Johns Lyng : Accelerates U.S. Growth Strategy

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JOHNS LYNG GROUP LIMITED (ASX: JLG)

ASX Statement

9 December 2021

JOHNS LYNG GROUP ACCELERATES U.S. GROWTH STRATEGY

US$144M ACQUISITION OF RECONSTRUCTION EXPERTS, A LEADING PROVIDER OF INSURANCE FOCUSED

VENDOR-MANAGED REPAIR SERVICES TO OCCUPIED PROPERTIES IN THE U.S. -

TO BE FUNDED BY A FULLY UNDERWRITTEN A$230M EQUITY RAISING

Executive Summary

• Acquisition of Reconstruction Experts for US$144m ("Acquisition") equating to 7.8x EBITDA1 for the 12 months to 30 June 2021 ("FY21")
• Provides an established, profitable and growing U.S. platform to leverage JLG's core competencies in insurance building and restoration services
• Establishes a strong base from which to pursue growth in the very large, estimated ~US$100bn2 U.S. market for defect and damage insurance and property repairs and maintenance
• Reconstruction Experts has significant growth potential, having developed a successful and repeatable sales and operational delivery model in four key U.S. States (Colorado, Florida, California and Texas), with authorisations in place to work in a further 13 States. Reconstruction Experts' existing 4 key states alone have a population c.4x the size of Australia's population
• Ambition to develop a fully national footprint over time through organic growth and the pursuit of select M&A opportunities - U.S. market is currently highly fragmented with many local and regionally focused players. Reconstruction Experts' management team successfully acquired and integrated Advanced Roofing and Sheet Metal (a Florida-based roofing repair company) in November 2019, demonstrating capability for potential follow-on acquisitions in due course
• Valuable opportunity to leverage and enhance JLG's existing U.S. footprint through Steamatic LLC, a national franchise network operating across more than 40 locations in the U.S., providing water damage restoration services - intention to drive collaboration between Steamatic and Reconstruction Experts which is expected to enhance growth and value for the group
• Footprint expected to provide many additional opportunities to further implement JLG's business model in the U.S. including offering "MakeSafe" services and developing capability to service large-loss CAT events

• Earnings before interest, tax, depreciation and amortisation, excluding non-recurring expenses identified during due diligence and including pro-forma adjustments in respect of the Transaction and IFRS
  2 Based on an independent commercial / market due diligence report as at September 2020

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• Reconstruction Experts is led by a strong, long standing, high-calibre and very experienced management team, who will be fully aligned through ongoing equity ownership - consistent with JLG's equity partnership model
• Proceeds from the A$230m equity raising ("Equity Raising") will be applied to fund the Acquisition, associated transaction expenses and to ensure JLG and Reconstruction Experts maintain financial flexibility to fund their near-term growth initiatives
• The Acquisition and Equity Raising ("Transaction") are expected to be immediately and significantly earnings accretive to JLG - 64.2% EPS-A3 accretive on a pro-forma FY21 basis

Acquisition of Reconstruction Experts - Accelerating Growth in the Large U.S. Market

Johns Lyng Group Ltd (ASX: JLG) today announces that it has entered into a binding share purchase agreement to acquire Reconstruction Holdings, Inc. (together with its subsidiaries "Reconstruction Experts", "RE" or the "Company") for an up-front Enterprise Value of US$144m, plus a potential earn-out of up to US$58m. The potential earn-out is payable based on the 3 year trailing average EBITDA4 performance of RE, to be tested annually over the 2 years post-Closing (12 months to 31 December 2022 and 2023 ("CY22" and "CY23")).

Established in Colorado in 2001, Reconstruction Experts is a leading provider of insurance focused repair services to occupied properties in the U.S.

The Company's primary client base is Homeowner Associations ("HOAs") - the U.S. equivalent of Strata Managers/Owners' Corporations, i.e. large multi-family properties including apartments, condominiums and master planned communities.

Reconstruction Experts generated approximately US$127.4m revenue and US$18.5m EBITDA5 for FY21 with approximately 80% of its revenues generated from defect and damage insurance related work (fixing construction defects and man-made or weather-related property damage).

The Company's key services are highly compatible with JLG's core competencies:

• Defect and Damage Insurance (~80% FY21 revenue) - provides restoration repair works to clients when normal course insurable property damage losses occur or flaws in initial construction result in a defect lawsuit; and
• Repairs and Maintenance (~20% FY21 revenue) - undertakes non-discretionary works to maintain or improve ageing properties not covered by insurance, typically in accordance with the long-term planning

• Calculated using net profit after tax attributable to JLG shareholders, excluding amortisation of acquired identifiable intangible assets and non-recurring transaction and other expenses identified during due diligence and including pro-forma adjustments in respect of the Transaction and IFRS and a US effective tax rate of 25.6%, divided by the pro-forma weighted average number ordinary shares outstanding for FY21. Assumes an AUD:USD FX rate of 0.72
  4 EBITDA calculated as per note 5 (below) less rent expense (AASB 117 (Leases))
  5 Earnings before interest, tax, depreciation and amortisation, excluding non-recurring expenses identified during due diligence and including pro-forma adjustments in respect of the Transaction and IFRS

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requirements of HOAs, or multi-family properties where reserve funds are in place for long-term capital projects.

Reconstruction Experts currently employs 287 employees across offices in four states throughout the U.S. The Company is led by an experienced management team with long tenures having established a strong culture and a repeatable business model which is very well aligned with JLG. The Company is well positioned for future expansion and growth.

After a long and extensive search spanning 18 months, JLG Chief Executive, Scott Didier AM, described the Acquisition as a transformational opportunity to acquire a platform that enables JLG to leverage its core competencies in insurance building and restoration services in the very large U.S. market.

"The acquisition of Reconstruction Experts is an exciting opportunity for Johns Lyng Group. Having established a U.S. presence through the Steamatic acquisition in 2019, we have developed a clear picture of the opportunities to create value for our shareholders by extending our expertise and core service offerings in the U.S. market," Mr Didier said.

"We were attracted to Reconstruction Experts as a platform for our U.S. growth strategy, given the strong culture of its key management team members with whom we have built close relationships over the last few months while reviewing this transaction.

"The management team has built an impressive business which has reached an inflection point in its scale and growth. They have put in place the key building blocks and systems that should support sustainable growth and we believe that we can add significant value and capabilities to assist Reconstruction Experts in accelerating its expansion plans.

"We are incredibly excited to bring Reconstruction Experts into the JLG partnership model and look forward to commencing immediately with the aligned management team on pursuing a growth strategy to drive value for all our stakeholders."

Strategic Rationale and Investment Highlights of the Acquisition

• Provides an established, profitable and growing U.S. platform to leverage JLG's core competencies in insurance building and restoration services
• Reconstruction Experts is led by a strong, long standing, high-calibre and very experienced management team, who will be fully aligned through ongoing equity ownership - consistent with JLG's equity partnership model
• Establishes a strong base from which to pursue growth in the very large estimated US$100bn6 U.S. market for defect and damage insurance and property repairs and maintenance
• Attractive business platform with strong referral network that allows Reconstruction Experts to achieve >70% bilaterally negotiated ("no-bid") projects
• Ambition to develop a fully national footprint over time, through organic growth and the pursuit of select M&A opportunities - U.S. market is currently highly fragmented with many local and regionally focused players. Reconstruction Experts' management team successfully acquired and integrated Florida-based roofing company, Advanced Roofing and Sheet Metal, in November 2019, demonstrating capability for potential follow-on acquisitions in due course

• Based on an independent commercial / market due diligence report as at September 2020

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• Valuable opportunity to leverage and enhance JLG's existing U.S. footprint through Steamatic LLC, a national franchise network operating across more than 40 locations in the U.S., providing water damage restoration services - intention to drive collaboration between Steamatic and Reconstruction Experts which is expected to enhance growth and value for the group
• Provides many additional opportunities to further implement JLG's business model in the U.S. over time including offering "MakeSafe" services and developing capability to service large-loss CAT events
• Provides significant growth and diversification opportunities in the U.S., with FY21 revenue of US$127.4m representing 24%7 of pro-forma FY21 group revenue post-Acquisition
• The Transaction is expected to be immediately and significantly earnings accretive to JLG - 64.2% EPS-A8 accretive on a pro-forma FY21 basis
• Strong balance sheet and significant financial flexibility maintained to enable the continued pursuit of growth initiatives

Key Transaction Terms

• A 100% owned subsidiary of JLG has entered into a binding share purchase agreement to acquire Reconstruction Experts for:
• • An up-front Enterprise Value of US$144m; plus
  • A potential earn-outof up to US$58m. The potential earn-out is payable based on the 3 year trailing average EBITDA9 performance of RE, to be tested annually over the two years post-Closing(CY22 and CY23)
• US$144m Enterprise Value represents a multiple of 7.8x normalised EBITDA10 for FY21
• JLG will acquire 100% of RE at Closing. Subsequent to Closing, in-line with JLG's equity partnership model, key RE senior management will acquire an equity interest in the Company through a combination of cash purchased equity and share options (with an exercise price equal to the final purchase price under the share purchase agreement and a 5 year vesting period)
• JLG will acquire the cash on Reconstruction Experts' balance sheet at Closing and there will be customary post-Closing purchase price adjustments in respect of net working capital and debt-like items (all third- party debt will be repaid at Closing)
• Closing is subject to customary conditions precedent and is expected to occur on 1 January 2022
• JLG intends to retain Reconstruction Experts' existing revolving credit facility with up to US$10m undrawn headroom to provide working capital facilities and liquidity to support the operations of the Company post-Closing

• Assumes an AUD:USD FX rate of 0.72

• Calculated using net profit after tax attributable to JLG shareholders, excluding amortisation of acquired identifiable intangible assets and non-recurring transaction and other expenses identified during due diligence and including pro-forma adjustments in respect of the Transaction and IFRS and a US effective tax rate of 25.6%, divided by the pro-forma weighted average number ordinary shares outstanding for FY21. Assumes an AUD:USD FX rate of 0.72
  9 EBITDA calculated as per note 10 (below) less rent expense (AASB 117 (Leases))
  10 Earnings before interest, tax, depreciation and amortisation, excluding non-recurring expenses identified during due diligence and including pro-forma adjustments in respect of the Transaction and IFRS

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Management Restructure/Cultural Celebration

In order to ensure JLG has the necessary capacity and bandwidth to manage the Acquisition and continue to keep the Australian operations on a focused path towards sustained growth, JLG is delighted to announce its first major management restructure since listing in 2017.

Effective 1 January 2022, Scott Didier will assume the role of Global CEO and will co-reside between Melbourne and RE's headquarters in Denver, Colorado.

Lindsay Barber will assume the role of Global Chief Operating Officer and Nick Carnell will become Australian CEO.

"Both Lindsay and Nick have done an incredible job steering JLG Australia since our listing, and prior to listing in Lindsay's case. I congratulate them both and it is with great pride that I can advise that they have been promoted to these senior roles within a top ASX 300 company," Mr Didier said.

"These are internal appointments based on merit. Culture is so important to our business and a key driver of our success, and they will be the first to admit that they have been recognised for the performance of every JLG team member.

"This Acquisition will open up significant opportunities for international exchanges for JLG team members between Australia and the U.S. It will be an exciting time ahead as we realise the many benefits of this Acquisition."

JLG FY22 Trading Update

JLG reconfirms its FY22 forecast revenue of A$635.4m and EBITDA of A$60.1m prior to the Acquisition, which incorporates existing known run-off work from recent CAT events but does not include a forecast for future potential CAT events.

In addition, JLG expects Reconstruction Experts to contribute revenue for the six months to 30 June 2022 ("2H22") of A$96.9m11 and EBITDA of A$13.0m12, which reflects the expected contribution for the period in which JLG will own Reconstruction Experts during FY22.

Combining JLG's prior guidance with Reconstruction Experts' expected 2H22 contribution, JLG upgrades its FY22 forecast revenue to A$732.3m13 and EBITDA to A$73.1m.14

1. Assumes an AUD:USD FX rate of 0.72
2. Assumes an AUD:USD FX rate of 0.72
3. Assumes an AUD:USD FX rate of 0.72
4. Assumes an AUD:USD FX rate of 0.72