just please be advised that today's conference is being recorded. But 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 in to Emeco's FY 'twenty one half year results, Prezo. 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 pull 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-nineteen and resulting 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 was a solid number off the back of the acquisition of Pitt and Portal. I'll talk about Pitt and Portal a lot through presentation, but a great acquisition for us at the neurodiversification, the customer mix, the widening of the value proposition, the commodity diversification has been a bloody good business for us and I'm really proud of it in the Pit and 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 West and how they've built that business and not just built the business off the back of demand, but built the business for projects, projects with full maintenance services really creating value for the customers. So very, very proud of that. And increased revenue is indicative of 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 large 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. For us, it's all about resilience and generating value through the commodity cycles.
Dollars 118,000,000 EBITDA for the half, that's at the top end of the guidance that we provided to 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 far it up. Look, this number here of the free cash flow of $44,000,000 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, etcetera. I mean that $44,000,000 cash, that was generated off the back of paying $25,000,000 interest for the half year tower, is that correct?
Yes. So that interest number is a bit jumped out because of our recapitalizing refinance stuff. But going forward, I think our interest rate is about $13,000,000 a year. So half, sorry, dollars 13,000,000 per half, dollars 26,000,000 per annum. So they do $44,000,000 to back to $25,500,000 on the spare annum moving forward in the half board.
Just shows this business's ability to generate free operating cash, particularly given the cyclic downturn in coal in the last 6 months. So part of that, part of resilience of the business and its ability to generate free cash. Return on capital, solid, 11.7%. This business has achieved higher 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. It's a key factor of our business. Very, very proud of the team at Force and their ability to and the craftsmanship they have in that business. And that's a key reason that we can achieve an ongoing high return on capital. Just going down to the bottom left hand corner, we paid down $195,000,000 off 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 our cash generation and where this leverage is now and when you look at the interest savings, I think we say $19,000,000 per annum on our interest payments.
So very, very solid business now. We've got the balance sheet in a good healthy spot. In our pre new accounting standard sandwich, 0.85 times, 0.96 times with the new accounting standard. So a healthy balance sheet, healthiest in the Emeco's history. This services related revenue is a bit of a new metric.
It's 70% 2% of group revenue generated per 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 some peak and quarter performing underground works with operators and mechanics and all the services they provide or whether it's from 4th providing retail maintenance services. 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 resulted in the increase in tenure.
And I'm saying that's gone up in this period here from
1.5 to 2.5 years
with an average tenure. So in 12 months, that's pretty solid result. And when we talk about resilience, diversification is really, really important. Commodity diversification, customer diversification, we got top 10 customers has also been impacted as well as a talent with a more diversified with our customer base. And if you look at our metals revenue, 57% of 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 forward this presentation. What that says to me is a good solid half a year against some pretty pretty significant headwinds and achieving a really solid result. If we just move on to the next page, Page 2 on the highlights and outlook.
As mentioned, strong results in challenging conditions, showed the strength and resilience of the business. Fill up, we've set this business well up to grow into FY 'twenty two. I mean FY 'twenty one for us has been, as you've told, gone down, the business over the last few years has been quite aligned on coal, but we've shown we're resilient against that. We held our own. We've grown our business in metals, pin portal business is added to us.
Kinforce continues to be strong. But I think we've really set this thing up to some shot out of this in FY 'twenty 2. It just feels like the transfer of equipment to the West and the building momentum we're seeing in Collins, particularly in the East in the second half through the Q4 puts us well placed for FY 'twenty 2. And I think FY 'twenty one 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 that 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. 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 trigger down from 5.6 a year ago to 2.8 is and we're not happy to add 0 harms 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 and making sure that we've got a safe workplace, particularly as you're increasing the level of services you provide is absolutely critical. Eastern region is stabilized following challenging coal conditions.
We've won some work, we'll kick those works off in the Q4. It's really been a bit of a story of by quarter for us in coal on the East Coast. The Q1 of FY 'twenty one, we came off pretty hard. You can see what those sort of coal prices look like around that August, September period, sort of back down to sort of 2.14 levels. And we came off, 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 had spent the 2nd quarter and the third quarter. We're now really holding the business and really holding their ground.
The business is absolutely stabilized and we will get a recovery into the Q4. You'll see our utilization go up. A team have won some pretty cool projects, fully maintained projects, long term projects and we look forward to them coming online in the Q4 and taking that momentum into FY 2022. The West has had a pretty good half as shown by the numbers, 36% increase in EBITDA, 30% increase in revenue, 1 cost and transfer a bunch of equipment over 17 pieces transferred over, another 15 on the way to meet demand. So it's doing a really, really good job in the West.
And as I mentioned, it's not just for me the West in regards to high demand is pretty strong, we're putting some gear out of the nature of the projects they're creating and the value they're creating for the customers in regard to taking on fully maintained. Customers taking on projects and we're going to hate. Don't worry about the equipment and the maintenance side of things. We'll provide you with full service that you just worry about 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,
the gold tripled for us,
which is a combination of Pit and 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 'twenty two for the West. Pit and Portal, been a fantastic acquisition for Emeco, very proud of that one, very proud of Steve and his team. It's a real strong cultural alignment, there's a real can do attitude that I like to think exists around definitely for the pit and portal business across the Emmental and the Force team. Those guys are doing a great job.
They're winning projects. The Minkor 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 Mancore people to kick that project off and plenty of bidding and plenty of work for Steve. Pit and Portal, we spoke about when we acquired the Pit and 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, but setting up a surface mine so that to set up the next underground port really. And Steve and the team are providing that surface mining project for that customer. The Western region will provide pit and 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 on the ground. So that really shows the value proposition there by our customer base that value proposition above ground and open cut. But also what it does, what the pit and 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 on the port to not only Pit and 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 achieved 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, really increases our value add and our resilience. That's important for us. And that's I just wouldn't mind pointing you quickly to 11 in spite 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 from that is deliberate, that is us increasing our services levels.
So what I want you to understand there is when with nice 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 lower margin, but it's not capital intensity, 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 in the East Coast, particularly in coal, particularly in that Q1 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 say that, I 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, all about becoming a more resilient business. If we just go back to the highlights page, sorry, as I look around here, We'll go to outlook. So broadly flat earnings expected in the rental division in the second half with setting up for growth in FY 'twenty two. So the eastern region has stabilized in I mentioned the Eastern region, it's been a bit of a story of quarters for us. 1st quarter it came off, 2nd and third quarter we're holding our own and really stabilizing the business, getting lots of ancillary work out, doing some good work with customers.
Into the Q4, we'll put some of these projects that we want to work and you'll see some real momentum come out of the business in the Q4 in the Eastern region. The Eastern region will be a touchdown on the first half just because the first quarter came off fairly hard, 4th quarter is coming back up, but not quite enough to recover that 1st quarter earnings. But you will see momentum, which is really important for us going into FY 2022, which coincides with the rebound in coal prices. So we're feeling good. Plenty of latent capacity in that East Coast business.
And I think you'll see that go to work building in the Q4, but then into FY 'twenty two. Western region, continue to be strong. You'll see it growing to 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 'twenty two and getting some of those single shift projects into double shift projects will kick the Western region along.
So I feel good about both the East Coast and the West Coast rental businesses in going into FY 'twenty two. Pit and Portal, you'll see continued growth in Pit and Portal, particularly as you come into FY 'twenty two. The second half will be strong for Pit and Portal and as those projects, those new projects kick into FY 'twenty two, 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 growth. 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 through the workshop. It really sort of shows our strength of being able to buy well 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 'twenty two. We've got a really, really strong team in force, particularly in the West. The gentleman by the name of Alex Bruce that we've got into the business in the Queensland team and Alex trying a very strong focus on quality. And I think that hard work will carry on our retail side of things in the East Coast in force in FY 'twenty two. 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 forward. That's what we've run some numbers on Sam, 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 free cash is a really solid number, particularly when you consider that there's 25 EBIT on that and there'll be 13 sorry, 25 interest on that and there'll be 13 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 we 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 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 good decisions that generate some value for our shareholders. No cash tax expected for several years. With the CapEx, sustaining CapEx is for the full year be around 115, that's asset rebuilds and replacement CapEx and committed growth CapEx for the financial year 2021 is $27,000,000 $10,000,000 of that was spent in the first half, dollars 17,000,000 in the second half, which is some additional CapEx that we've already told you about for Minn core in the second half. And there's about 10 of it for a new projects 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 guided for the first half and how we're looking for the second half. I think FY 2021 is a really, really solid year that sets us up set this business up from FY 2022 onwards. Just moving on to people on Slide 4.
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 100 people to a 1000 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, the name of Bowden's. It's a business that specializes in the recruiting of and placement of underground operators. It 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 Minkor and Pit and Portal.
What's really impressed me with Bowden's is not only do they recruit people and place them, but they're really, really focused on the welfare and the retention of people once they're in place. And I think that's a fantastic model and we're proud to have them as part of that 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 our equipment, but it's very much how our people and skills of our people, the craftsmanship of 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 2021. We're looking forward to that. Justine Lee will lead that project with John Wursvold has 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 semico, Pitney, Portland and Force. And I think it will really help us become an employer of choice. Next slide on Page 5, about safety. Providing with safe workplaces is everything for us. Part of the change with the trip up from 5.6 to 2.8, a lot of work to do there.
We're very focused on it. We've got a very good team in place. 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 change rosters, how border restrictions have got 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 a 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 resilience for us. And I think that's worked out really well. We've also managed our suppliers very well for that period.
So security supply, operational stability and most importantly, 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 AI 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 from a throughout the organization on trying to focus on putting actions in place to address safety risks where we can eliminate hazards, eliminate engineer out or substitute the hazard problem and just sort of administrative 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 on Slide 7, operating financial performance. So group operating revenue increased to $299,000,000 in month 1 and that's up 21% on the first half of twenty twenty. Services revenue grew nationally and we've had a full 6 month contribution of revenue from Pit and Porter.
As Ian said, operating EBITDA came in at $117,900,000 which is at the upper end of guidance range provided in November. With the additional P and T underground mining services projects and fully maintained rental projects, we significantly increased our services levels to customers. These capital light services are aligned with our strategy of winding our customer value proposition in order to secure longer 10 year contracts and are reflected in the 1st half of EBITDA margins, which came in at 39.5%. But more importantly, the return on capital remained high at 18.7%. Operating EBIT of approximately $60,000,000 was another strong result despite COVID-nineteen disruption and coal weakness.
Operating net profit before tax was solid at $37,700,000 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 one 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 $284,000,000 in carry forward tax losses in hand. And just to draw your attention, there's a full statutory to operating reconciliation included at Appendix 8 to the results presentation, including a more detailed breakdown of the non operational costs, the one off non operational costs associated with refinancing events.
Moving on to cash flow at Slide 8. Strong cash flows in the first half of twenty twenty one. Free cash flow of $44,000,000 before growth CapEx, driven by the solid operating earnings and supported by working capital inflow in the period of $7,500,000 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 $24,600,000 for the first half. This included some one off costs associated with us drawing down the revolving credit facility and for 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 $200,000,000 in notes in the first half and at almost 10% interest rates, we saved $19,000,000 in interest per annum. Go forward interest costs cash are approximately $13,000,000 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 $55,000,000 in the first half, consisting mainly of components for our existing fleet with an additional $10,000,000 of growth CapEx relating to the NIM core projects in Pit and Portal. And in terms of the full year CapEx, sustaining CapEx expected to be $115,000,000 with the current committed growth CapEx of $27,000,000 to support Minkor and that new Eastern Region Metals project. 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 non operational cash costs associated with refinancing, which totaled $17,100,000 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 on equity raise in half 1 with $169,000,000 available liquidity, that's $71,800,000 of cash and $97,000,000 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 June. The U. S. Notes reduced by $195,000,000 during the period, which reduced our annual financing cost as already stated by $19,000,000 per annum. The note repayment together with the repayment of the revolving credit facility resulted in a total debt reduction and hedge rates of $289,000,000 since the 30th June.
And just to remind you, we did draw down on that RCF facility at the height of the corona rather volatility to provide additional liquidity as a form of insurance policy, if you like, but this was fully repaid in October 2020 and remains available should we need it. And we do have the option to extend this facility at our discretion out to 2024. I will also highlight the new US $180,000,000 notes of fully hedged to maturity in March 2024 for both principal and interest, again at 0.7293 and with pro form a interest coverage increased to 9.8 times. 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 hand back to Ian.
Thanks, Matt. So if we go to Page 11, I already touched on this page, so I'll touch on most things for the highlights. 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 Q1.
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 fighting in the business. We are creating additional value for our customers and that's been rewarded with tenure. Moving on to Page 12, overall on our rental business. I think that the strong rental earnings off the back of Govan, off the back of associated car weaknesses 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 Q1. We've really stabilized the business in the 2nd and third quarters, and we'll see some momentum building in the Q4 through to FY 'twenty two. Growth in operating utilization of 85 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 2010. So the outlook, broadly flat earnings expected in the rental division for the second half.
As I mentioned, slightly down in the second half of the Eastern region, which is a function of that 4th quarter moment and momentum building, but that Q1 drop off stabilization for the 2nd and third quarters, but really, really strong momentum coming out of the Q4 for the Eastern region and the Western region will continue to build, particularly as we go into FY 'twenty two. 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 normalized 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 that Q1. And our customers did react.
We had some projects come off that were quite a high profitability. But the team has done a fantastic job on the East Coast to stay close to their customers to keep renting ancillaries and keep managing the contracts really well, really stabilize the business through the 2nd and third quarters and some good project wins in the 4th quarter, which you'll see come into the business and you'll see that utilization run rate kick in the Q4 and building into FY 2022. 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, 50% of it's been transferred or being transferred to the West.
There's plenty sitting there on the East Coast ready to sort of recover those earnings as coal improves through the FY 'twenty two. 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, like I said it before, that we have generic equipment. We don't have coal or specific equipment. We don't have iron ore specific equipment.
We have equipment that can work across different regions and different commodities. We don't run ultra class 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 that what they've done is they've created sustainable business, long term, fully maintained, really, really credit value for their customers and getting some really good utilization out of their equipment. There's 17 pieces that have been moved from WA that were built 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 business is this work I've done with Saracen. We're providing fully maintained equipment to Saracen, fantastic customers, great operators of the equipment, but we 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, you'll see input of 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 where we're looking to take this business. So very proud of that. 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. Picking portal, as I mentioned, fantastic acquisition that we did around this time last year. We announced that with our half year results. Soon after. Soon after.
We come on place just in time for COVID March 1, so an interesting time to take on a business. Very, very proud of Steve DeStegian, whose team, great team, very, very dedicated people, very customer focused, really quite entrepreneurial and nimble the way it goes about things. The Minkor operation has been huge for them, as has the existing operations and also staying up the Great Western projects 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 with my 15, 16 years of being with Emeco, of being able to provide not only an open cut solution, but better by 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 and 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. It will grow into the second half as well. And you'll see strong growth in FY 2022 as these projects really start to take hold.
Yes, that's right. I mentioned before about growth CapEx, put 10 into big portal in the first half and there'll be additional 7 into into the second half. And given the growth of this business, not just in the projects, but on the rental side of things, we'll look at some opportunities for further growth capital as required. 4th, a strong business. The quality of the business is 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 that's embraced the underground side of the business, how they've not only rebuilt equipment for Gippen portal, but they've done some retail works in the underground space as well and taken that capability and work with Steve and his team to widen that value proposition again to underground equipment. So proud of that. Look forward to them growing some field service support, as you can see by 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 Amaco on the East Coast, particularly around component rebuilds and preparing equipment and you will 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 'twenty two 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 you 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 at work.
Well, the asset management team, centralized asset management team we've got in Brisbane is doing fantastic work, particularly around taking planning down and down and down and further into the detail, sending out 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 return on capital and the EBITDA that we have with coal being really we'll cut down in this half, it just shows the resilience of the business. Winding 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 your resilient food cycles. That's what we're trying to do. Picking Portal did that as a standalone 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 it's creating value for this industry and creating value for the shareholders our shareholders at the same time. And that's the balance that where 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 one time leverage is important for us. It gives us optionality with a strong cash flow that we're creating. Page 20, I've shown this slide 100 times, I'm proud of it. We work hard on our equipment. We work hard for our planning and then taking our planning to our craftsmanship and the way we rebuild components and equipment.
It's a huge part of our business and continue 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 firm account and will be moving forward. I think we can do some great work in coal, continues to do that, particularly as we're seeing a bit of a move away from Tier 1 minuteers in coal into some more mid levels and juniors. I think our ability to provide equipment and maintain that equipment and services really resonates with those customers. So for us, it's all about balancing out that commodity portfolio and I think we've done 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 there, which again ties into that resiliency. Value proposition, I've spoken about that a lot. It's about forced doing retail, but taking retail from underground to sorry, from open cart equipment to underground as well. To 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 Q4. And the projects that we have in the East that really have held us together are the projects where we provide full maintenance.
So that's our model and that's what you'll see going forward. Pit and Portal with their underground rental business, the underground services business, now their open cut services business play a key part in finding that value proposition and increasing the service levels. And EOS is extremely part of that. It was very, very nice at Saracen to provide that quite 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 has been on I've spoken about the balance sheet. We got it to one times. It is the strongest balance sheet in Emeco's listed company history. As a management team, they came in 5, 6 years ago with a balance sheet that certainly wasn't the healthiest Emeco's history yet. 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 through dividends, same we got $85,000,000 $86,000,000 of francs in 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, service 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.
Certainly. Ladies and gentlemen, we'll now begin that question and answer session. Okay. We have a couple of questions in queue. Your first comes from Mitch Sonnigan from Macquarie.
Please ask your question, Mitch.
Yes. Good morning, Ian and team. Thanks for taking my questions. And just the first one, I guess, the East Coast a little bit more. You've guided for growth in FY 'twenty two.
Could we see that region getting back towards the first half 'twenty levels of EBITDA around $100,000,000 sometime in the end of FY 2022 or 2023 or is that unlikely given the fleet redeployment that's
taking place? Yes, Mitch. You'll see a rebound in the Eastern region in FY 2022. I mean, obviously, we've transferred we're in the process transferring 30 pieces across from the eastern region to the west. So it will take away some of that earning capacity for 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 the East Coast to put that to work. You've seen them win some we've seen them win some projects that will come from the Q4, but there's plenty of fleet for them to put back to work in FY 2022. So I'm confident you'll see a strong rebuild, rebound through 'twenty two and 'twenty three in the Eastern region.
Yes, thanks. 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 their requirement for your fleet, whether that be rental or maybe more internal? Yes. Look, we just stayed very, very close to our
East Coast team. It's obviously pivotal for us. We've been through some tough times, particularly that Q1. If you look at the graphite and 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 through the Q2.
Into the Q3, 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 pension situations. I'm certainly no expert in that. I certainly don't want to comment on it. But just from the customer level, it's feeling more comfortable.
And I think they particularly in Queensland, we met coal, they're getting more comfortable with the price, 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 'twenty two, Mitch. Yes. Thanks,
Ian. Just jumping over to the West Coast, Can you maybe just talk about the potential tender 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 gross utilization of 92%, but operating utilization is only down 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 up over the next 12, 18 months? Thanks.
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've got mentioned in the past 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 portal providing that surface solution to their customers will also facilitate more progression onto the double ship projects. I think over time into FY 'twenty two and FY 'twenty 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 Pivot and Portal. You've called out strong earnings growth there. EBITDA margins are 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 'twenty two with the current contracts in the book and those that you've also won?
Yes. Sam, can you give us a bit more?
Yes. So Mitch, I think top line revenue growth will be exceptionally strong in pit and portal with Minkor 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 very strong EBITDA growth in Pitt and Portal, both in the second half and then continuing into FY 'twenty two.
Got you. Thanks, guys. So I'll let the next guys jump on.
Okay. We do have another question in queue from Alex Karpos from Goldman Sachs. Please ask your question, Alex.
Hi, team. Good morning. 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 side, big versus small miners, any nuances we should be aware of across those different customers?
Alex, look, I think that it'd be fair to say that where we're seeing the opportunities into the Q4 in coal building would be more in our mid markets 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 that's across the board. You'll also see some growth in the Eastern region in a large project, a 5 year tenure projects we've won in metals as well that we're very, very proud of. And that's where you see a little bit of that growth CapEx going into a fully maintained project with workshops and infrastructure that will kick off in the Q4.
Perfect. And on the thermal side, have things stabilized there as well?
Yes, yes. I do feel that's the case. You can roughly speak Thermo and Met ThermoGo into our New South Wales and our Queensland business. Again, 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 for taking on a risk with the provision of maintenance availability, etcetera. 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. It's been a bit of a journey for us in the West Coast, Alex. Going back to that the freeway merger recapitalization, etcetera, we did take on and then taking on Force Business as well, we did take on some historical legacy type projects. It took us a bit to work our way through. I think we manage the market's expectations pretty well about coming in which period it was, Sam, but we said like, hey, this 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.
Yes. And we manage that well. It's a very strong Western Australian team, both from a customer commercial side of things and from a maintenance perspective. I've been very, very impressed with the way they've set up these fully maintained projects, particularly EOPS. There's no structural reasons why the West Coast business can't look similar to the East Coast business from an operating utilization and margins perspective moving forward.
I think I mentioned in the pack that I think rental margins from an EBITDA perspective will settle around that 55% to 60%. I think the 70% the East Coast had 12 months ago was a bit toppy, to be honest. And I think as we put 4 of those sort of fully maintained service levels projects in place, which will be more resilient on the East Coast and we get some of that larger equipment going to the West Coast on a double shift and transfer some of those existing projects in a double shift in the West Coast, you'll see a more homogeneous mix across the rental business.
Thanks. That's it for me.
Okay. Your next question comes from the line of Jamie Gordon from Bell. Please ask your question, Jamie.
Hi. I just want to ask you a question just to get a bit more detail in any capital management. You've got circa €85,000,000 of franking credits. This is for on for 2022, our numbers have got about 130,000,000 of CapEx on about 106,000,000 of free cash flow. Is it the board's intention to use those franking credits and your intention do you think at all for that purpose?
Yes. You sure? It is.
And the free cash flow, can we expect any could that be used for further growth initiatives or is it more of a focus to for capital management?
I think we can do a combination, Tim. I think that's the beauty of what we've done with this business and the resilience we've guided and the free cash that it generates. I think we can strike a and that's our challenge and that's what we look forward to moving forward is making decisions around investing in growth, strategic growth, but also making decisions about putting money back to our shareholders and getting the balance of that right, releasing those franking credits. I think that's part of that great challenge moving forward that I feel like we've worked hard to earn the right to have that challenge.
Yes, okay. Fair enough. And just finally, the debt deal done last year was done at just below 8%. What was the what would would you ever consider refinancing that at lower rates where we're sitting at the moment or is that just not an option with the break fee involved? Or could you get a lower rate, do you think?
Which was 8%, it's actually 9.25%.
Sorry, 9.25%, sorry.
Yes, no, cool. Look, we what we did last year is obviously we tightened down a fair bit of $100,000,000 worth of gross debt. We especially split our bonds in half and kicked out the tenure. We felt that was a wise thing to do at that time given that coal was in the dumps and COVID was winners. We thought it was conservative, but a wise thing to do.
And we've actually kicked out the tenure of that debt out to April 24. So we've got a fair bit of runway there. Look, if we can refinance that at a lower rate and the NPV stacks up to pay out the non call period, absolutely we would do that moving forward. There's no rush to do that. Obviously, we're out to 2024 with the existing debt.
But when you look at I think we reduced our interest rates by interest cost per annum by about $19,000,000 It's a pretty solid saving for us. And is there a bit of upside in reducing that interest cost further through 9.25 down to a more reasonable? Absolutely. And we'll look at that when the contract.
Okay. What is that break fee? Just remind us what a break fee would be to refinance at these levels?
The notes can be repaid and refried at any time. The core premium is 104.
104. Okay. Thank you.
Okay. Your next question comes from Nick Sleden from MSI. Please ask your question, Nick.
Hi. Well done on a pretty solid result.
I just wanted to
touch on just the guidance. I know we've sort of covered the Eastern region a little bit. But Q4 'twenty the market came off pretty hard and then sort of that obviously continued into Q1 'twenty one. So first half numbers that was a challenge. But you're talking about strong momentum coming through in we're currently in Q3 going into Q4.
I'm just trying to sort of reconcile how you're getting a flat guidance number for the entire rental division when you're talking strong growth in Western Australia and marginally down on first half in the second half? Is it because you're moving kit across from East to West, it seems?
Yes. These guys is so thanks, Nick. Appreciate your feedback. Look, the East Coast is bigger than the West Coast at the moment. We're transferring clear costs, but the East Coast is still a big business.
If you look at the East Coast, the 1st quarter came off hard, 2nd and third quarter stabilized, 4th quarter is recovering, but those 4th quarter recovery doesn't cover that 1st quarter drop off. So half on half, the East Coast is slightly down, but building strongly in FY 'twenty two. West Coast is continuing to build, but large roughly they sort of cover each other, cover out. But I think that it'd be fair to say that the West Coast will also be set up very well for growth in FY 'twenty two, particularly as the equipment that's being transferred is better down. And then on top of that, you've got the hidden portal growth.
So you've guided to Western Ridge and we'll continue strong earnings growth in second half twenty twenty one. Is that sort of comparable sort of growth to the first half? Or how should we think about what does that mean?
Was that Western region, Nick?
Yes, Western region.
We won't be quite as aggressive as the first half, but still very strong.
Okay. Cool. Thank you.
Thanks, Nick.
Okay. Our next question comes from Michael Aspinall from Jefferies. Please ask your question, Michael.
Hey guys, thanks for taking the questions. Firstly, just a couple on the East Coast. I know we've kind of talked it to death, but a little bit more kind of hurt. You've mentioned the Q1 a little bit. Can you just give us a bit more color on what the second quarter looked like versus the Q1?
Without getting too granular, Michael, we held our own. I mean, there was some disruptions due to things like Glencore across the East Coast had a couple of periods where they put their projects on hold for a couple of weeks in September and then through Christmas break as well that impacted. But the Q2 was particularly proud of the team the way they recovered from the punching the guts in the Q1 and sort of really held in and quite as their customers worked hard to control their cost and set themselves up for what's a pretty solid Q3 as well.
Yes. So fair to say that even with that kind of Glencore cutting back operations a little bit in the Q2, the Q2 would have been up on the Q1?
No, I think we're just holding momentum. I mean that the Q1 was a trajectory down. Yes. Okay,
cool. I think that helps.
The way I look at it is gear was coming off in the Q1. Gear stopped coming off in the 2nd Q3. Gear will start going back to work in the Q4, but ramp up in FY 'twenty two.
Yes. That's very helpful. Thanks for that. And the work that you've won on the East Coast that's coming on in the Q4, is that incremental fleet on customer sites or new sites or replacing some other equipment? It's
a little bit of a combo. It will be new projects, certainly some exciting new projects for us. And look, I think that they'll be building on some existing customer sites as well.
But the majority of them
will be new customer sites.
Majority of new customers. That's cool. Cool. And can you just comment, I mean, last time we spoke about in August, you mentioned there was a high level of inquiry on the East Coast. Is that continuing or has that dropped back to kind of more normal levels of what you saw in the previous 12 months?
It didn't result in much actually. In August, there was some inquiries at that point. We didn't really land any of our large equipment back into projects. Through the 2nd and third quarters, the inquiry level has been pretty strong. The teams have done really well, particularly ancillary equipment to keep that churn going and keep out in the Q4, but there's still plenty of lightening capacity to build and put to work in FY 'twenty two.
Cool. That's very good. Thank you. And then you mentioned 15 pieces of equipment moving from east to west. I'm just interested in when you expect that kit to arrive in WA and when that kit might get put back to work?
It will get put back into work through the second half. We'll absorb those costs in the second half as well. So I don't think that will have a meaningful benefit to the business, but it definitely will show in FY 'twenty two.
Okay. That's great. Thanks very much guys.
Okay. We have no further questions at this time. So I might hand back the conference to your presenters for any closing remarks.
Thanks. I appreciate everyone's time.
Okay. Ladies and gentlemen, that does conclude today's conference call. Again, thank you all for participating today, but you may now all disconnect.