. This will include continuous assessment of shared services and indirect activities across the business. The adjustments underway are included in the EBITDA guidance previously provided to the market of $70 million to $90 million on a post-AASB 16 basis. Now to Slide 32 and an update on our priorities for the coming year. Phase 1 of making adjustments to the organization structure, optimizing the network and resetting contract pricing has been completed. In FY '23, we will embed these changes. For contract pricing, this will move to a more continual process rather than the all-in approach to insurers made in May '22. We will continue to build the workforce of the future through our apprenticeship program, international recruitment, and training and development of our team. We will progress our retention and engagement initiatives and, of course, continue to seek opportunities for operational improvement. I will now speak in greater detail to our FY '23 priorities. Now to Slide 33. We've already made significant progress in improving our procurement terms worth $10 million in annualized savings. We have expanded our relationships with key suppliers, appointed dedicated procurement managers to key product areas and improved sourcing and improved our range. We will continue to progress our procurement strategies, improving sourcing and the offering in our key supply areas as well as continuing our focus on improving indirect spend. Our parts disintermediation strategy is progressing well with the new Victorian warehouse up and running and a study underway for opportunities to expand in Queensland. Our new in-source delivery program has commenced, improving our ability to service customers quickly, reliably and through distribution, which we control. And finally, we have continued to improve the yield per vehicle in our end-of-life recycling process as well as engaging with industry groups to continue develop this area. Now to Slide 34. We have recently appointed a General Manager of Direct Sales, who has identified several opportunities, and we'll be pursuing one element of our revenue diversification strategy. We already have early-stage engagement with a number of potential new customers and work trials underway. Now to Slide 35. We have been undertaking active investigations into options for a supplier partnership solution for ADAS calibration with a trial planned in the near term. We look forward to introducing a partnership solution to our network with potential opportunities to expanding the offering outside our network. Now to Slide 37. FY '22 was not the year we had hoped for or expected, and our progress has been frustrated by the impact of the external operating environment on our business. Having rebased the business, we move now in FY '23 away from absolute site numbers, repair volume and revenue. We will no longer be bound by chasing profitless prosperity. FY '23 is expected to be a transition year. We have a clear pathway forward and will maintain our focus on pricing and work toward the Capital S.M.A.R.T repricing for which the benefits are expected in FY '24. We will continue to optimize our network and available labor force, manage cash and continued preparations for growth and acquisitions in core repair activity and logical adjacencies in the future as well as continue to progress our supply strategy. We also reaffirm the guidance previously provided to the market for post-AASB 16 EBITDA of $70 million to $90 million in FY '23 and $120 million to $140 million in FY '24. I will let Geoff cover off on our funding and liquidity now. -------------------------------------------------------------------------------- Geoff Trumbull, AMA Group Limited - Group Financial Officer [5] -------------------------------------------------------------------------------- Thanks, Carl. As previously disclosed, our senior debt facilities are in place until October 2024, with the majority of our debt on fixed rate interest arrangements. At our Investor Day in May, we confirmed that we had received a waiver of our June 2022 covenants, and we're in discussions with our senior lenders about resetting the covenant profile for FY '23 to align with our projected recovery. I'm pleased to say that the relationship with our banking syndicate remains strong, and we have now agreed an amendment to covenants until September 2023 to provide sufficient runway for us to deliver the earnings recovery. The existing net senior leverage and fixed charge cover ratio covenants have been replaced by a simplified minimum EBITDA covenant with annualization from the 1st of July 2022 and the first quarterly test being in December 2022. This structure will be in place up to and including the June 2023 test with substantial headroom in our latest projections. Beyond this date, we will revert to the historical covenants with annualization to recommence from 1st of July 2023 to capture the benefits of the expected Capital S.M.A.R.T repricing. We have sufficient cash to see us through the recovery with projected positive operating cash flow in FY '23, although we are expecting some softness in the first half as labor constraints ease and the benefits of revised commercial pricing is realized. I'll hand you back to Carl. -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [6] -------------------------------------------------------------------------------- Thanks, Geoff. I'll end this presentation with our aspirations. We have the right team in place to execute our strategy as we deliver market-leading repair capacity and outstanding overall value to our customers and as we work towards our aspirational targets: to be the industry benchmark for safety, to be a preferred employer within the industry, to train more than our share, to expand our network to over 250 sites and generate $1.5 billion in revenue with 12% or greater post-AASB 16 margins, and with a business that supports environmental sustainability through collision repair and parts sourcing. As we reach the end of our formal presentation, I would like to take this opportunity to thank management and all our employees for their ongoing dedication and commitment to our business even in these challenging times. I will now address questions. Please note that you may submit your questions through the webcast facility. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- We'll now hand this call over to Alex for webcast questions. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [2] -------------------------------------------------------------------------------- So our first question is could you provide some updates on motor insurance renegotiations. What pricing increases shall we expect? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [3] -------------------------------------------------------------------------------- Thanks, Alex. The insurance -- insurer pricing is essentially complete for this round. The benefit that we have realized from the renegotiation of those contracts with the insurers is substantially embedded in our forecast for FY '23. In some areas, we overachieved our expectations. However, this provides some cushion for the company as we head forward towards our guidance for this coming year. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [4] -------------------------------------------------------------------------------- Our next question is, on Slide 38, it states that you anticipate operating cash flows being positive in FY '23. Does this statement include leases? -------------------------------------------------------------------------------- Geoff Trumbull, AMA Group Limited - Group Financial Officer [5] -------------------------------------------------------------------------------- Yes, confirming that does include leases. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [6] -------------------------------------------------------------------------------- All right. The next question, I'm going to break into 3. Can you confirm the total number of sites in operation as at August, noting that the footnote on Slide 18 excludes rationalization completed in August? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [7] -------------------------------------------------------------------------------- I think if you refer to the chart on Slide 29, that's clear. But obviously, at the moment, there are around 20 sites that are currently hibernated -- under assessment, sorry, for hibernation following the completion of insurer negotiations. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [8] -------------------------------------------------------------------------------- Are the margins presented on the chart in Slide 29, pre- or post-AASB 16? -------------------------------------------------------------------------------- Geoff Trumbull, AMA Group Limited - Group Financial Officer [9] -------------------------------------------------------------------------------- They are pre-AASB 16. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [10] -------------------------------------------------------------------------------- And third, we've mentioned -- you've mentioned that you've exited some contracts with just under 10% -- or worth under 10% of revenue due to pricing. Can you quantify what percentage of revenue may be further at risk from near-term pricing negotiations? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [11] -------------------------------------------------------------------------------- I think the comment that we made that around 10% or slightly less than 10% of our revenues have been affected from the recent pricing negotiation, would have us believe that the remaining 90-odd percent is comfortably being executed on behalf of our insurance partners, whilst we say that we are expecting some potential rebound in volumes from some of those contracts that we have walked away from, particularly as the market absorbs the extra work that we have stepped away from because of its unprofitable outcomes. So I think in summary, I think we are reasonably stable where we are. Upside is we may get some return on volume, but we believe that any volume that was going to leave the company as a result of our program to be paid fairly for that work has settled. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [12] -------------------------------------------------------------------------------- Can you please expand a little on the insurance contracts not renewed? How is the industry structure now? And is there excess industry capacity to take on this work? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [13] -------------------------------------------------------------------------------- Well, there certainly isn't excess industry capacity. The collision repair industry is typically characterized by a shortage of skilled labor. That has led to tightness of availability in the collision repair space. And as a result, repair times have lengthened. And one of the reasons we publish our key to key times or cycle turnaround times is to remind the industry that AMA is uniquely positioned to handle volume repairs and also offer their policyholders best-in-class lead times and quality statistics. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [14] -------------------------------------------------------------------------------- Are there any plans in the near to mid-term to refinance the bank facilities with a more flexible loan or debt facility? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [15] -------------------------------------------------------------------------------- So obviously, the Board and management looks at our financing facilities from time to time. Should that occur, we'll obviously update the market at that time. We understand our obligations clearly, and our responsibility is to inform the market if that occurs. As we are right now, our current banking facilities expire in October of 2024. And if that changes, we'll be sure to inform the market appropriately. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [16] -------------------------------------------------------------------------------- What sort of 1H-2H split do you expect in EBITDA in rough percentage terms? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [17] -------------------------------------------------------------------------------- We don't normally give that split, and I think we -- as we emerge from COVID, we will, I guess, reset our seasonality. I suppose if you looked at 2019 as being a somewhat normal year, that might give you some goalpost to think about. But at this point in time, we're not disclosing the way we have phased our expectations for the year. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [18] -------------------------------------------------------------------------------- What are corporate costs expected to be going forward? Should we expect $17 million for FY '23? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [19] -------------------------------------------------------------------------------- So I think the corporate costs reflect, obviously, the centralization of a lot of indirect support activities that were occurring within the business divisions. As our network settles down and as we confirm our volumes going forward, obviously, we will adjust the indirect overhead to reflect those volumes. So there may be some further adjustment as we go forward. But again, the raw number that you see is a result of our centralization strategy around consolidating and leveraging back offices for accounts payable, accounts receivable, HR, IT and the like. And those costs were buried inside the divisions in historic AMA structures. So whilst there has been a change in the corporate number, it reflects the synergies that we've been able to obtain by centralizing those functions. I would expect over time for there to be a natural productivity yield that will further deliver savings in central overhead as the business matures and as volumes stabilize. So I don't expect that number to grow, and I would probably expect over time for that number to continue to shrink. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [20] -------------------------------------------------------------------------------- Can you quantify the revenue lost due to absenteeism? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [21] -------------------------------------------------------------------------------- No, that's not a number that we would -- that we publicize. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [22] -------------------------------------------------------------------------------- How much of a risk to FY '23 and beyond is the growth of other MSOs, particularly Repairhub owned by one of your insurer partners? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [23] -------------------------------------------------------------------------------- So I think at the end of the day, we often say that we represent somewhere between 13% and 15% of the market. There is substantial opportunity for a number of players in this industry. If another MSO commences, I'm sure we will respond as we would with all of our insurer customers. In terms of Repairhub as to what IAG's position is with the further development of that network, I'm not sure. We did recently note the resignation of the CEO of Repairhub. So I don't know if that leads to some guidance as to what their initial thoughts are about the growth of that business in the future, but we're certainly not privy to what they decide. With the scale of our repair network, I think Repairhub are kind of circa 17 sites. The impact that Repairhub has had on our traditional IAG volumes has essentially been crystallized over the last couple of years. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [24] -------------------------------------------------------------------------------- Some insurer feedback is that support for cost inflation was provided with some adjusted volumes AMA were after and provided at a higher market pricing. Does your increase in overheads impact your pricing? And also, has efficiency trended through elevated absenteeism? And how do you compare to market? Do you have any insight on that? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [25] -------------------------------------------------------------------------------- I mean I'd probably split that question up into a couple of pieces. I think the -- I think we are very clear both at our Investor Day and in our aspirations about our corporate leverage, and that is that we currently have a corporate cost leverage of greater than 2x the cost of being a public company and operating the scale that we do. So we actually have a cost/benefit over our peers in terms of operating. But I think at the end of the day, the company is in a position where the industry has suffered from fixed-price multiyear agreements that have, in effect, insulated insurers from the cost of inflation over the last couple of years. So I think the recent moves that we've made to reprice some of those contracts have been met with a variety of responses. In some regard, the insurers have claimed that they are insulated from the effects of inflation because of the fixed nature multiyear contracts that they have with repairs. However, in general, once faced with the facts around the impact of inflation, most insurers have reacted responsibly not only to us but to the broader insurance -- sorry, the broader collision repair industry. And we note that almost every insurer has gone to the entire market with a price uplift to both the corporates and the privately owned collision repair network. So I think in some regard, obviously, we led the charge in terms of getting the whole industry paid properly. The industry was getting squeezed and sandwiched between insurers seeking to get the benefit of multiyear fixed price agreements and requesting or forcing the repair networks to absorb that CPI or inflation based cost increase as part of business. And I think, ultimately, we saw a variety of responses that resulted in almost all insurers giving their repair panel a cost uplift. Whether that was reflective of the total cost, varies by insurer. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [26] -------------------------------------------------------------------------------- Could Geoff please recap on the timetable for potential covenant tests going forward? -------------------------------------------------------------------------------- Geoff Trumbull, AMA Group Limited - Group Financial Officer [27] -------------------------------------------------------------------------------- Sure. So the first test under the simplified EBITDA -- minimum EBITDA in December 2022, that will include annualization from the 1st of July this year, so a 6-month annualized EBITDA and then a similar test in March and June of next year before reverting to a leverage and fixed charge cover ratio test in September 2023. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [28] -------------------------------------------------------------------------------- What steps, if any, can you take to address the current level of absenteeism? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [29] -------------------------------------------------------------------------------- Well, I wish I had a magic wand that could stop people getting sick. At the end of the day, there is a tight labor market. I mean we're not the only industry, of course, that are suffering from a tight skilled labor markets. We move people around various locations as sites are affected by absenteeism. However, we certainly don't have the magic ability to be able to insulate ourselves from a society affected by seasonal flus as well as the ongoing impacts of COVID. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [30] -------------------------------------------------------------------------------- Exit run rate volumes in FY '22, what's holding up the recovery? Is it staffing or pipeline? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [31] -------------------------------------------------------------------------------- There is a mixture of both. Certainly, we have -- like all businesses, we have a requirement for greater staffing. We have an ongoing program to improve our staffing levels, whether it's through recruitment of apprenticeships or overseas migration. So I think to some extent, labor at the moment has an impact on our ability to produce. So I think that is certainly a part of it but also, our clearly stated impact of walking away from some business where insurers were doggedly refusing to pay for the actual cost of the repairs that we were doing for them. And I think when you reflect on that, I think it's quite clear that a number of insurers are attempting to offset natural hazard claims or building-related claims with cost suppression in their motor claims business. However, I think, ultimately, most insurers understand their obligation to operate fairly and justly with thousands of individually privately owned businesses as well as corporates like ourselves to ensure that the motor collision repair industry is not being asked to support insurer profitability as a result of claims in other parts of their business. So ultimately, the only way that, that can be realized is for companies to walk away from business that is not fundamentally viable, and that's what we've done in some cases. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [32] -------------------------------------------------------------------------------- When do the renegotiated prices with most of the insurance take effect? Is it 1 July or later? -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [33] -------------------------------------------------------------------------------- Some started 1 July, and some were 1st of August, depending on the individual insurer and the complexity of the negotiations. But in good faith, a number of them drifted a couple of weeks into August. -------------------------------------------------------------------------------- Alexandra Holston, AMA Group Limited - Director IR & Corporate Affairs [34] -------------------------------------------------------------------------------- It looks like that covers all of our outstanding questions on the webcast. -------------------------------------------------------------------------------- Carl S. Bizon, AMA Group Limited - Group CEO [35] -------------------------------------------------------------------------------- Thank you, everybody, for joining today's webcast. I look forward to talking to you again either individually over the coming days or sharing with you our performance for the first half in February of next year. Thank you for your continued interest in AMA, and we look forward to speaking with you soon. Thank you. Goodbye.