Emeco Holdings Limited (EHL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Emeco Holdings Limited FY '20 Full Year Results Briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, to Managing Director and CEO, to Mr. Ian Testrow. Thank you. Please go ahead.

Thank you very much, and thank you for those that have dialed in. First of all, before I kick off on the 2020 full results presentation, I'd just like to thank Emeco's management team. Absolutely tireless work as I think it's been a very successful year, and I really appreciate everyone's efforts. In particular, to the team that pulled together the accounts, so nice and early, thank you for your effort there. It's good to get this done, present it to you and move on to the business. Okay. If we just go to Slide #2. Just some financial highlights. Another strong year. Revenue up 16%; operating EBITDA, up 15%; EBIT up 10%. Free cash flow generation was very positive at $71.2 million, and that enabled us to beat our target. We've been upfront in telling the market that we're on a deleverage trajectory. And then we set ourselves a target of 1.5, which we communicated to you. It's come in at 1.46. And to have $100 million in the bank account as of June 30 is a very pleasing result and shows the discipline of the business. Return on capital remains healthy at 21%. That's a metric that I particularly find pleasing in a capital-intensive business, which shows how disciplined we are with capital and shows the benefits to the Force business in regards to the way we rebuild our componentry and rebuild our equipment. We get a lot out of every $1 of our capital spent so that's really pleasing for us. So it's been a really solid year. I just want to point out to you about our commodity diversification this year. It's been an objective of ours. We've talked about it to the market. We did actually see a growth in our iron ore revenue of 3.2x, and 2.5x (sic) [ 2.4x ] of gold revenue is particularly pleasing. It shows our trajectory, and it shows what we're targeting in this business. We are building a more resilient business, and it's particularly pleasing to see these results come through. I'll just move on to Slide #3. It's a new slide for us. I just wanted to highlight what we've been telling you. I'm very proud that this business and this management team delivers on our -- on what we say. We like to think that we underpromise and overdeliver. And I just want to point a few things out to you and just trace back to some guidance we've given you, some statements we've made in our documents and how we performed against those. So first of all, let me start off with growth in revenue, 16% up on revenue, which is a good result for us. We set EBITDA between $244 million and $247 million. We provided that guidance a couple of months ago, and we're at $246.1 million. EBITDA growth of 15%. We say we'll keep working those workshops harder. So we've done a fantastic job at the workshop, really delivers a lot of value to us, particularly internally, with our own equipment. We really did get a lot for our capital done. And when we do win projects, we need to ramp up and get that gear out to work. They respond particularly well and create a very, very solid quality product for us. So appreciate the work by the Force guys -- guys and gals, a really great team. So 43% increase in activity in workshops is great. Free cash flow, $71.2 million of free cash, which is excellent. This business does generate strong free cash flow. It's an absolute strength that we've created and really helped us deliver the 1.46x leverage. As I mentioned, we've been upfront setting ourselves to go to 1.5x, and we come -- it's come in at 1.46x, with $100 million cash in the bank as of June 30 is a particularly pleasing result. Strong WACC at 21%. The -- we're asked a lot about M&A. And over the last couple of years, we see, I do believe, a little bit of a run with M&A, what we did in Andy's and Orionstone business. We did the Matilda business, which was excellent for us as well and the Force business. A little bit of a dry spell for a bit, but I want to -- for a lack of effort, we look at a lot of businesses and do a lot of due diligence, and we're very disciplined that we'll do a hell a lot of due diligence and then look away when we don't feel a deal is right. But we did a lot of work on Pit N Portal, and Pit N Portal did a lot of work on us. And I think this business is a cracker for us. We're culturally aligned, rebuilt their equipment, they have a strong focus on return on capital. Their customer focus is excellent, and we're very excited about, which I think is a solid moment in the Emeco history of taking out our business and adding an underground capability to it. So very, very excited about Pit N Portal and very happy to deliver on that in FY '20. Commodity diversification, important for us. 2.7x increase in revenue, particularly around gold and iron core. So very, very happy with that and the team. The team in the Western Region did a fantastic job, the sales team, and quite a lot of great projects, fully maintained EOS-backed projects. I really like the trajectory of that Western Region business. What is the value proposition? I mean, obviously, the underground mining -- the underground business really widens our value proposition. I mentioned it's the biggest thing that's happened To Emeco in my time of 15 years, to go underground. But also, I just don't want to take away from the fact that the Force team really evolved in these last 12 months as well. The boilermaker services has gone through the roof and it's about 100% growth. Doing field maintenance with the boilers, you're going into their workshop and have look at the buckets they build and the things that they do, and it's a quality product. It's really got strong growth. So I've been really impressed with those guys. And we've developed our own technology team. We're doing a lot of work on EOS. And EOS was behind a couple of our significant project wins this year. So I'm really looking forward to EOS and further development in FY '21, but we delivered on EOS in FY '20 for a couple of project wins. So that was great. And one thing that we didn't quite hit our target, we've seen a big growth at CapEx a couple of years ago, FY '19, which the market didn't particularly like. They felt that we're drifting off our deleveraging trajectory. If we prove to you well and truly with our 1.46x against today 1.5x, that we absolutely didn't deleverage. We never went off track with our deleveraging. We thought the business needed these assets and we invested in these assets, and we showed how well we could bring these assets in, procuring them from around the world and rebuild them through Force and put them out to work. Where we end up and said in response to your concerns, we took $25 million of EBITDA in the first year. We're on track to do that. COVID knocked it around a little bit in the fourth quarter, but we did get $23 million. And if you look at those, the stats there in regard to 21% ROC, 91% operating utilization, they're great assets. They're well and truly distributed right throughout our fleet. So there's no specific project. Those assets really are delivering results and good results for us for many years to come. So very happy with that investment and the project management. Just going to Slide 4. This is the -- just to highlight the commodity diversification we have achieved in FY '20. And this is FY '19 versus Q4 FY '20. It just shows that significant increase in iron ore and in gold. And I just want to make a point here that's really important for us in the strapline there. As the business grows around coal -- we're not walking away from coal, we're very proud of our coal business, and we're very proud of our coal customers and we do a great job in coal. For a healthy business, diversification is important. And we're very focused on growing our business around our coal customers, and that's an important note to make. I don't want to be misconstrued here as Emeco is leaving coal. Absolutely not. We're doubling down on doing a great job for our coal customers, which is growing our business around coal. COVID, it's obviously the big story of FY '20. As a business, particularly proud of the way that we responded to COVID. The management team and the employees pulled together particularly well. We worked extremely hard. And we worked hard as a management team. And the way we worked on COVID, to me, was just like any M&A we've done. We really, really did campaign this in and goes back in. We've been dialing calls for a long time. We were getting external guidance from doctors who were very, very helpful to us. Put forward a lot of policies, which I think were very, very helpful to employees. I think the most important thing is we won our employees' confidence. They knew we had their back for a couple of things. And we're offering things to them like coronavirus leave and just support for them. But also, as a management team and as a business, we all stayed working. We all stayed in our offices working. Now we do have the luxury of, I mean, a bit of space. So we're able to implement social distancing practice so we can do things safely. But I think sending a message to our workforce, which is largely placed around workshops and mine sites around Australia that, "Hey, we're in this together. We're working. We're not sitting around in our jammies. We're working hard together to get through this challenge." And I think that's an important part of our culture. The social distancing, that's all thought out, putting those processes in place, changing your rosters up, looking at the pinch points in social distancing. We have very good disciplines around trying to get and register around when we do need to be in close contact with each other. It's 10 minutes or something within 1.5. We have registers in place. We do risk assessments. It not only makes you think twice about breaching social distancing protocols, but also keeping close record so that if we do get someone who gets infected with COVID, we know who to isolate and who not to. So there's a lot of discipline in the way that we go about this, like most things -- like all things that we do. So very, very impressed with the management team on how that's -- how we managed through that situation kind of as together as a team, in my opinion. We looked at our security of supply. We got a very, very good procurement team that did a hell of a lot of work with our suppliers and sort of mapped out what are the risk points in regard to the supply chain. Spent a few bucks on parts and components and consumables where we thought it could be a touch risky. So we got a couple of numbers there increasing, but we had no disruption to our operations whatsoever from a supply chain perspective. So very impressed with the way our procurement team managed through that, gave us a lot of confidence. Operational impact. No employees infected with COVID-19. No customer shutdown will -- we're significantly disruptive. We did see a bit of operational impact, which we'll talk about through the slides. In the Western Region, we had to call team leaders around where -- the majority of our plan for our workforces. And we had a little bit of exposure from relocating a little bit a couple of instances in [indiscernible]. We made some changes there. We changed some rosters. We put in some additional resources out, accommodation and buses and things like that to make sure that we can put our social distancing in place and so it cost a few extra bucks in the Western region in the fourth quarter. In the Eastern Region, we managed COVID very well. It wasn't exactly COVID-related, but the impact of COVID-related on coal and some confidence in our coal customers. We received some offline notices and we had a drop in utilization in the fourth quarter. I'll get to that a little bit more when we get to the Eastern Region, but that's what we experienced, mostly operationally. This is a little bit of softening in the Eastern Region in the fourth quarter. So in terms -- let's just move on to Slide #7, people and safety. And I say this all the time. People are absolutely the strength of this business. The safety of our people is the most important part of our business. It's our absolute priority. I'm very proud that we keep that workforce up to roughly 1,000 people now of skilled people, technicians, some more privates with Pit N Portal, some engineers, geologists. Really proud of the workforce we've created and the culture we're creating within the Emeco group of companies. It's really a can-do discipline, hard-working culture that is a very, very strong customer focus. I'm very, very proud of the workforce. We do attract skilled tradespeople. I mean if you think about it and you're an apprentice coming to work for Emeco, let's say if you're a mechanic or a fitter, then you can work underground, you can work on open cut, you can work out at workshops, you work out in the field, you can even go rebuild components. So you've got a really wide-ranging skill base for Emeco. And really proud of the 50 apprentices we have, and that's growing every year so -- and I'm trying to go back into the industry, develop people, truly important for us. Safety. Zero lost time injuries in 4 years running now, which is great. But really, really pleased with the trajectory of the 4.6 TRIFR's down to 2.9. I hate the 2.9. It needs to be a fair bit lower, but the right trajectory in FY '20. So a lot of hard work leading to the safety side of the business. Again, lots of discipline, lots of focus on risk assessments and commitment to each other on prestart, working with each others' back, investing in new systems and technology. It's a strong -- very, very strong focus for us. As I mentioned, the most important part of our business is ensuring a safe workplace. Acquisition of Pit N Portal certainly increased our workforce. I mentioned that we spent a lot of time with Pit N Portal prior to the acquisition. One of the most pleasing things about Pit N Portal is the cultural alignment between our businesses, whether it's the customer focus or it's the can-do attitude, the pricing, technology, it really played that, too, with our -- along on safety and the importance of safety in the culture. So moving forward, we continue to be vigilant, continue to invest in our safety systems and continue to be our #1 focus. Turning to the operating segments, let's go Page 9. I'll touch on this slide quickly. Rental division continued its trend of earnings growth and margin expansion in FY '20. It's been ongoing for a few years now. 11% growth and 8% on EBIT and continued margin growth, which is great for us as well. I'll just jump to the Eastern Region, Slide #10. So Rental division on the Eastern Region. So up 13% for the year on operating EBITDA, and margins continued to increase. A couple of highlights I just want to point out to you is a major customer, which is really proud of our relationship, Whitehaven, extended their contract for further 3 years. They're a quality organization, and we're proud to be associated with them. The New South Wales team, I believe, did a great job and are really customer-focused and the relationship with the Whitehaven people that just placed their deal. So we're very proud to extend that contract. So a strong year, strong utilization, averaged 70%. Gross utilization of 94%. I mentioned before that in Q4, COVID-related, we had some notice periods on off-hires and utilization declined a bit. I think in Queensland, there were some strong responses to COVID, particularly in coal, and there were some real concerns in Queensland about operators moving forward. I think some customers made some very proactive changes and wind-down to their business in Q4. We've actually seen a bit of that stabilize, and we've actually seen some of these off-hire notices being turned back on, so we couldn't go back to work. So I think we've -- I think it was worse in Queensland. But -- and I think it's somewhat stabilized. But having said that, the off-hire notice periods -- we've got off-hire notices that we received. And Q4 will impact our earnings for FY '21, and we're seeing -- we are forecasting in the vicinity of 10% to 20% impact on this. I actually consider this as too much positive spend. I mean it's an impact for us, but I personally have never seen as much bidding activity in the business than what we're seeing right now. I mean customers are responding to the lower coal prices and looking at smarter ways to do things. The amount of bids on significant project works that we've got at the moment is quite incredible. We're working very hard on those, and they're big projects as well. And a lot of them -- or a majority of them are for fully maintained. Now we have 1,000 people now. We've got 9 workshops. We're really differentiating our capability to provide services. There's just one thing I'll be -- that I'd like to look at with our Eastern -- East Coast business and our business on the -- the coal business on the East Coast is that we haven't developed as many fully maintained projects as I'd like to see, and I think this is a real opportunity with a few bits of gear coming off and the amount of work that we're bidding at the moment are fully maintained, so it's really, really, really exciting for us. So we look forward to working hard to land those projects, put the gear back to work, continue to do really good work on the existing projects that we have. And then utilization probably in the fourth quarter dropped from 70% to 65%. It might drop off to about 60% in the first half. So we saw a drop in utilization, gross utilization still -- drop from 90% average, bring to maybe 85-ish. So the majority of our fleet is absolutely still working and generating good earnings. We need to make sure we keep doing a good job for that. We're very, very excited about putting this gear back into work in fully maintained projects, which I think will give us a greater resilience of business, create greater value for our customers with our maintenance expertise and really set us up with longer tenure, more resilient and provide us growth. I mean if you lay those services on, it's going to give you top line growth. So look forward to that in FY '20 -- sorry, in FY '22. Western region. Very proud of the Western region team. I think I've mentioned a few times over the last couple of years that we've had a period in calendar '19 where we came out of some legacy contracts and some new projects. They've done a great job. Very, very proud of winning a 5-year contract with Saracen across their operations. Saracen, amazing company, a fantastic organization. So to win that work with them off the back of -- sorry, just to back off that. Fully maintained with EOS is an important part of our value proposition, really exciting, as well as you know the equipment extremely well. So that's really the future of our business, those sort of contracts. Evolution -- where we've had EOS with Mungari in evolution, to extend that for 3 years is fantastic for us. I just think the amount of fully maintained works in Western Australia is at a level where I think it'll be a much higher level than we've ever seen in the Western Australian business. WA business tends to be a little bit dry in regards to putting the equipment out there and getting it back after a while. But the majority of our projects in WA now are fully maintained. We got a fantastic operational team that we've developed over the last couple of years. So it's a -- that's really leading the way. Margins dipped down, as you can see there. But that was the impact of putting a lot of this gear from the legacy project into these new projects and some costs related to COVID. But I see strong growth in the Western region probably weighted into the second half, but growth in earnings and also in margin. We'll certainly see that margin go up. I think the team has done a fantastic job in positioning that Western Region for growth and success and margin improvement moving forward. We've seen strong demand in gold and iron ore. We're bidding numerous projects, construction projects, particularly in iron ore. There is room -- further room for growth in the Western Region as we go into FY '21 and FY '22. Roughly 40% of our fleet is working single shift. You turn that 40% into double shift and you'll certainly see growth in margin improvement in FY '22. That's our challenge. Create a lot of project, doing some good work and we're looking at more construction projects. But as we get more and more gear into double shift projects, that's where you'll see the growth. Interesting, Pit N Portal for their relationship with their customers, getting opportunity to take their service into an open cut environment, which tracks another opportunity for us to put gear into work in double shift operations. So pretty -- so really excited about that moving forward as well. Pit N Portal. I mentioned the most exciting thing I've seen at Emeco in my 15 years, and that's to take our model and to take it underground. So it's opened up a world of opportunities for us. Really admire the work that Steve and his team have done in this business over the years. They've evolved it from what was a pretty dry sort of underground rental business, did that particularly well. They did lots in Australia. They just keep layering services onto that business through empathy for their customer and understanding their project needs, and they're exceptionally good at it. We find inspiration in that. It's what we'd like to take in our model, is to put our equipment to work, do a great job but embed ourselves in our projects through value creation, through the additional services, the maintenance, the technology. These guys are, in fact, a step further. They could operate on their equipment, they provide electrical services, ventilation services, engineering, geology. Really, really created value. To watch Steve and his team in front of the customers is an absolute joy. So I'm excited about that. Business performed well in the 4 months we've had it, generating $9 million of EBITDA. It gives us commodity diversification. Certainly increased our exposure to gold based on that fourth quarter revenue. And we gained a bunch of new mining customers on long-term contracts, which is fantastic as well. With the outlook for Pit N Portal, already said that 15% growth in pre-growth pending projects. That business will continue to grow. It's certainly gaining quite a reputation as a value to operators. Obviously, not only grows in existing businesses and the assets, but we see considerable activity in bidding new projects as well. There was an announcement about -- at Mincor. It's really, really cool to get involved with the Mincor team. Due diligence, safety and the process was very impressive. So it's an exciting project with Mincor, and we look forward to kicking that off sometime in FY '21. And Steve and his team will bid a bunch of new projects as well. It'll be a key growth for the business moving forward. There may be some modest growth CapEx required, and the timing of that growth CapEx will be with the commencement of those new projects. Force. I mentioned 43% growth in workshop activities. The team did a fantastic job. I was up at Headland a couple of weeks ago. And just the way they're working with one of their major customers, just their quality, just their -- they've really evolved this business. COVID prevented a bit of movement around. And just to watch them embrace the use of technology in regard to the review and the monitoring of those works and how you manage variations and how you do that through an app and how you do it through video, et cetera, is really pleasing. They really do quality work, and they've got great controls over their costs and their quality management. So really, really pleasing to see 43% growth. It's -- operating margin. We saw margin slightly down because we just increased that proportion of external to internal from 45% to 51%. And as I've said before, we take all the overheads in this business over the retail business, so that's why there's a bit of margin compression there. We're looking forward to -- we've done some works for Pit N Portal in the last -- in the fourth quarter. Really looking forward to really getting stuck into that underground equipment to support Steve and his team at Pit N Portal, but also to do some retail works in underground as well. As I mentioned at the start, the growth of the boiler making work is particularly impressive. The quality, the breadth of the services, not only the work they're doing at Guildford workshops, but the amount of work they're doing out for their field teams as well is very impressive. We expect activity levels to remain high in FY '21. We'd like to increase the proportion of components we rebuilt through Force relative to OEMs. I think there's certainly a bit of growth there, and we look forward to investing in that. As I mentioned, partnering with Pit N Portal to tap into their customer base so we can rebuild some customers' underground equipment for the Goldfields is really cool as well. We need to and we're confident of increasing our retail works on the East Coast. We're bidding a couple of projects there, where we'd hope to have a win. And we'd like to grow that boilermaker work and fabrication work. And also, look at the good work that our boilers have been doing with their field maintenance and we can see -- we can send some of our peers out from our workshops out to do some field work as well. We think that's a really exciting opportunity for us. I'd like to hand over to Neil Siford, our new CFO. He's been with us for 3 months now. Neil?

Yes. 4 months now, Ian.

4 months, sorry. Just to go through the financials.

Yes. Thanks, Ian. Good morning, everyone. Just now onto the profit and loss. I'll take you through this in a little more detail. You have seen some of these numbers earlier in the presentation. So group operating revenue increased to $540 million in FY '20, and that's up 16% on FY '19. As Ian has already alluded, rental revenue increased as a result of the increased operating utilization of the rental fleet and improvements in rental rates on new and renewed contracts. And Pit N Portal contributed $35 million of revenue in the 4 months of Emeco ownership. Operating EBITDA, just to note, that's adjusted for nonoperating, nonrecurring items, and that's before the impact of AASB 16 Leases, increased to $246 million in FY '20, up 15%. And that's a result of a larger fleet, increased utilization of that fleet and a continued focus on cost management throughout the business, the strong cost discipline. In addition, the acquisition of Pit N Portal, 4 months and $9 million of operating EBITDA. So EBITDA margins continue to be strong. They were slightly dilutive with the inclusion of PNP, but that has a greater services content and therefore, lower margins. Operating NPAT, that increased 39%, up to $87.5 million. This excludes the benefit of a net tax credit of $10.9 million, and that's driven by the full recognition of historic tax losses. We would expect to record a normalized tax expense next year but will not pay cash taxes several years after that. Return on capital, a key metric, that remains high at 21%. And I would just highlight, there's a full statutory to operating reconciliation included at Appendix B to the results presentation. Moving on to cash flow. Strong free cash flows in FY '20. Driven by the strong operating earnings, the group generated a strong free cash flow of $71.2 million. The working capital movement primarily related to the unwinding of working capital balances from the June 2019 period, with the movement -- consisting of movements in inventory, debtors and creditors primarily. But I would highlight the working capital movement was flat across the 2 years, FY '19 and FY '20. Capital inventory reduced as components were utilized and inventory holdings were optimized. Interest costs, slightly down, driven by the full year impact of the reduction of notes in FY '19. Net CapEx was $109 million in FY '20, consisting mainly of components for our existing fleet. CapEx is largely correlated to depreciation as both are driven by fleet size and utilization. So CapEx is slightly up on FY '19. I'd also note, there's a more detailed full cash flow reconciliation at Appendix B, and that also includes a comparative taking account of the new leasing standard. Moving on to the balance sheet. The fully underwritten equity raising for the Pit N Portal acquisition in January 2020, the continued growth in earnings and strong free cash flow generation have contributed to a continued reduction in leverage in FY '20. And at 30th of June, it was lower than our target at 1.46x, down from 2x at the end of FY '19. Emeco has a strong and disciplined focus on continuous earnings growth and strong free cash flow generation to drive continued deleveraging of the business. We did draw down on our $100 million RCF facility at the height of the coronavirus volatility to provide additional liquidity. The group had a strong liquidity position at 30th of June 2020, therefore, with $198 million of cash holdings. We will continue to monitor market conditions and determine the appropriate amount of cash to hold going forward. I'll also highlight, the existing notes are fully hedged to maturity in March 2022, both principal and interest, with an ability to refinance at any time now following the end of the noncall period in March 2020. With that, I will hand back to Ian.

Thank you, Neil. I'll go just to the outlook, what we're seeing in the market. I mentioned for the bidding activity, not just in the East but in the West, it is a high for what I've seen personally in the business. There's some really exciting projects that we're bidding on as well and really utilizing those 1,000 employees we have across the business. And I'm I talking Western Region, Pit N Portal or Eastern Region. A lot of exciting bidding activity at the moment, and the teams are very, very busy with that. Equipment market remains tight. So I mentioned before that we had some gear turned off on the East Coast and COVID -- in response to COVID and got to get that gear back to go to work there. But we're certainly seeing that there hasn't been any change to the tightness of the equipment markets, and I think that's what's creating the opportunity. Customers are looking at smarter ways to do things. They are looking for savings, but certainly not looking to spend CapEx. So we consider that favorable conditions for us with the supply/demand of equipment to remain moving forward. We'll keep looking at opportunities to diversify our revenue in regard to our commodity mix. We are seeing opportunities there. We're seeing some opportunities on the East Coast with some gold operations as well, which would be right for us to get some hard work -- hard rock jobs on the East Coast. It'd be great. Softness in the coal markets will limit our short-term growth. But we do see FY '21 as a year to continue on that path of diversification in regard to our commodities. And we do see it as a great opportunity to rebuild -- to further build on the resilience of our business through -- more fully maintained and EOS-slated projects. So largely a flat FY '21 relative to FY '20 with the inclusion of Pit N Portal, but we think we've set the business up for resilience and growth in FY '22 with a more diversified commodity and customer mix. Okay. I'll just move on to our strategy. From a strategic perspective, we continue to be the lowest cost, highest quality provider of mining equipment. We have a very, very strong and continuous improvement focus within this business. It's very much within our DNA, both cost and improvement and business improvement. Always questioning how we can improve, how our systems can improve, how we can optimize the interaction between, say, Force and Emeco. We've invested in safety management systems. We've invested in AMT, which is an asset management system, and we'll continue to invest in EOS. And I know the Pit N Portal team absolutely embraced the use of technology. So lots of [ guarantee ] in business improvement, and lots of investment in technology to just keep evolving as the lowest cost, highest quality provider in our space. Expanding Pit N Portal's customer base. The Pit N Portal, bidding a heap of underground projects at the moment, which is very exciting. They are also bidding some opportunities and working with their customers from opportunities to take what they're doing in the underground operations into an open cut environment at the moment, and we absolutely encourage that. They might be -- put some operators into working in an open cut environment and provide that similar level of service. We'd be very, very happy to support them with our rental fleet. So we see growth and we see widening of the value proposition led by the Pit N Portal team. So basically, our goal is just increased resilience of this business. Continue on the path of lowest quality, highest -- sorry, highest quality, lowest cost to increase the amount of fully maintained projects in the business, to increase the amount of double shift in the Western Region versus single shifts to push that margin up and absolutely keep on that path of commodity diversification. We continue to drive strong cash flows and optimize our capital structure moving forward. Next slide here on Slide 21. I won't go through this in detail, but I just wanted to wrap this up by talking about this management team has been here for 5 years now. I'm the CEO, a very tight team that's been held together. There's obviously a valuable inclusion into the team. But if you have a look at our journey, we've seen interesting times, but it's been very consistent. First year together in FY '16, put a lot of cost out of the business, divested the international operations, really focused on the -- improving health of the business in Australia, developed EOS to differentiate to provide more value and really connected with the customer base. 2017, we looked at improving the balance sheet for our recapitalization and 3-way merger. It gave us some real trajectory on deleveraging, but also gave us a significant market share as well. We kept that momentum up by Force equipment. And Force, again, gave us small market share, but it really gave us that workshop capability, ability to rebuild our own equipment, extend the life and to rebuild our components, which really, really cranked up that return on capital for us. That was a real widening of the value proposition and an extremely valuable acquisition. In '18, we continued the journey with Matilda, a very high-quality rental business throughout Australia. This year around, sort of ancillary type equipment, very valuable for us, young fleet. It was an excellent business and again, built up our market share. Into '19, the M&A activity dried up but we focused on acquiring some growth assets, assets that we felt we needed to really balance out our fleet and to really meet customer demand. Very, very disciplined approach to this. We selected assets that not only performed well, had strong utilization, but also were resilient through the cycles as well. And I think that's shown a 91% operating utilization on those pieces, 21% return on capital. Fantastic work in being able to identify them around the world, project management, rebuilt through Force. I mentioned 17% to 20% of IRR on that. So I think it showed an ability to procure assets and to really use that Force capability to give us a competitive advantage in the way that we build our fleet moving forward and stay in that lowest on the cost curve. FY '20, Pit N Portal, massive evolution for us beyond here and after all these years. Huge -- found a partner in Pit N Portal that's extremely culturally aligned. Very strong focus on providing a great job for their customer, strong entity. Really admire the way they've evolved from a rental business to add on additional layers of services. Very aligned with where we're taking the larger Emeco business. It's a great example of how to do that, and it's been a really, really good integration. FY '20 achievements. We said 1.5, we've got 1.46 off the back of strong cash flow and also the diversification of the commodity mix and the projects that we run through EOS. The longer-term projects with Whitehaven, with Saracen, extending Evolution, so really, really solid year. Lots of really, really hard work by the management team. So very happy in getting that TRIFR down from 4.6 to 2 point whatever it is, good effort as well. Lots of work through there, but a good solid focus. So FY '21 and beyond, we continue on the journey. You can see the trend there. It's all about providing more value for our customers, creating a more resilient business, layering up our services. The workforce, 1,000 people now with 9 workshops, and we use that Force capability even more so across our rental business, how to provide our customers more business, how can we maintain more of our customers' fleet in the field as well, more and more use of EOS. We're excited by that tool. We're really looking forward to a strong year for EOS. And we'd like to continue the focus on deleveraging and optimize that capital structure again to refinance and moving forward as well just to really optimize that capital structure. Well, on the end, even with -- discipline comes up all the time. We are a very, very, very disciplined business. We're a very hard-working management team and we have a strong focus on internal capital. We are a capital-intensive business, and that's why the addition of the services, the longer project tenure and getting more out of our assets is really, really important to us.

Operator, we'll throw back to questions.

[Operator Instructions] Our first question is from Alex Karpos from Goldman Sachs.

Hi. Can you hear me?

Yes. Loud and clear, Alex.

Perfect. Well, congrats on the results. Just a few for me. Just on that stabilization you noted in the Eastern Region, obviously, we saw a bit of a hit. At the end of Q4, you noted it's stabilized. Can you just give us an update of how your customer conversations are going? How you're looking to competition around that as well? And maybe just taking a step back, for people who haven't been through a cycle like myself, just framing how those conversations are going now versus how they were on the downside with what you saw last time with coal price coming under pressure. Like how do you compare those today versus what they were 4 or 5 years ago?

Yes. Okay. If we look at today versus 4 or 5 years ago just with coal prices coming off a bit, there's some major differences here. One, the market is a lot less fragmented, it's a more consolidated market, and we have a far greater market share. So it's a more disciplined market. Secondly, in my mind, is just that supply demand imbalance. I put up some slides previously that showed in that period leading up to a bit of coal downturn, previously in that period, sort of straight after the financial crisis of 2010 through 2013, there was an enormous amount of equipment that was brought into Australia. Capital discipline was doing very strong, held a lot of investment in equipment, and we recorded a little bit of a perfect storm of the money prices coming off and also a flood of equipment in the market, which might be extremely tough. So the difference this time is, one, the nature of the market consolidation, but two, we just haven't seen that behavior from our customers over the last few years. They're very, very disciplined with CapEx. I mean that discipline comes up a lot, not just us, it's the market. People are getting more out of their assets. So we haven't seen that inflow of equipment. So we're going to this situation at the moment where there isn't a supply demand imbalance of surplus equipment. In fact, there remains some tightness in the market. As far as the discussions with customers, initially with COVID, I feel like there was quite a reaction. You could say perhaps a touch of an overreaction as people worry about, s***, are we going to be able to get operators in place? Is this going to limit us? In Queensland, in particular, there were some concerns with the regions within men -- of not letting people from the Southeast come into the different projects. And so there were really concerns about -- just a bit of a tension with the equipment off, we were not sure how we're working to utilize them moving forward. I think that's been well managed. We are seeing some people go back to work. But the conversations with the customers are more about how can we do things smarter, how can we use -- how can we look at cost savings, how can we -- good pricing, how can you guys take more risks off us and services. So they're really quite constructive conversations and they're leading to some quite significant bids. As far as the competitive landscape, as I mentioned, this is far less fragmented. But we are -- and I keep talking about, and I think on the packets itself, in the appendices, there's a slide, Slide 24, which shows what we see on the cost curve. I think that describes the market dynamic for us and our ability to compete. We do compete hard. But that ability to run mid-life equipment, acquiring mid-life equipment well and support through Force, I think it gives us a real cost advantage versus our competitors. So we were excited about the opportunities in front of us, Alex. We're excited about the opportunity to show that we've not only rebuilt the business over the last 4 years from the downturn, but we've rebuilt a resilient business, and we look forward to showing you that over the next 12 months.

Perfect. And onto the West, obviously, a pretty positive outlook for next year. Just want to frame that margin commentary a little better, the significant kind of increase that you're citing in the presentation there. Does that mean back to what we saw in FY '19, or would it be kind of growth above FY '19 levels at the margin line?

Above.

Great. And then one final one on my end, just the notes maturing. Obviously, not much urgency, I guess, in terms of you got tenure here and then, obviously, a lot going on in the business. But how are you framing that? How are you thinking about that? And I guess how high on the priority scale for start of FY '21 is that for you?

Alex, look, we're a business that works very, very hard. We do lots of preparation work, whether it be M&A or all sorts of things. So we'd like to create optionality for certain scenarios. We are watching the key markets closely, and we do a lot of homework. And we'll look at opportunities to refi. Obviously, things are a little choppy at the moment with COVID and the markets, and we're not panicking about this. We've got to -- our current notes go through to April 2022. But if there are opportunities that arise, you can be sure that we've done the homework and we're well placed to take advantage of those opportunities.

Our next telephone question in queue is from Mitch Sonogan from Macquarie.

Just on Pit N Portal, a good result there. Just wondering, can you clarify the growth of up to 15% in FY '21 includes the Mincor contract? Or is that considered a growth contract?

It's considered a growth contract, Mitch. Mincor, very exciting for us. Great win. I'm not quite sure of the timing, when that will come online. The assumption is it will be at the back end of FY '21. So that growth doesn't include Mincor, mate.

Yes. Okay. And then maybe just touching base a little bit in more detail on that tender pipeline and what Pit N Portal is seeing. You may be able to give us any sort of quantitate sort of vary, like how many dollars worth of tenders you're working on versus the current book? Yes, any sort of further detail you can provide there would be good.

We'll come back to you on that one, Mitch. Actually, Sam, can you talk to this one? Sorry, Mitch, I work with Sam on this. Sam's actually -- work mostly with the Pit N Portal team through the integration process. So he's our resident underground miner now at one point in time.

Yes, Mitch, I think the tender pipeline, without going into specifics, they're under CA. But -- and the pipeline would be sort of back end of '20 and into '21 before you see some real material...

Back end of '21 and '22.

Sorry. Yes, back end '21 and '22, the real material revenue and earnings. But in terms of uplifts, it could be 50% to 80% increase in revenue if they would alter that, but it's probably half a dozen projects within that. So that's, I guess, a broad level of the bidding activity.

[ Sammy and the broad ].

Yes.

Okay. And just looking at the Eastern Region guidance down 10%, 20%. Is that primarily due to the off-sites? And maybe just how should we think about the risk to pricing in this environment? I know you've talked about a huge amount of bidding activity. But is there a risk that, that does push down pricing, albeit sort of offset with potential contract wins?

Yes. Look, I don't think we're going to get rate increases in this next 12 months, Mitch. I think that's fair. I think that's -- if you look at our margins in the Eastern Region, they're pretty high at 69% over there. I think that you could see some softening on those margins over time. But I think the softening of those margins would be as we apply more services to those projects. I mean a lot of the projects we've been very successful with regard to the Eastern Region over the last couple of years have been what are we sharing with our customers that may provide them some maintenance. One of these projects to me -- I'm excited by, again, let's put it -- of the mechanics inside in place to provide the full service there and do some work on your fleet as well. I really like the idea of that. So with the application of those services, as you know, the capital intensity is not as great, so there might be a bit of a margin dilution. But as far as the rates themselves, I kind of expect them to hold pretty steady. I certainly don't see any increases. But I'm excited about those services on the top line and the resilience that, that creates.

Yes. Great. And just finally, in terms of labor costs, can you maybe just touch quickly on what you're seeing out there, I guess, between Western Region and Eastern Region, given how the other [indiscernible] workers have sort of been based by a certain WA? And is that pretty -- a fair bit of times in that market?

Yes. Sam mentioned the opportunities in front of the Pit N Portal, and our business and the Pit N Portal business has been very much focused on Western Australian operators -- for Western Australian businesses and also in Queensland where -- Queensland operators. So we aren't reliant on pulling operators in the Pit N Portal business across Australia's boundaries. Steve has -- previously has been very strong with that over time. They are good at attracting people, they are very nice at treating them on the [indiscernible], and we've got lots of confidence in their ability to facilitate this growth through recruitment. We're looking at some things we can do to help Steve facilitate that. You're absolutely right to identify it as a key challenge moving forward, mate, to facilitate this growth. But we feel confident in our ability to fulfill.

Yes. Okay. And if you don't mind, just a few real quick ones for Neil. Just thinking about CapEx expectations into FY '21?

I might hand over to Sam.

Yes, Mitch, it will be pretty much in line with this year, track with depreciation and you'll get the full year Pit N Portal sort of pick up as such.

Yes. Okay. And just final one. Just can you give some detail on the accrued revenue of around $15 million versus sort of $100,000 in the prior year?

Yes. There's just a couple of things in that. We had them -- obviously, we released our results today, we went very early with the cutoff. So there's some accrued revenue that, for Emeco, that's normally there would have invoiced. And then we've got Pit N Portal in there. We've got a slightly different model when it comes to invoicing, this claims process. So there's a bit in there to that as well. So there's nothing unexpected in that number. So Pit N Portal number, yes, we'll continue to work at it. But it will just be a feature of the business going forward.

Our next telephone question is from Michael Aspinall from Jefferies.

Can you just talk to what's occurred in those instances where termination notices were attracted just kind of operationally? Or how the customer thought through that process?