Duratec Limited (H2E.F) Earnings Call Transcript & Summary

Thank you, Dennis. We have now addressed all questions received prior to the meeting and during the course of the meeting. If you have any further queries on the company's activities, please contact the company during normal business hours. We will now conduct a poll on all resolutions. If you would like your proxy votes to stand, you do not need to take any further action. If you have lodged a proxy vote and wish to have your vote counted or if you wish to amend a proxy vote already lodged, please follow the process and vote by selecting the Vote icon. The poll will be closed in a few moments. We encourage you all to finalize your vote. I will now take it that all shareholders have voted and declare the poll closed. This concludes the formal business of the meeting. Details of the results of the meeting will be posted on both the company's website and the ASX market announcements platform as soon as practicable. I will now ask Chris Oates, our Managing Director, to provide an operational update on the company. Chris?

Thank you, Martin. Good morning, everyone, and thank you for joining us at this morning's FY '25 AGM for Duratec Limited. Looking firstly at our business history, we get a snapshot of our growth since inception. Our CAGR continues at a strong level of 30.2%. Nearly all growth has been organic, and it is only in more recent years that we have intensified our targeted acquisition strategy aligned with our growth initiatives. Key business drivers remain strongly active in all key market sectors, and the group had a solid start to FY '26. This slide shows our updated portfolio, which highlights our current footprint across Australia and the key market sectors and locations in which we operate. Importantly, the company's strong performance in FY '25 positions us well and provides us with confidence to continue to pursue strategically aligned expansion opportunities over the near and long term, ensuring sustainable profitability and shareholder returns. Early in FY '26, we established our first WPF branch in Brisbane based on our recent APA MSA works agreement. Revenue delivered in FY '25 was $573 million, up 3.1% compared to FY '24 and the highest revenue in the company's history. This was predominantly driven by an outstanding performance across our energy and emerging sectors. Normalized EBITDA was a record result at $53 million. And importantly, the overall EBITDA margin improved to 9.2% compared to 8.6% in FY '24. Our balance sheet remains strong with a cash balance of $84 million as at the 30th of June '25. We maintained strong support from our debt partners with total committed facilities of $294 million as at 31st of October '25. Available headroom of $197 million provides ample capacity to fund future growth initiatives. Our order book is healthy, tenders and pipeline remain very strong, which we will look at in detail later in the presentation. Master services agreements and annuity style contracts made up $176 million of revenue for FY '25, which equates to 31% of this year's revenue. This is a large increase in the percentage of revenue generated under MSA annuity style contracts. We continue to focus on and grow our MSA work through long-term contracts with new customers as well as diversifying our offering to existing clients, particularly in the energy sector. Other recent MSA wins include work with APA, Condor Energy and Norton Gold Fields. This revenue sits outside of our order book. In FY '25, our workforce expanded to 1,265 employees nationwide and to better support the Eastern states, we established a people and culture team in our Sydney CBD office. Safety culture remains our highest priority and is key to creating an environment where we can deliver successful projects. Duratec remains focused on sustainable future, and we'll continue to identify opportunities and innovations that enable us to act sustainably while supporting the needs of our employees and clients. Since year-end, we are proud to have our Reflect Reconciliation Action Plan, RAP endorsed by Reconciliation Australia, a significant milestone in our reconciliation journey. Our defense sector delivered revenue of $181.4 million and a gross margin of 13%, reflecting disciplined cost management and operational efficiency. The Duratec Ertech joint venture, DEJV, was awarded 2 ECI Head Contracts for the planning phases in Q2 FY '25 for critical infrastructure projects at HMAS Stirling. These 2 ECI contracts are scheduled for commencement in Q2 FY '26. As previously announced, the work involves the planning for the provision of fit-for-purpose nuclear compliant facilities to support the expansion and enhancement requirements of defense's infrastructure upgrade at HMAS Stirling to support the U.S. and U.K. rotational force being based out of HMAS Stirling, which is scheduled to commence at the end of 2027. Duratec is extremely proud to be the first construction company and the second overall company in Australia to achieve ISO 19443 accreditation, the international standard for quality management systems used by organizations operating in the nuclear sector. This achievement not only demonstrates our commitment to quality and compliance in a highly regulated environment but also positions Duratec as a trusted partner for defense and other critical sectors requiring the highest standards of assurance. During the year, we successfully completed the majority of the 5-stage Coonawarra redevelopment project with remaining works to be completed and handed over to defense in Q3 FY '26. In the second quarter of FY '26, we submitted our largest tender for Duratec in the defense sector in the form of the Lemont Fuel upgrade submission, which is a similar project to the one we recently completed at Tindal for defense. Other long-term opportunities remain a key focus, particularly in fuel and marine infrastructure with potential projects valued at more than $15 billion program for delivery between 2028 and 2032. These works align with Duratec's demonstrated strategic growth, which is underpinned by its national resourcing model, financial strength and proven capability to deliver large-scale defense infrastructure programs. Our mining and industrial sector achieved revenue of $136.6 million and a gross margin of 20.3%. Notably, achievements this year include securing a $44 million structural integrity project for Rio Tinto and entering into 2 significant 3-year term contracts with Newmont Boddington Gold, who have also invited us to tender for additional structural mechanical piping works due to the success of our ongoing campaigns. Leveraging on our original MSA, we have now expanded our service offering for Hancock Iron Ore, formerly Roy Hill, across port, mine and rail, covering both on-site and off-site shutdown work, reinforcing our position as a trusted partner for these critical scopes. The Berth C&D project was completed in Q3 FY '25, and Duratec continues to work with BHP on multiple fronts, completing structural remediation and integrity works in partnership with AIMS and Port Engineering. By prioritizing MSAs and annuity-based contracts with key clients such as Rio Tinto, BHP, Hancock, Newmont and FMG as well as expanding over East, we maintain a positive outlook for the sector through FY '26. Moving to our building and facade sector, which achieved revenue of $111.9 million and a gross margin of 18.4%, the financial performance reflects our strategic focus on broadening our service offering and leveraging our expertise in both remediation and new construction projects. During the year, we enhanced our market position by utilizing in-house digital engineering provided by MEnD, who support the B&F team's ECI and design-led strategies to improve project planning and installation. Using building information modeling, BIM and off-site fabrication, our Darwin team efficiently delivered the NT Art Gallery project. Our continued focus on ECI has resulted in the recent award of a large facade refurbishment on a high-rise building in Brisbane CBD with a second live opportunity in Adelaide anticipated. We also successfully delivered the award-winning heritage facade restorations of Adelaide Town Hall and National Carillon in Canberra. And more recently, we have commenced the heritage restoration of Christchurch Cathedral in Newcastle, New South Wales. B&F entered FY '26 with strong momentum and a healthy pipeline. The strong demand for those capabilities positions us for continued success into the future. Our energy sector, which covers the maintenance and decommissioning of oil and gas assets as well as the expansion and refurbishment of hydrocarbon storage infrastructure is positioned for strong growth. In FY '25, the energy sector delivered revenue of $82.5 million and a gross margin of 28.9%. We continue to target and successfully deliver energy sector projects nationwide, including works at the INPEX Ichthys facility in Darwin, critical projects for Santos and Western Sydney's airport fuel infrastructure. Duratec also secured its first direct contract with Woodside Energy, a $21.8 million Wharf refurbishment at King Bay supply base in Dampier, WA. Our inclusion in APA Group's 4-year national fabrication panel expanded our presence in Darwin and strengthened our fabrication capacity with in-service welding works underway across NT, SA and Queensland. The February 2025 acquisition of AsClear added industrial blasting, specialized coatings and hazardous material remediation in Victoria, supporting our energy growth strategy, especially in the Bass Strait. We will continue to pursue diversification through organic growth, investment and selective acquisitions. Turning now to our emerging sectors, comprising marine transport and water infrastructure, which delivered revenue of $60.6 million and a gross margin of 17.3%. Significant revenue growth in marine and water infrastructure, especially on the East Coast, drove our improved financial results. By leveraging WA marine expertise nationally, we efficiently met rising demand across the sector. The 2032 Brisbane Olympics and B2 Road Certification in Tasmania and Victoria positions us to pursue bridge remediation and Olympic corridor asset upgrades. With a strong pipeline, proven capabilities and a strategic national structure, Duratec is well positioned to deliver sustained value in FY '26 and beyond. I am very happy to introduce DXP Energy Solutions, our newly established strategic incorporated company that aims to enhance Duratec's capabilities within the oil and gas and energy transition sectors. By offering a unique integrated service covering the entire asset life cycle across the energy sector from development and operations through to life extension and decommissioning, this venture supports further diversification of revenue streams and aligns with Duratec's broader expansion strategy in the evolving energy sector. We are seeing strong initial progress with early work contract awards and our partnership with Condor Energy. Looking ahead, we are optimistic about the opportunities this new venture will bring and expect favorable results into the future. Moving now to the subsidiary companies. WPF delivered an excellent financial performance with revenue of $59 million and a gross profit of $17 million, up 77% on last year. During the year, WPF acquired the business assets of GF Engineering and relocated its operations to naval-based WA, providing Duratec close proximity to support defense operations at HMAS Stirling Garden Island and to capitalize on opportunities from the Henderson Defence Precinct. Key project wins include Santos offshore Harriet Alpha decommissioning project and their Darwin LNG Pipe Duplication project, where we delivered critical infrastructure, fabricating and installing the key landside components, connecting the Barossa Gas Export Pipeline to the DLNG facility. Moving forward, WPF will continue to pursue multiple opportunities with Santos, Chevron, Woodside, INPEX and APA Group, in line with our expansion strategy across energy and decommissioning. Looking now at EIG, which we acquired in July '25, this acquisition based in Canning Vale, WA is an electrical infrastructure provider specializing in fuels and fluid transport services, including in-house consultancy and design capabilities. It supports Duratec's strategic growth by expanding our end-to-end self-perform capabilities in high barrier, high-value sectors. We are really excited about the capability that EIG brings to Duratec and anticipate continued positive contributions through FY '26 and well beyond. During the year, MEnD relocated to a new office and purpose-built laboratory in East Perth, boosting its capacity to serve both existing and new clients across multiple sectors. In FY '25, MEnD launched a 3D reality modeling project for Flinders Port, delivering multi-format 3-dimensional digital asset models for future analysis and maintenance planning. We also secured our first project in the Bass Strait Victoria, conducting structural testing on a concrete gravity-based offshore oil and gas platform, underscoring our expertise and the way that MEnD provides ECI opportunities for the group. MEnD also continued to excel in the mining sector with many structural integrity inspections completed throughout Western Australia. We have more recently secured 3D modeling work at the GrainCorp Wharf and Silos in Geelong and the National Library of Australia in the ACT. Looking ahead to FY '26, MEnD will remain focused on digital innovation, strengthening partnerships and delivering high standards of service and practical value for clients, supporting Duratec's continued growth and industry reputation. Looking now at DDR, Duratec's Aboriginal and Torres Strait Islander associate business, which achieved $113.9 million in revenue to deliver $22.2 million in gross profit. RC Construction is now fully embedded and contributed impressively to the FY '25 financial performance. During the year, DDR Group achieved a significant operational milestone securing its largest contract to date, a $54.7 million Department of Defence contract which form part of the Project Phoenix portfolio of work in the Northern Territory. The group has expanded its national operations into the NT and remains focused on boosting Aboriginal employment and supporting Aboriginal businesses through its supply chain. DDR has strong work on-hand position and is also now tendering several larger scale opportunities that present as the business grows. DDR is set up for another exciting year. We see a strong growth outlook for DDR along with RCC. Moving now to our pipeline and outlook. The order book remains solid with $386 million of work on hand. In the short and medium term, we anticipate this to grow strongly. In the meantime, our MSA work continues to grow and generally delivers better margins with reduced risk profiles. And as mentioned, this work sits outside of the order book. At present, we are involved in 11 ECI projects with an additional 5 ECI proposals submitted and pending award. In total, if all 16 ECIs convert, they will contribute an extra $700 million of work on hand. We are confident of converting these opportunities in time, along with several other tenders we are working on, many of which have been shortlisted. Our outlook in all sectors is still extremely bright. In the short term, our order book and MSA work demonstrates our ability to maintain good revenue at very good margins. We continue to win small- and medium-sized projects through Duratec and our other entities, while our MSA work continues to grow year-on-year. Works on larger projects, including Coonawarra, Woodside, Tom Price and now a large facade refurbishment project in Brisbane continue. Subsidiary companies, EIG, WPF and DDR, all have good work on hand and multiple opportunities ahead. We anticipate converting several defense and building and facade ECI contracts into delivery phase with immediate commencement upon award due to the thorough scheduling and planning during the ECI period. The medium to long term is very strong with ECI contract modeling dominating our future opportunities. The medium -- the conversion of the ECI projects at HMAS Stirling will be a key focus, and we will look to place ourselves in a good position to win further work at HMAS Stirling and also Henderson, where large marine infrastructure upgrades are planned. We still have strong tailwinds in the mining, energy and building and facade sectors and expect to win further works in these sectors and bolster our order book. We keep abreast of the opportunities outside of Australia where our existing clients operate, including Santos, Newmont and the Department of Defence and the Department of Foreign Affairs. We have a demonstrated history of strong organic growth, and we see that continuing well into the future. We are well funded for future growth. We continually look for potential strategic acquisitions and have an exceptional team within our company helping us deliver on this strategy. With the above outlook, good work on hand, a growing MSA base of work and our subsidiary companies performing well, we are extremely well placed into the future with an increased level of activity expected in the second half relative to the first half. Before moving to Q&A, I would like to express my sincere appreciation to the Board, our leadership team and every member of the Duratec workforce for their dedication and hard work throughout the year. I also extend my gratitude to our valued clients, suppliers and shareholders for your ongoing commitment and support of Duratek as we pursue opportunities to deliver sustainable growth well into the future. This completes my address. I will open the meeting to questions relating to my operational performance.

Any questions, Dennis, at this point?

Thank you, Chair. Yes, we do have one question from a shareholder who correctly identifies that net profit after tax for the '25 financial year was $22.8 million, and that represents 4% of our revenue. And the question posed is what are we going to do to boost that 4%.

Would you like to take that, Chris?

Yes. It's -- I think we've always pointed to the numbers and said we -- they're okay numbers, they're good numbers. In a growing business to me, we're still investing into the future. So we do anticipate higher revenues, right? So from that perspective, we believe and we're supported by that or we can demonstrate that through the work that we have in the tender section. So if we can actually land that work that we think we are going to do into the future, we're going to hold our gross margin in simple terms. So that's our 18.55%. If we can hold that and add a bit of revenue, we're going to get a pretty strong effect in operational leverage. This will see the EBITDA tick up, the net profit tick up. So in simple terms, add good revenue, hold that margin. Maybe it increases a bit if we've got any luck and we land the right work, but we feel we are very well placed to increase on that percentage, and that's our goal. That's not lost on anyone within our business because we're in a pretty good position to do that.

Chris, if I could just add to that. I think from a Board perspective, looking at the business, it has been an amazing period of growth and establishing the business. We've made, as you pointed out, quite a number of acquisitions we have to be taken in and bedded in. They've gone exceedingly well, and they will deliver value going forward for all the reasons you outlined in your paper. So I think it's a question of building the heart of the business, which we're doing very well profitably. But I think it sets a very good platform going forward.

Thank you. Any other questions?

No, no other questions. That's it. Thank you, Chair.

Thank you, Dennis. Well, this -- that concludes the Annual General Meeting for Duratec Limited. I thank you again for your attendance and declare the meeting closed. Thank you very much.