Good morning, everyone, and welcome to Emeco's 2025 Results Presentation. Thank you for joining us today. As per our usual format, I'll run through the investor presentation we launched on the ASX this morning and then provide an opportunity for some questions at the end. Theresa Mlikota, our CFO, is with me today, and she will cover the more detailed financial aspects of the result and will also be available for questions. Before we begin, I'd like to draw your attention to the disclaimer on slide two, which covers the usual important information around forward-looking statements. We'll begin on slide five with the key business highlights and overview of the result. Emeco delivered another year of strong earnings growth in FY 2025. All the key financial metrics you see in the slide improved year on year: strong margin growth, cash generation, and continued improvement in ROC.
Highlight the resilience of our business model and the quality of the FY 2025 financial result. Revenue increased by a robust 7% to $785 million. Both rental and Force contributed higher revenue, supported by increased demand for our fully maintained rental model and expanded workshop services. Importantly, key contract extensions were executed with a range of customers, extending long-standing relationships and providing ongoing revenue certainty. Operating EBITDA was up 7% to $301 million. Operating EBIT increased 16% to $146 million, and these strong results flowed through to a 22% increase in operating net profit after tax to $84 million. Strong margin improvement was a key feature of the FY 2025 result, with operating EBITDA margin up from 34%- 38% and operating EBIT margin up from 15% - 19%. This improvement was driven through discipline, cost, and capital management.
A focus on cost efficiency through parts procurement, tighter management of repairs and maintenance costs and overheads, and a reduction in the use of subcontracted labor were key drivers of improved costs. An improved focus on contract management also contributed to higher margins. Utilisation levels remained robust during the year. The surface fleet, which is the bulk of our equipment, averaged utilisation of 85% for the year. Underground utilisation averaged 57% for the year. A continued focus on prudent capital management and free cash flow generation supported a strengthening of our balance sheet, with leverage reducing to 0.65x from 1x last year. Operating free cash flow was up 32% to $114 million, and cash flow conversion remained high at 97%. Return on capital increased to 17% in FY 2025, up from 15% in the prior year, demonstrating continued positive progress towards our longer-term ROC target of 20%.
Emeco creates a competitive advantage for our ability to cost-effectively rebuild midlife equipment and provide customers with a fully maintained rental solution. Our competitive advantage, strong market position, and focus on business improvement have allowed us to deliver significantly improved returns. Moving on to slide six that shows Emeco's half-on-half performance history for the last three years. This slide shows steady and consistent half-on-half improvement in all key metrics. The main points I would like to highlight are the significant improvements in cash generation and returns. Free cash flow has increased significantly since first half of 2023 and has consistently improved in the last four consecutive half-on-half periods. Margins have shown strong improvement, increasing around 1,000 basis points over the same period.
These returns have been achieved with only modest investment in growth CapEx, which has supported the improvement in return on capital from 13% in FY 2023 to 17% in FY 2025. The improvement in cash returns has been reflected in a significant deleveraging of Emeco's balance sheet over the period. Net leverage has improved dramatically across the same comparative period, improving from 1.16x in first half of 2023 to 0.65x in second half of 2025. Slide eight shows the group's safety performance over the last five years. Safety remains a key priority for Emeco and all of our employees. The group reported no lost -time injuries for the period. However, the total recordable injury frequency rate increased from 2.8 recorded in June 2024 to 3.4 as of June 2025. We'll be working hard to reverse this trend for a greater focus on compliance to our safety systems and processes.
Emeco remains committed to providing a healthy and safe workplace. The safety of our people is paramount. The slide outlines a number of focus areas in the company's HSET Strategic Plan. I won't go through the full list, but many of the areas include continuing investment in ongoing training, training programs for employees, and onboarding programs for our contractors remain central to our safety efforts. Slide nine outlines the key highlights for our rental business in FY 2025. Emeco is Australia's largest provider of surface and underground rental equipment and maintenance services to the mining sector. We have a fleet of over 840 pieces of equipment supported by our skilled workforce. Rental revenue grew by 9% to $615 million, driven by an increased number of our fully maintained projects and higher underground utilisation levels. We continue to see solid demand for all our equipment categories.
Utilisation levels remain robust, with surface averaging 85% for the year. The smaller underground business averaged 57%. However, new projects secured increased utilisation levels towards the end of the period. The current run rate is 65% for underground equipment. Operating EBITDA was up 6% to $328 million, and operating EBIT was up 11%. The solid earnings growth was driven by a strong focus on both cost management and contract management. In terms of outlook, the rental business is well -positioned on cost, quality, and fleet capacity to secure new projects with a robust pipeline of opportunities in both open -cut and underground. Over to slide 10 on Force. Force provides an important competitive advantage to Emeco by delivering cost-efficient rebuild equipment for our rental business. Force has seven strategically located workshops and over 400 skilled employees. External revenue in FY 2025 was up 2% to $170 million.
137 machine rebuilds were delivered during the year, with a number of new customer contracts secured. This compares with 128 rebuilds completed last year. Earnings were slightly lower, with operating EBITDA down $0.4 million- $15.4 million, and EBIT was down $1.1 million- $8.3 million. This was due to a reduction in high margin rebuild works for external customers compared to FY 2024. Overhead reductions assisted to mitigate this impact, and underground maintenance workshops have been fully integrated with the Force workshops. In terms of outlook, business development activities will be focused on growth on the East Coast and on underground equipment rebuilds. Opportunities to expand the service offering continue to be pursued to enhance infield workshop capabilities for a battery-powered fleet. An agreement with XCMG was secured to provide Fortescue with maintenance services for a recently purchased battery-powered fleet.
The electrification of Australian mining fleet is expected to gain momentum over the coming years. The industry works to reduce its carbon emissions, and we are positioning Force to be a leading market participant. I'd like now to hand over to Theresa to run through the financials.
Thanks, Ian, and good morning, everyone. As with our prior presentations, we refer to operating results in our presentation today, which are non-IFRS. You'll find a reconciliation to our statutory results in the appendices. Slide 12 summarizes the group profit and loss. Ian has already taken us through the key full-year financial numbers, so I will focus more on the half-on-half performance. You can see from the table that the second half of FY 2025 continued the positive momentum from the first half result, with stronger performance across the P&L. While revenue growth for FY 2025 was 7%, excluding the now-discontinued contract mining, second half revenue grew by 3% to report just under $400 million. At this run rate, we are closely approaching full replacement of the revenue from the underground contracts sold in FY 2024, which totaled $91 million.
Revenue growth in the first half was driven by growth contracts in both surface and underground, and second half growth was aided by improved contract management and additional underground projects. This growth has delivered significantly increased earnings with margin expansion. This again demonstrates the resilience of our business model and benefits of our business simplification. Operating EBITDA was up 7%, operating EBIT up 16%, and operating NPAT up 22% on FY 2024. Half-on-half, we achieved stronger second -half earnings growth due to the full benefit of cost outs performed in the first half and improved contract management. Margins improved significantly year on year, with EBITDA margin increasing from 34% -38% and EBIT margin increasing from 15%- 19%. Notably, our second -half EBITDA margin is 39%. This was driven by our focus on operational and overhead cost management and improvement in contract management.
This was also the case for return on capital, which was up 170 basis points on FY 2024 to 17%. Again, the second half run rate was stronger at 18%. This is tracking positively towards our longer-term target of 20%. Slide 13 steps through the major cash movements during the year. Operating free cash flow generation was 32% higher year on year, another strong improvement driven by the continued growth in earnings and maintaining a high cash conversion of 97%. Operating free cash flow increased by $27.4 million- $114.3 million. Importantly, we saw strong half-on-half improvements in operating free cash flow, increasing from $49 million in the first half to $65 million in the second. Working capital investment and finance costs were broadly in line with FY 2024, with the increase in working capital driven by the increase in closing revenue run rates period to period.
Net sustaining CapEx of $149.2 million was $5.2 million lower than last year, which was again in line with expectations. There was no growth capital expenditure during the year. The capital management program remains suspended as we continue to focus on net debt reduction, where we have made significant progress with $56.5 million of operating free cash flow applied to lease and loan repayments in FY 2025. Non-operating cash expenditure of $9.7 million related primarily to investment in our ERP program, which totaled $6.4 million, and restructuring costs of $3.3 million related to redundancies generated from our overhead and cost reduction program. As with the prior year, no income tax was paid due to the utilization of carried forward tax losses, which now stand at $75 million at 30 June 2025.
Moving to the balance sheet summary on slide 14, the benefits of the suspended capital management program and the focus on debt repayment can be seen with continued strengthening of the balance sheet. Net debt was reduced by around $86 million to around $195 million, with net leverage improving to 0.65x from 1x in FY 2024. Other balance sheet movements worth noting: $10 million of the increase in fixed assets was driven by the assets received as consideration for the settlement of the sale of underground contracts to Macmahon. The balance of the increase was driven by CapEx predisposals being marginally higher than depreciation. Overall, working capital more than halved to $18 million from $41.6 million in the prior year, driven mainly by the utilization of tax losses to offset taxes which would otherwise be payable.
Cash on hand increased by $48.1 million to close the year at $126.4 million, and available liquidity was $220 million, including $95 million in undrawn revolving credit, which matures in December 2025. The AMTN Aussie Dollar Notes of $250 million have a fixed interest rate of 6.25% and mature next year in July 2026. The company is progressing a range of refinancing options and is well positioned to renew or replace these facilities in the first half of FY 2026, with a favorable interest rate outlook and supportive credit ratings from Moody's and Fitch. The balance sheet is in a healthy position and continues to provide flexibility to pursue growth or further debt reduction or capital management opportunities. Slide 15 shows the maturity profile and the liquidity position in a bit more detail.
The slide is self-explanatory, with the main debt maturity coming up being the AMTN Notes and the undrawn revolving credit facility. With an expected successful refinancing, the company's liquidity position will provide good funding and flexibility options. I'm happy to talk more to the finances in the Q&A, but for now I'll hand it back to Ian.
Thanks, Theresa. Moving to slide 17 on our scale and competitive advantage. I think it's important to recap on Emeco's competitive advantage, where it's centered on our scale and integrated service offering. The key elements of our competitive advantage include our capability to cost-effectively rebuild midlife equipment and refurbish our components. Our ability to deliver a fully maintained rental model provides equipment availability certainty for our customers and differentiates us from our competitors. Our asset management and equipment reliability, expertise, and technology, and our comprehensive fleet of around 840 pieces of surface and underground mining equipment. These are delivered for our national footprint of workshops and field service units across Australia and a skilled workforce of around 900 employees. This allows Emeco to provide industry-leading cost-effective rental services to an extensive customer base, which is diversified by region and commodity exposure.
All of these elements are critical to Emeco in providing industry-leading, low-cost, superior quality rental services for our customers and strong returns to our shareholders. Over to slide 18. I want to close out my discussion on Emeco's competitive advantage with some points on how we use technology. Our technological capabilities form an important part of Emeco's competitive advantage, particularly in today's increasingly data-driven business environment. Firstly, Emeco continues to invest in digital systems and automation across the business to drive operational efficiency. You can see this for our major ERP upgrade, but also for things like standardizing work practices, enhancing pool productivity, and improving data integrity and reporting. We made significant progress in FY 2025 in reducing costs and improving productivity, and we expect our investment in digital systems will continue to drive improvements in efficiency across the business.
Secondly, Emeco leverages operational technology to deliver reliable and high-performance midlife asset solutions to our customers. We integrate our internal operation data, such as machine telemetry, condition monitoring, and centralized asset management services. This enables real-time diagnostic, predictive maintenance, and asset protection. Finally, we have an external-facing technology solutions that enable our customers to better manage their onsite fleets and reduce emissions. Slide 19 provides some additional context around Emeco's customer and revenue profile. The main points I want to call out are: Emeco has very long-term customer relationships. This is particularly the case for our fully maintained projects, which provide customers the most value and generate our strongest returns. Our revenue is appropriately diversified across division, customer, and commodity, and the large majority of our revenue comes from blue chip and insured clients. Slide 20 illustrates Emeco's business strategy.
Our core strategy remains unchanged and is simplified down to three core pillars that guide our team in growing a sustainable and resilient business and creating long-term value for customers and shareholders. These pillars are summarized on this slide, but to reiterate, they are: to be Australia's lowest cost, highest quality mining equipment rental provider, to maintain a balanced and diversified portfolio, and to exercise disciplined capital management by targeting one-time leverage, generating free cash flow, and working towards our 20% ROC target. Moving to slide 21. This slide shows our progress towards the key metric of our business, our long-term return on capital target of 20%. ROC increased to 17% in FY 2025, up from 15% in the prior year. As mentioned earlier, ROC in the second half of the year was 18%, so our run rate has continued to show improvement.
Increasing utilisation from the existing fleet will be the main driver of improved returns going forward. Surface averaged 85% utilisation during FY 2025 and underground averaged 57%, so we have considerable capacity to grow earnings and improve returns without the need to invest growth capital. Importantly, improving ROC will have a significant positive impact on operating free cash flow, and our target ROC of 20% equates to an operating free cash flow of around $140 million, a significant increase from what the business achieved in FY 2025. Slide 22 outlines a brief update on ESG. Our climate change position statement is now published on Emeco's website, and our ESG strategy continues to evolve. We've now developed our position with regard to Scope 1 and 2 emissions reporting and are focusing on developing our reporting methodologies for Scope 3 emissions.
Climate-related financial disclosures gap analysis and our alignment roadmap have been progressing and are expected to be finalized ahead of legislative changes commencing in FY 2026. Slide 24 lists our FY 2026 priorities and outlook. In our core rental business, the first priority will be to drive increased utilization with an emphasis on increasing our portfolio of fully maintained rental projects, where we deliver the most value to our customers, achieve the highest return, and secure the longest tenure. This is the primary lever to achieve our long-term ROC target of 20%, and we'll have a renewed focus on business development activities. We'll also continue to focus on disciplined capital expenditure and cost efficiencies to drive returns and cash flow. I talked about our technology capabilities earlier, and we'll continue to focus on completing the implementation of our ERP and digitization initiatives to drive operational efficiency.
I also outlined our ESG and safety programs, and we'll continue to progress these. In the first half of 2026, we'll focus on refinancing the group's debt facilities, which we are well positioned to deliver. Specific areas of guidance at this time are outlined in the slide and include moderate earnings growth, significant free cash flow, and substantial further deleveraging. FY 2026 SIB CapEx expected to be circa $170 million -$175 million, $155 million- $160 million net of asset disposals, nil growth CapEx. FY 2026 depreciation expected to be circa $160 million- $165 million. FY 2026 ERP spend expected to be in the order of $6 million. Turning to our closing slide 26 on our investment highlights. You've seen this before, but I want to highlight these again to emphasize our competitive advantage. We are Australia's largest mining equipment rental provider. We're focused on providing strong returns and free cash flow.
We have the scale and expertise to deliver cost and quality to our customers. Our fully maintained rental solutions provide customers maximum value while creating a clear competitive advantage. We are well diversified by customer, project, and commodity. We have a strong balance sheet and low leverage, and we have a positive macro thematic within the equipment industry. Concerted and continued execution of our strategy will enable us to deliver reliable earnings and returns for our shareholders. I'd like to take this opportunity to acknowledge the efforts of our entire Emeco team in delivering a strong result in FY 2025 with significant improvements across the business. I would also like to thank our customers, suppliers, financiers, and community partners who play a crucial role in our success. With that, I'll hand over for questions.
Thank you. If you wish to ask a question, please press star, then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you are on a speakerphone, please pick up the handset to ask your question. Our first question will come from Mitchell Sonoga n with Macquarie. Please go ahead.
Good morning, Ian and Theresa. Thanks for taking my questions. Can you hear me? Yeah.
Hi Mitch, how are you?
Yeah, good thanks, Ian. Congratulations on a strong result there. Good to see the margins coming up and a good result in some tough conditions, I guess. On that, just on the second half run rate, when we think about looking into FY 2026, is that a better indication of where the business is tracking in terms of second half 2025? Also, can you maybe just touch on how much of a headwind some of this wet weather was through the second half as well that we've had across the East Coast? Thank you.
Yeah, look, I think you're absolutely right to think about the business going forward in the second half projected forward. I think that's a fair assumption, Mitch. One thing I'm really proud of, Mitch, is the management team really doing a cracking job. In my 10 years of being CEO, I think this is the strongest team that we've had. All the pieces seem to be in the right positions and really performing well. It was a tough second half for weather conditions, but our ability to manage through that and hit a result I'm really proud of and to see those margins improve just shows that we've got a lot of operating leverage in this business. We get those utilisation numbers up. We're really, really well placed with this business, particularly with a bit of capacity there. I'm excited at the progress we've made the last couple of years.
I think we've told the market that we're going to improve our free cash flow, improve our margins, and deliver. If you look at slide 21 there, just half on half on half, the last five or six halves, we've really delivered. I'm very, very proud of the result and very proud of the team.
Yeah, great. Apologies if you've been through this, I've been jumping between a few calls, but just in terms of the tendering opportunities, do you mind just giving a little bit more color by commodity? I think gold's at about 26% of your FY 2025 revenue, but yeah, just keen to understand where you're seeing opportunities across the commodity space. Thanks, Ian.
Yeah, Mitch, another thing I'm really proud of is we've really been working hard to create a competitive advantage and to create value for our customers. You know, our sweet spot is our fully maintained projects. That's where we get our best returns, that's where we get our longest tenure, and that's where I think we create the most value for our customers. That model is really getting some traction and we're seeing opportunities to bid for fully maintained projects across all commodities. We also saw extensions in long-term contracts for longer term, five years each on East and West Coast off the back of our fully maintained projects. I'm really excited about that model and the penetration it's getting in the market and the opportunity that it's creating for us across all regions and commodities.
Yeah, great. Just two quick ones. Just on the underground utilisation, I think that's tracked up to 65%. Where could that track to, I guess, over the next one to two years compared versus surface up much higher? Is there anything different where you can't get it back towards those levels? Whilst Theresa, just on the debt refinancings, can you give us any color on how we should expect the, I guess, the net interest cost of that financing to compare maybe to what the notes were previously? I'll leave it at that. Thanks, guys.
Okay, I'll do the first one. Mitch, that was a question about the underground utilisation. It's about 65% now. Look, that can get up to 80% +. I'm confident of that. I think that the team have done a fantastic job of integrating that underground fleet into our business, becoming part of our rental fleet, and also the way that Force have integrated the underground rebuild team. That's gone particularly well for us. It's been a real success story for us. I think we're well placed to get that utilisation up into the 80s. You know, we're not shy in putting forward that we have strong expectations about return on capital in this business, and that underground business fleet needs to achieve that, and I'm confident it will. I'll hand to you for the refi.
Yeah, on the refi, we're clearly looking at a number of options, progressing all the channels to optimize the interest and the interest cost that we're likely to pay on the future debt. In terms of where that might land, clearly the AMTN notes at 6.25% was a brilliant deal. I can't take credit for that. That predates my time at this company. The indications from the market is that it'll be a little bit up from that, but clearly our debt levels will be lower. The net net impact of that should be a little bit better than what we did this year in terms of interest expense.
Perfect. Thank you.
Again, if you have a question, please press star, then one. There are no further questions at this time. I would like to hand the conference back over to Mr. Testrow for any closing remarks. Please go ahead.
I'd like to thank the people for dialing in, and I'd especially like to thank our management team for listening in. Fantastic job. Really proud of you.
This concludes our conference call for today. Thank you for your participation. You may now disconnect.