Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Emeco Holdings Ltd (EOHDF, Financial) delivered a strong financial performance for FY24, with operating EBITDA up 12% to $281 million.
- The company achieved significant growth in operating free cash flow, which increased by 66% to $87 million.
- EBITDA margin improved from 29% to 34%, and EBIT margin increased from 12% to 15%, reflecting better cost and contract management.
- Gross fleet utilization averaged 91% for surface rental, indicating high levels of activity in the mining sector.
- The company successfully transformed its underground business, delivering a turnaround performance with a $5.5 million EBIT contribution in FY24.
Negative Points
- Total revenue was down 6% to $823 million due to the sale of the Pit N Portal underground contract mining business.
- The Total Recordable Injury Frequency Rate (TRIFR) remains a concern, although it improved from 3.2 to 2.8 in 2024.
- Corporate costs were higher, mainly due to the award of short-term incentives, impacting overall expenses.
- Net debt increased marginally despite the growth CapEx program, indicating ongoing financial leverage.
- The underground rental fleet utilization was low at the end of FY24, although there has been an uptick entering FY25.
Q & A Highlights
Questions and Answers:
Q: Congrats on another great set of numbers. Can you help me understand how you're thinking about dealing with the bond that comes due just past the end of FY26?
A: Thanks for those kind words. Yes, FY25 is about generating free cash and building cash reserves. It's all about creating optionality at the end of FY25, considering options for the refi due in FY26, future growth opportunities, and other capital management options. (Ian Testrow, CEO)
Q: Does the optionality include potential inorganic growth, or are you happy with the returns you're generating organically?
A: I'm happy with the returns we're generating organically. You'll see growth in FY25 from our investment in growth CapEx in FY24, even without additional growth capital in FY25. We are confident in our ability to generate organic growth. (Ian Testrow, CEO)
Q: Is there a plan to bring back the dividend, given your low leverage and focus on net debt reduction?
A: We haven't changed our capital management policy, but our capital management is currently suspended. We'll continue to focus on generating strong free cash and consider our options at the end of FY25. (Ian Testrow, CEO)
Q: Can we expect the second half exit rate margin for the underground business to continue moving forward?
A: Margins in the underground business will improve. We've simplified it to a pure rental business, reduced overheads, and integrated the underground workshop business into Force. Expect strong margins similar to our rental business. (Ian Testrow, CEO)
Q: Could you give us a feel for revenue growth in FY25, particularly in terms of industry growth versus market share growth?
A: Top line revenue will be flat year-on-year due to the mix change from the underground contracting business sale. However, you will see growth in revenue and earnings from our core surface rental business. We are capturing more market share and adding value to our customers. (Ian Testrow, CEO)
Q: Corporate overheads increased significantly. Can you explain why and what your long-term vision for this line item is?
A: The increase is due to higher STI, ERP spend, and LTI expenses. We've also added capability in IT and procurement. We expect to dial back some of this incremental resource once our ERP is up and running. (Theresa Mlikota, CFO)
Q: Could you provide more details on the procurement program savings and their timing?
A: We've had some benefits come into the FY24 results, particularly from January 1 on our part spend. Most contracts were rewritten towards the end of FY24, so the full effect will be seen in FY25 and build out completely into FY26. (Theresa Mlikota, CFO)
Q: Do we expect the underground business EBIT margins to track towards surface rental margins after the reset?
A: Yes, the underground rental business will look similar to our surface rental business. It's strategically important for us, and you will see similar returns. We are feeling good about the underground business going forward. (Ian Testrow, CEO)
Q: How much of the corporate overhead is abnormal ERP expenditure?
A: In this period, it's $10 million. (Theresa Mlikota, CFO)
Q: Could you flesh out the procurement program savings further?
A: The procurement program savings will play out over FY25 and build out completely into FY26. We've had some benefits come into the FY24 results, particularly from January 1 on our part spend. (Theresa Mlikota, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
