Good morning, everyone. Thank you for joining the Perenti FY 2026 first half results call. My name is Mark Norwell. Presenting alongside me today is Mike Ellis, our Chief Financial Officer. Today, we'll take you through our first half performance and our look for the remainder of FY 2026. Overall, Perenti has delivered as per expectations and remains well-positioned to continue delivering strong earnings and cash flow for the year. Starting on Slide three, Our Diversified Portfolio. For those who haven't been following Perenti closely, we are a diversified global mining services group with leading positions in contract mining, drilling services, and mining and technology services. For example, our underground mining business, Barminco, is a top two global underground hard rock mining contractor. Our drilling division, comprising five specialist brands, is a top three global drilling business.
We believe that a sustainable business is one that consistently delivers for its people, its clients, the communities in which it operates, and ultimately delivers enduring value for shareholders. To achieve this purpose, we have built a diverse company with 13 brands operating across 12 countries. Approximately two-thirds of our revenue is generated from underground mines, and currently, our work in hand is strongly weighted to gold projects. Our diversified portfolio, scale, and market share creates a resilient business that can deliver consistent performance through market cycles. Turning to the first half financial results on Slide four. The first half of FY 2026 reflects consistent delivery as we continue to evolve our portfolio and strengthen our balance sheet. Revenue was similar to the first half of FY 2025, and EBITDA slightly lower, following the conclusion of the Botswana underground project at the end of FY 2025.
As communicated in our FY 2025 results, we successfully sold the fleet in Botswana, delivering a decrease in depreciation, supporting a new half EBITDA record of AUD 160 million. EBITDA margin improved to 9.3%, compared to 9.0% in the first half of 2025, demonstrating the improving quality of earnings. Underlying NPATA increased 12.4% compared to the first half of 2025, supported by lower net finance costs and improved operating performance. Underlying EPS increased to AUD 0.098 per share, also up 12% from the corresponding period. Normalized free cash flow of AUD 33 million, adjusted for delayed debtor receipts collected in January, also improved on the first half last year.
Net leverage reduced to 0.6 times, compared to 0.9 times 12 months earlier, and our gross debt reduced to the lowest point since the acquisition of Barminco in 2018, following the repayment of the remaining 2025 Senior Unsecured Notes in July 2025. As a result, the board has declared an interim dividend of AUD 0.0325 per share, an 8% increase on the AUD 0.03 dividend in the first half of 2025. On to Slide five, as always, the safety of our people remains our first priority. The continuous learning approach that we have adopted requires us to constantly seek ways to improve our safety systems and ultimately, performance.
During the half, we continued to invest in frontline safety leadership and strengthened our company-wide safety leadership framework, which includes clear expectations for what safe work looks like. Divisional critical risk frameworks and verification tools have been updated, and we continue to focus on creating a safe and respectful workplace. We also implemented practical safety enhancements across the business, including in-vehicle monitoring systems, improved operator visibility, upgraded gas monitoring, and smart camera exclusion zones, and standardized controls for working at height across the drilling fleet. While we continue to make positive progress as a business and as an industry, we need to maintain an unwavering focus on improvement to keep our people safe. Moving to Slide six, Group Performance.
As mentioned earlier, EBITDA increased 3% to a new first-half record of AUD 160 million, despite the strength in the Australian dollar at the end of the half, which has continued into the start of the second half. Our EBITDA margin improved to 9.3%, driven predominantly by the transition away from the underperforming underground contract in Botswana. As we've outlined previously, as demonstrated in the half-on-half comparisons, earnings and cash flow are weighted to the second half of the year. Contract mining will benefit from several contractual elements flowing through in the second half, drilling services continues to see demand increasing, with margin growth expected in the second half. Turning to our divisions, starting on Slide seven. Contract mining contributed around 70% of group revenue and 74% of underlying EBITDA before corporate costs.
The significant transition in revenue mix continues in line with our strategy, with new and existing projects substituting for projects that have concluded in Burkina Faso and Senegal. As mentioned, the conclusion of the underground contract in Botswana has helped to improve first-half EBITDA margin to 11.1%. Work in hand remains strong in projects such as Great Fingall in Australia, Gold Rush in the USA, and Mana in Africa ramping up. The award of the Dalgaranga contract in July 2025 will also have a greater contribution in the second half. As outlined on Slide eight, drilling services delivered revenue of AUD 422 million, up 9% on the first half of 2025, with utilization continuing to improve across the division. With drilling demand remaining strong, particularly in gold and copper projects, the division is positioned to benefit from margin expansion as market capacity tightens.
Swick, in particular, has seen strong demand, recently winning and mobilizing three new projects in North America. The multiple mobilizations temporarily impacted margins during the half. However, margins are expected to improve in the second half and into FY 2027, as the new projects move to steady state and the benefit of improving market conditions are realized. On to Slide nine. Mining and technology services has delivered improved performance compared to the first half of FY 2025. The BTP rental fleet saw higher utilization, with idle fleet returning to work, although still below historical levels. BTP parts continue to deliver below expectations, presenting an opportunity for improvement in the second half. idoba continued to focus on its underground simulation tool, with costs reducing as planned, with further reductions forecast in the second half of FY 2026. Overall, our first half results met expectations, with our balance sheet continuing to strengthen.
I'll now hand to Mike, who will provide more detail on our financial results.
Thanks, Mark, and good morning to those on the call. Thank you for joining us today. I'll now step through the financials in more detail, starting at Slide 10 at the underlying profit and loss for the half. Our revenue has stayed consistent on the prior corresponding period at AUD 1.73 billion for the half. As you're aware, the underground project in Botswana, which was our largest by revenue contribution in the prior half, at circa AUD 120 million, completed at the end of FY 2025. The collective team has done a great job to offset this during the first half of FY 2026, driven by new work and scope increases in contract mining at the Great Fingall, Dalgaranga, Gold Rush, and Mana projects, together with increased revenue within our drilling services brands due to improved utilization.
Our depreciation has reduced from AUD 168 million in the first half of FY 2025 to AUD 157 million, or 9% of revenue this recent half. The primary driver was the transitioning portfolio in contract mining. Two main points on this: selling the large underground fleet to the client in Botswana, which had significant depreciation in the prior corresponding period. Secondly, we had the conclusion of two surface mining contracts, Sabodala and Mako, that had higher depreciation compared to underground and drilling projects on a like-for-like basis. Looking forward, all things equal, group depreciation will normalize at low to mid-9%. On to earnings. The EBITDA result of AUD 160 million, with EBITDA margin improvement to 9.3%, was a strong result for our first half.
It was underpinned by improved performance in contract mining, driven by the portfolio mix and operational delivery, consistent delivery from drilling services, and a stronger result from mining and technology services compared to the first half of FY 2025. Interest expense was AUD 28 million for the half, substantially down 20% compared to the first half of FY 2025. This was due to the early repayment of the 2025 Senior Unsecured Notes, further lowering our gross debt, providing us balance sheet capacity, but also ongoing earnings per share improvements. Income tax increased marginally by 6%, with increased earnings this half, representing an effective tax rate of 30.2% in the half. It should be noted that our effective tax rate for FY 2026 is still expected to be 32% for the full year.
Our underlying NPATA of AUD 92 million is up 12%, with an improved NPATA margin of 5.3%. Lastly, and importantly, our underlying earnings per share increased 12% on the prior corresponding period, a great result for the half, driven by the EBIT margin improvements and reduced interest costs. On to Slide 11, the reconciliation of our statutory results to the underlying results. Although pretty straightforward this half, I'll provide some further color. Amortization of the customer-related intangibles was AUD 19.6 million during the first half, but is expected to reduce significantly in the second half due to the completion of the Yaramoko underground contract in Burkina Faso in December. This contract formed part of the original Barminco acquisition accounting in 2018.
Looking forward, the amortization of customer-related intangibles will be circa $30 million for the full year FY 2026, and will further reduce to circa $14 million in FY 2027. idoba development costs of $4.7 million were down 30% on the first half of FY 2025, following last year's review. They will further reduce in the second half to circa $4 million, as the development spend for our simulation product reduces in line with the development milestones. In FY 2027, we will account for the development costs in our underlying earnings as the product moves into commercialization and development expenditure is further reduced. Net foreign exchange losses amounted to $4 million and predominantly related to non-cash movements of intercompany loans and tax balances. Noting that the first half of FY 2025 was an FX gain of $5.3 million.
Turning to the cash flow on Slide 12, operating cash flow before interest and tax was $193 million, lower than the prior period, predominantly due to the timing of debtor receipts and credit of payments upon the completion of various projects in the half. We received $50.3 million of overdue debtor receipts in January, impacting reported free cash flow at period end. As noted in prior calls, our cash conversion at the first half is generally impacted by short delays in client receipts and other temporary working capital movements. This has no impact to our overall liquidity profile. After adjusting for these late receipts, normalized free cash flow was $33.1 million, up 8% on the first half on a like-for-like basis, and represented cash conversion of 77%.
As flagged in our FY 2026 guidance, our free cash flow will be second half-weighted in FY 2026, which is consistent with the last three years of solid free cash flow delivery in the second half of the year. We are confident on delivering cash conversion in line with historical averages of greater than 95% for the year. Net interest reduced in line with gross debt reductions, and cash tax was down during the period due to the timing of tax payments. Our gross capital expenditure remained in line with the first half of FY 2025, at $170.7 million, with continued investment into our fleet. We also realized $21.4 million from the sale of assets and investments. This predominantly related to the sale of assets to clients at completed projects, including Yaramoko, Sanbrado, and the Mako project.
Lastly, you will notice the cash outflow of AUD 135.4 million to repayments of debt as a result of the gross debt reductions previously mentioned. That is a good segue to Slide 13, the balance sheet. As a result of the debt repayments, our cash balances reduced during the half to AUD 275 million and back to normal operating levels, noting that it was elevated at 30 June 2025, due to the sale of assets at the completed underground project in Botswana, which was received in late June 2025. Liquidity remains very strong at AUD 818 million, supported by AUD 543 million of undrawn committed facilities and AUD 275 million of cash, providing significant optionality to pursue growth opportunities that meet our hurdle rates and delivering to the execution of our strategy.
During the half, we successfully completed a heavily oversubscribed refinancing of the syndicated debt facility, increasing the facility capacity to $650 million on improved pricing and extending maturities. As part of the process, we also welcomed several new domestic and international lenders to the facility, highlighting the positive support from the debt markets for the scale and the consistency that has been built over the years. Our disciplined approach to balance sheet management positions Perenti to continue to pursue both organic and inorganic growth into the future. On to Slide 14. Disciplined capital allocation remains our key focus to generate sustainable long-term returns for our shareholders. Since FY 2019, we've invested to grow revenue and EBITDA, both organically and inorganically, resulting in strong, sustainable free cash flow over the past three- years.
This has enabled us to reduce net debt and leverage from 1.3 times in FY 2021 to a very comfortable 0.6 times at reporting date. With debt well managed, we resumed dividends in FY 2024. During periods of undervalued share price, we have bought back shares, increasing EPS. This balanced approach will continue supporting growth opportunities that meet our investment criteria, consistent, sustainable free cash flow generation, regular dividends, share buybacks when suitable, and maintaining a robust balance sheet. In closing, earnings remain strong in the first half of FY 2026. In a transitional year for contract mining, highlighting the scale that has been built in Perenti over the years, our balance sheet continues to strengthen, with significant available liquidity, creating capacity to continue to execute on our strategy. Thank you. I'll now hand back to Mark.
Thank you, Mike. As detailed on Slide 15, the outlook remains bright for Perenti. Secured work in hand at 31 December 2025 was $5.8 billion, reflecting a normal drawdown of work executed during the half and partial replacement through some new and expanded projects. The pipeline remains strong at $18.6 billion, with North America representing a growing component of that pipeline. This month, Barminco received a letter of intent from Barrick for its Four Mile project in Nevada, USA, to undertake limited early work readiness activities. The letter of intent reflects Barrick's continued confidence in Barminco's technical capability and underground development expertise and represents an important step toward progressing the Four Mile project. We'll continue to work together with Barrick toward finalizing scope and contractual arrangements, with earnings anticipated to commence mid- FY 2027, post formal award in the coming months.
This is excellent news and demonstrates ongoing execution of our strategy to grow in North America. With the neighboring Gold Rush project also ramping up and the Red Chris mine in Canada currently in the process of finalizing mine expansion plans, North America work in hand could be significantly larger in a short period of time. Overall, the sheer number of opportunities provides confidence in the outlook beyond FY 2026, although we will remain disciplined, patient, and focused to ensure projects we secure support sustainable delivery of TSR rather than just short-term revenue growth. Building on Slide 14, where Mike outlined our significant earnings growth and net leverage reduction as a result of consistent cash generation, Slide 16 illustrates how we have also evolved our portfolio since 2019. Firstly, the revenue of the business has more than doubled. All divisions have grown while also increasing regional diversification.
The Australian portion of revenue has overtaken Africa as the largest contributor to the business. The growth in the North American market is now gaining momentum for both Barminco and Swick. In 2019, Perenti had no projects in North America. Now, we have eight projects underway today with our ever-increasing pipeline and positive outlook. A glimpse of the future for Perenti can be seen in the relative makeup of the pipeline. In FY 2019, the opportunities were predominantly in Africa, with the remainder in Australia. Now, the opportunities are dominated by Australia first and North America second, with new opportunities starting to emerge in the Middle East. Africa will remain a strong region for Perenti. As always, projects must meet our risk and return hurdles. Overall, we have significant organic growth opportunities across our operating regions and services.
Slide 17, Outlook and revised FY 2026 guidance. The portfolio continues to deliver strong and reliable free cash flow, supported by the scale of the group and the improving quality of earnings. The recent strengthening of the Australian dollar has tempered expectations for the top end of our revenue and EBITDA guidance. Conversely, we have increased our free cash flow guidance to greater than AUD 170 million, with capital expenditure guidance reduced to AUD 325 million. To achieve these targets, earnings and cash flow will be weighted to the second half of the year, consistent with the performance of FY 2025 and prior years. EBITDA growth in the second half is anticipated to be bridged in a similar fashion to FY 2025.
A $10 million-$15 million step-up in contract mining is expected, $5 million-$10 million from drilling services, and the balance from mining and technology services. In addition, we will continue to see the benefit of our gross debt reduction in the second half in the form of reduced interest payments. To deliver our full-year guidance, the priority remains the focus on the safe delivery of services, continued investment in the development and capability of our people, and supportive market conditions. Additional focus will remain on winning and extending projects that deliver sustainable value accretive growth. Revenue growth alone is not the objective. Projects must be secured on terms that support profitability and free cash flow for the long-term success of our business. With several projects ramping up, particularly in Australia and North America, discipline and consistent operational execution will be critical.
Activity in the exploration drilling market continues to build, consistent with the early stages of a longer-term trend. Consequently, drilling utilization is expected to lift during the remainder of FY 2026 and into FY 2027. Finally, by maintaining a disciplined and balanced approach to capital allocation to organic and inorganic growth opportunities, Perenti is well positioned to continue delivery of enduring value to our people, clients, communities, and shareholders. On to slide 18. In summary, Perenti has delivered a consistent first half with a new record first half EBITDA, EPS growth of 12%, and strengthened the balance sheet, positioning the group well for the remainder of FY 2026 and beyond. As announced at our AGM last year, this will be my final year with Perenti.
While the board is well progressed in the search for a new MD and Chief Executive Officer, my focus remains on supporting our people to safely deliver FY 2026 and, in time, supporting the board and the new MD and Chief Executive Officer to transition to new leadership. Details of the transition will be shared when the new MD and Chief Executive Officer is announced. In the meantime, it is business as usual. Thank you all for your time today, and we'll now move to Q&A.
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you are on a speakerphone, please pick up your handset to ask your question. Today's first question will come from Sumeet Ozarde with Citigroup Global Markets. Please proceed.
Hi, Mark and Michael. Thanks for taking my questions. The first one, just, could you talk about some of the contract mining opportunities, new and renewals, that we should be thinking about in the next 12 to 18 months?
Yeah, thanks, Sumit. Audio is a bit challenged, but I think you're asking me about contract mining, pipeline. I guess firstly, I'd say that the pipeline is, is significant and certainly very strongly weighted to North America and also Australia, and still some very good opportunities in Africa. The outlook is extremely positive. We know that the [uncertain]
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. Pardon me, this is the operator. We would like to resume the question and answer session. If you do have a question, you will need to press star one on your telephone and wait for your name to be announced. We'll pause a moment for any further questions to register.
Well, it's Mark Norwell. I might, I might pick up on Sumit's question that I was midway through answering. Firstly, apologies for the technical challenges that we've been experiencing this morning. Hopefully we've still got a few, few folk on the line. Sumit's question was regarding the outlook for contract mining, and I'm not sure when it dropped off, so I may repeat some items that we already covered off. Certainly the pipeline is extremely strong in terms of the outlook. The thematics of underground mining, very strong, and obviously, commodity price is very, very strong as well. In the near term, and as announced in our results to date, we are working with Barrick for their Four Mile project in Nevada.
We've had a limited notice to proceed for early works there. Expectation for that to come online in FY 2027, so we're very excited about the Four Mile opportunity. I visited Nevada a couple of weeks ago and visited the Gold Rush project for Nevada Gold Mines. We see some potential expansion there, so really the Nevada region looking, looking strong. Red Chris project with Newmont up in British Columbia. We've been there for several years. Newmont are working through expansion plans currently, and subject to that continuing and getting approval from Newmont. We're well positioned to hopefully secure more work there.
We're also in discussions with another client in North America that we're sort of hopeful of for an outcome into FY 2027. Very, very strong there. got a couple of active tenders at the moment for Barminco that we're working through, and we still have a number of projects in the pipeline for Africa as well. Finally, with a number of existing clients we've worked with for many, many years, supporting them on expansion plans as well. So in summary, a very strong outlook for contract mining and also a strong outlook for drilling services into FY 2027
Thank you. Once again, if you do wish to ask a question, please press star one. We'll pause for any further questions to register. Thank you. No questions at this time. I'll now hand back for any closing remarks.
All right. Maybe due to the technical difficulties, got off easy today. Look, thanks for people bearing with us with the technical challenges, but importantly, thank you for joining the call. Look, we delivered a strong result with our earnings continuing to improve. We are well positioned to deliver another full, strong year ahead, and we do have a very good line of sight to opportunities across our divisions into the back half of 2026 and into 2027, particularly with North America. We're getting some really good momentum into North America at the moment, and our collective earnings between North America and Australia have really shifted over the last several years as we've been growing the business and obviously improving the balance sheet.
Not only does the outlook look positive, but we also have the strong balance sheet in place to be able to support significant growth in the future. We will maintain discipline with that growth, obviously, and look for the long term, not just sort of one year, it's sort of many years ahead. Thanks for taking the time to join the call. Enjoy the remainder of your day. Thank you.