Duratec announced to the market it has changed the date of its AGM today for the third time time in the last two weeks.

This and the three founders selling down about 10% each of their holding (they have gone from 11.18% to 9.68% ownership) seems to have spooked the market over the past 3 weeks.

There was nothing in the annual report that I could see suggesting a change in momentum of the business although it is not expected the defence segment will grow as quickly as it did in FY23.

An item of business at the meeting will be the re-election and appointment of directors.

Is it uncommon for a company to change the date of its AGM like this?

Transparency and integrity have always been a strength of the management.

Overview

-Duratec came in at the top end of their twice upgraded revenue and EBITDA guidance:

-They had a total of 1944 projects (compaired with 1664 in FY22)

-Their workforce increased by 20%

-Wilson Pipe Fabrication (WPF), the first substantial acquisition for the company, has been a sucess and has the highest margins within the business (gross margins about 30%)

-The Mining & Industrial, Energy and WPF segments have the highest margins and are growing quickly on a forward looking basis

-NPAT margin increased from 2.5% in FY22 to 3.9%

-The orderbook has $458.2m ($458m FY22) however this excludes $60-70m of master services agreement

-One legacy heritage structure remediation project impacted the FY23 results due to scope/access/location. This was still completed to a high quality

Business Segments

Defence

-Significant increased revenue of $229m ($135 FY22) with $252m in the orderbook

-This is the lowest margin segment about 13% gross margins

-Recent slowing of estate works due to cancellation/reprioritisation of projects that no longer suit the national defence strategic review (released May 2023)

• New priorites are: fuel reserves, maritime infrastructure, bases, ports and accommodation building

Mining and Industrial

-Revenue of $86m (up from $65m in FY22) with $105m in the orderbook

-This is a higher margin segment about 21% gross margins

-Second half of the year significant increase in award of iron ore industry upgrades comencing with BHP Berth wharf at Port Headland

• This followed an Early Contractor Involvement of 3D capture of the entire Wharf
• This had led to further additional awards in the Pilbra region of WA

Buildings and Facades

-Revenue of $78m (up from $65m in FY22) with $82m in the orderbook

-This segment has a gross margin of about 15%

-TAM $12b

Energy

-Revenue of $47m (up from $12m in FY22) with about $60m in tenders

-Higher margin segement about 21% gross margins

-Significant fuel security and upgrade works upside

Wilson Pipe Fabrication

-Highly motivated management team

-A key vertical acquisition for the energy segment

-About 30% gross margins

-Voted contractor of the year (Santos 2023 Directors awards)

-TAM $60b from decommissioning of offshore oil and gas infrastructure as the economy decarbonises

Mend Consulting (ECI - early contractor involvement)

-Full in-house solution

• Survey data/ laser scanning/ thermal
• Annoview labeling
• In-house sampling/ testing
• commercial options

-Asset management council innovation award 2023

-Since BHP win (discussed above) new enquires from an international gold miner with a variety of assets

DDR Australia

-Duratec has 49% ownership

-Revenue of $33m (down from $72m in FY22)

-A delay in tender award decisions has reduced the work over FY23

The 6 key projects

The pipeline of work

Remuneration

-Executive directors

• Phil Harcourt $1m (including a $450,000 cash bonus)
• Chris Oates $908,000 (including a $400,000 cash bonus)

-Employee expenses increased to $35.8m (from $27.8m in FY22)

Conclusions

-FY23 had a big increase in revenue driven by the Defence segment

-This flowed through to the bottom line and the NPAT margin and cash position improved

-The new WPF acquisition is earnings accretive and provides an important vertical for the Energy segment

-Management demonstrated excellent capital allocation with the acquisition of WPF

-The decommissioning of offshore oil and gas projects as we decarbonise has a TAM of $60b with WPF/Energy segment well placed to win this work

-Managements ability to risk manage project selection is a moat

-Mend consulting (Unique 3D modeling) is gaining traction and leading to commercial work

-It is unlikely that the Defence segment will continue at the same rate as it did in FY23

Disclosure held irl

I've been looking at Duratec and I like what i see. An excellent company doing excellent engineering run by excellent management.

My major concern is the low net margins of the business. These margins have fallen from a pre-COVID 5.5% in FY18 down to 2.5% in FY22.

This is a question for @Karmast who seems to know this company well. What is your take on this? Is this COVID effecting costs? Do you think these margins will rebound for FY23?