Duratec Limited (DUR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Duratec Limited First Half Fiscal Year 2025 Results Webinar. [Operator Instructions] I would now like to hand the conference over to Ollie McKeon, Executive Manager for Corporate Strategy and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for standing by, and welcome to this webcast for Duratec Limited's Half Yearly Results Presentation for FY '25. My name is Ollie McKeon, Executive Manager for Corporate Strategy and Investor Relations. I would like to begin today by acknowledging the Newmar people, the traditional custodians of the land on which we gather and pay our respects to their elders past, present and emerging. Joining me today are Chris Oates, our Managing Director; and Ashley Muirhead, our CFO. [Operator Instructions] This morning, there will be a presentation followed by a Q&A session. [Operator Instructions] If I would now like to hand over the webcast to Chris, who will talk through Duratec's first half FY '25 highlights.

Thanks, Ollie. Hi, everyone. Welcome to Duratec's half yearly results presentation, including a business update and outlook on all sectors and companies. The key business drivers are still strongly active in all key market sectors and our subsidiary companies of WPS, ME and DDR have all had a good start to FY '25, and they are well positioned for the future. I would like to take this opportunity to thank all of our employees from our 19 locations for all the hard work and effort that went into achieving this result for the business. Here, we get a snapshot of our growth since inception. In the first half of FY '25, we achieved revenue of $287.3 million, slightly down from PCP, but importantly, 9.2% higher from half to half with improving margins. Our CAGR continues at a strong level of 32.5%. Throughout the period, we acquired GF Engineering and consolidated all of the WPF operations into the 12,000 square meter facility in Naval Base Western Australia. As mentioned, revenue delivered in the first half of FY '25 was $287.3 million. Normalized EBITDA is a record result at $26.9 million. And importantly, the overall EBITDA margin has lifted to 9.4%. This EBITDA result is up 12.3% on PCP. And ultimately, we have increased NPAT to $13 million, which is up 6% from PCP. Earnings per share was $0.0519, up 4.6% on the first half of FY '24, and the Board has declared an interim dividend of $0.0175, representing a 16.7% increase on PCP, and we continue our balance between return to shareholders and retaining funds for growth. Our balance sheet remains strong with net cash of $60.8 million, able to support the key growth objectives. Our order book is stable, tenders and pipeline remain very strong, and I'll go into this in a bit more detail later in the presentation. I'll now hand over to Ashley Muirhead, who will speak to the first half FY '25 financial results.

Thanks, Chris. Good morning, everyone. Duratec had another strong half year result with revenue of $287.3 million, which was slightly down from PCP by 1.9%, but actually 9.2% higher than the second half of FY '24. Defense and mining and industrial sectors have lower levels of revenue compared to PCP. The defense sector has kind of come to a close, however, is preparing for the DA JV, HMAS, Sterling Garden Island works. Mining and Industrial revenue is lower than PCP as PCP revenue was a record high. But with the structural integrity project at Rio Tinto's Tom Price mine site having just commenced at the end of the first half of FY '25, this positions the sector well for the second half of the year. Strong offsetting growth in the first half of FY '25 occurred in both the energy and other sectors. The driver behind energy was WPF, which had a record revenue result for the period with high volumes of activity, including the decommissioning works for Santos on the Northwest Shelf. The other sector had a significant increase in revenue of 173% compared to PCP due to a number of marine and infrastructure projects undertaken in the period, demonstrating our focus of growing in all sectors. Gross margins achieved for the first half of FY '25 were strong at 18.5%, resulting in the gross profit of $53.3 million for the period, which was higher than PCP by 12.5%. Achieving these higher margins is due to the mix of works undertaken in higher-margin sectors and the benefit of early contractor involvement works. Overheads increased compared to PCP as WPS Darwin was established in the second half of FY '24. WPF Duratec also acquired the business of GF Engineering during the first half of FY '25 and WPF Perth relocated their facilities. Another reason for the increased overheads was tendering activity in the period, which supports future growth. Normalized EBITDA was $26.9 million for the period, which was 12.3% higher than PCP due to the higher gross margins achieved and an increased contribution from the DDR Group. DDR acquired RC Construction in the second half of FY '24 and the first half of FY '25 has seen a strong result generated from both DDR and RC Construction. The Duratec share of the DDR Group net profit after tax was $1.6 million for the first half of FY '25, which is an increase of 186.1% compared to PCP. Duratec's balance sheet continues to strengthen with net assets increasing by 14.1% to $67.4 million compared to June 2024. Trade debtors continue to be low risk based on the customer profiles and well managed. The decrease in the half year period just signals efficient collection of receivables during the period. Property, plant and equipment increased due to the acquisition of assets from GF Engineering, additional equipment and vehicles to support future projects and investment in leasehold improvements to support the continued growth of the business in our new facilities. Borrowings decreased in the half year, mainly due to the repayments of asset financing for the plant and equipment and vehicles we purchased previously and also due to a repayment of the short-term cash advance facility that was outstanding at June 2024. The only borrowings on the balance sheet at the 31st of December 2024 is asset financing. Cash balances remain solid and will continue to support future growth. Cash conversion for the period to 31st of December 2024 remains strong at 84%, demonstrating continued efficient working capital management. Investing activities in the first half of FY '25 included $3.6 million of investment in capital expenditure and $2.2 million for the acquisition of GF Engineering. Duratec also paid $5.5 million of dividends to shareholders during this period. We are pleased to announce that during and after the first half of FY '25, Duratec had successful negotiations with the Commonwealth Bank of Australia and other bond providers to increase facilities by 69% to $294 million from $174 million at the end of FY '24. Project bank guarantee and bonding facilities increased by $110 million to $225 million. These facilities will be used to back performance obligations of new projects and can be used to support advanced client payments to aid cash flow. With ample headroom for bank guarantees and bonds, Duratec is well positioned for the continued growth of the company. I'll now hand back over to Chris to cover the operational highlights.

Thanks, Ashley. The safety and well-being of our people is key to creating an environment where we can deliver successful projects. We recorded a lost time injury frequency rate of 0 and a total recordable injury frequency rate of 5.34 on a rolling 12-month basis. There is always room to innovate and improve our safety performance, and we believe harnessing technology, investing in training and upskilling of our people will help in delivering safer outcomes. It is great to see our learning and development team facilitating 808 training courses throughout the half and the investment in our people. Having a diverse workforce fosters the inclusion of employees from all backgrounds, and we are committed to creating clear pathways for our employees to advance within their roles, enabling everyone to develop their skills and reach their full potential. Duratec's corporate membership with the National Association of Women in Construction allows all Duratec Group employees to join for free and supports an important platform. Investing and engaging with communities in which we operate is important to us. We continue to connect with and sponsor community groups and charitable organization in these areas. The planning and implementation of our sustainability approach is overseen by our Sustainability Committee, which was established last year, including management of sustainability risks and opportunities. We have completed the baseline quantification of Scope 1 and Scope 2 emissions for FY '24, which will be used to prioritize improvement opportunities across our business. Duratec remains future-focused and will continue to identify innovations and opportunities that enable us to act sustainably while supporting the needs of our employees and clients. On to our defense performance and outlook. Revenue of $97.5 million at 12.1% gross margin was achieved in the first half. Defense revenue is down on PCP, but up slightly on a half-to-half basis. Our gross margin has increased just over 1%. Our national delivery model resulted in wins across multiple states and territories, solidating Duratek's position as a trusted delivery partner for defense. The RAF-based Tindal fuel facility is now in commissioning and handover phase, whilst HMA's Khawarra Harbor works will continue through the second half of FY '25. The DE JV team has now submitted the second round of planning phase deliverables for the 2 critical infrastructure projects at HMA Sterling. As previously announced, the work involves the planning for the provision of the fit-for-purpose nuclear compliant facilities to support the expansion and enhancement requirements of defense's infrastructure upgrades at HMA Sterling under the AUKUS agreement. Subject to the successful completion of the ECI planning phase, a delivery phase for both projects will follow in the first half of FY '26. Other opportunities with defense also remain very strong around Australia. On to Mining and Industrial. As you can see from the performance perspective, the revenue was $72.5 million with a gross margin of 22.6% Highlights for the first half include the award of a $44 million structural integrity project under an existing MSA with Rio Tinto. Staying in the Northwest of WA, the Birth C&D project for BHP is progressing well, and we've recently been awarded a $5 million scope extension, which will extend Duratec's presence on site. Our long-standing trusted relationships with clients like Newmont and Northern Star have contributed to the continuous growth of our MSA projects within the gold sector. We continue to work closely with clients like Rio Tinto in the early contractor involvement space, bolstering our 14-year relationship and positioning ourselves as a partner of choice. It's further pleasing to see that our marine MSA with Roy Hill has been expanded to service the mining and rail sectors across inland operations, which will provide growth opportunities for Duratec. Leveraging off our in-house experience and our client relationships, we have implemented our mining strategy, which is targeting expansion of our operations in NT, Queensland and New South Wales with a focus on securing positions on preapproved panels. We continue to monitor the needs of our existing client base and will strategically diversify our offering to support our goals. Moving to Building and facade. We achieved revenue of $55.2 million, up 4.4% on PCP. Within the period, we delivered a steady gross margin of 18%. In the first half of FY '25, we continue to build on our strategy to work collaboratively with our clients on sustainable fit-for-purpose solutions that provide value through design. Substantial progress continued on Adelaide Air Apartments, Darwin State Art Gallery and Market City project in Sydney. Other key projects completed in the period include Adelaide Town Hall Heritage Facade restoration and the National Carillion ACT Heritage Facade Restoration. Through our ECI process, clients are now seeing the benefit of our early adoption of interactive visual 3D models and digital twins. These specialist building information modeling tools provide precise data and process tracking from beginning to end. These models are completed by our in-house design team. We are currently working on 2 ECI projects with the work anticipated to be valued at over $50 million and the value of the ECI planning phases being $1.3 million. As the above-mentioned key projects demonstrate we have the right blend of experience and expertise nationally to maintain key clients within this sector and continue to gain repeat business. Looking now at the energy sector, we delivered revenue of $39.2 million at a gross margin of 27.4%. Our successful ongoing expansion within the sector saw the award of our first direct contract with Woodside being the $22 million King Bay Supply Base Wharf refurbishment located within the Port of Bunbury in Western Australia, as well as on-site work at the INPEX Ichthys facility in Darwin. Through the implementation of our energy strategy with a focus on geographical expansion, we will leverage cross-subsidiary synergies to roll out respective Duratec and WPS capabilities to our existing client base. We expect this sector will continue to grow strongly. Finishing off our sector-based performance and outlook, you can see some of our emerging sectors, which include the marine transport and water infrastructure. Revenue for the other sector was at $23 million with a gross margin of 19%. We have strategically secured Austroad's national prequalification, which allows us to target road and bridge remediation opportunities in 6 states and territories across the country. We successfully delivered Macquarie's bridge strengthening project for the Department of Transport and Planning in Victoria. An increase in the volume of water infrastructure projects, particularly in New South Wales, contributed positively to the revenue result, allowing us to build capability and trust with our clients. Leveraging off our existing marine capability, we established a specialist Marine division, which has helped identify and secure marine projects outside of defense and mining sectors, most notably the Williamstown workshop peer remediation for Parks Victoria. The opportunities we have delivered to date are part of our organic growth strategy, and we will continue to monitor and grow these emerging sectors in line with our overall strategic plan. The first half was positive for WPS with all aspects of the business performing beyond expectations. Revenue achieved was $28.6 million, up 91.8% on PCP delivering a gross profit of $7.8 million. This revenue is accounted for in the energy and M&I sectors. WPF has cemented itself into the Northern Territory, assisting INPEX with the specialist repairs of the heat exchanges at the Ichthys plant and undertaking the demolition works of Santos DLNG pipeline diversion project. Offshore decommissioning continued to grow within the first half of FY '25 with the delivery of the Santos Harriet JV decommissioning pre-works. We will continue with a focus on decommissioning and anticipate this sector to grow strongly. As part of the WPF strategic growth within the energy sector, first half '25 saw the acquisition of GF Engineering. The acquisition included access to the 12,000 square meter naval-based facility with 3,000 square meter of workshop area. The $2.2 million acquisition funded by existing cash includes the novation of the fabrication services contract with Chevron Australia and ensures that WPF has a capability to better service its existing and new clients. In October 2024, the MEND team relocated to our new hybrid office laboratory workshop facility in East Perth. MEND is now better equipped to meet the growing demand for our services. Our purpose-built facility ensures that we can provide clients with improved efficiency, bolster our position as the industry leader in the early contractor involvement and attract the best talent to our team. Maintaining our focus on advanced technology integration is key to ensuring we are leading the pack and I am excited to see the introduction of our cutting-edge 360 cameras and slam scanning technology combined with our 3D reality model processing. This innovation enables a rapid deployment of our digital defect mapping solution, AnoVue, significantly enhancing the point of difference for men and Duratek projects nationwide. We are proud to have been awarded our first contract in the Bath Strait, where we will support vital scoping studies for oil and gas decommissioning works. This milestone underscores our expertise and the way that men provide early contract involvement opportunities for the group. Our innovation collaboration with a key client in the mining sector marks the beginning of a pilot project aimed at developing a virtual plant solution. This initiative focuses on the spatial management of data for power generation sites, showcasing our forward-thinking approach and technical prowess. We will continue to work collaboratively with all clients across all sectors for the remainder of FY '25 and beyond. We are very pleased with DDR's performance for the first half of FY '25. The DDR Group delivered revenue of $48.6 million, which is up 105% on PCP. Most notably for the half was securing the $54.7 million Department of Defense project, which forms part of the larger portfolio of work for the Project Phoenix. This award was the largest DDR contract to date. The heavy reliance on Department of Defense revenue in previous financial years resulted in the strategic acquisition of RC Construction, which has delivered both growth and diversification for the group. Securing both packages of work under the Project Phoenix portfolio gives the group visibility of revenue right through to FY '26. The strong pipeline of prospects across multiple sectors allows DDR to be selective and position itself for success. As mentioned above, the acquisition of RC Construction has opened up a pipeline of prospects that will further diversify DDR's revenue and growth sectors. It is great to see the group overcome challenges of the past and position for future growth. Our focus has always been to identify, train and retain Aboriginal and Torres Strait Islander staff, and the acquisition of RC Construction has allowed us to do so whilst also building a self-perform capability that can deliver successful projects. As you can see, master services agreement and annuity sole contracts made up $74.5 million of revenue for the first half to 31st of December '24. The MSA revenue is higher than PCP and continues at the 26% mark, the same percent as the last reporting period. We continue to focus strongly on growing our MSA work with existing clients through diversification of services as well as adding new clients, particularly in the energy sector. This revenue sits outside of our order book. Now turning to our pipeline and outlook for the remainder of the year. Duratec healthy order book of $410 million and sizable pipeline of opportunities positions us for significant future growth. What's not in the order book is the MSA work on the previous slide, along with other variations that we often encounter in our industry when working on remediation projects in live environments or additional work that is often added in as new scope. We are pleased that we have increased revenue from half to half and maintained our order book whilst also positioning ourselves for some larger project wins in the future. As before, approximately 1/3rd of our tenders have some type of ECI content within them. History shows that as with any ECI content, our win rate greatly improves. We continue to maintain a disciplined focus on the tenders that we choose to bid for. Our outlook in all sectors is extremely bright. In the short term, our healthy order book demonstrates good win rates on the small- to medium-sized projects. We continue to roll out strategies to further grow our MSA work by diversifying our offering to existing MSA clients, including leveraging cross-subsidiary synergies for WPF, GF Engineering and Duratec. Works on larger projects include Khawarra, First C&D, WSA and all these projects continue through the second half of FY '25. Subsidiary companies, WPF and TDR have strong work on hand with a good number of live opportunities. We maintain our guidance as stated in our AGM. In terms of the medium and longer-term outlook, our very strong tender position gives us confidence of the ability to grow revenue. The ECI content within many of the tenders also demonstrates our collaborative approach with our clients, many of whom we have worked with for many years. The ECI contract model is just not limited to one sector, but is spread across all clients and all industries. The conversion of the ECI planning phase projects at HMA Sterling will be a key focus along with the additional investment of $8 billion planned in infrastructure in WA to support Australia's transition to a nuclear-powered submarine fleet. We still have strong tailwinds in the mining, energy and building and facade sectors despite any commodity price fluctuation, maintenance still occurs on all aging infrastructure. We keep abreast of opportunities outside of Australia where our existing clients operate, including Santos, Newmont, Australian Defense and the Department of Foreign Affairs. We have a demonstrated history of organic growth and are well funded for the future growth. We continually look for potential strategic acquisitions and have an exceptional team within our company helping us to deliver on this strategy. With the above outlook, strong work on hand and our subsidiary companies performing well, we are very excited about our future. So that concludes our presentation today. So I am now going to hand back to Oli so he can moderate the Q&A session. But before I do, I would like to thank everyone for their attendance today.

Thanks, Chris. [Operator Instructions] Before we commence, just a quick note to highlight there was an error on the pipeline report that was uploaded to the ASX. The highlight numbers are correct and the correct version was presented in today's presentation and the correct version along with the webcast will be uploaded to our website following this meeting. Just to start off with some of the questions, we have got a few questions that have rolled in. First one from Matt Chen from Moelis. Interested in more color on outlook, the outlook on energy, in particular, for the second half of '25 and through to the end of this calendar year. Thanks. Chris, do you want to comment on energy?

Energy, yes. Okay. Thanks for that question. The energy sector, as we have seen, has improved greatly. We have got that volume coming through nice margin as well. So really into the future, it's going to be about access. So in energy, by the way, we are going to have WPF and we are going to have some of the other work we are doing in Western Sydney. So it's always going to be about access to that site because we picked up a reasonable size variation there. So it's going to be getting access to that. So that will dictate a little bit of how that rolls out in that area. WPF is very strong, as we've pointed out. GF engineering workshop as well, we have moved into that. That's still got a lot of capacity to grow as well. So it's going to be how quick we can grow into that. That will be in effect on how strong energy can grow. It's absolutely in the medium, long term, it is a fantastic outlook. We know about the decom space. We know about all the maintenance that needs to be done on a lot of these assets. So it looks really good. And yes, that team is about and super excited about the opportunities. That reference to WPF. New clients as well, that's another small factor in there or that will become a bigger factor. So we have our Woodside that we are kicking off with works, which is more maintenance remediation. But we want to push a bit further into the WPF services into that client. And then we have got Chevron as well, which is new. So it's all about the timing of those things. But from a macro sense, it's very positive.

Very good. Thanks for that, Chris. Just to probably switch it a little bit towards finance. There's a question that's come through about just a clarification on the $1.8 million normalization of EBITDA. Could you just give a little bit of a flavor on that, Ashley?

Yes, sure. So the $1.8 million consists of $1.5 million of an add-back for DDR tax, depreciation and interest. So the DDR contribution is added in as a net profit after tax. So to calculate the EBITDA, we obviously take those components for DDR and add them back. And the other element was one-off WPF relocation costs of $300,000 and given us the $1.8 million. Just to mention as well, the effective tax rate for Duratec is obviously lower because of the DDR and be adjusted for tax already as well.

Awesome. Thanks, Ashley. Thanks for clarifying that. Next question, multiple questions from at [ Shaw ] . I'll read the question in full, Chris, and then maybe we'll break it down question by question to give you a chance to answer. So first question, midpoint of guidance implies a step down in EBITDA margin to 8.7% in the second half '25 versus 9.4% in the first half of '25. Should we expect EBITDA margin to come down? That's question one. Question 2 being MSA looks to have been flat half-on-half, down when looking at mining and industrial revenue. Why is this the case with previous financial years seeing robust growth? And then the third one, commentary on Parkes ECI and the Diamantina ECI. So starting with that EBITDA should we expect EBITDA margin to come down based on that first question?

Yes. So I'll go through all of them. The EBITDA margin, look, it's really going to be a function of the mix of work we've got on at any given point in time. And then also you have projects coming to an end that may release a bit of risk and the timing of jobs. That's always the case with us, always has been throughout our whole entire history. So what we do are working hard on and what we think we can achieve in the longer term will be getting, I guess, the margins up a little bit, being more efficient, and we can do that through ECIs. Also a little bit of operational leverage helps that, and we do believe we'll get that in time as well. So that simply in the shorter term, it's going to be the margin mix, but the longer term, we believe, looks very good.

Very good. And then just on the MSA revenue, looking to be flat half-on-half and down when looking at the mining and industrial revenue. Why is that the case with previous financial years seeing robust growth?

Yes. I think we're comparing PCP, we're comparing to something that went up could have been 170% or whatever that figure is, but it was very strong growth in that period. So that's probably got to be normalized a bit, if you could say. And again, looking at half-to-half across all of them, it is still a slight growth on the half before, and it's going to be, again, timing of projects. There is a lot of work to be done in mining with all the assets that have been built. That's FMG, Rio, BHP and that's the Northwest. We've also got all the gold area as well. So all that work has to be done. So it's going to be about timing the job. So there's some pretty fantastic opportunities there as well. So again, for all of the terms and periods ahead, we're very comfortable in the mining space and what's to come up into the future.

And with the acquisition of the business of GF Engineering and noting that contract with Chevron, is that an impact on MSA going forward?

Yes, that will have a positive effect on MSA. And MSA, as much as that percentage was stable, the volume was up when compared to PCP. We will expect that to go. But we've also got if we pick up a lot of other contract work through the ECI conversions at perhaps building and facades and defense, we're always going to be looking at that. So we do want that percentage up. It is good work. And I'd also point to people about some of the variations that you're not probably picking up on the order book or the MSA for that matter, that there's a whole sort of revenue stream inside that. So it's a pretty hard business, I think, to just to grab these stats individually and look at them. So it's a fairly you got to look at it holistically. But again, on the balance of it and in time, it has performed exceptionally well, and we see no change to that in all the periods ahead.

Very good. And then just to round up the last question, commentary on Parkes ECI. Will this convert to an award? And then as well as an update on the Diamantina ECI. So the Diamantina, I think he's referencing to August Diamantina and the 6 packages.

Yes. So there's a lot going on there, and we know there's an $8 billion spend there, and we're right. Amongst them and have been there for many, many years in all the packages works that occur. So looking at it, it's complex what goes on there, and it's very exciting what's happening there. So Diamantina is definitely a priority because of the AUKUS deal and all that public information we see. So it's going to be a lot of efforts gone into that. And so that for us, we've got those 2 ECIs that we've listed. We're working there. We're putting the second phase of deliverables. The Parkes Wharf has been basically, there's a bit of a review on the surface sleep on the defense side. We understand that that's still going ahead. But the size of these opportunities, as you work through all the design because design is at just over half of the way through it. So when we look at that, the volumes are quite strong, and it's just going to be what the defense prioritize. We don't dictate that, but we see what Diamond team is doing, and they have some hard deadlines that are public information as in wanting access to some of these structures by the end of '27. So if you unwind that back, there's a pretty strong time line to achieve, and we're helping them achieve that. So that's where the effort is.

Very good. Just I suppose on guidance, again, a question from Mark Bernard from Bell Potter. Regarding the revenue guidance, can we expect to see strong growth in energy and other sectors in the second half with defense and mining and industrial being at a similar to slightly ahead versus first half?

Yes. I don't know if it's as simple as that, but we do expect the growth in energy. Mining is going really well, as Ashley pointed out. Earlier there that we have our Rio Tinto project we're just gearing up for or getting back on to site for. So I think in all of those streams, it's going to be the mix and what we can get through. I think we've called this out before about probably stable in the defense side of things for FY '25, but growth in all other areas. So nothing's changed from that perspective.

Very good. Just probably a comment and might be split this between yourself, Ashley and Chris. Just from Eric Bs from Moelis. Can you comment on the increase in your banking facility? Is it to allow for greater tendering or for future M&A opportunities or both? I think Ashley, maybe you want to maybe take the first part of the question with regards to the finance or the position with banking facility?

Yes, sure. Thanks, Oli. Yes, the increase in the banking facility was predominantly a multi-option facility, which gives us performance guarantees and our bond facility, which we can use for performance obligations as well. Both facilities can also be used if we want to have advanced payments from our clients too. So not for the M&A opportunity really to support future contracts.

Yes. That banking facility has been the support we've had from CBA and the secondary market has been very good. But yes, it's definitely around and also supporting the cash flow for major projects where we might have some procurement that needs some security as well. So we've got plenty of headroom there now, and everyone can probably see that our tender section there we can support that very well. So it's looking really good from that front. The M&A, it's definitely not linked to any M&A. But we're definitely looking at acquisitions. We have some that come through all the time. We review them. We're going to be, as always, very, how do you say, cautious about what we do in that space, particularly with the organic profile we've got.

Very good. Just a question, I suppose, on margin mix from Tony Shields. You have a good half with margins increasing due to product mix. should we expect a moderating margin in future? Similarly, cash flow was favorable as trade endeavors fell. Should we expect it to be less favorable in the future? So Chris, probably yourself with the margin mix. I think you probably touched on it a little bit, but did you want to talk to that a little bit more? And then Ashley, maybe just for the cash flow.

No worries. I think we have said this last time, and I'll go back to it again, and it's because it's quite important to us because in the Note 2 segment reporting, we'll pick up the margins there. So we've got the revenue and then the gross profit, so I'll talk margin here. So defense, when we look at that, that has been up at that 14 sort of percent. It was 11% for the last couple of periods, it's now 12%. In time that we expect that to go up a little bit. And mainly, with the ECI projects ahead and that collaboration we have, you've got a chance to do that. You've got the small to medium jobs, and we've got some fuel infrastructure projects we're working on. So we're pretty comfortable and of the belief we can do a bit better. That will take a little bit of time to play out because you've got to win those jobs, secure them and then do them but it's okay now, but we think it can get better. Mining is 23%, that's quite stable. That's up a little bit from where we were. But again, that should not really change in the long term. That we have a lot of equipment there and some of that depreciation is a portion to that side of the business as well. building and facades is 18%. I think we called that out last time that it was a little bit higher before at 24% at the last in 18%. So 18% is a good place to be. It can be up a bit down a bit depending again on self-performing and ECI. We do have really good ECI opportunities in that space. I think there was a question there just about that is how does that look? And the order book can go up and down a bit on that, but it's really positioning yourself to get into an ECI position. And yes, you're not going to earn the biggest money in that space, but you're going to set that job up and you should win that job, and we've got a couple of those opportunities. So that margin is good and quite stable at 18%. Energy is 27. We should probably always be up and about in that area, maybe up and down 1%. And then others at 19% is probably the place it should be about there depending on what type of work we've got. So if you add all that up, we're probably saying the defense to come up a point or 2, and then the rest are relatively stable. So that gives us belief that the gross margin can become a bit more efficient. And back to the other comment of if we can get the revenue up a bit in some of the size jobs we're looking at, then we get the operational leverage as well.

And just to answer Tony's second part of his question, actually, similarly, cash flow was favorable as trade debtors fell. Should we expect it to be less favorable in the future?

No, definitely not expecting it to be less favorable. Our cash is strong, and we've got a big focus on cash conversion and maintaining that high conversion rate of 84% or higher. So as we mentioned earlier, having banking facilities as well, which supports advanced client payments and cash will continue to be well maintained.

Thanks, Ashley. We've got a 3-part question from Rushil at Ord Minnett. I might just go question by question, Chris, if you've answered, you probably touched on a couple of these questions already, but let's go through the question and you can add some light to it if you need to. So the first question from Rushil is how should we look at revenue generation and margins in the second half per division? Should we expect similar trends? Probably touched on that, but if you want to.

Yes, we have touched on that again. Yes, we're partway through. We probably have touched on, I think, each one of those individuals. So yes, we're pretty comfortable with where we sit for the second half as well as the future. We've probably said that plenty of time there as well. So yes, and it's going to probably be quite similar standouts, by the way, of anything changing throughout that. So then if you look at all those sectors, we don't see the second half something jumping up dramatically over the other. We've probably seen a bit of that, obviously, with energy, which we called out to grow significantly about what this time last year or the last period. So we sort of pulled that out and we've seen it. But from here, that percentagewise of them within each other, we're not expecting anything major changes.

Cool. And the second part of the question is just around defense. Margins in defense rebounded quite strongly in first half '25. What drove this? Was it due to major projects coming to a conclusion? How should we look at margins in defense over the next few years, especially as Diamantina and the CIF project begin to be delivered?

I think we have answered that, but just to put a bit more color there. Yes, there wasn't really a major project coming to an end that's released margin. Bear in mind, it's gone from 11% to 12% and we're talking about that probably we've had better margins in that, and we think we can get there because of the ECI content and that collaborative approach because, again, just to get to that point, when we're working we have a lot of people working on that project now at Diamantina. And we understand that exceptionally well. So when we start it and when we do it, we know what we're doing, and that's the whole point of these projects, so you can become a lot better, a lot more efficient. So that's why we have belief in the long term, but there's nothing exceptional about going from 11% to 12% in the form of anything behind the scenes. We've got a few small- to medium-sized jobs we're pretty efficient at that them too. So that probably answers that part of it.

And then just with regards to Diamantina and CIF projects coming together. I think you mentioned as well in your comment about those type of early contractor involvement projects are really what drive you derisk the project for your client, you derisk the project for Duratec and then you've prepared for the delivery, which gives you a better chance of margin. Do you want to just expand on ECI as a general piece?

Yes. And that's true. And that applies to we're doing ECIs in mining, building facades, but particularly defense because they're larger ones there. So we look at the Diamantina, there is 2 projects there, and they're in the midst of that. So that is going to occur. And again, on the time line and the timing of that, it's pretty strict time line. So we'd expect that to embed that in the, I guess, the short to medium term.

Very good. And then just Rushil's last question. It looks like the order book in building and facades dropped in the half. Can you talk about the outlook for this division in the second half and FY '26? So do you want to talk about some of those projects that are in the pipeline?

Yes. I sort of partly answered that when I was talking about the margin mix there and for building and facades. So it's just going to be timing. So for us, there's nothing in that order book. You'll always see that go up and down as you will for the tenders and the pipeline. And when we go into ECI mode, that's important to note that it does take a little bit of time to convert from the projects you're working on. So that's always going to be a factor. But again, you want that because you want to understand that project. So it's simply timing, we have no issue with building and facades for the short, medium, long term at all. All of those buildings around Australia are getting upgrades. There's all sorts of work to be had. So no issues at all. That whole sector, if you could say, is probably one of the most annuity-style parts to our business that doesn't really land in MSA, but it is annuity because all of these projects are forever having maintenance and upgrades, and there's plenty of buildings around Australia, as you can imagine.

It looks like we have our last question. But if there is any more questions, just a reminder, just to click on that blue in the top right corner and submit your question. But so far, Ed from Shaw another question. Thanks, Ed. So any large tenders in the pipeline that may be decided in the second half '25 besides the defense ECI, working capital required to commence the 3 defense Garden Island East, I think with the 3 defense projects, Ed is talking about Diamantina, and Parkes. So just to answer the first question, any large tenders in the pipeline that should be awarded in the second half?

There could be a couple there. We've got one in other that we've been working on for a while, a Sydney Trains project could be the mining side of things. There's some pretty solid-sized opportunities within like the one we announced some time ago there, the $44 million Rio Tinto. There's lots of parcels of those types of works around. So it's just again going to be timing of what the client is up to and when they want to. Now we've got the cyclone season coming to an end. So it's a good time to be working up north. That's in Darwin and any of the northern areas of Australia. So yes, that's always possible because we're working on so many jobs at any given time. The working capital, yes, we're always conservative with cash. We've now got the headroom in the facilities. And as that comes to a point where we need to be ordering things, we're looking at using bank guarantees and security bonds to support the cash flow side of things. So we'll definitely think we're in a really good position for that particular aspect of doing contracting work.

That's probably all the questions we have online. Any comments, any closing comments, Chris, from yourself?

I'd just like to thank just around the ground, I guess that's our subcontractor suppliers and particularly the employees of the business. Again, it's been a good half. The future is unbelievable what we have, and it's pretty exciting shareholders, just to thank them. And yes, I think the business is in no better shape. We have lots of good little building blocks in place that we're going to hopefully take advantage of in all of those sectors and have a really bright future. So yes, thanks to everyone for tuning in.

We just had one question come in actually as you were wrapping up, which is probably a good question from Prashant. Can you give some more insight on how the MEND business contributes to the ECI work?

The MEND business, that's embedded in all of what we do. And it's obviously out there doing other projects as well. But generally, what it does supports the Duratec business. So it's very forward-thinking, I guess. And part of that ECI, what we're doing, we've increased our lab services. And so inside that, they do like the defect detection, they do the 3D modeling. So they do the lab services and then the analytics there, defect detection, et cetera. So as people point out, other companies do 3D modeling. Yes, that's correct. But we take that the whole way through the gamut and turn it into actually meaningful budgets with a meaningful program of works. So that, again, it's such a good tool for us to win work and actually then be effective in doing that work. So it's a pretty exciting place. We've moved into the new facilities that has the lab and office together. And yes, that again is an exciting place to be.

Very good. We've answered all the questions that have been submitted. I just like to thank everyone. Obviously, we have a roadshow coming up, so looking forward to catching up with people in person. And if you do have any further questions or queries, please contact the company directly through our Investor Relations e-mail. And thanks, everyone, for dialing in.

That does conclude our conference for today. Thank you for participating. You may now disconnect.