Emeco Holdings Limited (EHL) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to Emeco Holdings for FY '21 Interim Results Briefing. [Operator Instructions] And just please be advised that today's conference is being recorded. So without further ado, I'll hand the call over to your first speaker for today, Managing Director and CEO, Ian Testrow. Thank you, and please go ahead, Ian.

Thank you. Thanks very much. Good morning to everyone. Thank you very much for joining us and dialing into Emeco's FY '21 Half Year Results Presso. We appreciate your time. First of all, I would like to thank all the Emeco group employees for their hard work over the past 6 months. It's been a tough period with COVID, and I really appreciate the flexibility of our workforce, the way we pulled together through this, the understanding of our workforce as we've changed rosters, and we've managed around COVID. It's -- I'm really, really proud and appreciative of all the team's hard work. Since becoming CEO, it's been the objective of myself and our team to build a really strong, resilient business. And I think this result that we're presenting today, off the back of COVID-19 and a result of a weak coal market, is a testament to the business resilience and what we've created. So on behalf of the Emeco team, we're proud to present you this result. So just going to the financial highlights. So revenue, 21% increase in revenue, it was a solid number off the back of the acquisition of Pit N Portal. I'll talk about Pit N Portal a lot through this presentation, but a great acquisition for us at -- the diversification, the customer mix, the widening of the value proposition, the commodity diversification, just been a bloody good business for us and really proud of the Pit N Portal team. And we also had a 30% increase in the Western Region rental revenue, which is off the back of some fully maintained projects and really, really proud of the team in the Western and how they've built that business. And not just built the business off the back of demand, but build the business for projects, projects with full maintenance services, really creating value for the customer. So very, very proud of that. An increased revenue is indicative for the additional services that we're providing our customers. And you will see that moving forward in this business as we continue to develop this strategy of having the lowest cost, highest quality equipment supported by layers and layers of services to add value to our customers and to ultimately increase that tenure and our resilience of the trust. It's all about resilience in generating value for the commodity cycles. $118 million EBITDA for the half. That's at the top end of the guidance that we provided the market. Look, I think that's a good, solid result and shows resilience of the business through a tough period with COVID and some very weak coal prices through the last half. So a solid, solid result. So proud of that. Look, just over here on the free cash flow of $44 million. I think that really shows where we position this business moving forward, particularly with some of the work we've done on our recapitalization refinances, et cetera. I mean, that $44 million cash, that was generated off the back paying $25 million interest for the half year sales, correct?

Yes.

So that interest number was a bit jumped up because of our recapitalized and refinanced [ stat. ] But going forward, I think that interest rate is about $13 million a year, correct?

Half.

So half?

Yes.

Sorry, $13 million for the half, $26 million per annum.

Yes.

So it was $44 million off the back of [ $25.5 million ] and the $13 million moving forward in the half would -- just shows this business' ability to generate free operating cash, particularly given the cyclic downturn in coal in the last 6 months. So proud of that, proud of resilience of the business and its ability to generate free cash. So return on capital, solid, 18.7%. This business has achieved high return on capital year-on-year. It's all about our ability to rebuild our equipment, it's all about our discipline around our capital spend, our ability to rebuild our equipment, our ability to rebuild our components. So it's a key factor of our business. Very, very proud of the team at Force and their ability to -- and the craftsmanship that they have in that business. And that's the key reason that we can achieve an ongoing higher return on capital. Just going down to the bottom of the second quarter. We paid down $195 million of our gross debt in this last half. I mean, this balance sheet, it's the healthiest balance sheet Emeco has ever had in its history as a listed company. So very, very proud of that. It's all about resilience. It just creates so many options going forward. When you look at that cash generation and where this leverage is now, and when you look at the interest savings, I think, we save, what, $19 million per annum on our -- on interest payments. So very, very solid business now. We've got the balance sheet in a good, healthy spot. In old pre new accounting standards language, 0.85x; 0.96x with the new accounting standard. So a healthy balance sheet, healthiest in Emeco's history. This services-related revenue has been the new metric. It's 72% of group revenues generated through our people. That's how I like to think about it. And what a service-related revenue is in any business that we're doing, where it's very, very service related, whether it's rental with a full maintenance crew, ensuring the availability, reliability and performance of the equipment for our customer or a Pit N Portal performing underground works with operators and mechanics and all the services they provide or whether it's Force providing retail maintenance service, it's our people-intensive revenue. And for us, that's the key to our resilience moving forward. That's where we really create value. That's where we take our asset management and our equipment ability to have the lowest cost and highest quality and apply those layers of services. So that's a key metric for us moving forward. It's all about resilience and creating value for our customers. And that's a result of an increase in tenure. Sam has gone up in this period here from...

1.5 to 2.5 years.

So then average tenure. So in 12 months, that's a pretty solid result. And when we talk about resilience, diversification is really, really important, commodity diversification, customer diversification. I think our top 10 customers has also been impacted as well, isn't it, Thao, with a more diversified with our customer base. And if you look at our metals revenue or 57% our total revenue is from metals, that's up from 38% 12 months ago. So that's really quite a big change to the business. So that's financial highlights, and Neil will drill into more of the financials as we move forth with this presentation. What that says to me is a good solid half year against some pretty significant headwinds and achieving a really solid result. If we just move on to next page, Page 2, on the highlights and outlook. As I mentioned, strong results in challenging conditions, showed the strength and resilience of the business. Built up and set this business well up to grow into FY '22. I mean FY '21 for us has been shipped coal has gone down. The business over the last few years has been quite reliant on coal, but we've shown we're resilient against that. We held our own. We've grown our business in metals, Pit N Portal business was added to us, and Force continues to be strong. But I think we've really set this thing up to [ see growth ] out of this in FY '22. It just feels like the transfer of equipment to the West and the building momentum we're seeing in coal, in particular in the East, in the second half through the fourth quarter puts us well placed for FY '22. And I think FY '21 is really a year where we're going to show the market that we're a resilient business and that we've got a strong balance sheet, and we generate strong cash flows. So just on to the operational highlights. I mean safety is important to us. We've got a slide on that. It is the most important thing for us. No use having your people business if you're not going to provide a safe workplace and increasing the workforce the way that we have and getting the TRIFR down from 5.6 a year ago to 2.8 is -- and we're not happy, zero harm, that's what we're about, but it's a good trend, and it shows the hard work that's been done on the safety side of our business. As I said, taking care of our people, making sure that we've got a safe work place, particularly as you're increasing the level of services you provide is absolutely critical. The Eastern Region has stabilized following challenging coal conditions. We've won some work. We'll kick those works off in the fourth quarter. That's really been a bit of a story of by quarter for us in coal on the East Coast. The first quarter of FY '21, we came off pretty hard. You can see where those sort of coal prices look like around the August, September period, sort of back down to sort of [ 2 14 ] levels. And we came up. But the team in the East Coast, I'm very, very proud of them. They worked really, really hard. They're doing a great job for their customer -- for their customers. We had seen plenty of activity with our ancillary equipment going into new jobs. And they really have spent the second quarter and the third quarter we're in now, really holding the business and really holding their ground. The business is absolutely stabilized, and we will get a recovery into the fourth quarter. You'll see our utilization go up. Team have won some pretty core projects, fully maintained projects, long-term projects and we look forward to them coming online in the fourth quarter and taking that momentum into FY '22. The West. The West has had a quite a good half, as shown by the numbers, 36% increase in EBITDA, 30% increase in revenue. [ Won across ] and transferred a bunch of equipment over -- 17 pieces transferred over, another 15 on the way to meet demand. So doing a really, really good job in the West. And as I mentioned, it's not just, for me, the West being regard to, hey, demand is pretty strong, we're putting some gear out of -- it's the nature of the projects we're creating and the value that it's creating for the customers in regard to taking on fully maintained. Customers taking on projects. And we're going to, hey, don't worry about the equipment and the maintenance side of thing. We'll provide you with full service, that you just worry about your shifts and you do it. To me, that's really creating value, and that's sustainable. So very, very proud of the West and the way they've created that business. I mean that gold has tripled for us, which is a combination of Pit N Portal, and the growth in the Western Region, but it's a good result for us and there's plenty of momentum, not just for the remainder of this half year, but into FY '22 for the West. Pit N Portal has been a fantastic acquisition for Emeco. Very proud of that one. Very proud of Steve and his team. It's a real strong culture alignment. There's a real can do attitude that I'd like to think exists around through the -- definitely for the Pit N Portal business across the Emeco and the Force team. Those guys doing a great job. They're winning projects. The Mincor project is very, very exciting for us. It's a great customer, and we're very impressed with the way that Steve and his team are working with the Mincor people to kick that project off. And plenty of bidding and plenty of work for Steve. Pit N Portal. We spoke about when we acquired the Pit N Portal business about the synergies of being able to provide our customers an open cut and an underground solution. That's played out pretty quickly. We've got a customer that's got an underground operations at the moment that we provide them. They're setting up a surface mine, so that -- to set up the next underground portal, really. And Steve and the team are providing that surface, that surface mining project for that customer. The Western Region will provide Pit N Portal the equipment. And we'll get in, and we'll do a bloody good job there. And then hopefully, we'll follow that customer underground. So that really shows the value proposition there. We're going to provide our customer base that value proposition aboveground and open cut. But also what it does -- what the Pit N Portal team does is that it helps the Western Region in regard to getting more and more double shift projects, which will increase our utilization and our margins in the Western Region. So great to see those teams working together. Great to see that opportunity. Great to see that they're using EOS to support that project and I look forward to not only Pit N Portal further growing their underground business, but also their open cut works as well. Workshops continue to be strong earnings. Retail has kicked up. They do a great job. They do a great job for their customer. The quality of the work is really quite outstanding. So continue to be proud of the Force business, not just for the retail works, but the works that they do for the Emeco business can't be overstated. It's the reason we achieve a strong return on capital. It's an absolute key to our sustainability. As I mentioned before, we are increasing our service levels. Our strategy is to take the -- our strength, which our strength is managing our equipment, having low-cost, high-quality equipment, but layering services on top of that. That's more value for our customers, increases our tenure, it really increases our value-add and our resilience. That's important for us. And that's -- I just want to point you quickly to each -- Page 11 in the slide and just look at the EBITDA margin. So as we increase those service levels, it does have an impact on our EBITDA margins. If you have a look at that Page 11 there, where our EBITDA margins has gone from 50% to 40%, there's 7% of that is from -- that is deliberate. That is us increasing our services levels. So what I want you to understand there is when -- with those projects, we put our equipment in, we get the same sort of returns on them, right? We still get really, really solid return on capital, but we're also laying services and people and capability on top of that. That's a lot of margin, but it's not capital intensive, but that really embeds us. And where we show that tenure, just below that graph on Page 11, 1.5 to 2.5 years, that's important to us. Yes, utilization on the East Coast, particularly in coal, particularly in that first quarter, came off, which represents 3% in that waterfall graph of what's happened to our margins. But the 7% there is quite deliberate. And when you see that, just want you to understand that, that's where we're taking this business. And what it's all about is that return on capital, increase in tenure and that cash generation that we're creating. It's all about becoming a more resilient business. If we just go back to the highlights page. Sorry, as I flick around here. We'll go to outlook. So broadly flat earnings expected in the Rental division in the second half. We're setting up for growth in FY '22. So the Eastern Region has stabilized in -- I mentioned the Eastern Region. It's been a bit of a story of quarters for us. First quarter, came off. Second and third quarter, we're holding our own and really stabilizing the business, lots of ancillary work out, doing some good work with customers. Into the fourth quarter, we'll put some of these projects that we wanted to work, and you'll see some real momentum come out of the business in the fourth quarter in the Eastern Region. The Eastern Region will be a touchdown on the first half just because the first quarter came off fairly hard. Fourth quarter is coming back up, but not quite enough to recover that first quarter earnings. But you will see momentum, which is really important for us going into FY '22, which coincides with the rebound in coal prices. So we're feeling good. There's plenty of latent capacity in that East Coast business. And I think you will see that go to work -- building in the fourth quarter, but then into FY '22. Western Region will continue to be strong. You see it grow into the second half. But also we're transferring a bunch of equipment. I think in this paper, we mentioned that 17 pieces have been transferred, and there's another 15 that will transfer in the second half. The momentum of all that gear working going into FY '22 and getting some of those single shift projects into double shift projects will kick these, the Western Region along. So I feel good about both the East Coast and the West Coast rental businesses in -- going into FY '22. Pit N Portal. You'll see continued growth in Pit N Portal, particularly as you come into FY '22. The second half will be strong for Pit N Portal. And as those projects -- those new projects kick into FY '22, you'll see growth there. In the Force business, you'll see the Force business go from strength to strength. They do a great job, particularly in the West, they're very strong. But I would really like to see some growth in the retail side of the business in the East Coast in the second half. You'll see their internal works for Emeco in second half grow. I mentioned we've won some projects in the East Coast that we've worked getting that gear ready. We put a bit of growth capital into one of those projects on the East Coast, the metals project. And we bought some older trucks that we'll put for the workshop. It really sort of shows our strength of being able to buy [ wealth ] and use Force to prepare that equipment. So you'll see that come through and that momentum in the internal workings in the East Coast in Force. But I'd really like to see that translate into retail earnings in FY '22. We've got a really, really strong team in Force, particularly in the West. The gentleman by the name of Alec Bruce that we've got into the business in the Queensland team, and Alec's trying a very strong focus on quality. And I think that hard work will carry on to our retail side of things in the East Coast in Force in FY '22. Group EBITDA margins, I've spoken about them. I've spoken about how the service levels are impacting those margins. They'll stay pretty constant from here forth. That's what we've run some numbers on [ them. ] Depending on the mix of how much services work we're doing, but we consider them to be fairly constant moving forward from here on year-on-year. Strong free cash flow. I think that's a real highlight of this business. As I said, $44 million free cash is a really solid number, particularly when you consider there's $25 million EBIT on that and there will be $13 million -- sorry, $25 million interest on that, and there will be $13 million half-on-half moving forward. So excited about that generation of that free cash, but really excited on how the management team and the Board will allocate that cash. I mean we've really put ourselves in a position where we've got strong optionality in this business. Now we've got this free cash, we can pay dividend moving forward. We can focus on investing in growth to continue the strategic path. If we choose to delever, we can delever. It's a -- we've got good optionality in this business. We worked hard over the last 5 years or so to create a resilient business and get this balance sheet in order to have a more diversified business. And the reward is generating that free cash and having some optionality with it. So we look forward to making some good decisions that generate value for our shareholders. No cash tax expected for several years. With the CapEx, sustaining CapEx is -- for the full year, it would be around $115 million. That's asset rebuilds and replacement CapEx, and committed growth CapEx for the financial year '21 is $27 million. $10 million of that was spent in the first half, $17 million in the second half, which is some additional CapEx that we've already told you about for Mincor in the second half. And there's about $10 million of it for a new project in metals we've created on the East Coast, and you'll see that equipment go through Force in the second half. So that's the operational highlights and outlook. I've given you a lot of information there. But as an overall, really, really proud of the team and what we've created for the first half and how we're looking for the second half. I think FY '21 is a really, really solid year that sets us up -- set this business up from FY '22 onwards. Just moving on to people on Slide 4. I mean I keep talking about increasing the services level of this business and how important that is for us for our tenure and our resilience. We've gone from a couple of hundred people to 1,000 people over about 4 or 5 years. It's been a really good story for us. I'm proud of the people that work for Emeco. We really do have a very skilled and dedicated workforce. Some things that we've done interesting in this space. In the last 6 months, we acquired a business called by the name of Bowdens (sic) [ Bowden ]. It's a business that specializes in the recruiting of and placement of underground operators, was a vertical integration for us. It's been fantastic for us. It's allowed us to really grow the business and take on projects like Mincor and Pit N Portal. What's really impressed me with Bowdens (sic) [ Bowden ] is not only do they recruit people and place them, but they're really, really focus on the welfare and the retention of people once they are in place. And I think that's a fantastic model, and we're proud to have them as part of our business. And that's led us a little bit to where we are with our Project Align. Project Align for us is -- okay, we've got a big workforce now. We're focused on services. The key to our success is not only how we maintain and prepare equipment, but it's very much how our people and the skills of our people, the craftsmanship our people and how aligned we are with people on our strategic objectives. So that will be a big, big focus for us in FY '21. Really looking forward to that. Justine Lea will lead that project with John Worsfold that's just come on board with us. So really looking forward to those guys getting stuck into it. It will be managed throughout the business across Emeco, Pit N Portal and Force, and I think it will really help us become an employer of choice. Next slide, on Page 5, about safety. Providing a safe workplace is everything for us. Part of the trend with the TRIFR from 5.6 to 2.8, got a lot of work to do there. We're very focused on it. We've got a very good team in place. I'm very proud of the way that we managed through COVID. I mentioned before that I appreciate our workforce, how flexible our workforce has been, how when we've changed rosters, how border restrictions have created a bit of havoc in the last 12 months, but hasn't affected us operationally. Our customers haven't been impacted by it. I think our teams have done a great job in building our resilience and a resilience so that each state within each business unit has its own employees. We're not dependent on people transferring across borders. It creates a resilience for us, and I think that's worked out really well. We've also managed our suppliers very well through that period. So security supply, operational stability and most important, the safety and health of our workforces. I've been proud of the way the teams pulled together the challenges that COVID has created. And I assume we'll continue to create based on what's happened in the last couple of weeks in WA, and we're seeing things in New South Wales and Queensland. So it's important for us to have strong systems and processes in place and independence of each of those regions. We've introduced some new technology into our safety systems. It's all focused on interaction, making sure that our teams can do their safety interactions on a digital platform so we can capture that information. That's working well for us. It sounds basic, but we're really focused right throughout the organization on trying to focus on putting actions in place to address safety risk where we can eliminate hazards, eliminate, engineer out or substitute the hazards rather than just sort of administration process around it. It sounds simple, but it's very, very effective. And that's a key focus for us. And I spoke about Project Align. Project Align will be about people, culture, aligning strategy, but also it's about a commitment to making sure that we're all working in a safe environment. So with that, I'll hand over to Neil to talk through our financials.

Thank you, Ian. Good morning, everyone. So providing a bit more detail around the financials for the half and I'm at Slide 7, operating financial performance. The group operating revenue increased to $299 million in half 1 and that's up 21% on the first half of '20. Services revenue grew nationally. And we've had a full 6-month contribution of revenue from Pit N Portal. As Ian said, operating EBITDA came in at $117.9 million, which is at the upper end of guidance range provided in November. With the additional PNP underground mining services projects and fully maintained rental projects, we significantly increased our service levels to customers. These capital-light services are aligned with our strategy of [ winding ] our customer value proposition in order to secure longer tenure contracts and are reflected in the first half EBITDA margins, which came in at 39.5%. But more importantly, the return on capital remained high at 18.7%. Operating EBIT of approximately $60 million was another strong result and despite COVID-19 disruption and coal weakness. Operating net profit before tax was solid at $37.7 million, and this will see further benefit in half 2 from a full half of the interest savings locked in as a result of the half 1 repayment of the U.S. loan notes. Income tax expense was approximately 30%. But as already stated, no cash tax is payable. And we expect no cash tax will be payable for several years, with $284 million in carry forward tax losses in hand. And just to draw your attention, there's a full statutory to operating reconciliation included at Appendix A to the results presentation, including a more detailed breakdown of the nonoperational costs, the one-off nonoperational costs associated with the refinancing event. Moving on to cash flow at Slide 8. Strong cash flows in the first half of '21. Free cash flow of $44 million before growth CapEx, driven by the solid operating earnings and supported by a working capital inflow in the period of $7.5 million. Working capital inflows were primarily driven by continued focus on management of receivables. And again, pleasingly, we had no COVID-related payment issues in the period. I expect this to hold for the full year, and I expect working capital to be broadly flat in the second half. Interest costs. Cash interest costs were $24.6 million for the first half. This included some one-off costs associated with us drawing down the revolving credit facility at the height of COVID. We've repaid that now, so we won't be incurring those interest costs in the second half. Also, we have repaid almost $200 million in notes in the first half. And at almost 10% interest rate, we saved $19 million in interest per annum. Going forward, interest cost cash are approximately $13 million per half, as has already been stated. Capital inventory increased marginally, as we focused on rebuilding more components internally, but in line with our internal plans. And as already stated, net sustaining CapEx was $55 million in the first half, consisting mainly of components for our existing fleet, with an additional $10 million of growth CapEx relating to the Mincor project in Pit N Portal. And in terms of the full year CapEx, sustaining CapEx is expected to be $115 million, with the current committed growth CapEx of $27 million to support Mincor and that new Eastern Region metals project. It's probably worth noting that additional investment in growth CapEx may be considered for opportunities which are aligned with our strategic objectives but as always, subject to meeting our strict internal return hurdles. And again, there's a more detailed full cash flow reconciliation at Appendix A, including a more detailed breakdown of the one-off nonoperational cash costs associated with refinancing, which totaled $17.1 million. Moving on to the balance sheet. The key takeaway here for me is the overall strength of the Emeco balance sheet following the comprehensive refinancing and equity raise in half 1 with $169 million of available liquidity, that's $71.8 million of cash and $97 million in the revolving credit facility, and which together, with continued solid earnings and cash generation, has driven leverage down to 0.96x at the end of December from 1.6x at 30th of June. The U.S. notes reduced by $195 million during the period, which reduced our annual financing cost, as already stated, by $19 million per annum. The note repayment, together with the repayment of the revolving credit facility, resulted in a total debt reduction at hedge rates of $289 million since 30th of June. And just to remind you, we did draw down on that RCF facility at the height of the coronavirus volatility to provide additional liquidity as a form of insurance policy, if you like. But this was fully repaid in October '20 and remains available should we need it. And we do have the option to extend this facility at our discretion out to 2024. I would also highlight the new USD 180 million notes are fully hedged to maturity in March 2024 for both principal and interest, again at 0.7293 and with pro forma interest coverage increased to 9.8x. So in summary, a strong, resilient balance sheet, which as Ian has already said, has created significant balance sheet and capital management flexibility. And with that, I'll hand back to Ian.

Thanks, Neil. So if we go to Page 11. I'll retouch on this page. So -- and I touched on most things for the highlights, so I'll just go through pretty quickly from here. Page 11, EBITDA margins. As I mentioned, you see that waterfall there on the EBITDA margins. Of that margin compression, 7% is due to our services business and 3% due to that drop-off in utilization, which is correlated on the East Coast predominantly through the first quarter. So we are increasing our levels of services in the business. But what's really important to focus on is our return on capital and our cash flow and also the tenure that we're creating the business. We are creating additional value for our customers, and that's been rewarded with tenure. Moving on to Page 12, over on our rental business. I think the strong rental earnings off the back of COVID and off the back of associated coal weakness has showed the strength of our rental business. The Western Region, I mentioned, experienced very strong growth with 30% increase in revenue and 36% increase in EBITDA. As I mentioned, the East Coast was impacted by coal, particularly in the first quarter. We've really stabilized the business in the second and third quarters, and we'll see some momentum building in the fourth quarter through to FY '22. Growth in operating utilization of 85% and 59% shows that there is latent capacity within the business. And that latent capacity will provide an earnings rebound for the rental business as we go into FY '22. So the outlook. Broadly flat earnings expected in the rental division for the second half. As I mentioned, slightly down in the second half for the Eastern Region, which is a function of that fourth quarter momentum building, with that first quarter drop-off, stabilization for the second and third quarters. But really, really strong momentum coming out of the fourth quarter for the Eastern Region. And the Western Region will continue to build, particularly as we go into FY '22. Margins expected to normalize between that 55 to 60% EBITDA. What you see there is that you'll see the Western Region margins increase, and you'll see the Eastern regions normalize around where they're at the moment at about 60%. Just going on to Page 13, Eastern Region. I've spoken a lot about it. As I mentioned, coal prices did come off, particularly following COVID in March. We saw really low coal prices for that -- particularly in that first quarter. And our customers did react. We had some projects come off that were quite high on profitability. But the team has done a fantastic job in the East Coast to stay close to their customers, to keep renting ancillaries and keep managing the contracts really well, really stabilize the business for the second and third quarters and some good project wins in the fourth quarter, which you'll see come into the business, and you'll see that utilization run rate kick in, in the fourth quarter and building in FY '22. We do have idle capacity in the East Coast. We've transferred some equipment over to the West Coast. I think, Sam, was it -- of the idle capacity, it could be 30% of it's been transferred or being transferred to the West?

Yes, correct.

There's plenty of sitting there on the East Coast ready to sort of recover those earnings as coal improves through FY '22. Of course, we retain the flexibility to transfer additional equipment according to our demand on the West Coast and the East Coast as well. What's really important to know is that, I said it before, that we have generic equipment. We don't have coal-specific equipment. We don't have mine ore specific equipment. We have equipment that can work across different regions and different commodities. We don't run ultra-cost equipment, so we can move our equipment around cost effectively. That's really important. It's part of our resilience that this equipment can be used across all of our different customer bases, regions and commodities. So it is quite flexible. Western Region, strong half, 30% growth in revenue, 36% on EBITDA. I mentioned before that it would be easy to say, hey, the Western Region demand was strong. But it wouldn't give the team credit, I don't think, for what they've actually achieved. I think what they've done is they've created a sustainable business long term, fully maintained, really created value for their customers and getting some really good utilization out of their equipment. There's 17 pieces that have been moved from WA to build in the second half. And then another 15 pieces that we'll move through, we're moving now and we'll move through the second half as well. So we are moving equipment from West to -- East to West to meet the demand, but we're doing that quite strategically, quite pragmatically because we do see some building momentum on the East Coast. One thing that I'm really, really proud of is it's not the entire business, but it's -- I think it's symbolic of the businesses. There's some work they've done with Saracen. We're providing fully maintained equipment to Saracen. They're fantastic customers, great operators of the equipment. But we've put EOS in as well. And just to get that feedback from an operator of the quality of Saracen about our EOS productivity tool, I'm really proud of that, and I'm proud of the way that the Western Australian team have created these projects with EOS. I think you'll see them put -- doing another couple of EOS projects in the second half. It really is the future of our business. The fully maintained, putting our people in, in a tight labor market differentiates us from our competitors and our technology on top. So not just providing low cost, high quality equipment, but the services, the people, the value-add and the technology on top, that's really where, I suppose, representative for where we're able to take this business. So very proud of that. Yes, the Western Region will continue to build. Guys are creating a sustainable and strong business, guys and girls. So I'm very proud of the Western Region. Pit N Portal. As I mentioned, fantastic acquisition that we did at this time last year. We announced it with half year results.

Soon after.

Soon after. Came on place just in time for COVID, March 1. So interesting time to take on a business. Very, very proud of Steve Versteegen, whose team -- great team, very, very dedicated people, very customer-focused, really quite entrepreneurial and nimble the way he goes about things. The Mincor operation has been huge for him, as has their existing operations,and also staying up the Great Western Project in an open cut environment application is very, very important for us as well. This business is our growth engine. I think it's the most exciting thing that's happened to Emeco, to be honest, my 15, 16 years of being with Emeco, of being able to provide not only an open cut solution, but provide underground as well. Not only does it give us the commodity diversification and service earnings that it has, but just the ability to provide a customer that open cut and underground solution, I personally find really exciting. And I'm very proud of this acquisition. I'm very proud of Steve and his team. Page 16, with -- Sam, that's been pretty strong growth half-on-half for us. The business continues to grow into the second half as well. And you'll see strong growth in FY '22 as these projects really start to take hold.

Yes, that's right.

I mentioned before about the growth CapEx pertaining to Pit N Portal in the first half, there'll be an additional $7 million into the second half. And given the growth of this business, not just in the projects, but the rental side of things, we'll look at some opportunities for further growth capital as required. Force, it's a strong business. The quality of the businesses -- of the work they provide is fantastic. It's really, really cool sort of seeing the before and after shots as these guys transform equipment. Have great customer relationships. Really, really impressed in the last 6 months on how they've embraced the underground side of the business, that not only rebuilt equipment for Pit N Portal, but they've done some retail works in the underground space as well and taking that capability and work with Steve and his team to wind that value proposition again to underground equipment. So proud of that. Look forward to them growing some field service support, as you can see with the photo there. I think that's an important thing for us. And particularly on the East Coast. I think that it'd be fair to say that we haven't done a lot on the East Coast. It's been very much a strong Western Australian business. From a retail perspective, we do a lot of work for Emeco on the East Coast, particularly around component rebuilds and repairing equipment, and you'll see a fair bit of that in the second half. But I'd love to see a building of a retail business similar to what we do in the west as we get into FY '22 for Force. Just moving to strategy. I'll go over this pretty quickly. I've spoken a lot on this call. Look, as I mentioned, if we go to Page 19, it's all about creating a resilient business. And that's what we've been aspiring to do for a long time now as a management team. Being the lowest cost, highest quality provider is important. That's all around our equipment. It's all about Force. It's all about buying equipment well, rebuilding it, work well. The asset management team, centralized asset management team we've got in Brisbane has done fantastic work, particularly around taking planning down and down and down and further into the detail, setting up regional hubs to support the projects and the condition monitoring, where we're really tracking the component health and making good decisions to get the most out of the component life. I'm really excited about that. So we've got a culture where it's continuous improvement. We'll keep focusing, focusing, focusing on improve, improve, improve. Improve quality, reduce cost, reduce cost because we know that, that gives us a strategic advantage in the industry. Balance and diversified portfolio. I think if you look at our metals going from 38% to 56% in the prior period, shows that we're diversifying our commodity portfolio as well as our customer. That's important for us. It's resilience. It's about managing through different commodity cycles, upturns, downturns. Holding this business together like we have, generating free cash from return on capital, and the EBITDA that we have with coal being really -- were quite down in this half, it just shows the resilience of the business. Widening the value proposition. Look, you get your equipment in there based on cost and quality and then you layer services on top. You add value to your customer, your tenure increases and you're resilient through the cycles. That's sort of that -- that's what we're trying to do. Pit N Portal did that as a stand-alone business. We've taken them on board, and we're straight out copying what they did. And I'm really excited by it. I think that's a fantastic business model. I really like -- I'm part of this industry, and I really like creating value for this industry and creating value for the shareholders, our shareholders, at the same time. And that's the balance that we're really excited about here. Strong balance sheet. I mean we've spoken about that. That's been our journey for the last 5 or 6 years, to get that balance sheet down to 1x leverage is important for us. It gives us optionality with the strong cash flow that we're creating. Page 20. I've shown this slide a hundred times. I'm proud of it. We worked hard on our equipment. We worked hard for our planning and then taking our planning to our craftsmanship in the way we rebuild components and equipment, it's a huge part of our business and continues to be. Page 21. Just talking about the portfolio diversification. I've spoken a lot about metals going from 38% to 57%. Gold's tripled, I think that's fantastic for us. And I think you'll see further diversification as we move forward. I think that it's not a business that's walking away from coal. I think coal is a -- has been a fantastic commodity for Emeco and will be moving forward. I think we can do some great work in coal, continue to do that, particularly as we're seeing a bit of a move away from Tier 1 miners in coal into some more mid levels and juniors. I think our ability to provide equipment and maintain that equipment and services really resonates to those customers. So for us, it's all about balancing out that commodity portfolio. And I think we've made some real ground there. And also with our customer concentration as well. If you look at our top 10 customers and where it's going in the last 12 months with diversification, which again ties into that resiliency. Value proposition. I've spoken about that a lot. It's about Force doing retail. We're taking retail from underground to -- sorry, from open cut equipment to underground as well. It's Emeco increasing its amount of fully maintained projects, with WA leading the way and the East Coast to follow behind as we build through the fourth quarter and the projects that we have in the East that really have held us together for the projects where we provide full maintenance. So that's our model, and that's what you'll see going forward. Pit N Portal, with their underground rental business, the underground services business and now their open cut services business, played a key part in widening that value proposition and increasing the service levels and EOS. Extremely proud of that. It was very, very nice of Saracen to provide that quote. That's -- having a customer of that quality backing up -- what we've been saying about EOS is very important for us. And Slide 23, Neil's been on -- I've spoken about the balance sheet. We got it to 1x. It is the strongest balance sheet in Emeco's listed company history as a management team. We came in 5, 6 years ago with the balance sheet that certainly wasn't the healthiest in Emeco's history. So very, very proud to get it where we've got this business. It creates us optionality. We're generating strong cash flow, a real challenge moving forward. And what we're absolutely embracing is how we apply that cash, how we apply that cash to create value for our shareholders, whether it be for dividends. Saying we got $85 million, $86 million of franking credits, how we invest in strategic growth along our path, along our path of where we're taking this business strategically, and if we choose so, further deleveraging. So lots and lots of good decisions to be made moving forward for the optionality we've created of getting this balance sheet in the right place. Thank you. I'll go to questions.

Operator, if you can open the questions, please?

[Operator Instructions] Your first comes from Mitch Sonogan from Macquarie.

Just the first one, I guess, the East Coast a little bit more. You give guidance for growth in FY '22. Could we see that region going back towards the first half '20 levels of EBITDA around $100 million sometime in the end of FY '22 or '23? Or is that unlikely given the free -- fleet redeployment that's taking place?

Yes, Mitch, you'll see a rebound in the Eastern Region in FY '22. I mean, obviously, we've transferred -- or in the process of transferring 30 pieces across from the Eastern Region to the West, so it will take away some of that earning capacity for a full rebound. But I'm confident there is latent capacity on the East Coast that we have right now in place. I'm very confident in the work the team are doing in the East Coast to put that to work. You've seen them win some -- we've seen them win some projects that will come through in the fourth quarter, but there's plenty of fleet from them to put back to work in FY '22. So I'm confident you'll see a strong rebuild rebound through '22 and '23 in the Eastern Region.

Yes. And I guess just touching on that more broadly. Can you talk about the general sentiment that you're seeing out there from your major coal customers on the East Coast for their growth outlook and the requirement for your fleet, whether that be rental or maybe more internal?

Yes. Look, we just stay very, very close to our East Coast team. It's obviously pivotal for us. We've been through some tough times, particularly that first quarter. If you look at the graph on the coal prices, it was particularly tough in that sort of period, August -- July, August, September, October. I think the team worked really, really quite well and stayed close to their customer for the second quarter into the third quarter. We've certainly seen some more interest in our equipment moving forward. I feel like our customers are getting more comfortable with the Chinese trade tension situation. So I'm certainly no expert in that. And I certainly don't want to comment on it. But just from a customer level, it's feeling more comfortable. And I think the -- particularly in Queensland, with met coal, they're getting more comfortable with the price of the forward-looking coal prices. So we're just seeing a bit more activity there. We're landing a couple of jobs. And just talking to the guys on a daily -- guys and girls on a daily basis, I'm feeling good about momentum going into FY '22, Mitch.

Yes, just jumping over to the West Coast. Can you maybe just talk about the potential tendering opportunities that you're seeing there? And what strength, you called out gold and iron ore, but anything else in the other metals? And you've also got price utilization of 92%, but operating utilization is only about 55%. You're talking about transferring more to double shift projects. But is there anything else holding back that operating utilization? And is there all the contracts that you're tendering on at the moment or double shift that should drive that operating utilization off over the next 12, 18 months?

Thanks, Mitch. Look, I think it's fair to say that the majority of the 30 pieces that we're transferring will be going over the large pieces into double shift. So that will, by nature, kick up the operating utilization and the margins in that West Coast business. I think that -- I think I mentioned in the pack that 30% of the business is still on single shift. I think that the guys and girls are doing a great job in creating double shift projects. And I think that Pit N Portal providing that surface solution to their customers will also facilitate more progression onto the double shift project. I think, over time, into FY '22 and FY '23, I think you'll see some normalization between the East and the West Coast business as far as margins and operating utilization.

Great. And just final one for me on Pit N Portal. You've called out strong earnings growth there. EBITDA margins of 26%, so well up on the 20% when you acquired it. What should we be thinking about top line revenue growth in the second half? And more importantly, is FY '22 the current contracts in the book and those that you've also won?

Yes. Sam, can you give a statement?

Yes. So Mitch, I think top line revenue growth will be exceptionally strong in Pit N Portal with Mincor ramping up. I would estimate sort of 30-plus percent. But the margin will probably drop off a little bit, given that's very services heavy. But that still will translate to very strong EBITDA growth in Pit N Portal, both in the second half and then continuing into FY '22.

We do have another question in queue from Alex Karpos from Goldman Sachs.

I appreciate the color on the East Coast market and momentum building there. I was hoping you could parse that out maybe a little more, maybe across met and thermal and as well as customer type, big versus small miners. Any nuances we should be aware of across those different customers?

Right. Yes, mate, look, I think that it'd be fair to say that where we're seeing the opportunities into the fourth quarter in coal building would be more now in that mid market at the moment. And I think that's a bit of a combination between large Tier 1 customers and some mids as well and some contractors, it's across the board. You'll also see some growth in the Eastern Region in a large project, a 5-year tenure project we've won in metals as well that we're very, very proud of, and that's why you see a little bit of that growth CapEx going into, mate, a fully maintained project with workshops and infrastructure that will kick off in the fourth quarter.

Perfect. And on the thermal side, have things stabilized there as well?

Yes, yes. I do feel that's the case. Look, we can roughly speak thermal and met -- [ the thermal coal ] into our New South Wales and our Queensland business. I think our New South Wales guys and girls do a fantastic job with their customers. They really do embrace and lead the way on that fully maintained rental. They create significant value to the customers through taking on a risk with the provision of maintenance, availability, et cetera. So they set the way -- I'm feeling that, that thermal market has certainly settled for us.

Got it. And one more for me. If we turn to the West, if we go back just a year ago, utilization of that business was sub 50%. And clearly, it's improved quite a bit since then. Is there anything structurally different in that market? Obviously, different commodity mix, different customer mix. Anything structurally different on the utilization front that would prevent, on a multiyear basis, utilization getting back to relatively full levels?

Yes, mate. So it's been a bit of a journey for us in the West Coast, Alex. Going back to that 3-way merger recapitalization, et cetera, we did take on and then taking on the Force business as well, we did take on some historical sort of legacy type projects. It took us a bit to work our way through. I think we managed the market's expectations pretty well about something, which period it was, Sam, but we said like it is going to be a tough 6 or 12 months as we transfer equipment, particularly from that Hillgrove project in South Australia into different...

Calendar '19, I think it was.