Good evening and welcome to the Seven Group Holdings First Half FY 2024 Results Announcement. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Ryan Stokes, CEO and MD. Please go ahead.
Good morning and welcome to the Seven Group Holdings half-year results presentation for the sixth month ended December 2023. I'm Ryan Stokes, Managing Director and CEO. Joining me today is Richard Richards, Group CFO. Slide two. SGH is an ASX 100 diversified operating group with market-leading businesses across industrial services, energy, and media. The group employs close to 15,000 people across our five core businesses: WesTrac, Coates, Boral, Beach Energy, and Seven West Media. Incremental capital is dedicated to our core long-term demand thematics of mining production, infrastructure and construction, and transitional energy. SGH is focused on Australian-based businesses with scale and leadership in their respective markets, with privileged assets and defendable economic moats. The disciplined execution of this investment strategy and operating model has supported the delivery of a record half-year result for SGH, led by our performance at our industrial services businesses. Slide three.
Strong customer activity in the first half supported the group to deliver revenue of AUD 5.4 billion, up 17%. Revenue growth was amplified with increasing operating leverage, resulting in EBIT of AUD 764 million, up 28%, and ahead of our 22% EBIT/CAGR since FY 2016. Group NPAT of AUD 474 million was up 31%. We also delivered a strong cash result with operating cash flow of AUD 715 million, up 25%, led by cash generation at Coates and Boral. Slide four. Investment into strategic sector exposures with demand tailwinds is a core tenet of the group's capital allocation model, and the outlook for our three core sectors remains positive. WesTrac is exposed to mining production through the volume of earth moved. The outlook for our key bulk commodity exposures like iron ore and coal remains robust. The aging customer fleet is increasing, and it's increasing the expected demand for WesTrac products and services.
Coates and Boral are oriented towards domestic infrastructure and construction investment, exposed to the AUD 1.7 trillion infrastructure and construction pipeline forecast over the next seven years. They are also both well-positioned to capitalize on the domestic renewables build-out. Beach and SGH Energy focus on the gas and its role as a transitional energy source. We expect supply constraints in our key gas markets going forward due to the increasing demand for gas to firm up renewable generation. Slide five. The group's purpose, objectives, and values, and disciplined operating model are also key drivers of our performance. Our purpose is to recognize and serve exceptional businesses while meeting our objective of maximizing return to stakeholders through long-term sustainable value creation. We support this objective with our four values of respect, owners' mindset, courage, and agility. Owners' mindset is particularly important in the group context.
The focus on accountability and execution that it promotes is heavily represented in the SGH operating model. The operating model has four core characteristics. First, each of our businesses has fully functioning board structures holding them accountable to deliver. This reinforces a clear delineation between the group and business unit, promoting absolute P&L ownership of results. Second, decision-making is pushed towards the front line where possible, promoting a lean, empowered workforce with accountability across all levels of the organization. Third, we incorporate the owners' mindset into our operating cadence, emphasizing execution and results and prioritizing outcomes over excessive process. And finally, the focus on a lean operating structure and accountability makes the group inherently scalable. This was reinforced with the group able to control Boral without a change to the size of our corporate office. Slide six.
The group saw significant improvement in safety performance over the half, with LTIFR of 1.3 and TRIFR of 4.5 improving by 47% and 48%, respectively. The improvement in both metrics highlights progress we are making and stems from our focus on promoting a culture of safety across the group through visible leadership, accountability, awareness, and training initiatives. The group also made progress toward our sustainability ambitions. At Coates, the solar rollout is building momentum. At WesTrac, we're helping our customers decarbonize through the supply of more efficient machines and supporting their electrification journeys. At Boral, customer demand for recycled construction materials is growing, and Boral is recycling over 2 million tons of construction materials annually to meet this demand. Slide seven. The group delivered EBIT of AUD 764 million, up 28%.
This is the seventh consecutive year of earnings growth for the group and was significantly above our 10-year EBIT/CAGR of 12%. The group growth was driven by our industrial services segment of WesTrac, Coates, and Boral, where strong customer activity supported revenue growth of 17%. A focus on cost and operating discipline saw the collective EBIT margin across the segment expand to 13%, driving EBIT growth of 40% to AUD 698 million. At a group level, margin expansion of 127 basis points supported a 25% increase in operating cash flows of AUD 715 million. The strong cash flows were utilized to support investment in working capital at WesTrac, as well as reduce group leverage by 15% to 1.9x . The group also delivered a return on equity of 17.3%. Slide eight.
Other key financial results for the half included revenue of AUD 5.4 billion, up 17%, EBITDA of AUD 1.02 billion, up 21%, and NPAT of AUD 474 million, up 31%. Statutory NPAT of AUD 225 million was down 36% as the group recognised AUD 250 million of significant items, predominantly related to our 30% share of Beach Energy's impairment over the period. We have declared an interim fully frank dividend of AUD 0.23 per share for the half, in line with our continued focus on deleveraging and our long track record of stable and growing dividends over time. Slide 10. Revenue at WesTrac was up 27% for the period, driven by machine sales and product support. Machine sales were up 23% with strong customer demand across resources and construction. Product support sales were up 30% with a 6% increase in parts volume sold to 12.4 million line items and higher mix of rebuild activity.
The product support growth was materially above our 11% 10-year CAGR. The consistent long-term growth in this revenue stream has been driven by increasing machine population and product support intensity. The average mining machine age in our territories has increased by 40% since FY 2016, supporting this demand growth. Customer activity and overall demand remains robust with increasing iron ore and thermal coal exports and a resilient infrastructure and construction project pipeline. The cost and efficiency initiatives we outlined in our full-year result are also delivering internal improvement and operating leverage. Our focus on cost discipline will continue into the second half. Slide 11. WesTrac's revenue of AUD 2.9 billion was up 27%. Increased operating leverage delivered EBIT margin growth to 11.4%. EBIT of AUD 333 million is up 31% and strongly outperforming the 10-year EBIT/CAGR of 8%. Lower operating cash flows of AUD 105 million reflect increased investment in parts and machines.
WesTrac has invested in working capital to support high levels of customer orders and product support demand. The level of this investment reflects the committed order book, which represents over 75% of WesTrac's machine inventory position. The capital sales pipeline and customer demand for support highlight the strong outlook for WesTrac. During the period, WesTrac expanded the FTE workforce by 2% through targeted domestic and international skilled labor recruitment initiatives. The business is also investing to increase productivity with initiatives like the Component Rebuild Centre digital twin and AutoStore , driving higher facility and labor utilization. Slide 13. Coates has delivered a strong result for that half, underpinned by customer activity and operating leverage focus. According to the latest ABS release, the total value of construction work done was up 8.5% year-on-year to September 2023.
The total infrastructure and construction pipeline remains strong, with over AUD 1.7 trillion investment in this to the sector expected over the next seven years. Coates is positioned to capture this pipeline with a dominant and growing 28% market share of tier one infrastructure customers. While the value of work done shows overall sector activity is resilient, Coates has seen some deferral of project commencements over the half. The project pipeline reinforces that these are delayed starts, not a reduction of activity. Coates has also focused on strengthening the business through productivity and growth initiatives. In FY 2024, these included the second phase of Project Equip, which focuses on R&M and productivity benefits from branch network optimization. The business is also continuing its push into solutions, where revenue from the industrial and engineering solutions business was up 10%. Slide 14. Coates' revenue of AUD 585 million was up 2%.
Our focus on productivity delivered increasing operating leverage with EBIT margin of 28%. The margin improvement supported Coates deliver 10% higher EBIT of AUD 164 million and return on capital employed of 17.5%. EBITDA cash conversion expanded to 98%, with operating cash flow of AUD 255 million, up 7%. Time utilization of 60.2% was marginally down while still above the 60% high performance benchmark for the industry. We remain focused on how we can improve time utilization as we continue to grow our fleet to better serve our customers. Our continued investment in the hire fleet saw an increase by AUD 50 million to AUD 1.88 billion on an original cost basis. The business is investing to expand the fleet to AUD 1.9 billion by the end of FY 2024 to support growth. Slide 16.
Boral sales volume were broadly flat in the first half, with increased inquiries and recycling offsetting a slight reduction in cement volumes. The business achieved strong price traction with mid- to high-single-digit price increases across most products, offsetting low- to mid-single-digit cost increases. The ongoing internal optimization efforts continue to deliver a positive outcome with a 6% reduction in overheads during the half. Other initiatives include the focus on drag sites to improve profitability and the ongoing simplification of the call to cash process, both of which are delivering positive operational and financial benefits. Boral has also identified AUD 300 million-AUD 400 million of catch-up CapEx required over the next four years to strengthen the business. The investment will focus on extending quarry asset life, replacing heavy mobile equipment, and optimizing the mix of owned versus third-party heavy road fleet.
The focus for the remainder of the year is on finalizing and embedding the PEMAF operating model to improve commercial, operational, and financial rigor. Slide 17. Pricing traction supported revenue growth of 9% to AUD 1.8 billion. The pricing, combined with cost focus and operating discipline, delivered Boral's first double-digit EBIT margins since FY 2019, with EBIT margin of 10.9%. The significant margin improvement delivered EBIT of AUD 201 million, up 111% against a soft comparative period. Boral also delivered a strong cash result with operating cash flows of AUD 346 million, up 196%. The OCF growth supported a 75% reduction in Boral's net debt position to AUD 85 million or a AUD 38 million net cash position excluding lease liabilities. Boral's first half result led to an increase in FY 2024 EBIT guidance to AUD 330 million-AUD 350 million.
The result demonstrates clear progress on the Good to Great journey, and SGH remains committed to supporting Boral to realize the full potential of the business. Slide 19. Beach Energy's underlying NPAT of AUD 173 million was down 10% on lower production and margin compression, leading to a lower equity accountend contribution to SGH EBIT of AUD 52 million. Production of 8.8 million BOE was down 11% and impacted by lower output from the Otway and Taranaki basins. The business is well positioned to supply gas into tightening east and west coast and global LNG markets. Beach has signed a new GSA with Origin at competitive market rates for the Enterprise gas field. They have also concluded the Otway price review, which locks in a moderate price increase from CY 2024.
On the west coast, construction of the Waitsia gas plant is ongoing, with planning and preparation for commissioning underway and first gas expected by mid CY 2024. At SGH Energy, construction of the Crux project is well underway, with first LNG expected in CY 2027. SGH Energy is also advancing commercial studies on Longtom gas asset in the Gippsland Basin, which holds an estimated 87 PJs of gas and is connected to existing production infrastructure. Slide 21. Seven West revenue of AUD 775 million was down 5% against a 9% softer advertising market. The business was able to partially offset the softer ad market through a growth in revenue share of 41%. Seven West remains the number one total television network in the country. The business consolidated its top position in the half with 2.2 share points growth in primetime linear TV audiences and a 30% increase in BVOD minutes.
Given market softness, Seven West has worked to deliver cost out initiatives and expects to realize AUD 20 million-AUD 25 million in savings in the second half as part of a larger AUD 60 million ongoing cost out program. The market share expansion and cost discipline have allowed Seven West to maintain a strong balance sheet, ending the half marginally higher with net debt of AUD 257 million and leverage of 1.3x or 1x , excluding the ARN investment. SGH's other media interests recorded EBIT of AUD 3.2 million. I'm going to hand you over to Richard to take you through the group's half-year financials.
Thank you, Ryan. Good morning. The group delivered a record financial result for the six months ended December 2023. Revenue from continuing operations of AUD 5.4 billion was up 17% on customer activity strength across our core demand thematics that Ryan has outlined. Expenses of AUD 4.5 billion were 15% up, predominantly on higher cost of goods sold at WesTrac and Boral. The quantum of these increases in costs was lower than the revenue growth, resulting in EBITDA and EBIT margin expansion of 61 basis points and 127 basis points, respectively. EBITDA of just over AUD 1 billion was up 21%, while D&A was largely flat at AUD 253 million, leading to a 28% increase in EBIT to AUD 764 million. The group's net financing expense was up 11% to AUD 142 million, with higher interest rates on floating rate debt partially offset by an 8% reduction in net debt.
Underlying NPAT of AUD 474 million was up 31%, while statutory NPAT of AUD 225 million was down 36%. The differential primarily relates to the group's share of significant item losses referable to our equity accounted businesses. Slide 24. The significant item loss of AUD 250 million predominantly relates to impairments at Beach, Seven West, and Boral. The Beach impairment of AUD 152 million reflects the group's 30% share of their after-tax AUD 505 million impairment of the Cooper Basin and exploration assets. The Seven West impairment of AUD 90 million reflects the mark-to-market of the group's interest in the business as a result of a reduction in the share price over the half, their Project Phoenix costs, and impairment of the ARN investment. The Boral impairment of AUD 16 million stems from their 40% share in PLDC impairments of historical development costs over the period.
These impairments were partially offset by an AUD 33 million gain related to the disposal of Sykes in December 2023. A net tax expense of AUD 11 million was also recognized in relation to significant items. Moving to slide 25. This slide provides a year-on-year earnings bridge with underlying EBIT movements for each of our segments, along with a reconciliation to statutory EBIT. The AUD 79 million or 31% expansion of EBIT at WesTrac follows top-line growth in capital sales and product support, stemming from strong machine sales, uplift in parts and service activity, and a minor parts price increase effective July 2023. SG&A was also refined, supporting margin accretion. The AUD 15 million or 10% EBIT growth at Coates is primarily margin related, with slight revenue uplift amplified in earnings through increased operating leverage delivered by lower R&M, people, and indirect overheads.
AUD 106 million or 111% increase in EBIT growth is also largely related to margin improvement. Pricing traction over the half more than offset mid single digit COGS increases, which, coupled with ongoing cost and productivity initiatives, facilitated almost doubling of EBIT margin. The AUD 7 million decline in earnings in our energy segment predominantly relates to the group's share of the AUD 18 million decline in Beach Energy's NPAT. Media contribution to the group EBIT fell AUD 22 million or 44%, attributed to our share of Seven West's AUD 60 million decline in NPAT, reflecting the challenging advertising market. In aggregate, these movements led to a AUD 169 million increase in underlying EBIT to AUD 764 million or AUD 528 million statutory EBIT after significant item impact. Slide 26. Underlying operating cash flow for the half was AUD 715 million and was up 25%.
The increase was supported by Boral, where higher earnings and improved working capital management delivered EBITDA cash conversion of 110%, up from 75% in the prior corresponding period. Coates cash conversion continued to be strong at 98%, helping to offset lower conversion at WesTrac following the AUD 270 million inventory investment to support future growth. These businesses combined to deliver 70% EBITDA cash conversion for the group, up 219 basis points on PCP. Net interest paid of AUD 128 million was up 18%, reflecting the effect of increased interest rates on floating rate debt, predominantly our corporate syndicated facility and the Boral equity settled swap. This was partially offset by higher interest income driven by an increase in term deposit rates for cash invested by Boral.
Net income tax paid of AUD 65 million was flat for the half and combined with the interest impact resulted in statutory operating cash flow of AUD 522 million, up 36% on PCP. Investing cash outflows of AUD 144 million were 43% lower for the half, predominantly driven by the net proceeds from the disposal of Sykes and the proceeds of the 1% sale of Boral shares at AUD 4.90 in August. Production, development, and exploration expenditure of AUD 61 million was flat and relates to the Crux LNG backfill project. The group's 15.5% share of development CapEx is set to increase in the second half, with preparation and planning activities underway in the lead-up to the mobilization of the Transocean drilling rig to location.
Net financing cash outflows of AUD 184 million were down AUD 532 million, with this reduction primarily relating to Boral's $629 million repayment of U.S. debt in the comparative period, partially offset by a $54 million repayment of USPP debt at WesTrac over the half. Closing net debt of AUD 3.7 billion was down AUD 412 million compared to December 2022. The contraction in net debt follows the strong operating cash flow more than offsetting investments in WesTrac, Coates, and SGH Energy and the group's dividend payments. Slide 27. The group's net assets of AUD 4.8 billion increased by AUD 185 million over the half, reflecting higher cash and inventories, partially offset by a reduction in the value of the group's equity-accounted investment. The increase in cash stems from the strong OCF result, while the inventory increase was primarily attributed to WesTrac, where we have invested in inventory to support the committed order book.
The decrease in investment values predominantly relates to the decline in the carrying values of Beach, Seven West. The AUD 117 million decline in Beach largely reflects the statutory NPAT loss following the impairment already discussed. The AUD 65 million reduction for Seven West Media reflects our net share of their statutory NPAT and a AUD 90 million impairment on lower share price. The increase in oil and gas assets reflects the AUD 61 million investment at Crux over the half. Other significant balance sheet movements include AUD 56 million lower deferred income, largely related to a reduction of machine deferred income at WesTrac, and a AUD 9 million reduction in derivative financial instruments relating to FX hedging and a comparatively favorable FX position at 31 December. These movements result in net debt of AUD 4.7 billion or AUD 3.7 billion excluding lease liabilities, representing a 6% and 8% reduction, respectively. Moving to slide 28.
After adjusting for AUD 35 million of positive mark-to-market on debt-related derivatives and AUD 66 million of cash collateral against swaps, the group's adjusted net debt to EBITDA or leverage excluding leases contracted from 2.3x to 1.9x over the half. The result highlights the group's ability to deleverage while simultaneously delivering strong earnings growth. In terms of funding, the group increased the size of the SFA by AUD 20 million to AUD 1.9 billion, and it extended it to 2028. There are now no corporate bank facilities maturing in 2027. WesTrac also completed a $410 million USPP in January that was oversubscribed by 3.2x , demonstrating the market's confidence in our financial position and capital management strategy. At December, 46% of the group debt was fixed with an average rate of 4.6% and an average duration of 5.9 years.
Finally, the group's all-in funding cost stands at 5.5% with a weighted average maturity of four years. I'm going to hand you back to Ryan.
Thank you, Richard. Slide 30. SGH has a long history of delivering on operational and financial growth. This has ultimately supported superior shareholder returns. The group has delivered a compound annual earnings growth rate of 22% since FY 2016 and has consistently outperformed guidance. We have achieved this growth through disciplined execution against ambitious operational targets. This performance improvement is then embedded into the businesses to drive long-term value. WesTrac and Coates CAGRs of 17% and 18%, respectively, since FY 2016 highlight how effective the SGH model is, as does the rapid improvement in Boral's margins since SGH acquired control in FY 2022.
The group has also delivered on its deleveraging commitments, reducing adjusted net debt to EBITDA by 32% since the high of 2.8x when the group acquired control of Boral. This deleveraging continues to be achieved ahead of our market-committed timeline. The group's consistent growth and outperformance has delivered our shareholders over 580% total return since FY 2016. This performance translates into top decile TSR across the one, five, and 10-year horizons. Slide 31. The strong first-half result supports upgrading the group-level guidance to mid to high-teen EBIT growth for FY 2024. The upgrade was driven by outperformance from the industrial services segment of WesTrac, Coates, and Boral. At WesTrac, strengthening customer demand and the first-half inventory investment underpin a positive second-half outlook. At Coates and Boral, resilient infrastructure and construction investment is expected to continue, supporting customer activity.
The first-half result and outlook in these businesses supports upgrading our industrial services segment guidance to 20%-25% EBIT growth for FY 2024. Our equity accounted businesses, Beach, has guided to production of 18-20 million BOE in FY 2024, and Seven West has guided to maintaining its +40% market share in FY 2024 while reducing H2 costs by AUD 20 million-AUD 25 million compared to second-half 2023. The half-year result and four-year guidance upgrade highlights the strength and agility of the group's operating model. I want to thank our business leadership and the 15,000 people across the organization for their hard work and dedication to support our customers. At this point, I'd like to thank you for listening to the presentation and take any questions you may have. Thank you.
Thank you. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Your first question comes from Shaurya Visen from Bank of America. Please go ahead.
Hi, Ryan. Hi, Richard. Good morning. Thank you for taking my questions. Ryan, congrats on a very good set of results. I had two questions for you and both on your guidance. First, can you give us a sense of what your guidance implies or is baking in for Boral? Is it like the midpoint of the AUD 330-350 million guide? Secondly, just thinking about your guidance again, if I'm getting my numbers right, even if I assume 20% EBIT growth, right, which is at your upper end, that sort of implies second-half EBIT of AUD 660 million, which is still pretty impressive at 12% year-on-year growth, but obviously a significant deceleration versus the first half. I'm just trying to unpack that. Can you give us a sense of what is sort of driving this, what I think is a bit soft guidance? Thank you.
Yeah. Look, the first part of the question, we'd take that midpoint on the Boral guidance. We think that's appropriate from an input into our guidance assumptions. So for us, the second-half growth is continued into growth expected in WesTrac. We don't expect to double first-half, which is probably a factor in that mix. But we do expect to see strong growth into second-half for WesTrac, for Coates, and obviously the Boral guidance, pretty self-explanatory. We do provide that 20%-25% industrial services growth target to give some perspective as to what we see in the core growth drivers of the business. And obviously, other attributes around Beach and Seven West will make up the remainder of the group guidance.
Great. Okay. Great. Thanks, Ryan.
Thank you. Your next question, it comes from Mitch Sonogan from Macquarie. Please go ahead.
Yeah. Good morning, Ryan and Richard. Congratulations on a good result there. Just following on that guidance question, I guess just maybe more specifically looking at WesTrac to get down to that number, obviously implies a pretty material step down in the second half. So can you maybe just talk to a bit more detail about what you're seeing in that business and also what's implied in that second half? Is there some conservatism built-in for things like maybe delivery slipping in the back end of the period? But yeah, just digging into the WesTrac assumptions in the second half is the first question. Thank you.
Yeah. Appreciate that. And look, yeah, there are probably some question marks around that second-half delivery. We don't expect new machine sales to match first-half, and there's probably elements around slippages of timeframe. We call out in the presentation that the investment in inventory, which is a lot of parts and certainly new machines as well, 75% of those are committed. So that gives some indication of the confidence in that order book. The question is to when they're delivered. So we expect second-half new machines to be down slightly on first-half, but certainly up on prior year in aggregate. And I think that the other factor we have to manage through is just that constraint we're seeing in supply of parts for a lot of the potential demand.
What we just emphasize on that is the two core constraints for WesTrac that we are managing through and we delivered through in first half was how we manage through parts constraint and how we manage through labor constraint. The demand from a customer perspective is there. So it's really about managing those attributes. So in reality, what we stare into in that context is probably a degree of appropriate balance in how we look at the risk to execute upon that. But the thing I just emphasize is the customer demand is there. It's just how we manage to deliver on that through the second half. So I think you probably can interpret that as you probably would. But ultimately, we are very confident in the outlook for WesTrac as it pertains to the full year and still demand into FY 2025.
Yeah. Thanks, Ryan. So come on, just quickly on Coates, revenue up 2%, but EBIT up 10%, another great result, EBIT margins of 28%. Just on more of a next two to three year view, yeah, how much more upside do you think you can see in that business with all the operational improvements that you have underway there and the hub and spoke model, etc.? Yeah, just high-level thoughts on the upside there and the outlook across the different end markets as well. Thank you.
Yeah. Look, we still benchmark against international peers and see that we're trailing on a margin perspective. So there's opportunity to drive that. The step down in utilization is obviously a key avenue for us to drive. So as we look to grow fleet and get utilization up, that is another key element of the operating leverage, which kind of if we delivered this result without having that equipment utilization as an operating leverage tailwind, so we'll work with that opportunity going forward. So we are confident around the potential to drive that revenue growth into the future years, and that's going to be a key focus for us. We spoke about the project delays and what we're hearing from a number of customers around the roll-off between completion to commencement.
They're seeing a wind turbine, a lot of feedback around that being that labor aspect has played through into those project commencements. But we've assumed that this element will kind of reach a bit of that plateau and then gradually grow from there. So our focus is on how we can grow share and how we can kind of take more of that market as we go forward. But we still think that there's opportunities for growth within Coates. Part of the other focus through the half is how we continue to improve the business, and there's still more we can do. So for us, we're confident in the growth outlook for Coates. I think an increasing part of the construction mix is that rental service solution as we've seen elsewhere in the world. And that's kind of the position that we'll look to be playing to support our customers.
Yeah. Great. Just final quick one from me, Ryan. Obviously, strong reduction in net debt leverage is down below 2x now. Can you maybe just talk through, I guess, the group's thoughts on larger-scale M&A over the next 12 months as well? Thanks, guys. That's all from me.
I appreciate that. We really love the I think 12 months ago, it was kind of, "What are you doing about your debt now? What are you buying?" I think that's a great level of confidence in the SGH team's ability to execute and drive value. So I think from our perspective, we're very conscious around being disciplined in what we do around capital allocation. I think just to answer the question directly, in reality for us, the next 12 months, we're still focused on driving value within our core businesses, and we see opportunities to drive incremental value through that. So the investment that Boral will make on catch-up CapEx is a key case in point. We still see opportunity where we can buy fleet assets within Coates of deploying capital there. And we'll continue to focus on deleveraging.
Logically, as time plays out, if there isn't incremental opportunity, dividends and other aspects to look at. We are focused over the next 12 months within the existing portfolio. I'd say that's kind of and beyond that timeframe, potentially look at what opportunities may be there. At this point in time, it's still focused on executing the core portfolio.
Thank you. Your next question, it comes from Brook Campbell-Crawford from Barrenjoey. Please go ahead.
Thanks for taking my question, and congrats as well on the great result on the half. Question on WesTrac. This is not asking to provide guidance, I guess, beyond the current period, but putting the extraordinary performance in the first half to one side, what do you think about the medium-term sort of opportunity and what the right kind of growth rate should be at EBIT for WesTrac, just bearing in mind the historical CAGR you talked to of 8%? And then looking at consensus, which looks like it's about 2% on average over the next five years, do you think the historical growth rate is a good reference point and good target for going forward? Or do you think there's perhaps some reasons to be more cautious as what consensus looks to be factoring in next?
Look, Brook, appreciate the question. Our view is that CAGR we call out, we do call out over a decade. If we look over since FY 2016, that growth rate is much stronger. So I think if you're looking at a 10-year CAGR, that is a relevant viewpoint from a WesTrac perspective. It's quite clear one of Cat's objectives is how they can kind of grow the aftermarket, and they talk about that as a strategy and that focus on balancing, getting machines into territory and working and supporting, but ultimately also price realization as well. So that's been certainly kind of a factor supporting growth. I think there's alignment for WesTrac in that strategy. The aging fleet profile and demand from customers will certainly going to support growth.
So over the medium term, we are confident in the growth prospects for WesTrac just based on customer demand, activity, aging fleet profile, and what's associated with that. We think the transition to electrified fleet will take time. But for us, we think the next through the remainder of this decade, there's a strong opportunity to support that embedded fleet. And it's more likely that that's going to remain kind of in situ for longer as transition to other equipment takes longer. So we think that bodes well for WesTrac and the opportunity set. But to the core question, yeah, that history is a relevant element to look forward and predict kind of growth opportunity for WesTrac. We would like to be delivering that form of growth and see potential in what WesTrac can do over time in sustaining that growth.
It's one of the incredible attributes of the business, the role we play to support our customers. I think the opportunity should be there if we do that effectively.
That's very clear. And listen, you talked about it a bit there with respect to the transition, but has there been any change when you're talking to your customers about how they're thinking about the timeline of transitioning to battery electric fleet over, call it, the last sort of six months or so? And does that play a part in this extraordinary growth you're seeing in demand for product support at the moment? Maybe you don't stay really on what they're saying, that timeline looks like. That'd be great. Any thoughts on that? Thanks.
I think I'm probably cautious about, well, I won't suggest that we're getting direct feedback as they're giving us insights into how they're thinking that isn't public. But I think what we've seen from public commentary is around the recognition of the complexity associated with the transition and the fact that it's likely to take longer. So we are seeing that play through. Cat's committed to meet their timeframe of having machine in territory in, we think, probably late 2025. It'll be rolling around in a pilot, so it'll take time to then get that into be a production replacement. And I think the complexity, in our view, would mean that it's not likely to see any major transition before the end of the decade when you think about the complexity of electrifying such significant operations. So we think that aspect is probably pushing the timeframe out.
It means the next five years plus is going to be very strong with existing equipment base. And we are seeing strong orders from customers on traditional fleets. So that hasn't changed their fleet profile. But probably, I'd say, rather than wholesale fleet replacements, looking at a blend to sustain fleets at an acceptable age profile to have them run longer. So we think it seems like a logical strategy as we'll kind of look at that electrification journey as occurring over a period of time, but probably a longer period of time than what might have been thought a couple of years ago.
That's great. Can I just squeeze in one last question around Boral? In the release, you do talk to disciplined capital management with respect to selling some shares in Boral at AUD 4.90 a share, I guess. Listen, it's done really well, right? It took just above AUD 5.80 a share. Has your view on value changed at all there, noting obviously very good results for them this reporting season? But any sort of update there on how you're seeing value in your stake there? Thanks.
Yeah, good question. In hindsight, AUD 5.80 would have been better. But in reality, I think that what we still recognise we called out in the AGM. It's great from a Boral perspective. I mean, the PE multiple is a standout on the upside compared to the industry. We think as we look through that PE multiple differential between Group, which is predominantly made up of the high-quality industrial services businesses, and Boral, it just doesn't seem to make sense apart from the fact there's just limited free float in Boral, and that driver to want to be in there creates a premium. But the reality is, from a value context, SGH represents better value than that PE. So the original motivation was really around that PE multiple basis. We'll still evaluate our options to what we do within Boral.
As we had said through that, we're still committed to Boral, so we'll retain control of Boral, wouldn't look to change that position. But our position holding over time may fluctuate.
That's a fine segment question. Thanks.
Thank you. Your next question comes from Joseph House from Bell Potter Securities. Please go ahead.
Hi, Ryan and Richard. Congrats on the strong result update, and thanks for taking my questions. I've got two. Firstly, I'd like to know if the reported mine closures across the nickel and lithium markets have in any way impacted your WesTrac sales pipeline or if you expect them to in the near term. This question applies both to your new equipment sales and aftermarket opportunities.
Yeah. As we look through that, the impact of commodity price movement on WesTrac is probably less pronounced than just the overall activity. But when it comes to project commencement or, I'd say, all mine suspensions, those activities will play through. We haven't seen that play through from a lithium or nickel perspective. I think those customers are far more conscious on cost and efficiency of their operation. I think I'll probably just say, as we look through that, we still see a demand thematic for battery minerals, which is going to play out over many years and decades. It's going to create a huge amount of demand to support that supply coming on. And while prices may fluctuate, I think what we'll see is more efficient, more cost-focused kind of operations get up and get into production.
They're usually going to be the large open-cut efficient operators in lithium and nickel. We certainly believe there's a strong role for WesTrac in supporting those operations. Still very confident in the positive outlook from a lithium and nickel context into the criticality to support electrification. So that we feel confident with. Short-term, there's probably been some delays to decisions on investment and potentially kind of suspension, but not a material impact on the kind of operations of WesTrac. So we haven't seen that play through any form of financial impact. I mean, if you think through the volume of earth moved in iron ore is so much greater than anything in lithium at this point in time that it's not going to have an impact on our operation compared to what the iron ore customers are doing. That's kind of the way we characterize it.
But we are confident long-term that that demand profile from lithium will play through. I think the other point to make around our mining customers in WA and New South Wales, but they're the most innovative, most efficient operators in the world. They come up with ways to integrate technology to drive cost of production down to record levels. So we think the same will happen across lithium in WA, and it will be a really strong industry. But it's going through that emergence into that maturity, and the good operators are going to make strong returns in the sector.
Great. That's really clear, Ryan. Thank you. Secondly, you're continuing to deleverage cash flows higher. Earnings are on the up. How are you thinking about dividend payments or payouts and ongoing debt repayments going forward? Do you have a net leverage target in mind in the short term or in the medium term?
Look, I think the board consistently looks at dividends. I think the focus for the last sort of 18 months has been on deleverage. We took on substantial leverage. I mean, when Ryan, at the peak, we were at 3.8x when we took over Boral. So being down to 1.9x , I think, is, from our perspective, a testament to the quality of the businesses and the free cash flow generation of the businesses. For us, I think it gives us options, which is always valuable for a group like ours. In terms of the dividend, I think we have a store of franking credits, which gives the board flexibility. But now that we've, I think, met our targets, we now have various options of capital management. So repayment of debt, we have AUD 3.7 billion of net debt. So we can still reduce leverage effectively.
In that context, we then have other options. But if we have a look at the TSR performance of the group versus our dividend yield, it's very clear over being top decile TSR performance one, three, seven, and 10 years, that the group is better at ultimately redeploying that capital and generating a return for shareholders than merely distributing it back as a dividend. But we will certainly consider that, and the board will take that under consideration for August.
Great. Thanks for that. Thank you.
Thank you. Your next question comes from Julian Mulcahy from E&P. Please go ahead.
Ryan, just a couple of sort of big picture questions from my point of view. I'm just interested in your thoughts on turning over the asset portfolio because if you look at the main businesses, Boral's had. There's probably some more earnings upside, but it's probably at its best gains. Coates is at the top of its game, but workloads have started to plateau mainly because of capacity constraints. And Beach is going to have a big 18 months ahead with Waitsia coming on? So what's your sort of view on the timing, or do you rather keep these businesses and ride the whole cycles now?
So yeah, I think the way to how we think about it, if I answered that question first. I mean, as an operating business like ours, we have to be thinking the portfolio is an active decision to buy, sell, hold. So the fact that we look through our businesses, we want to make sure that they've got the potential to drive growth and accepted return on capital and that we can drive performance in that business better than it would on its own. And that outlook is positive to retaining the position, if you like, and how we think about capital allocation. So it is an active decision in that context. So it isn't just a notion of accumulate and hold until we will think through that.
We still feel that the three core sectors we're exposed to have some sectoral tailwinds, which really how we've reoriented the group over time. Mining production is still a strong factor. The infrastructure and construction, yes, there might be some elements around reaching a bit of a plateau, but fundamentally, there is a lot of work that is committed to happen over the next seven years. We still think it will make up a key part of the economy. Playing into it with Coates and Boral is probably a unique and some of the better opportunities to play into that. We don't have any contract exposure, and we can play into that investment theme as well as how we think the transition on ore or the increase in use of rental services will play in over a long-term thematic.
So we still think that there's an interesting opportunity there. But we have to assess the opportunity and growth profile and how best to position that from a group perspective. And if an external party or process values the business higher than we do, well above what we think that's worth, then obviously, we'll look through that. And we have to actively think through that position. With Boral, we still think we're only halfway through the performance journey. I concur with Vik's comment about that. There's still more to be done. First stage on prices is done. Next stage is more complex to look at the operational improvements and driving some of the efficiencies in there and getting the core business performing well to deliver that EBIT margin over a sustained period of time. So that's still an opportunity. But we actively think through that from a portfolio perspective.
Transitional gas is something which will play through for a while. So we think Beach is positioned there, hopefully. And we're confident that new leadership under Brett will bring a strong operating discipline, the right focus on execution, and that will drive value and hopefully enable Beach to grow organically and potentially inorganically. But we will have to think through our position in that. But ultimately, we're supportive of that over the medium term, and we see opportunity. So I mean, we actively think through portfolio construct, and it's an element as a leadership team at SGH where we're thinking through how to drive that from a value perspective. But we do think there's growth opportunities across our businesses facing into those three sectoral themes.
Okay. That's very clear. And just taking questions on the balance sheet. I mean, you're gearing down to 1.9x now. At the Investor Day last year, I think you were saying 2.5x is optimal. Anything below that's inefficient. And the fact that you've kept the dividend flat to sort of further deleverage, can we read into that that you're looking to roll into another big investment?
Look, I think we'll probably, yeah, the cash flow for us, we probably look through in two contexts. I mean, one is very strong cash flow out of Coates and Boral. And I think it's probably another key emphasis to just make on Coates because often, those businesses are not seen as attractive cash flow businesses, but this is. But as to we've made a big investment in cash into WesTrac, and I think as far as the demand from a working cap perspective on inventory, so I don't think we've seen the full potential of that cash flow in a normalized half. We'll try and build some optionality, I think, in that context. And I think we see it quite prudent in this environment to keep that balance sheet flexibility. That's the way we characterize it.
As I mentioned before, our focus is on the portfolio as it is. It's not looking to anything else at this point in time. I think next six months, we certainly want to just drive that continued execution across our business and our portfolio.
Cool. Thanks, Ryan.
Thank you.
Thank you. Your next question comes from Nathan Reilly from UBS. Please go ahead.
Morning, Ryan and Richard. Thanks for the opportunity. Just a couple of questions really around WesTrac. Firstly, Ryan, maybe you want to just speak to some of the underlying sort of lead time trends, ex-factory for Caterpillar at the moment. I'm just curious around your decision to sort of invest in a higher level of inventory at this point. Just wondering whether that reflects some of that constrained parts availability that you flagged earlier, but also just in the context of the demand you're seeing for parts volumes at the moment.
Yeah. Look, yeah, it's the right way to view it. The buildup in our investment in inventory relates to committed orders. That timeframe, I'd say, it hasn't changed. It just will remain a little extended longer than will be normal, but it hasn't kicked out further. It's been pretty consistent. The parts supply, there's just, I think, a massive growth in the global demand for, for example, large engine rebuilds. And that's a key part of our work if you think through what's required in servicing the large mining trucks. There's key componentry in there. We did make a decision to build that parts inventory up, but that parts supply has constrained parts as Cat's scaling to that global growth and demand. It's something we're working through.
So in that context, holding higher inventory makes sense from an ability to support that customer demand and deal to that parts constraint aspect. Customer demand is there, and we see playing through over that medium term. So that's a positive factor. But overall, we're seeing the constrained parts, constrained labor is probably the two core constraints. Labor is less of a factor given the investment we've made. But that's probably a key factor to meet that potential customer demand.
Thank you. And in relation to pricing, what were you able to achieve in terms of price updates in January, and what's your expectation going forward?
Look, low single digits. So there's not a lot of pricing movement over this period. Going forward, that's going to be contingent on Cat's view, and that'll be into FY 2025. But so it's less pronounced of a factor into FY 2024. And I think the bigger factor has just been the growth in volume.
Understood. And finally, can you maybe just give us an update just in terms of how you've seen, I guess, your visibility over rebuild demand evolve over the last, I guess, year and a half? But just maybe give us a comparison in terms of how that sort of demand sort of would stack up on a historical view and what you're sort of seeing just in terms of how those demand drivers are changing just given some of the points you raised earlier about energy transition and also fleet life extension activities.
Yeah. It's the most intensive period of rebuild we've ever experienced in that context. I mean, I think that's just coming to the we've got the largest embedded fleet, if you like, a customer fleet that we've had and longest age profile. So all of readings are pretty intensive R&M. I mean, I just want to emphasize the strategy of our customer is entirely logical because they are far more sophisticated at managing that fleet to minimize production downtime and get that utilization out of that age fleet. And it is a highly productive strategy. It requires a very focused and integrated alignment with what we can provide as far as component exchange or parts exchange from componentry to full equipment rebuild.
But I'd say volume is substantial, and we're having to kind of manage the parts constraint to customer demand profile very closely, working closely with customers to do that. But demand is at levels we haven't encountered before, and that's going to be sustained for a period of time as we enter a pretty intensive rebuild phase from an activity context. This is multi-year type demand.
How are you thinking about adding capacity to rebuild bays in your facilities?
We've made some investment over the last few years, so that's all coming to fruition as far as having that capacity within both Guildford and within Tomago. So the capacity we've invested is enhancing our throughput. So that's working, I'd say. There's always more we can do, and we're dealing with existing incumbent sites, so you're kind of working through trying to optimize that. So facility for us is probably less of a constraint. We've managed to get incremental capacity. That labor investment is working, but that's still a constraint. And if we had more people, we'd be able to equip more work. But fundamentally, we're trying to solve that and then the parts aspect. So for us, it's more that labor and parts, but the parts is a little bit out of our we can control elements of it, but not completely.
So that's what we're working very closely with Cat to make sure we're prioritizing customers and getting a longer view into demand profile to match that supply aspect as best we can. I think that's been one of the ways we've been able to unlock growth into the first half is the way the team's been very effective in being able to do that.
Got it. Thanks for taking my questions. Much appreciated.
Thank you. Your next question comes from Nicholas Rawlinson from Jefferies. Please go ahead.
Hi, Ryan and Richard. Thanks for taking my questions and congrats on a very strong result. Just on WesTrac, does the huge increase in machine sales and parts as well as the committed orders that you were just discussing reflect sort of a pull forward in the new development projects for the big iron ore players? It sounds like there's a lot in the pipeline there, but timing's been a bit uncertain.
I think it's more an expression of activity across the board from a number of different projects. Though I wouldn't say it's one in particular. It's just a multitude of activity. I'd also say it's across WA and New South Wales. I mean, I'll break that up. New South Wales has had a record result for the half in activity levels in new machine deliveries and product support. Overall, it's just a strong level of activity across support. I wouldn't say there's any pull forward. I think it's just pretty consistent. If anything, there's probably a degree of catch-up from demand prior periods, and that's still got that notional demand catch-up that's going to occur with the supply aspects around parts and labor. Fundamentally, it's just a strong period of activity.
Great. Thanks, Ryan. Just on Coates, with margins nearing 30%, is there still capacity to expand margins, or is it really just going to be revenue which drives the growth from here?
We still believe there's opportunity to expand margin. Again, we look to international peers, and there's certainly room on the upside on a margin based on EBITDA, particularly an EBIT. But for us here, we're keen to grow utilization and grow at that top line, which should translate through your operating leverage.
Great. Thanks. Just following on from that question you had before in relation to lithium and nickel, do you have any idea what sort of proportion of your parts would be comprised of lithium and nickel projects?
Rough figure.
Or is it just in material?
We would put it into other minerals in terms of our splits, and you're talking less than 10%.
Okay. That's it from me. Thanks very much, guys.
Thank you.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.