Emeco Holdings Ltd

ASX:EHL

Earnings Call Transcript 2019-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Emeco Holdings Limited FY '19 Interim Results Briefing Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, 19th of February, 2019.I would now like to hand the conference over to your speaker host today, Mr. Ian Testrow, Managing Director and CEO. Thank you. Please go ahead.

[Ian M. Testrow, MD, CEO & Executive Director]

Well, thank you very much for the introduction. And thank you, everyone, for dialing in to our first half results presentation. I'm joined by Justine Lea, our Chief Financial Officer; and Thao Pham, our Chief Strategy Officer. Thank you, ladies.I'd just like to kick off with a bit of an overview here. We're proud of this half year results, and I'm looking forward to walking through this path with you. So what you're seeing here is a continuation of the trends that we achieved over the last 2 halves in regard to growth in earnings -- earnings growth, margin improvement, increased utilization and reduced leverage. But on top of that, given our confidence in the market and our confidence in the sustainability of our business model and the performance of the business model and the performance of management, we've invested back in this business. We've invested back and committed to investing back in 2 ways: one, for the purchase of our notes, which are quite expensive, and we've invested in buying our notes back; and two, in core fleet, in core fleet that really sets us up for the future. It's core fleet that has achieved historical high utilization for the business through the years. It's in strong demand, and it's absolutely the core of how we optimize at this point moving forward. So we're very proud to invest in these assets moving forward.So to just go through the slide on the Highlights page, on Page #3. People and safety, I say this every half year, but I can't emphasize it enough that the health and safety of our people is the most important thing that we do in our business, ensuring we have a safe workplace. We had a -- we have a 0 LTIFR, which we're confident -- which we're very, very proud of. And our TRIFR remains low at 1.2. But we'll never be happy with that because our target is 0 harm.Many of you that sort of met us and met our workforce will understand the importance of females in our business, particularly our executives. Very proud that we have increased the female representation in the workforce by 20%. That's a great trend, and we'd like to keep that going.The workforce in Australia at the moment, as you know, is quite topical. It is difficult to get people. People are the most important part of our business. I am particularly proud of the way that we've managed in the last couple of years. We've overcome any challenges that we've had in regard to people. We've got a very stable workforce, we've got a low turnover rate. Significantly reduced our reliance on subcontractors, and we work very hard to use these precious resources well. We do have craftsmen. We do have people that take pride, great pride, in their work. So it's important that we look after them. We do. And it's important that we optimize their time, which we have to do. So I think Anna and her team in HR and all of our managers work very hard to, one, protect our workforce and to ensure they're productive.Earnings growth, it's a good story for us again. EBITDA, up 53%; EBIT, 60%; NPAT, 160% from the corresponding half. So we're very, very happy with those results. And the confidence in building that business has led to our reinvestment. Our operational improvement, operating utilization continues to tick up, 57% to 64%, from the previous half. Very strong on the East Coast, particularly in coal, so we're getting good utilization in our businesses. We work very, very hard to allocate the equipment to the right project, to customers where we can provide value really, with the objective of kicking up that utilization very much is a constant focus. Very proud of the team and the way that we do look at these assets. Every regional manager and every business manager understands their responsibilities to get a return on our assets. We look very closely at return on capital, EBIT over funds employed. We even push [ down market back ] into the regions to make sure that we're getting those assets above their cost of capital, well above. So it's a very strong discipline, and I'm proud of the way that we keep kicking that up.Our EBITDA margins, which are very strong, up from 39% to 45% from the corresponding -- I mean that's a really good result. I'm very proud of that. And there's 2 reasons there. I mean we talk about rates and utilization, but it just goes a little bit deeper than that. We have a very strong cost focus. We have a very strong business improvement focus. We've used the Force capacity in workshops very well to reduce our CapEx cost but also very much around getting geared as it goes from project to project, back to work in excellent working order and very cost effective. And that's starting to come through in our results that we're very proud of.The other thing to take note of there is that we work hard, and we have excellent regional managers and business development managers who have strong empathy for their customers and really get to know them well. And we create innovative win-win projects, our rental sort of agreements. So it's not just a matter of get the rates up, get the rates up, and we are getting the rates up, everything's coming through in there. But those win-win innovative agreements are very important to us. I mean, we're getting -- I'll get to it in a second around our rental business, we're getting sort of margins when we go through the 11 and 12 period with rates that are still well below where they were in that period. It just shows that we're getting good strong returns on our assets and providing our customers strong value. And that's really, really important to us. We never want to get away from we're going to make some on a dollar or save some on a dollar. And that's part of our DNA, so I'm very proud of that.The activity in the Force workshop increased through -- for the last 6 months, predominantly through our internal works, which is great, and that shows through in our margins. So that's going really well, and we look forward to bigger and better things from Force.EOS. Look we've upgraded that. We've sort of refined that as we've gone along. We really are focused on improving that and helping our customers improve their productivity yield in equipment. And so the way we sort of refined EOS is we have to do the same, we want to help our customers turn a bad shift into a good shift. And so equipments aided with this technology and this tool that allow supervisors to understand when equipment's not working optimally, send them push notifications so they can address that issue right away. So we're really investing in our customers' projects by helping them to use the equipment better, so I'm very proud of that one.Another thing we're very proud of as well, as you're aware, we acquired the Matilda business. The integration's gone particularly well. I'm very happy with the way that Matilda and Emeco are working together. Very happy with Dan Jauncey, the CEO of Matilda, and the way he's coming to the business and has sort of added to the culture that [ roots ] from customer focus [ that we'll launch ] in earnest and has worked well for us. And we've rewarded that with committing to reinvestment in that Matilda fleet. It's good margins. It has a little different customer base. So it's a diversification in itself, so we're proud of the Matilda business, and we're very happy to reinvest in it. So nice work, Dan and the team.Balance sheet. We continue to delever, 2.6x down to 2.1x. I mentioned that we've invested in buying back our quite expensive bonds that we've refinanced in a different time. So it was great to put some cash into work into buying back some of those bonds. We've reduced our borrowing cost moving forward, so we're very happy with that. The other thing that we did, which I'm really proud of Justine and Thao, in the last 6 months, is we refinanced our RCF, and we've increased that, and we've lowered prices and the flexibility, so it's a really good piece of debt for us and, as part of that, had enabled the ladies to fully hedge us and protect our skins currently. So we're absolutely 100% fully hedged now, which I think is a great investment in the way forward. Cost us a few bucks in refinancing costs associated with hedge and associated with taking out some bonds. But I think it was a good investment in the business, so I appreciate your work on that, ladies. And that resulted in a ratings upgrade, so that was really good.Just on the way of moving forward, we're confident in our market. That's obvious. We wouldn't be investing in a business if we weren't, investing in equipment, investing in core pieces, investing in the Matilda business and the Emeco business. We're seeing strong demand for our equipments, particularly in coal, that's building in the West. We're seeing customers appreciate the rental model. We're not there to [ fill legs and arms ], they are our value proposition. We work hard to make sure that we're engaged with our customers. And customers are taking a lot of more care of their CapEx. They are more sort of disciplined with their CapEx investment. And I think I'm very confident that we're providing a very valuable instrument and tool to the industry.We've expanded our workshop capacity with Force, and we're putting capital into that. So we have an existing facility that we sublease in Perth that was part of the rental -- Emeco rental business in the West. We've added that to Force in Western Australia. We've also added our existing rental maintenance facilities in New South Wales and Queensland. So we're banded in Force, where they're open for business in regard to retail maintenance and also works in our own equipment, which is very valuable to us. So we're part of that and looking forward to continuing to build that activity within Force.With M&A. For Emeco's standard, it's been a pretty quiet 6 months, but we remain very active in the M&A market. And we think there's some interesting prospects out there, and we look forward to further pursuing them in calendar '19.We -- as far as refinancing, I mean our existing bonds, which are a little bit expensive for us, but they go out to -- in 2022 and [ or else we'll buy when we've got the covenants ]. We're in a -- we have a luxury situation that the noncall period falls away in March 2020. And so for us, we've got plenty of time to have a look at this and understand the optimal time to refinance. So we work closely with our advisers, and we're constantly looking at those debt markets. And when it's the right time, we look forward to really putting this business on the path to sustainability through financing, reducing our cost of capital, flexibility of our capital structure. And as part of that, we look forward to paying a dividend to our shareholders and rewarding them for their investment in Emeco.Okay, if we just move on to the next slide, which is number 4. Just drilling a little deeper into people and safety. As we mentioned, we [ care ] for the safety of our people. Ensuring we have a safe workplace is critically important for us. Amanda Davis is a very good HSE Manager for us and her team just do great work. And we've put some very good tools and systems in place for our business. But the way I see this, safety is very much the responsibility of our on-the-spot leadership, our regional managers, supervisors. And that's really where our focus is -- in safety is. We have people working in -- with big, heavy equipments, lots of stored energy. It's critically important that they stop, assess their risk. And it's just as important -- or more important that our supervisors and lead hands and regional managers are making sure that our young men and women that are working, that we're very proud to have, are working for us on a leveled path. So that's is a very, very strong focus. We are a bit old school, safety is all about the people, it's all about making sure they're taking care of each other. So we're getting the results that we're looking for, so just pushing forward in 0 harm -- achieving 0 harm there.We've people, I mentioned before, they're scarce resources. So we have excellent people. We've got craftsmen. We've had people that take great pride in the way that we present, in the way that our assets perform. We have people that take great pride in knowing our customer and knowing the industry, ensuring we innovated [ change front deals ] we need to power our business as opposed to, it's a very positive energy for us, and we've very, very proud of our team. And we put a lot of time and energy into recruiting people, training people, retaining people. And so probably the thing I'm most proud of in this business is the culture that we have, and the workforce that we have, and the skills and the dedication that we have within Emeco.Okay. So moving on to Slide 5, the Australian rental business. Just strong results, up 51% from the corresponding half. The operating utilization kicking up from 64% to 57% (sic) [ to 64% from 57% ], mainly driven by the East Coast, mainly driven by coal where we're seeing really strong activity. Our operating EBITDA margin, up from 57% to 44% from the corresponding half. I just want to touch on that for a second. I mentioned previously that's sort of getting to the point where we were in 2011 and '12 as far as EBITDA margin in that sort of rates, now 20% up, right, of where [ I work ]? We really are creating value for our customers and for our shareholders. And I'm very proud of that. We're extremely cost-focused. We're using the Force business well. We push up rates as we can, and we push up utilization where we can. But it's more than that. It's getting to know your customers, getting to know their unique projects. Tailoring solutions for them. I'm proud of that. And that comes through in our margin improvement.I mentioned the productivity tool. We're really excited by that. We're looking forward to increasing that and pushing it out to more and more customer sites. And just on this -- I mean the confidence in the rental business, the confidence achieving these sorts of margins, the confidence in the value we're creating has led us to invest in the fleet and invest in the fleet for Emeco and Matilda, and we are investing in some core assets. It's mainly 240-ton trucks. So just -- and it's assets that, throughout our history, has created the strongest utilization, the strongest footprint. So we do need to invest in this fleet. We are bringing forward investment somewhat in asset replacement, in assets that will naturally reach the end of their economic life in a few years' time. But we're bringing forward that investment because we so strongly believe in the market and the value we're creating right now and particularly these assets, particularly optimizing the fleet with these assets. So Emeco business, with our mid-life equipment, so putting it through Force, doing the rebuilds, getting our return and [ ROC as well as WACC ] in the Matilda business, in their model that they initially modeled to, would lower our equipment, the new equipment into their customer base. So very, very proud to reinvest in this business. We've worked hard to install discipline and culture in the relationship with customer. I'm very, very proud to reinvest in this business. I'm very proud of these assets. I think this is going to be great for us.Utilization to the assets we're investing are high, they're basically all working. And a lot of this fleet is already sought after for work before they even arrive. So we're happy with that. We'll put it through Force, and we'll have them out and working to, I think, FY '20.Turning now to Page 6, the workshops. As I mentioned, we're investing in the workshops. We've got a little map there with the red trucks. We have CapEx investment in the existing rental businesses, rental workshops, the Force workshops, so that they can do retail business for us, they can do internal works for us. But I mean [indiscernible] retail work is noncapital-intensive. It's a [ plus ] to our customer, understand their operation and their equipment is managed better. And taking that discipline of cost management, time management, putting it through our workshops to do work for Emeco and for our customers is very exciting for us. Those East Coast workshops that we've added will be pretty busy leading into FY '20, doing the works with the equipment that we bring in. And we're growing, the activity is increasing for us, in our workshop activity, mainly through putting the revenue through ourselves and increasing the activity. And that's showing through our margin improvement. Particularly, as we bring it to the back and perform works so that we get into the next job, having Force available to do that, having those resources there and then so we can turn things around quickly and get into our next job and build cost-effectively with absolute top-notch quality. It's a very, very important part of our business and something we're very proud of.Moving on to the financial performance slide on Page #8. So on the P&L, it's a good result. I mean operating revenue, up 30%; EBITDA, [ up ] 53%; operating EBIT, 60%; and then NPAT, 160%. That's half on corresponding half. That's a really good result. And particularly, the margin increase as well, the contribution from Matilda, which is a strong margin business, the way that the Force business is contributing to margins and a disciplined cost focus, which is very, very much part of our DNA. We've always got business improvement, projects on all over the place. I mean we're always asking ourselves the question, how can we do this better? How can we build it more efficiently? How can we improve our quality? And really, that's the way we roll. And we're proud of the culture. It's now particularly pleasing to see that come through in our margins. And as you can see on the graph on the bottom right-hand corner, it's been pretty sort of great for a few years now.Okay, this is Slide #9, our cash flow. As you can see, we've invested in this business. We're proud of our investment in this business. We've made, what we believe, is a very disciplined and decisive move to invest in 2 aspects. And the 2 aspects are: one, is to buy back our expensive bonds. We -- these notes were at 9.25%. We did this refi during the major transaction with Andy's and Orionstone back in 2017 when. We had the opportunity and the cash in hand at the time to buy these bonds, we simply took the opportunity, and we've invested about $50 million to take out -- with hedging costs and cost associated with bonds to take out, let's say, a $33.8 million of bonds. Plus, there was a bit of tidy-up from that transaction as well with an interesting $7 million of bonds. And we've reduced our borrowing cost moving forward by about $5 million per annum. So we're very happy with that investment.And the other major investment we've made and are making moving forward is the -- we put $20 million deposit down to secure a bunch of assets around the world on D10s and D11s, 240-ton trucks, all core assets, core assets that have historically performed well, and really about optimizing our fleet, building our fleet now as we're very confident in the market conditions that, ultimately, bring forward replacement for us that are due in 2, 3, 4 years' time. So we're making that investment now because we feel so good about the market and our ability to put these things to work and particularly having the Force workshops there, being able to bring them in, buy them low, put them through Force, get them out to work, gives us that confidence. And we also have put a few bucks in the inventory as well. We were running pretty lean on inventory, and we just needed to make sure that we've got the [ accretive ] components for us to ensure -- and some [ ties ] to ensure reliability of supply for our customers in prior earnings. So we're proud of this, and we're proud of the fact that we've got confidence in the business. We got the ability of generating cash to make these investments in the business.Moving forward, just to make a couple of points there around cash flow moving forward. There's a bit of net capital -- net working capital movement, mainly associated with our clients fleet as we're sort of getting towards Christmas. There's $12 million in working capital there. Justine, we've had 9 out of 10 of that being cleaned up already?

[Justine Lea, Chief Integration Officer]

Yes.

[Ian M. Testrow, MD, CEO & Executive Director]

So a bit of timing issue there. The annual borrowing costs, about $45 million moving forward, that's been hedged in place and reducing the bond. Finance lease payments will stay the same. And net CapEx will remain very much with depreciation. You'll notice that the net CapEx there of about $45 million, $46 million is a little bit above depreciation, which is around $42 million. Yes, we bought a loader as well during the last half, to me, a contract win. That was quite a bit of gear went out to a project, and we needed the loader to pop that up and support that fleet. So we invested in that and saw good growth. But -- and the CapEx we've had -- around that sort of depreciation number moving forward. Obviously, with the exception of the additional fleet that we've committed to in FY '20. There's an uncertainty on that, really taking the [indiscernible] of the assets and the prep work to put them through Force. I mean one of our buying powers is we can buy assets that need a bit of work because we can buy them low and put them through Force, and the inaugural cost of those assets positions us very well to get a strong return on them. And we do look at that very, very closely. So that's $70 million moving forward and paid through a combination of some -- I guess, $20 million just in finance leases, and the majority or the rest of it through cash generation -- operating cash generation. And as I mentioned, those assets will contribute to earnings in FY '20.Next slide, on balance sheet. Continued [ deleveraging ] from 2.6 to 2.1x. I mentioned before that we reduced the -- a couple of times, that we reduced the U.S. high yield bonds by roughly USD 34 million, which should reduce our borrowing costs for the hedge, which I'm very proud with the way it's going and increasing that RCF and, as a result, our S&P ratings was upgraded. So BB in 6 months, and I'm very proud of your work. Thank you.Moving forward, given that we've going to pay for these assets we're bringing in, in the second half, it does take our -- we're forecasting roughly that our leverage is going from 2.6 to 2.1x. It looks pretty flat at 2.1x we're bringing in sort of for these assets. But these assets and a reduction in borrowing cost really sets us up for deleveraging beyond that. And what you see is fairly accelerated deleveraging as we get into FY '20, '21 and really sets us up for a refi, strong asset base and a -- we're heading for an optimal type of leverage beyond this. So really comfortable with our progress and really comfortable with making this investment now, which we'll further double down on deleveraging moving forward.Turning to the next 2 pages for FY19 and beyond, moving forward. What we're seeing, same strong market, particularly in coal in the Eastern Region. We're seeing high levels of bidding in the Western Region, so we're feeling good about that business and confident about that business. And we're looking forward to using those Force workshops as a base to attract more work, particularly in iron ore, which should be great. What we're going to do in the business, getting these assets in and putting them back to work, very important for us. We're putting them through Force, so we'll closely manage that, [ out of that ], what we do with everything else.Operating in the West is important to us, and we've allocated a specific -- one of our very, very senior people who is our sort of best customer-facing person has a dedicated role in that activity. Both in the Western Region and also in hard rock as well as we're very keen on winning noncoal projects. We're looking forward to seeing some traction there, [indiscernible] so very confident of the possibility. The EOS technology, we're really excited about that. We think we're on to something with that. Everything -- these push notifications and turning a bad shift into a good shift during that shift really, really help our customers get more out of [ it ]. So looking forward to rolling that out across our different customers, not only in our equipment but on their equipment as well.[ Here's to say that ] we're remaining obsessed with business improvement, but what [ we're ] trying to do is have a document that really just capture our culture. We're obsessed with that and we're always asking ourselves the question, [ what is the ] structure, and then we tend to work in project groups very, very well. I think it's innate to us, the way we do that. But it's effective, and it's showing with our margin improvement and our cost discipline.Build Force workshop earnings, yes, the earnings, when I say earnings, I mean activity and earnings both internal and external, see quite a bit internal come through as we prepped up that year, yes, it's work for FY '20. But we're looking forward to increasing that -- the external retail work as well and our margins during that retail work. Just moving on to objectives for the future. I'll go into the next slide. But being the highest-quality and lowest-cost provider of earthmoving equipment solutions in town, that's really what we aspire to do and drive all of that [ for highs ] and all of that business improvement opportunities. Growing earnings, higher rates and utilization, we do a lot of that. We put a lot of attention on that. I mean, the way that we've pushed down return on asset down into our regions, I think, is very exciting. Yes, I mean, when you start putting assets, those out to people in the regions and talking about WACC and how different assets are performing, it really does get that discipline and that teamwork of if I can't use that asset, very well, in the next region, that will support my mates in New South Wales or in Queensland, to push that up and work that asset hard. So that's a discipline we got into the business and this whole language that we got into the business, which I'm very proud of. M&A. Look, we're still planning on M&A. We're thinking there's some pretty cool stuff out there, so continue to look at that and deleveraging is important for us. As I mentioned, you'll see stronger deleveraging in the second half around that sort of fund, but that will drop off pretty quickly as we put these assets to work. So we're comfortable -- -- more than comfortable and confident with our investment and proud of it. And as we refinance, of course, we look forward to paying our shareholders dividends. Just on the next slide, Page 13, it's a new one. To be honest, it's mainly an internal slide for us. It's a slide that we like to talk to our people in the business, and we've been hearing a lot in that business. Because we do so many business improvement projects, it's really important to paint a picture for our workforce on where we're going to be and what do we aspire to be. We tell stories on where is value, where is value creation, where is value creation for our customers, for our shareholders, for our employees, how do we be the best at this, how do we take great pride, how do we create value in the industry, how do we create something special in the industry. And so we go around and tell these stories. And we thought we'd share it with our investor base. And also I'd like to tell the story about sustainability, about generating earnings, about buying assets well and then optimizing those assets and really, really using our craftsmanship, our safety standards, our cost control and all those things [ known by ], creating value within those assets and then use the value within those assets to come up with a compelling customer value proposition, those win-wins. I mean, that -- we're all wired to be [ real keen effort ] on a win-win, and that's important. And I think that's the key to sustainability, to create value to those [ body ] assets [ we're going to say ] and workshop. We're setting up infrastructure to support equipment, not only our customers' equipment or its core assets but the ones we invest in, we bought well. And then we add value to those assets through our workmanship, our craftsmanship, our cost control, our safety management, take great pride in that. And it puts -- sets us up to be that sort of highest-quality, lowest-cost supplier, to then add value through our innovative solutions, be it in repairs, component replacements, rental contracts and get the earnings of that, and we give back to our investors. So we'll be paying down debt or buying back bonds or, more importantly, yes, attractive returns to our shareholders and, one day, an attractive dividend as well. So that's a little bit of the strategy on the page. They're mainly for internal purposes, but I'm proud to share this with you. Okay, that's it for me. We'll be happy to take questions. Justine and Thao are also here to take questions as well.

[Operator]

[Operator Instructions] Your first question comes from the line of Alex Karpos from Goldman Sachs.

[Alexander George Philip Karpos, Equity Analyst]

First of all, I just want to check in on utilization. Do you have the period end rate utilization? I realized you provided the average one. But what was it at the end of the period? And in line with that, how does it stretch by region?

[Ian M. Testrow, MD, CEO & Executive Director]

Okay. The utilization was about 64 for the average, and it dropped off a touch on Christmas, we keep that pretty strong in January, dropped off in the first half of February because it started raining in Queensland, but it's recovered as it dries out there. And so by region, East Coast, West Coast we're sort of split up. East -- West Coast -- East Coast, very strong; a bit softer in the West Coast. But we're moving forward the projects building in the West Coast in the calendar year.

[Alexander George Philip Karpos, Equity Analyst]

Okay, got it. And you mentioned bidding on the West Coast. So does that mean we should expect the sort of utilization to tick up pretty hard in FY '20 or CY '20? Or is that getting more an FY '21 story?

[Ian M. Testrow, MD, CEO & Executive Director]

I think '20. I think that calendar year '19, we'll see that build, so we should get some pretty good results, and then we're confident on the work that we're dealing at the moment. So calendar '19, FY '20, we'll see some utilization, of course, in the West.

[Alexander George Philip Karpos, Equity Analyst]

Got it. And you all talked before about unique contracts taking up those floors, and you touched on the win-win nature of the new ones. Are you still seeing the ability to push out the duration and reach those higher floors on new contracts? Or are you getting some pushback there?

[Ian M. Testrow, MD, CEO & Executive Director]

No. We're getting good tenure. We're getting good terms. I'm not really seeing any pushback. Thao, do you?

[Thao Pham, Chief Strategy Officer]

No, not really. I think that continue to improve as we finalize or renew contracts. So this is going to be very strong and positive signs from our customers.

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, one point I want to sort make here is we talk a lot about rates and utilization, and we're still seeing rates improve. I mean, we're not really taking any equipment off and putting it out at a cheaper rate. We're certainly not seeing that. We're pushing rates up. But I'm kind of very, very proud of the way that [ we're having those ] win-wins as well. And as you know, the business margin improved. So it's -- it remains strong for us.

[Alexander George Philip Karpos, Equity Analyst]

Got it. And one final one from me. Margin results, obviously very strong, came in well ahead of my estimates. Is there anything you think that was unsustainable? Or is this kind of fully just showing the power of the operating model?

[Ian M. Testrow, MD, CEO & Executive Director]

I'm confident it's sustainable. Yes, what I like about the sustainability of it is that we're getting these margins without the rates of being where they were in '11 and '12 sort of period, where, to be honest, I think it was a touch unsustainable and, ultimately, proved that way. Yes, we're creating value, and we're managing the hell out of our costs. Yes, we had [ days in coal where we reached some cost problems ], and we're continuing to become more efficient. In fact, we're continuing to learning on how best utilize these Force workshops. So -- and the Matilda business, adding the Matilda business to us. And the margins, those cost opportunities, yes, I feel really good about it. I think they're absolutely sustainable.

[Operator]

Your next question comes from the line of Mitch Sonogan from Macquarie.

[Mitchell Sonogan, Analyst]

Just touching on Matilda there, can you just give a bit of insight as to how that performed over the half versus, I guess, the run rate at the time of acquisition?

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, Mitch, thanks for dialing in. Look, it performed well. It's achieved what we had hoped for it to achieve. And we couldn't be happier with that business, that's why we invested in them.

[Mitchell Sonogan, Analyst]

Okay. I guess just looking at the second half results and adding on sort of your Matilda run rate, suggests organic revenue growth was pretty flat, but on utilization and pricing, given the sort of commentary, we'd expect was up over that period. So I guess just wondering if you can maybe step us through that detail a little bit more, looking from second half '18 into the first half result.

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, Mitch, why don't I just hand to Thao for some of the detailed picture.

[Thao Pham, Chief Strategy Officer]

Mitch, yes, I think what impacted and dampened earnings a bit for us, I guess ex Matilda, was probably over in the West, we did have some projects and contracts come into completion, so we were in the process of winding them down. But as Ian mentioned, [indiscernible] going into calendar year '19 and what the projects are, we're bidding hard on those and are confident that we'll secure them going forward to build our earnings and EBITDA. And we are closing some returns, and we are moving some assets over to the East, so that we look at some earnings also in the first half while these assets were sort of in transit.

[Ian M. Testrow, MD, CEO & Executive Director]

So there was a bit of softness in revenue on West, Mitch, but the guys in the West do a fantastic job of managing their costs and really did set the standard for growth of the business and, yes, it proved quite strong EBITDA number. So I'm very proud of them. And I certainly continue to see some margin increase. But yes, it's hard, but to touch off, we consider from a revenue perspective, Mitch, was in West and cost a few bucks as we relocated some trucks from West to East. But they've gone into work -- they went to work in December, late December, and hit the ground running. So yes, feeling pretty confident about that.

[Mitchell Sonogan, Analyst]

Okay. And I guess just in light of the asset purchases you've flagged, just wondering about what sort of number of trucks and dozers we should expect in that value you've sort of committed there and what size the fleet's going to increase by.

[Ian M. Testrow, MD, CEO & Executive Director]

Yes. So normally, as I mentioned, the 240-ton trucks, the 10s, the 11s, there's 24 grade and I think a couple of loaders as well, it's around 42 pieces -- about 40 pieces. I think it might be D15 -- 14 to 15 trucks and a lot of D11s and 12s. So it's a good mix of fleet, and it's equipment where all of that kit right now is out rented, it's equipment that we're getting good rates out of. And that's where our sort of [ right equipment ] has been. It's equipment that historically has been strong for us in regards to utilization and returns. And yes, it certainly adds to optimization of our fleet moving forward.

[Mitchell Sonogan, Analyst]

Okay. And maybe just touching on the pricing environment. I know you've mentioned recent results is looking -- increases across most contracts. Just wondering about how that's sort of tracking and if we should expect to see that sort of coming through over calendar year '19.

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, our margin's [ steady ], pricing's good for us, it's not just pricing, it's the way we're creating these projects and sharing the resources and responsibility. So -- it's sort of the way with managing costs. So yes, and someone asks -- always asks previously [indiscernible] some people out there, sustainable enough, and I think we can build them.

[Mitchell Sonogan, Analyst]

And just finally, I guess just thinking about the difference between Queensland and New South Wales, Queensland had a pretty, pretty standout result, FY '18. Just hoping you could give a little bit more color on what you're seeing across your major customers in each of those regions, obviously being mainly focused on coal and the outlook for those regions as well.

[Ian M. Testrow, MD, CEO & Executive Director]

Yes. Mitch, we're feeling pretty good about our coal businesses in general, in our whole East Coast business getting strong utilization across all of our customers, we're transferring a few pieces from a couple of projects which is part of our optimization of the utilization. But as we enter the second half, we're feeling good about the business. There's no major projects that are concerning us. There's a couple of projects that are naturally winding down in the West, but we feel good about replacing them in calendar year '19 and into FY '20.

[Operator]

Your next question comes from the line of Jolyon Wellington from JPMorgan.

[Jolyon Sinclaire Wellington, Former Analyst]

I just want to ask about the revenue growth in fleet rental business. So you had 18% revenue growth that translates through to 50% EBITDA growth, so a good drop-through. Just on the revenue growth, though, it was obviously a good number but maybe not as high as it could have been just given if the year-end fleet number I've got going up from 340 million up to 400 million with the latest acquisition, which does imply there's quite a lot more fleet, and you've had high utilization. So what was the reason that the revenue growth wasn't a bit higher than that 18% level, please?

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, that's just touching on the points that we tried earlier. It's predominantly around the West. It's probably with some projects going on -- coming off in the West and relocation of some assets from the West to the East. But that's predominantly where that revenue impact. Having said that, revenue across the business and one that dropped through, EBITDA growth for us of 50% on corresponding half, we're very happy with it.

[Jolyon Sinclaire Wellington, Former Analyst]

Yes. No, I mean, it's pretty -- it's still obviously good growth levels. I suppose if you've relocated those assets and they're in place now, presumably you would expect that sort of growth rate to accelerate into the second half, that revenue growth rate?

[Ian M. Testrow, MD, CEO & Executive Director]

We do expect the revenue to grow into the second half. It was firetrucks, so it wasn't a hell of a lot of assets but around 240-ton trucks, so great assets for us to move into the East and the rate [ question ] is often quite considerable. I think the West, will continue to have a difficult period for the next 6 months, 6 months to 12 months or so. So while we will see continued reviewing of revenue on East Coast and somewhat be dampened by the West Coast. And -- but as we mentioned, we expect some -- to pick up some projects from the West Coast in the next 12 months or so.

[Operator]

Next follow-up question comes from the line of Alex Karpos from Goldman Sachs.

[Alexander George Philip Karpos, Equity Analyst]

Just one more quick one to circle back on. On the competitive backdrop, you're seeing any changes here. Are any of your competitors getting too aggressive on expanding fleet? And by region, how is that tracking?

[Ian M. Testrow, MD, CEO & Executive Director]

Yes, thanks, Alex. We're seeing our competitors -- I mean, assuming you guys would hear about some stuff at National Mining, NPAs. Ausdrill has been very aggressive [indiscernible] cost than what we have. While we consider the 240-ton truck, the 18s, the 11s, [ 20 tons ], that's our business model and where we aspire to be the lowest cost and highest quality. They're being aggressive in taking trucks on the ultra-class equipment. We respect that, but it's one area where we intend to invest in. So we're not really competing head to head with them.

[Operator]

Your next question comes from the line of John Clifford from Morgans Financial.

[Dominic Hoare]

Ian, it's Dominic here. Just a quick one. Just regarding the $90 million worth of kit you purchased, just interested what will be the average age of the fleet, regions you're probably going to deploy this. And has this been driven from customers? Or are you sort of taking part on where the market's sort of moving with the choice of kit?

[Ian M. Testrow, MD, CEO & Executive Director]

Dominic, average age of the fleet, it's a bit of a mixed base [ it goes ]. There's some trucks there that are about mid life, but we can buy it well, they're really quite in demand assets. And the reason we can buy them well is because we're talking about putting them into the Force. And then there's a bunch of assets we're taking from Matilda which are very young and a few new ones as well. So I don't actually have that number for you, the average age of the fleet. The fleet now, as you know, is 35, 40 pieces of equipment, so, it could make a huge difference. But it's a nice blend, and it represents where we're placing it with both Matilda and Emeco. As far as the regions they'll go into, across the business. We're stitching out some deals particularly for the trucks at the moment, which will probably be East Coast. But we think it's [ creating ] value across all of our regions, are quite generic in regard to our situation with the coal and on copper, whatever. So as far as customer demand, look, we're close to our customers. We know what our customers want. We've been talking to them all the time, and we're feeling [ positive ]. So it's a lot of information. I mean, and the fact that we already placed these equipment around [ countries ] is one thing, and also just knowing demand and understanding demand, and also you can't build a fleet sort of being a bit of a deal junky. You can't [indiscernible] those trucks. You really got to look at this in regard to optimizing your fleet configuration, and we've been extremely disciplined on that in this business. And yes, we take a variety of factors into play. We get them to rent quickly, which is important for us. So this is the fleet high that we want long term in our business. But we [ aren't ] bringing forward some capital replacement here. It's not like-for-like type of equipment. This is the equipment that we want to build at that point moving forward, we're doing with our best workers, with being lowest cost and highest quality. So we think also about population demand and historical returns on these assets as well as we look at our overall fleet configuration. So it's a bit of a long-winded answer, Dom, but there's lots of things we take into consideration when we make these decisions.

[Dominic Hoare]

Yes. Ian, so you're sure most of the kit, when it lands, gets cleaned up, will go straight to work?

[Ian M. Testrow, MD, CEO & Executive Director]

Yes. We're confident that we'll get this gear up to work [indiscernible].

[Dominic Hoare]

Okay. And look, lastly, I think the market was probably pretty supplied -- surprised with the $90 million sort of number. You've called it one-off several times through the preso. What are you thinking another year out? Is this probably going to be ongoing as you keep refining the fleet?

[Ian M. Testrow, MD, CEO & Executive Director]

I think this is an opportune situation for us, where we're able to secure these assets. As said, it's bringing forth a bit of replacement CapEx over time. It's not something that you will see year-on-year, but we mentioned that CapEx for us should be really equivalent to depreciation, which we stand by. So yes, it's not something that you'll see every half year. It's a opportunity for us and something that we looked at with a great deal of discipline and a great deal of rigor and made this investment very much with both immediate demand and how we're seeing the market moving forward and our overall optimization of our fleet.

[Dominic Hoare]

And so one last one, what do you expect the new kit tenure will be going? They're coming in on 3-year deals, where you're getting a bit of security, so you can go on and buy this kit?

[Ian M. Testrow, MD, CEO & Executive Director]

There might be sort of deals which I think I'm going to be stuck with. These are in-demand assets. And particularly the trucks, that we're putting them out to [ decent care ], those are a little bit less [indiscernible], a little bit so we're very comfortable with that.

[Operator]

Next follow-up question comes from the line of Mitch Sonogan from Macquarie.

[Mitchell Sonogan, Analyst]

Just one for Justine. Just wondering if you can chat through the movements in working capital a little bit over the first half and I guess how you expect that to trend over the full year, please?

[Justine Lea, Chief Integration Officer]

Just in terms of working capital, we're really impacted by December shutdowns and by debtor payments, which then reversed in January. So we expect that to be largely normalized from there. That's [ about it ]. As I've mentioned around the line of what came back in, most have reversed in January, and we improve that going forward.

[Mitchell Sonogan, Analyst]

Okay. And then just in terms of expected, I guess, tax rate of FY '19, can you give any sort of guidance there?

[Justine Lea, Chief Integration Officer]

So in terms of our tax losses that we've got carried forward, we have $119 million, of which $110 million is not yet recognized. And that's really due to Emeco's big turnaround, where we've moved from losses to profit situation. So we need to have a trend on that. So what you'd see in the first half is the 0% tax rate. And any expected taxes are offset by recognized tax benefits to bring it back to 0. So that's a clear benefit of our tax losses. In terms of cash tax, we don't expect to pay cash tax until FY '21.

[Operator]

[Operator Instructions] There are no further questions at this time. Presenters, please continue.

[Ian M. Testrow, MD, CEO & Executive Director]

Thank you, everyone. Thank you very much for dialing in. Appreciate it. Appreciating everyone's support.

[Operator]

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.