Just please be advised that today's conference is being recorded. 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 FY21 half year results presentation. We appreciate your time. First of all, I would like to thank all the Emeco Group employees for their hard work over the past six 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, 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.
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. On behalf of the Emeco team, we're proud to present you this result. Just going to the financial highlights. 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. The diversification, the customer mix, the widening of the value proposition, the commodity diversification. It's been a bloody good business for us and really proud of it and the Pit N Portal team.
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. Not just built the business off the back of demand, but built the business through projects. Projects with full maintenance services, really creating value for the customer. Very, very proud of that. An 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 lowest cost, highest quality equipment, supported by layers and layers of services to add value to our customers and to ultimately increase our tenure and our resilience. For us, it's all about resilience and generating value through the commodity cycles.
AUD 118 million EBITDA for the half. That's at the top end of the guidance that we provided the market. I think that's a good, solid result and shows resilience of the business through a tough period with COVID-19 and some very weak coal prices through the last half. A solid result. Proud of that. This number here of the free cash flow of AUD 44 million, I think that really shows where we're positioning this business moving forward, particularly with some of the work we've done on our recapitalization, refinances, et cetera. I mean, that AUD 44 million cash, that was generated off the back of paying AUD 25 million interest for the half year, Thao, is that correct?
Yeah.
That interest number was a bit junked up because of our recapitalizing refinance stuff. Going forward, I think our interest is about AUD 13 million a year.
Correct?
For a half. For a half. Sorry. AUD 13 million for a half, AUD 26 million per annum. Yes. To do AUD 44 off the back of AUD 25 and a half on this AUD 13 moving forward and half forward, just shows this business's ability to generate free operating cash, particularly given the cyclic downturn in coal in the last six months. Proud of that, proud of resilience of the business and its ability to generate free cash. Return on capital, solid 18.7%.
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.
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 AUD 195 million off our gross debt in this last half. I mean, this balance sheet, it's the healthiest balance sheet Emeco's ever had in its history as a listed company. 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 saved, what, AUD 19 million?
Yeah.
Per annum on our interest payments. Very, very solid business now. We've got a balance sheet in a good, healthy spot. In old pre-new accounting standard language, 0.85x , 0.96x with the new accounting standards. A healthy balance sheet, healthiest in Emeco's history.
This services related revenue is a bit of a new metric. It's 72% of group revenue generated through our people. That's how I like to think about it. What a service related revenue is 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 if it's Pit N Portal performing underground works with operators and mechanics and all the services they provide or whether it's Force providing retail maintenance services. It's our people intensive revenue. 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.
That's a key metric for us moving forward. It's all about resilience and creating value for our customers. That's a result of an increase in tenure. I'm assuming that's gone up in this period here.
From one and a half to two and a half years
With an average tenure. In 12 months, that's a pretty solid result. When we talk about resilience, diversification is really important. Commodity diversification, customer diversification. I think our top 10 customers has also been impacted as well, hasn't it?
We've are more diversified with our customer base. If you look at our metals revenue of 57% of our total revenue is from metals. That's up from 38%, 12 months ago. That's really quite a big change to the business. That's financial highlights, Neil will drill into more of the financials as we move forward with this presentation. What that says to me is a good solid half a year against some pretty significant headwinds and achieving a really solid result. We just move on to the next page two on the highlights and outlook. As I mentioned, strong results in challenging conditions, shows the strength and resilience of the business. Feel like we've set this business well up to grow into FY 2022. I mean, FY 2021 for us has been, ship coal's gone down.
Business over the last few years has been quite reliant on coal. We've shown we're resilient against that. We held our own. We've grown our business in metals. Pit N Portal business has added to us. Force continues to be strong. I think we've really set this thing up to slingshot out of this in FY22. It just feels like the transfer of equipment to the West and the building momentum we're seeing in coal, and particularly in the East in the second half through the fourth quarter, puts us well-placed for FY22. I think FY21 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. 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. We're not happy, zero harm'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 workplace, particularly as you're increasing your level of services you provide is absolutely critical. Eastern region has stabilized following challenging coal conditions. We've won some work. We'll kick those works off in the fourth quarter. It's really been a bit of a story of by quarter for us in coal on the East Coast.
The first quarter of FY21, we came off pretty hard. You can see what those sort of coal prices looked like around that August, September period, sort of back down to sort of 214 levels. We came off, but the team in the East Coast, I'm very proud of them. They worked really hard. They've done a great job for their customers. We had seen plenty of activity with our ancillary equipment going into new jobs. 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 cool projects, fully maintained projects, long-term projects.
We look forward to them coming online in the fourth quarter and taking that momentum into FY2022. The West has had a bloody good half as shown by the numbers. 36% increase in EBITDA, 30% increase in revenue. Won the cost and transferred a bunch of equipment over, 17 pieces transferred over. Another 15 on the way to meet demand. Doing a really good job in the West. As I mentioned, it's not just for me, the West in regards to high demand's pretty strong, we're putting some gear out. It's 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, Hey, don't worry about the equipment and the maintenance side of things. We'll provide you a full service there.
You just worry about your shifts and your dirt." To me, that's really creating value and that's sustainable. Very proud of the West and the way they've created that business. I mean, the gold standard for us, which is a combination of Pit N Portal and the growth in the Western region. 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 2022 for the West. Pit N 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 N Portal business across the Emeco and the Force team. Those guys are doing a great job. They're winning projects.
The Mincor project is very exciting for us. It's a great customer. We're very impressed with the way that Steve and his team are working with the Mincor people to kick that project off. 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 to set up their next underground portal, really. Steve and the team are providing 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.
Hopefully, we'll follow that customer underground. That really shows the value proposition there of providing for our customer base. That value proposition above ground and open cut, but also 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. 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's ticked up. They do a great job. They do a great job for their customer. The quality of the work is really quite outstanding.
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 our strength, which our strength is managing our equipment, having low cost, high-quality equipment, but layering services on top of that, creates more value for our customers, increases our tenure, really increases our value add and our resilience. That's important for us. I just want to point you quickly to page 11 in the slides and just look at the EBITDA margin. As we increase those service levels, it does have an impact on our EBITDA margins.
If you have a look at page 11 there, where our EBITDA margins has gone from 50%-40%. There's 7% of that is deliberate. That is us increasing our services levels. What I want you to understand there is with most projects, we put our equipment in, we get the same sort of returns on them, right? We still get really solid return on capital, we're also laying services and people and capability on top of that. It's a lower margin, but it's non-capital intensity, that really embeds us and where we show that tenure, just below that graph on page 11, one and a half to two and a half years, that's important to us. Yeah, utilization in 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.
The 7% there is quite deliberate. When you see 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, that 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 about the ground here. We'll go to outlook. Broadly flat earnings expected in the rental division, in the second half. We're setting up for growth in FY22. The Eastern region has stabilized. I mentioned the Eastern region, it's been a bit of a story of quarters for us. First quarter it came off, second 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 fourth quarter, we'll put some of these projects that we won 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 touch down on the first half, just because the first quarter came off fairly hard. Fourth quarter's coming back up, but not quite enough to recover that first quarter earnings. You will see momentum, which is really important for us going into FY 2022, which coincides with the rebound in coal prices. We're feeling good. There's plenty of latent capacity in that East Coast business, and I think you will see that go work building in the fourth quarter, but then into FY 2022. Western region will 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 FY22 and getting some of those single shift projects into double shift projects will kick the Western region along. I feel good about both the East Coast and the West Coast rental businesses going into FY22. Pit N Portal. You'll see continued growth in Pit N Portal, particularly as you come into FY22. The second half will be strong for Pit N Portal and as those new projects kick into FY22, 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.
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 works 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 shows our strength of being able to buy well and use Force to prepare that equipment. You'll see that come through and that momentum in the internal workings in the East Coast in Force. I'd really like to see that translate into retail earnings in FY22. We've got a really strong team in Force, particularly in the west.
There's a gentleman by the name of Alex Bruce that we've got into the business in the Queensland team, and Alex is 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 FY22. Quickly, 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, AUD 44 free cash is a really solid number, particularly when you consider that there's AUD 25 EBIT on that and there'll be AUD 25 interest on that, and there'll be AUD 13 half on half moving forward. Excited about that generation of that free cash, but really excited on how, as a management team and a board, we allocate that cash. We've really put ourselves in a position where we've got strong optionality in this business. 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 de-lever, we can de-lever. We've got good optionality in this business. We've worked hard over the last five years or so to create a resilient business and get this balance sheet in order, to have a more diversified business.
The reward is generating that free cash and having some optionality with it. We look forward to making some 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, it will be around AUD 115 million. That is asset rebuilds and replacement CapEx. Committed growth CapEx for the FY21 is AUD 27 million. AUD 10 million of that was spent in the first half, AUD 17 million in the second half, which is some additional CapEx that we have already told you about for Mincor in the second half. There is about AUD 10 million of it for a new project in metals we have created on the East Coast. You will see that equipment go through Force in the second half. That is the operational highlights and outlook.
I've given you a lot of information there, but as an overall, 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 2021 is a really solid year that sets this business up from FY 2022 onwards. Just moving on to people on slide four. 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 200 people to 1,000 people over about four or five 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 six months, we acquired a business by the name of Bowden Select.
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 Mincor and Pit N Portal. What's really impressed me with Bowdens is not only do they recruit people and place them, but they're really focused on the welfare and the retention of people once they're in place. I think that's a fantastic model, and we're proud to have them as part of our business. 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 the skills of our people, the craftsmanship of our people, and how aligned we are with people on our strategic objectives. That'll be a big focus for us in FY21. Really looking forward to that. Justine Lea will lead that project with John Westholt, who's just come on board with us. Really looking forward to those guys getting stuck into it. It'll be managed throughout the business across Emeco, Pit N Portal, and Force. I think it'll really help us become an employer of choice. Next slide on page five, about safety. Providing a safe workplace is everything for us. Proud of the trends with the TRIFR from 5.6- 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. Very proud of the way that we managed through COVID-19. 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 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 throughout that period. Security of supply, operational stability, and most importantly, the safety and health of our workforces.
I've been proud of the way the team's pulled together the challenges that COVID's created. I assume we'll continue to create based on what's happened in the last couple of weeks in W.A., and we're seeing things in New South Wales and Queensland. 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 really focused 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 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. 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. With that, I'll hand over to Neil to talk through our financials.
Thank you, Ian. Good morning, everyone. Providing a bit more detail around the financials for the half, and that's slide seven, operating financial performance. Group operating revenue increased to AUD 299 million in half one, and that's up 21% on the first half of 2020. Services revenue grew nationally, and we've had a full six-month contribution of revenue from Pit N Portal. As Ian said, operating EBITDA came in at AUD 117.9 million, which is at the upper end of guidance range provided in November. With the additional P&P 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 widening 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%.
More importantly, the return on capital remained high at 18.7%. Operating EBIT of approximately AUD 60 million was another strong result, and despite COVID-19 disruption and coal weakness. Operating net profit before tax was solid at AUD 37.7 million. This will see further benefit in half two 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%. As already stated, no cash tax is payable. We expect no cash tax will be payable for several years, with AUD 284 million in carry forward tax losses in hand. 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 non-operational costs, the one-off non-operational costs associated with refinancing events.
Moving on to cash flow at slide eight. Strong cash flows in the first half of 2021. Free cash flow of AUD 44 million before growth CapEx, driven by the solid operating earnings and supported by a working capital inflow in the period of AUD 7.5 million. Working capital inflows were primarily driven by continued focus on management of receivables. Again, pleasingly, we had no COVID-related payment issues during the period. I expect this to hold for the full year. I expect working capital to be broadly flat in the second half. Interest costs. Cash interest costs were AUD 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. We won't be incurring those interest costs in the second half.
We have repaid almost AUD 200 million in notes in the first half, and at almost 10% interest rate, we saved AUD 19 million in interest per annum. Go-forward interest costs cash are approximately AUD 13 million per half, as has already been stated. Capital inventory increased marginally as we focused on rebuilding more components internally, in line with our internal plans. As already stated, net sustaining CapEx was AUD 55 million in the first half, consisting mainly of components for our existing fleet, with an additional AUD 10 million of growth CapEx relating to the Mincor project in Pit N Portal. In terms of the full-year CapEx, sustaining CapEx is expected to be AUD 115 million, with the current committed growth CapEx of AUD 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. 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 totals AUD 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 H1. With AUD 169 million available liquidity, that's AUD 71.8 million of cash and AUD 97 million in the revolving credit facility, 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 AUD 195 million during the period, which reduced our annual financing cost, as already stated, by AUD 19 million per annum. The note repayment, together with the repayment of the revolving credit facility, result in a total debt reduction at hedge rates of AUD 289 million since the 30th of June. 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. This was fully repaid in October 2020 and remains available should we need it. We do have the option to extend this facility at our discretion out to 2024.
I would also highlight the new $180 million note fully hedged to maturity in March 2024 for both principal and interest, again, at 0.7293, and with pro forma interest coverage increased to 9.8 times. In summary, a strong, resilient balance sheet, which as Ian has already said, has created significant balance sheet and capital management flexibility. With that, I hand back to Ian.
Thanks, mate. If we go to page 11. I've already touched on this page, so I've touched on most things for the highlights. I'll just actually 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. We are increasing our levels of services in the business. What's really important to focus on is our return on capital and our cash flow, and also the tenure that we're creating in the business. We are creating additional value for our customers, and that's been rewarded with tenure. Moving on to page 12, on our rental business.
I think the strong rental earnings off the back of COVID-19 and off the back of associated coal weaknesses shows 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 FY22. A growth in operating utilization of 85% and 59% shows that there is latent capacity within the business. That latent capacity will provide an earnings rebound for the rental business as we go into FY22. 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. That first quarter drop-off, stabilization for the second and third quarters, but really strong momentum coming out of the fourth quarter for the Eastern region. The Western region will continue to build, particularly as we go into FY 2022. Margins expected to normalize between that 55%-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 63%. 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-19 in March. We saw really low coal prices through, particularly that first quarter, and our customers did react.
We had some projects come off that were quite a high profitability. The team's done a fantastic job on the East Coast to stay close to their customers, to keep renting ancillaries and keep managing their contracts really well, really stabilize the business through the second and third quarters, and some good project wins in the fourth quarter, which you'll see come into the business. You'll see that utilization run rate kick in the fourth quarter 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?
Yeah. That's correct.
There's plenty sitting there on the East Coast ready to recover those earnings as coal improves through FY 2022. 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've said it before, that we have generic equipment. We don't have coal-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. We can move our equipment around cost effectively. That's really important as part of our resilience, that this equipment can be used across all of our different customer bases, regions, and commodities. 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 created value for their customers and getting some really good utilization out of their equipment. There's 17 pieces that have been moved from W.A. that will build in the second half, and there's another 15 pieces that we're moving now, and we'll move through the second half as well. We are moving equipment from 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 proud of is, it's not the entire business, but 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. 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. I think you'll see them doing another couple of EOS projects in the second half. This really is the future of our business. The fully maintained, putting our people in a tight labor market differentiates us from our competitors and our technology on top.
Not just providing low cost, high quality equipment, but the services, the people, the value add and the technology on top. That's really representative for where we're looking to take this business. Very proud of that. The Western region will continue to build. Guys are creating a sustainable and strong business, guys and girls. I'm very proud of the Western region. Pit N Portal. As I mentioned, fantastic acquisition that we did around this time last year. I think we announced it with our half year results. Soon after. Soon after. We came on place just in time for COVID, March 1st. 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 they go about things.
The Mincor operation's been huge for them, as have their existing operations and also starting up the Great Western project on an open cut 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, in my 15, 16 years of being with Emeco. Of being able to provide not only an open cut solution, but be able to 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 and very proud of Steven and his team. Page 16. With SAM, it's been pretty strong growth half on half for us.
The business continues to grow into the second half as well. You'll see strong growth in FY 2022 as these projects really start to take hold.
Yeah, that's right.
I mentioned before about the growth CapEx. Put AUD 10 into Pit N Portal in the first half of the year, additional AUD 7 into the second half. 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. Force. It's a strong business. The quality of the business, of the work they provide is fantastic. It's really cool seeing the before and after shots as these guys transform equipment. Have great customer relationships. Really impressed in the last six months on how they've embraced the underground side of the business.
They've not only rebuilt equipment for Pit N Portal, but they've done some retail works in the underground space as well, and taken that capability, and worked with Steve and his team to widen that value proposition again to underground equipment. 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. 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, that 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 preparing equipment, and you'll see a fair bit of that in the second half.
I'd love to see a building of a retail business similar to what we do in the west as we get into FY 2022 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. 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 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. We've got a culture where it's continuous improvement. We'll keep focusing on improve. Improve quality, reduce cost. We know that that gives us a strategic advantage in the industry. Balanced and diversified portfolio. I think if you look at our metals going from 38%- 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 the free cash, the return on capital and the EBITDA that we have with coal being really 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, you attain your increases, and you're resilient through the cycles. That's what it's all about. That's what we're trying to do. Pit N Portal did that as a standalone business. We've taken them on board, we're straight out copying what they did. I'm really excited. That's a fantastic business model.
I'm part of this industry, and I really like creating value for this industry and creating value for our shareholders at the same time, and that's the balance that we're really excited about here. Strong balance sheet. We've spoken about that. That's been our journey for the last five or six years to get that balance sheet down to 1x 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 100x . 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 continues to be. Page 21, just talking about the portfolio diversification. I've spoken a lot about metals going from 38%- 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 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 one 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 with those customers. For us, it's all about balancing out that commodity portfolio, and I think we've done some real ground there. Also with our customer concentration as well.
If you look at our top 10 customers of where it's gone in the last 12 months with diversification there too, which again ties into that resiliency. Value proposition, I've spoken about that a lot. It's about Force through retail, but taking retail from open cut equipment to underground as well. It's Emeco increasing its amount of fully maintained projects with W.A. 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 are the projects where we provide full maintenance. That's our model, and that's what you'll see going forward. Pit N Portal with their underground rental business, their underground services business, and now their open cut services business play a key part in widening that value proposition and increasing the service levels.
EOS, extremely proud of that. It was very, very nice of Saracen to provide that quote. Having a customer of that quality backing up what we've been saying about EOS is very important for us. Slide 23, Neil's 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 that came in five, six years ago with a balance sheet that certainly wasn't the healthiest in Emeco's history. Very, very proud to get it where we've got this business. It creates 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. Sam, we got AUD 85 million, AUD 86 million of franking credits.
How we invest in strategic growth along our path of where we're taking this business strategically, and if we choose so, further deleveraging. 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. Once again, if you do wish to ask a question, just please press star one on your telephone keypad and then just wait for your name to be announced. Okay, we have a couple of questions in queue. Your first comes from Mitch Sonogan from Macquarie. Please ask your question, Mitch.
Yeah, good morning, Ian and team. Thanks for taking my questions. The first one, I guess, Ian, for the East Coast a little bit more. You've guided for growth in FY 2022. Can we see that region getting back towards the first half 2020 levels of EBITDA around AUD 100 million sometime in the end of FY 2022 or 2023? Or is that unlikely given the fleet redeployment that's taking place?
Yeah, Mitch, you'll see a rebound in the Eastern region in FY 2022. Obviously, we're in the process of transferring 30 pieces across from the Eastern region to the West, so it'll take away some of that earning capacity for a full rebound. 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 on the East Coast to put that to work. We've seen them win some projects that will come through in the fourth quarter, 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 rebound through 2022 and 2023 in the Eastern region.
Yeah, thanks. 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?
Yeah. Look, we've stayed very, very close to the East Coast team. It's obviously pivotal for us. We've been through some tough times, particularly that 1st quarter. If you look at the graph on coal prices, it was particularly tough in that period, July, August, September, October. I think the team worked really, really well and stayed close to their customer through the 2nd quarter into the 3rd 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 situations. 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. I think, particularly in Queensland with met coal, they're getting more comfortable with the price of the forward-looking coal prices. We're just seeing a bit more activity there.
We're landing a couple of jobs and just talking to the guys and girls on a daily basis. I'm feeling good about momentum going into FY 2022, Mitch.
Yeah. Thanks, team. 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? You've also got post-utilization of 92%, but operating utilization is only down to 55%. You're talking about transferring more to double shift projects. Is there anything else holding back that operating utilization? Are all the contracts that you're tendering on at the moment all 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. That will, by nature, kick up the operating utilization and the margins in that West Coast business. 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 projects. I think over time, into FY 2022 and FY 2023, I think you'll see some normalization between the East and the West Coast business as far as margins and operating utilization.
Great. Just a final one for me on Pit N Portal. You've called out the strong earnings growth there. EBITDA margins are 26%, so well up on the 20% when you acquired it. What are you thinking about top-line revenue growth in the second half and, more importantly, into FY 2022 with the current contracts in the book and those that you've also won?
Yeah, Sam, can you speak on that one?
Mitch , I think top-line revenue growth will be exceptionally strong in Pit N Portal with Mincor ramping up. I would estimate 30%+, the margin will probably drop off a little bit given that's very services heavy. That still will translate to very strong EBITDA growth in Pit N Portal, both in the second half and then continuing into FY 2022.
Okay. Thanks, guys. I'll let the next guy 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 the 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?
Alex. Yeah, 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 in our mid markets at the moment. I think that's a bit of a combination between large tier one 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 five-year tenure project we've won in metals as well that we're very proud of. That's where you see a little bit of that growth CapEx going into, mate. A fully maintained project with workshops and infrastructure that'll kick off in the fourth quarter.
Perfect. On the thermal side, have things stabilized there as well?
Yeah. I do feel that's the case. You can roughly split thermal and met for Emeco into our New South Wales and our Queensland business. I think the 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. They set the way. I'm feeling that thermal market has certainly settled for us.
Got it. 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 has 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 the multi-year basis, utilization getting back to relatively full levels?
Yeah, mate. It's been a bit of a journey for us in the West Coast, Alex. Going back to the three-way merger recapitalization, et cetera, and then taking on Force as well, we did take on some historical legacy type projects. It took us a bit to work our way through. I think we managed the market's expectations pretty well about. Can't remember which period it was, Sam, but we said, "Okay, this is gonna be a tough six or 12 months as we transfer equipment, particularly from that Hillgrove project in South Australia into different.
Yeah. Quarter 19, I think it was.
Yeah. We managed 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 impressed with the way they've set up these fully maintained projects, particularly EOS. 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 past that I think rental margins from an EBITDA perspective will settle around that 55%-60%. I think the 70% the East Coast had 12 months ago was a bit toppy, to be honest.
I think as we put four of those 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 to the West Coast, you'll see a more homogenous mix across the rental business.
Thanks. That's it from me.
Okay, your next question comes from the line of Jamie Gordon from Bell. Please ask your question, Jamie.
Ian, hi. Just want to ask you a question just to get a bit more detail in any capital management. You've got circa AUD 85 million franking credits. On 2022, our numbers have got about AUD 130 of CapEx on about AUD 106 million 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?
Yeah. For sure.
It is?
Yeah.
The free cash flow, could that be used for further growth initiatives, or is it more of a focus for capital management?
I think we can do a combination, Jamie.
Yeah
beauty of what we've done with this business and the resilience we've created and the free cash flow it generates. That's our challenge, and that's what we look forward to moving forward, is making decisions around investing in 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 our great challenge moving forward that I feel like we've worked hard to earn the right to have that challenge.
Yeah. Okay. Fair enough. Just finally, the debt deal done last year was done at just below 8%. Would you ever consider refinancing that at a lower rate to where we sit at the moment, or is that just not an option with the break fee involved? Could you get a lower rate, do you think?
Mate, which was 8%? It's actually 9.25%. Look.
Sorry, 9.25%. Sorry.
Yeah, no. Cool. What we did last year is, obviously, we paid down a fair bit of AUD 200 million worth of gross debt, which basically 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 with us. We thought it was conservative but a wise thing to do. We basically kicked out the tenure of that debt out to April 2024, and it was done. We 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.
When you look at it, I think we reduced our interest cost per annum by about AUD 19 million. It's a pretty solid saving for us. Is there a bit of upside in reducing that interest cost further through the 9.25% down to a more reasonable? Absolutely. We'll look at that when the time's right.
What is that break fee? Just remind us what a break fee would be to refinance at these levels. Do you know?
The note can be repaid and refied at any time. The call premium is 104.67.
104. Okay. Thank you.
Cheers.
Okay, your next question comes from Nick Sladen from MFI. Please ask your question, Nick.
Hi, Ian. Well done on a pretty solid result.
Thanks, Nick.
I just want to touch on just the guidance. I know we've sort of covered the Eastern region a little bit, but Q4 2020, the market came off pretty hard, and then that obviously continued into Q1 2021. First half numbers, that was a challenge. You're talking about strong momentum coming through and we're currently in Q3 going into Q4. I'm just trying to 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?
Thanks, Nick. Appreciate your feedback. Look, the East Coast is bigger than the West Coast at the moment. We're transferring query across, the East Coast is still a big business. If you look at the East Coast, first quarter came off hard, second and third quarter stabilized, fourth quarter's recovering, that fourth quarter recovery doesn't cover that first quarter drop-off. Half on half, the East Coast is slightly down, building strongly into FY 2022. West Coast is continuing to build. Roughly, they cover each other out. I think that it'd be fair to say that the West Coast will also be set up very well for growth into FY 2022, particularly as the equipment that's being transferred is bedded down. On top of that, you've got the Pit N Portal growth.
You've guided the Western region will continue strong earnings growth in the second half 2021. Is that comparable growth to the first half, or how should we think about what does that mean?
Was that Western region, Nick?
Yeah, Western region.
It won't be quite as aggressive as the first half, but still very strong.
Okay, cool. Thank you.
Thanks, Nick.
Okay, next question comes from Michael Aspinall from Jefferies. Please ask your question, Michael.
Okay, guys. Thanks for taking the questions. Just a couple on the East Coast. I know we've kind of talked it to death, but a little bit more can't hurt. You've mentioned the first quarter a little bit. Can you just give us a bit more color on what the second quarter looked like versus the first quarter?
Without getting too granular, Michael, we held our own. There was some disruptions due to things like, I think Glencore across the East Coast had a couple of periods where they put their projects on hold for a couple of weeks.
September school holidays.
September and then through Christmas break as well. That impacted. The second quarter, I was particularly proud of the team, the way they recovered from the punch in the guts in the first quarter and really held in and could quote their customers, worked hard to control their cost and set themselves up for what's pretty solid third quarter as well.
Yeah. Fair to say that even with that kind of Glencore cutting back operations a little bit in the second quarter, the second quarter would've been up on the first quarter?
I think we just held the momentum. The first quarter was a trajectory down.
Yeah.
Yeah. Okay, cool.
The way I look at it, gear was coming off in the first quarter. Gear stopped coming off in the second and third quarter. Gear will start going back to work in the fourth quarter, but ramp up into FY 2022.
Yeah. No, that's very helpful. Thanks for that. The work that you've won on the East Coast that's coming on in the fourth quarter, 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. The majority of them will be new customer sites.
Majority new customer sites. Cool. Customers cool. Can you just comment, 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 more normal levels of what you saw in the previous 12 months?
Didn't resolve 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 second and third quarters, the inquiry levels have been pretty strong. The teams have done really well, particularly with ancillary equipment, to keep that churn going and keep our eye out in the fourth quarter. There's still plenty of latent capacity to build and put to work in FY 2022.
Cool. That's very good. Thank you. You mentioned 15 pieces of equipment moving from east to west. I'm just interested in when you expect that kit to arrive in W.A. and when that kit might get put back to work.
It'll get put back into work through the second half. We'll absorb those costs in the second half as well. I don't think they'll have a meaningful benefit to the business, but it definitely will show in FY 2022.
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.