Duratec : December 2021 Half Year Results announcement

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28th February 2022

Outlook solid beyond COVID impacted H1FY22 results

Leading national remediation specialist Duratec Limited (Duratec or the Company) (ASX: DUR) is pleased to announce its results for the financial half-year ended 31 December 2021. Duratec's financial performance for the half has been impacted by challenging east coast COVID-19 outbreaks shutting down key projects for up to 4 months. However, the outlook is solid with an all time high work on hand position of $450.4m and easing of operating conditions underpinning an expectation of significant improvement in H2FY22. This update should be read in conjunction with the statutory half-year financial statements.

H1FY22 Financial Highlights

• Revenue1 of $130.9m, up 5.5% on the prior comparative period of H1FY21 (PCP).
• Normalised EBITDA2 of $5.0m, down 57% on PCP.
• Normalised EBITDA margin of 3.9%, down from 9.4% in PCP, including the DDR contribution.
• Solid cash generation from operations and strong balance sheet with closing cash balance of $36.2m and low debt levels.
• Bankwest covenants changed to accommodate growth.
• Interim FY22 dividend of 0.5 Cents Per Share, fully franked.

H1FY22 Operational Highlights

• Two lost time injuries associated with relatively minor incidents, similar LTIFR with PCP. Continued investment in people and resources to foster a culture of ZERO HARM.
• Geographical footprint expanded further with establishment of Gladstone, Katherine and Hobart offices on the back of project wins.
• Operations impacted by COVID-19 challenges on the east coast halting several major projects for up to 4 months while maintaining operational capacity.
• Achieved a significant increase in work on hand position of $450.4m3 (up from $113m at 24 February 2021) via segment market focused tendering strategies;
• Excellent major project awards including: -

1. Central Park Building façade recladding, $63m;

1. DEJV - HMAS Stirling, Oxley Wharf Extension, $53m;

• 1. Western Sydney International Airport, aviation fuel infrastructure, $50m; o RAAF Base Tindal, aviation re-fuelling facility, $110m;
     o Resource sector structural integrity packages, collectively, $25m+.
• Tendered work of $550m and $1.6b in tangible identified opportunities;
• DDR continued to grow strongly with historically high work on hand and a significant pipeline of opportunities.

1. Excludes associate DDR revenue
2. Proforma EBITDA means earnings before interest, tax, depreciation, amortization, IPO transaction costs
3. Excludes annuity style Master Service Agreement (MSA) contracts (circa $40m)

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Outlook

• Supported by the strong order book, Duratec anticipate a result heavily skewed towards H2FY22 financial performance, continuing into FY23;
• Positive indicators nationally across all sectors with key demand drivers supporting Duratec's organic growth strategy. Duratec remains disciplined when evaluating potential acquisition targets;
• Despite the certainty of periodic resurgences, we remain optimistic the COVID-19 pandemic impacts will ease providing operational conditions conducive to supporting a return to revenue growth and profitability;
• Other challenges associated with wage and salary pressures, construction material price escalation and supply issues are recognised and being managed and mitigated;
• Resource sector spending increasing as clients continue to focus on asset life extension via structural integrity campaigns;
• Government infrastructure stimulus and increasing Defence sustainment spending provide key growth platforms;
• High levels of enquiry and a significant number of new tenders submitted, including key Defence, Resources and Building re-cladding projects;
• Duratec's Energy sector strategies are focused upon securing more fuel infrastructure projects;
• Impressive pipeline - $550m of total tenders submitted across all market sectors and $1.6b in Identified Opportunities3 well diversified across industries and geographies;
• DDR Australia outlook is positive and supported by government IPP and corporate initiatives; and
• Duratec's national presence with well supported local teams positions the Company well to leverage positive tailwinds.

H1FY22 Key Metrics

	H1FY22	H1FY21	Variance
Revenue	$130.9m	$124.1m	5.5%
Reported EBITDA	$4.6m	$8.9m	(48.0%)
Normalised EBITDA1	$5.0m	$11.7m	(56.8%)
Statutory NPAT	$0.7m	$4.6m	(84.4%)
Normalised NPAT1	$0.7m	$6.1m	(88.1%)
Key operating metrics
Reported EBITDA margin	3.5%	7.2%	(50.7%)
Normalised EBITDA margin1	3.9%	9.4%	(59.0%)
Statutory NPAT margin	0.6%	3.7%	(85.2%)
Normalised NPAT margin1	0.6%	5.0%	(88.8%)

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Note 1: Prepared on a normalised basis which exclude items from the H1FY21 result relating to one-off IPO costs and Fortec contribution. The DDR tax effect item relates to both reporting periods - refer Appendix 1 in the Company's Half-Year Results Presentation for calculations.

Commenting on the Company's H1FY22 performance, Duratec's Managing Director Phil Harcourt said:

"Similar to many national industrial businesses, the first half of FY22 has provided very challenging operating conditions specifically impacted by COVID induced project shutdowns in the Eastern region, while maintaining operational capacity. Despite these conditions, the project teams have done their utmost to minimise project prolongation cost effects. In WA, NT and SA operating conditions to date have been far more favourable and I am pleased to advise that the majority of works performed have contributed well.

Since July 2021, it has been encouraging to see the high level of enquiry and solid number of tangible opportunities across all market sectors. This has led to a significant increase in tendering volume and high- quality submissions which has successfully been converted into work won levels markedly higher than the comparative period in FY21. Consequently, we have an historically all time high order book of $450.4m which is a terrific achievement, providing a very positive outlook and basis for strong contributions from major projects to revenue growth and underlying earnings in H2FY22 and FY23 onwards."

H1FY22 Interim Dividend

Duratec will pay a fully franked interim dividend in respect of H1FY22 of A$0.005 per share, to be paid on 10 May 2022. The dividend will be paid in Australian dollars. Key information in relation to the dividend is as follows:

Dividend amount	$0.005 per share fully franked
Ex-dividend date	12	April 2022
Record date	13 April 2022
DRP election date	14	April 2022
Price calculation period	14	April 2022 - 2 May 2022 (inclusive)
Payment / issue date	10 May 2022

The Company's Dividend Reinvestment Plan (DRP) will operate for eligible shareholders for the H1FY22 interim dividend.

Shareholders who elect to participate in the DRP will be able to reinvest either all or part of their dividend payments into additional fully paid Duratec shares. A 5% discount to the 10 day volume weighted average price of Duratec shares during the price calculation period will apply to allotments made under the DRP for the H1FY22 interim dividend. No brokerage, commission or other transaction costs will be payable on shares acquired under the DRP.

The full terms and conditions of the DRP are set out online at the Company's website at www.duratec.com.au/investors/corporategovernance. Shareholders are encouraged to elect to participate in the DRP online at https://www.computershare.com.au/easyupdate/dur.

Outlook by Operating Segment

There are very positive indicators nationally and across all the market sectors. Key industry themes, including increased focus on structural, durability and functional infrastructure upgrade spending by both government and the private sector, together with continuing demand drivers, underpinning the growth outlook for Duratec. Duratec's national presence and increased footprint with well supported local teams positions the Company very well to leverage these opportunities. The Company focus will be on optimising operational capabilities by application of strategies which mitigate as best as possible future challenges with COVID Omicron variant spread of infection in the workforce. We will also be proactive and nimble in mitigating impacts associated with wage and salary pressures, skill shortages, the rising cost of material and freight costs, supply chain disruption by implementation of appropriate measures and to protect underlying earnings.

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Duratec's orderbook has increased 91% since the 16th August 2021 to an all time high of $450.4m. The pipeline of opportunities remains strong and is well diversified across industries and geographies (56% Eastern Region3 and 44% Western Region). Tendering volume is high with $550m currently submitted awaiting award. Duratec is very encouraged by the $1.6b of high quality Identified Opportunities which are expected to translate into increased tendering across all key sectors. This, together with Duratec's strong balance sheet, provide an excellent platform for the Company to secure additional contracts in H2FY22 and beyond, supporting continued sustainable growth.

Defence

Recent Strategic Updates from the Federal Government Defence suggest investment in sustainment of current and future capability is forecast to grow from circa $13b to circa $24b, by FY30. This provides a clear direction and a high degree of certainty for Duratec's key Defence segment for future growth opportunities.

With an historical work on hand position of $236.5m, tendered work of $184m and improved operating conditions we anticipate a very strong H2FY22 performance now that restrictive COVID shutdowns appear to be behind us and DUR strategies/procedures are in place to mitigate absenteeism associated with Omicron community outbreaks. This trend is expected to continue in FY23 onwards.

Mining and Industrial

The resource sector teams are well positioned nationally to meet the increasing demand for remediation and life extension of ageing mining and resources infrastructure critical to processes and production output. With a work on hand position of $17.5m, $71m in tendered works and likelihood of three mine shutdowns for planned maintenance imminent we expect strong revenue and underlying earnings from this segment in H2FY22 and beyond.

Buildings and Facades

With $68.8m of work on hand comprising ten significant building façade projects afoot and expected to be all back to optimal productivity, we anticipate solid revenue and underlying earnings in H2FY22. The $63m Central Park project will be a strong financial contributor now that work on the panel replacement commenced in January 2022. Our Technical team will continue to satisfy demand for Duratec's Early Contractor Involvement performing the important task of due diligence on the existing building facades to de- risk the works for both client and the Company. We anticipate further growth in this segment in FY23 and beyond with $355m in tangible opportunities. Duratec is positioned well to capitalise on these opportunities based on demonstrated capabilities and client relationships.

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