Thank you for standing by, and welcome to the Duratec Limited First Half Fiscal Year 2025 Results Webinar. All participants are in a listen-only mode. 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 FY25. My name is Ollie McKeon, Executive Manager for Corporate Strategy and Investor Relations. I would like to begin today by acknowledging the Nunar 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. Please note that all participants are currently in a listen-only mode. This morning, there will be a presentation followed by a Q&A session. If you wish to ask a question via the webcast, please click on the blue hand displayed in the top right-hand corner of your screen, then type your question into the dialogue box that appears, and then click Submit.
I would now like to hand over the webcast to Chris, who will talk through Duratec's first half FY2025 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 WPF, Mend, and DDR have all had a good start to FY25, 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 FY25, we achieved revenue of AUD 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 sq m facility in Naval Base, Western Australia. As mentioned, revenue delivered in the first half of FY2025 was AUD 287.3 million. Normalized EBITDA is a record result at AUD 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 AUD 13 million, which is up 6% from PCP. Earnings per share was AUD 5.19, up 4.6% on the first half of FY2024, and the board has declared an interim dividend of AUD 1.75, 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 AUD 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 FY25 financial results.
Thanks, Chris. Good morning, everyone. Duratec had another strong half-year result with revenue of AUD 287.3 million, which was slightly down from PCP by 1.9%, but actually 9.2% higher than the second half of FY24. Defense and mining and industrial sectors had lower levels of revenue compared to PCP. The defense sector has since come to a close, however, is preparing for the DAJV, 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 FY25, this positions the sector well for the second half of the year. Strong offsetting growth in the first half of FY25 occurred in both the energy and other sector.
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 FY2025 were strong at 18.5%, resulting in the gross profit of AUD 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 WPF Darwin was established in the second half of FY2024.
WPF Duratec also acquired the business of GF Engineering during the first half of FY25, 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 AUD 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 Constructions in the second half of FY24, and the first half of FY25 has seen a strong result generated from both DDR and RC Constructions. The Duratec share of the DDR group net profit after tax was AUD 1.6 million for the first half of FY25, 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 AUD 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 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've 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 FY25 included AUD 8.6 million of investment in capital expenditure and AUD 2.2 million for the acquisition of GF Engineering. Duratec also paid AUD 5.5 million of dividends to shareholders during this period. We are pleased to announce that during and after the first half of FY25, Duratec had successful negotiations with the Commonwealth Bank of Australia and other bond providers to increase facilities by 69% to AUD 294 million, from AUD 174 million at the end of FY24. Project bank guarantee and bonding facilities increased by AUD 110 million to AUD 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 zero 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 organizations 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 FY24, 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. Onto our defense performance and outlook.
Revenue of AUD 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, consolidating Duratec's position as a trusted delivery partner for defense. The RAF-based Tindal fuel facility is now in commissioning and handover phase, whilst HMAS Coonawarra Harbour Works will continue through the second half of FY25. The DEJV team has now submitted the second round of planning phase deliverables for the two critical infrastructure projects at HMAS 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 HMAS 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 FY26. Other opportunities with defense also remain very strong around Australia. Onto mining and industrial. As you can see from the performance perspective, the revenue was AUD 72.5 million with a gross margin of AUD 22.6 million. Highlights for the first half include the award of a AUD 44 million structural integrity project under an existing MSA with Rio Tinto. Staying in the northwest of WA, the Berth C&D project for BHP is progressing well, and we've recently been awarded a AUD 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 is 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 our in-house experience and our client relationships, we have implemented our mining strategy, which is targeting expansion of our operations in Northern Territory, Queensland, and New South Wales, with a focus on securing positions on pre-approved 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 AUD 55.2 million, up 4.4% on PCP. Within the period, we delivered a steady gross margin of 18%.
In the first half of FY25, we continued 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 two ECI projects with the work anticipated to be valued at over AUD 50 million and the value of the ECI planning phases being AUD 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 AUD 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 AUD 22 million King Bay Supply Base wharf refurbishment located within the Port of Dampier in Western Australia, as well as on-site work at the IMPEX ICFAS 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 WPF 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 AUD 23 million with a gross margin of 19%. We have strategically secured OSTROAD's national pre-qualification, which allows us to target road and bridge remediation opportunities in six states and territories across the country. We successfully delivered McCoy'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 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 Pier 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 WPF, with all aspects of the business performing beyond expectations. Revenue achieved was AUD 28.6 million, up 91.8% on PCP, delivering a gross profit of AUD 7.8 million. This revenue is accounted for in the energy and M&I sectors. WPF has cemented itself into the Northern Territory, assisting IMPEX with the specialist repairs of the heat exchangers at the ICFAS plant and undertaking the demolition works for Santos DLNG pipeline diversion project. Offshore decommissioning continued to grow within the first half of FY2025, 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 WPF's strategic growth within the energy sector, first half 2025 saw the acquisition of GF Engineering. The acquisition included access to the 12,000 sq m Naval Base facility with 3,000 sq m of workshop area. The AUD 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 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'm 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 MEND and Duratec projects nationwide. We are proud to have been awarded our first contract in the Bass Strait, where we will support vital scoping studies for oil and gas decommissioning works. This milestone underscores our expertise and the way that MEND provides 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 FY25 and beyond. We're very pleased with DDR's performance for the first half of FY25. The DDR group delivered revenue of AUD 48.6 million, which is up 105% on PCP. Most notably for the half was securing the AUD 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 Constructions, 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 FY26. 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 Constructions 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 Constructions has allowed us to do so whilst also building a self-perform capability that can deliver successful projects. As you can see, the master services agreement and annuity-style contracts made up AUD 74.5 million of revenue for the first half to 31st of December 2024.
The MSA revenue is higher than PCP and continues at the 26% mark, the same % 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's healthy order book of AUD 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 one-third 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 Coonawarra, Berth C&D, WSA, and all these projects continue through the second half of FY2025.
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 HMAS Sterling will be a key focus, along with the additional investment of AUD 8 billion planned in infrastructure in Western Australia 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 Defence, 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. That concludes our presentation today, so I'm now going to hand back to Ollie so he can moderate the Q&A session. Before I do, I'd like to thank everyone for their attendance today.
Thanks, Chris. As a reminder to everyone, if you wish to ask questions via the webcast, please click on the blue hand displayed in the top right-hand corner of your screen. Then type your question into the dialogue box that appears and click Submit. Before we commence, just a quick note to highlight there was an error on the pipeline report that was uploaded to the ASX. The highlighted numbers are correct, and the correct version was presented in today's presentation. 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've got a few questions that have rolled in. First one from Matt Chen from OLUS. Morning, team. Thanks and well done.
Interested in more color on the outlook on energy, in particular for the second half of 2025 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've seen, has improved greatly. We've got that volume coming through, nice margin as well. Really into the future, it's going to be about access. In energy, by the way, we're going to have WPF, and we're going to have some of the other work we're doing at Western Sydney. It's always going to be about access to that site because we picked up a reasonable size variation there. It's going to be getting access to that. 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've moved into that. That's still got a lot of capacity to grow as well. It is going to be how quick we can grow into that. That will be an effect on how strong energy can grow. It is absolutely in the medium-long term, it is a fantastic outlook. We know about the DCOM space. We know about all the maintenance that needs to be done on a lot of these assets. It looks really good. Yeah, that team is up and about and super excited about the opportunities that reference to WPF. New clients as well, that is another small factor in there or that will become a bigger factor. We have our Woodside that we are kicking off with works, which is more maintenance remediation. We want to push a bit further into the WPF services into that client.
We have Chevron as well, which is new. It is all about the timing of those things. From a macro sense, it is very positive.
Very good. Thanks for that, Chris. Just to probably switch it a little bit towards finance, there is a question that has come through about just a clarification on the AUD 1.8 million normalization of EBITDA. Could you just give a little bit of a flavor on that, Ashley?
Yeah, sure. The AUD 1.8 million consists of AUD 1.5 million of an add-back for DDR tax, depreciation, and interest. The DDR contribution is added in as a net profit after tax. To calculate the EBITDA, we obviously take those components for DDR and add them back. The other element was one-off WPF relocation costs of AUD 300,000, given as the AUD 1.8 million.
Just to mention as well, the effective tax rate for Duratec is obviously lower because of the DDR being adjusted for tax already as well.
Awesome. Thanks, Ashley. Thanks for clarifying that. Next question. There are multiple questions from Abe at Shaw's. 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. First question, midpoint of guidance implies a step down in EBITDA margin to 8.7% in the second half of 2025 versus 9.4% in the first half of 2025. Should we expect EBITDA margin to come down? That's question one. Question two being, MSA looks to have been flat, half and half, down when looking at mining and industrial revenue. Why is this the case with previous financial years seeing robust growth?
Then the third one, commentary on PARC's ECI and the Diamantina ECI. Starting with that EBITDA, should we expect EBITDA margin to come down based on that first question?
Yeah. 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. 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. What we do, 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. We can do that through ECIs. Also, a little bit of operational leverage helps that.
We do believe we'll get that in time as well. Simply in the shorter term, it's going to be the margin mix, but the longer term, we believe, looks very good.
Very good. Just on the MSA revenue, looking to be flat, half and half, and down when looking at the mining and industrial revenue. Why is that the case with previous financial years seeing robust growth?
Yeah. 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. That's probably got to be normalized a bit, if you could say. Again, looking at half to half across all of them, it is still slight growth on the half before. 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 the FMG, Rio, BHP, and that's the northwest. We've also got all the gold area as well. All that work has to be done. It's going to be about timing the jobs. There are some pretty fantastic opportunities there as well. 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.
With the acquisition of the business of GF Engineering and Norvedding, that contract with Chevron, is that an impact on MSA going forward?
Yeah, that will have a positive effect on MSA. MSA, as much as that percentage was stable, the volume was up when compared to PCP. We will expect that to go.
We've also got, if we pick up a lot of other contract work through the ECI conversions at perhaps building and facades and defence, we're always going to be looking at that. We do want that percentage up. It is good work. 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. It's a pretty hard business, I think, to just grab these stats individually and look at them. It's a fairly, you've got to look at it holistically. Again, on the balance of it, and in time, it has performed exceptionally well. We've seen no change to that in all the periods ahead.
Very good. And then just to round up, Abe, last question, commentary on PARC's ECI. Will this convert to an award? As well as an update on the Diamantina ECI. With the Diamantina, I think he's referencing Oakless Diamantina and the SIF package as well.
Yeah. There's a lot going on there. We know there's an AUD 8 billion spend there. We're right in amongst that and have been there for many, many years in all the packages of work that occur. Looking at it, it's complex what goes on there. It's very exciting what's happening there. Diamantina is definitely a priority because of the Oakless deal and it's all that public information we see. It's going to be a lot of efforts going into that. For us, we've got those two ECIs that we've listed. We're working there.
We're putting the second phase of deliverables. The PARC's wharf has been basically there's a bit of a review on the surface fleet on the defense side. We understand that that's still going ahead. The size of these opportunities, as you work through all the design, because design's at just over half of the way through it. When we look at that, the volumes are quite strong. It's just going to be what the defense prioritizes. We don't dictate that. We see what Diamantina is doing. They have some hard deadlines that are public information, as in wanting access to some of these structures by the end of 2027. If you unwind that back, there's a pretty strong timeline to achieve. We're helping them achieve that. That's where the effort is.
Very good. Just, I suppose, on guidance, again, question from Markus Brenner from Bell Potter. Regarding the revenue guidance, can we expect to see strong growth in energy and other sectors in the second half, with defence and mining and industrial being at a similar to slightly ahead versus first half?
Yeah. 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 onto site for. I think in all of those streams, it's going to be the mix and what we can get through. It is, I think we've called this out before about probably stable in the defence side of things, the FY2025, but growth in all other areas. That's still 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 Brills from OLUS, 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, if you maybe want to maybe take the first part of the question with regards to the finance or the position with banking facility?
Yep, sure. Thanks, Ollie. Yes, the increase in the banking facility was predominantly our 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. Not for the M&A opportunities really to support future contracts.
Yeah. That banking facility, the support we've had from CBA and the secondary market's been very good. Yeah, 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. We've got plenty of headroom there now. Everyone can probably see that our tender section there, we can support that very well. It's looking really good from that front. The M&A, it's definitely not linked to any M&A. That is, 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 debtors fell. Should we expect it to be less favorable in the future? Chris, probably yourself with the margin mix, I think you've probably touched on it a little bit, but did you want to talk to that a little bit more? Ashley, maybe to yourself for the cash flow.
No worries. I'll do. I think we might have said this last time, and I'll go back to it again. It is quite important to us because we—in the note two segment reporting, we'll pick up the margins there. We have the revenue and then the gross profit. I'll talk margin here.
Defence, 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, we expect that to go up a little bit. 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. 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. It's okay now, but we think it can get better. Mining's 23%. That's quite stable. That's up a little bit from where we were. Again, that should not really change in the long term.
That we have a lot of equipment there and some of that depreciation is apportioned 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 and 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? The order book can go up and down a bit on that. It is really positioning yourself to get into an ECI position. Yes, you are not going to earn the biggest money in that place, but you are going to set that job up and you should win that job.
We've got a couple of those opportunities. 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 a percent. Others at 19%, it's probably the place it should be about there, depending on what type of work we've got. If you add all that up, we're probably saying there defense to come up a point or two and then the rest are relatively stable. That gives us belief that the gross margin can become a bit more efficient. 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.
Very good. Just to answer Tony's second part of his question, Ashley , similarly, cash flow was favorable as trade debtors fell. Should we expect it to be less favorable in the future?
No, we're 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. As we mentioned earlier, having banking facilities as well, which supports advanced client payments, cash will continue to be well maintained.
Very good. Thanks, Ashley. We've got a three-part question from Rochelle at Ord Minnet. I might just go question by question, Chris. If you've answered, you've 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.
The first question from Rush 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.
I think yeah, we've touched on that. Again, yeah, we're partway through. We probably have touched on, I think, each one of those individuals. Yeah, we're pretty comfortable with where we sit for the second half as well as the future. We've probably said that plenty of times there as well. Yeah, and it's going to probably be quite similar that we don't see any standouts, by the way, of anything changing throughout that. As in, 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, well, this time last year or the last period. We sort of called that out and we've seen it. From here, percentage-wise of them within each other, we're not expecting anything major changes.
Cool. The second part of the question is just around defence. Margins in defence rebounded quite strongly in first half of 2025. What drove this? Was it due to major projects coming to a conclusion? How should we look at margins in defence over the next few years, especially as Diamantina and the CIF project begin to be delivered?
Yeah, I think we have answered that, but just to put a bit more colour there, 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%. 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. Again, just to get to that point, we're working, we have a lot of people working on that project now at Diamantina. We understand that exceptionally well. When we start it and when we do it, we know what we're doing. That's the whole point of these projects. You can become a lot better, a lot more efficient. That's why we have belief in the long term. 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 them too.
That probably answers that part of it. Just with regards to Diamantina and SIF projects coming together, I think you mentioned as well in your comment about those types of early contractor involvement projects are really what drive you de-risk the project for your client. You de-risk the project for Duratec. Then you have prepared for the delivery, which gives you a better chance of margin. Did you want to just expand on ECIs as a general piece? Yeah, and that's true. That applies to, and we're doing ECIs in mining, building facades, but particularly defense because they're larger ones there. We look at the Diamantina. There are two projects there, and they're in the midst of that. That is going to occur. Again, on the timeline and the timing of that, it's a pretty strict timeline.
We'd expect that to embed that in the, I guess, the short to medium term.
Cool. Very good. Just Rush'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 FY2026? Do you want to talk about some of those projects that are in the pipeline?
Yeah, we did. I sort of partly answered that when I was talking about the margin mix there and for building and facades. It's just going to be timing. For us, there's nothing in that order book. You'll always see that go up and down as you build for the tenders and the pipeline.
You're going to be, 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. That's always going to be a factor. Again, you want that because you want to understand that project. Simply timing, we have no issue with building and facades for the short, medium, long term at all. There are all of those buildings around Australia getting upgrades. There is all sorts of work to be had. No issues at all. That whole sector, if you could say, is probably one of the most annuity-style parts to our business. That does not really land in MSA, but it is annuity because all of these projects are forever having maintenance and upgrades, and there are plenty of buildings around Australia, as you can imagine.
Very good. It looks like we have our last question, but if there are any more questions, just a reminder to click on that blue hand in the top right corner and submit your question. So far, Eb from Charles with another question. Thanks, Eb. Any large tenders in the pipeline that may be decided in the second half 2025 besides the defense ECIs? Working capital required to commence the three defense Garden Island ECIs? I think with the three defense projects, Eb is talking about Diamantina, SIF, and Parks. 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 have one in other that we have 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 AUD 44 million Rio Tinto. There's lots of parcels of those types of works around. Just again, going to be timing what the client's 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. Yeah, that's always possible because we're working on so many jobs at any given time. The working capital, yeah, we're probably always conservative with cash. We've now got the headroom in the facilities. 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.
We think we're in a really good position for that particular aspect of doing contracting work.
Very good. That's probably all the questions we have online. Any comments? Any closing comments? Chris, from yourself?
Just, yeah, like to thank just around the grounds, 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. Yeah, 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. Yeah, 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?
Yeah, the Mend business, that's embedded in all of what we do. It's obviously out there doing other projects as well, but generally what it does supports the Duratec business. It's very forward-thinking, I guess. Part of that ECI, what we're doing, we've increased our lab services. Inside that, they do the defect detection. They do the 3D modeling. They do the lab services and then the analytics, defect detection, etc. As people point out, other companies do 3D modeling. Yes, that's correct. We take that the whole way through the gamut and turn it into actually meaningful budgets with a meaningful program of works.
That, again, is such a good tool for us to win work and actually then be effective in doing that work. It is a pretty exciting place. We've moved into the new facilities that has the lab and office together. Yeah, that again is an exciting place to be.
Very good. We've answered all the questions that have been submitted. Just like to thank everyone. Obviously, we have a roadshow coming up, so looking forward to catching up with people in person. If you do have any further questions or queries, please contact the company directly through our investor relations email. Thanks everyone for dialing in. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.