Emeco Holdings delivers sixth consecutive half of earnings growth
Emeco Holdings has reported its 1H26 results, marking the sixth consecutive half-year period of earnings and cash flow improvement. The Emeco Holdings growth strategy momentum continues to build as the company transitions from balance sheet repair to disciplined expansion, backed by strong operational performance across both rental and maintenance divisions.
The results demonstrate operational leverage at work. Revenue grew to $421M (+9% versus 1H25), whilst Operating NPAT surged 21% to $46M, outpacing top-line growth and signalling margin expansion despite a shift towards lower-margin, higher-return maintenance services.
Five key financial highlights from 1H26:
- Operating EBITDA: $155M (+7% vs 1H25)
- Operating NPAT: $46M (+21% vs 1H25)
- Operating Cash Flow: $67M (+37% vs 1H25)
- Cash flow conversion: 110%
- Return on Capital (ROC): 18% (+230bps vs 1H25)
The company’s ability to grow earnings faster than revenue reflects disciplined cost and contract management, combined with the structural benefits of its fully maintained rental model. Cash flow conversion above 100% signals working capital discipline, whilst the 37% surge in operating cash flow underscores the quality of earnings.
For investors, six consecutive periods of improvement is not a cyclical bounce, it’s evidence of operational discipline embedded across the business. The 21% NPAT growth demonstrates the earnings leverage available as the company optimises its existing fleet and scales maintenance services without requiring significant growth capital.
Balance sheet transformation positions Emeco for growth phase
Emeco (ASX: EHL) has shifted from deleveraging mode to growth mode. Net leverage now sits at 0.5x, comfortably at the bottom of the company’s new 0.5x to 1.0x target range. This provides significant debt capacity for disciplined acquisitions whilst maintaining financial resilience.
The balance sheet transformation is structural, not accidental. Over the past four half-year periods, Emeco has generated approximately $230M in operating cash flow, converted strong earnings into debt reduction, and refinanced its capital structure to extend maturity and lower costs. The $250M Australian Medium-Term Notes facility was redeemed on 19 January 2026, replaced by a $355M revolving syndicated debt facility maturing in December 2030.
Return on Capital (ROC) reached 18%, up 230 basis points versus 1H25 and 100 basis points versus FY25. This improvement is driven by growth in low-capital maintenance services, which now represent approximately 50% of gross revenue. ROC expansion reflects capital efficiency, not just profit growth.
The company closed 1H26 with a cash balance of $171M and net debt of $143M. Net Tangible Assets per share stood at $1.44. The refinancing provides flexibility to pursue growth opportunities whilst maintaining investment-grade credit metrics, with ratings maintained by Moody’s (Ba3) and Fitch (BB-).
| Metric | 1H25 | FY25 | 1H26 |
|---|---|---|---|
| ROC | 16% | 17% | 18% |
| Net Leverage | Not disclosed | ~1.0x | 0.5x |
| Operating Cash Flow | $49M | Not disclosed | $67M |
The decision not to declare a dividend or initiate a buyback for 1H26 signals the board’s intent to preserve capital for growth opportunities expected over the next 12 months. With leverage at the bottom of the target range, Emeco has capacity to deploy capital without compromising financial strength.
For investors, the balance sheet provides optionality. Emeco can pursue organic growth through fleet expansion, acquire competitors to consolidate the sector, or develop its maintenance services platform, all whilst maintaining a conservative leverage profile.
What is a fully maintained rental model and why does it matter?
Traditional equipment rental operates on a simple premise: a customer hires machinery and handles their own maintenance. The rental company provides the asset, collects hire fees, and the customer bears responsibility for servicing, repairs, and operational uptime.
Emeco’s fully maintained rental model integrates equipment provision with comprehensive on-site maintenance services. The company supplies mining fleet and delivers ongoing maintenance for both its own equipment and the customer’s fleet. This creates a recurring revenue stream from services, not just asset hire.
Why this model matters for investors comes down to three factors: capital efficiency, customer stickiness, and margin structure.
Maintenance services require minimal capital to scale. Emeco leverages its existing workshop infrastructure, technical expertise, and operational footprint to provide services without acquiring additional fleet. This allows the company to grow earnings and improve ROC without deploying significant growth capital.
Fully maintained contracts create switching costs for customers. Once Emeco is embedded on-site managing a customer’s entire fleet, the operational integration makes it costly and disruptive for customers to switch providers. This drives contract renewals and longer-term relationships.
Maintenance services deliver higher margins on the service component. Whilst equipment rental faces competitive pricing pressure, specialised maintenance services command premium rates due to technical capability and operational risk transfer. This shifts Emeco’s revenue mix towards higher-return, lower-capital segments.
Maintenance services now represent approximately 50% of Emeco’s gross revenue. Gross Operating EBITDA from maintenance services surged 88% in 1H26 versus the prior corresponding period, whilst Gross Operating EBIT more than doubled. The company derives maintenance revenue from three sources:
- Rental maintenance: on-site services for Emeco’s hired fleet
- Workshop internal: rebuilds and maintenance for Emeco’s owned fleet
- Workshop external: services for customer-owned equipment
This diversified maintenance revenue base provides earnings resilience and positions Emeco to benefit from mining sector activity without requiring proportional fleet growth. For investors, the shift towards maintenance services represents a structural re-rating opportunity as the market recognises the earnings quality and capital efficiency of the model.
Segment performance breakdown
Rental delivers 14% revenue growth
Emeco’s rental division reported revenue of $342M, up 14% on the prior corresponding period. The growth was largely driven by the successful ramp-up of a fully maintained operation in Queensland, where Emeco provides mining fleet and delivers maintenance services for both its own equipment and the customer’s fleet.
Operating EBITDA increased 6% to $168M versus 2H25, whilst Operating EBIT grew 9% to $94M. The half-on-half earnings growth reflects integrated surface and underground rental overheads and workshop support, demonstrating the operational leverage embedded in the business model.
Fleet utilisation remains solid. Surface fleet utilisation held at 85%, whilst underground utilisation improved from 69% to 75% by period end. This upward trajectory in underground utilisation signals improving demand and pricing power in that segment.
The company has confirmed it will prioritise utilisation gains over fleet expansion. With good operational leverage within the existing fleet to grow earnings, Emeco has stated growth capital expenditure will remain limited. This discipline protects ROC and cash flow generation whilst allowing the business to scale profitably without balance sheet strain.
For investors, the rental division’s performance validates Emeco’s fully maintained service offering as a competitive differentiator. Combined with disciplined capital expenditure and a lean cost structure, the company is positioned to capture new deployment opportunities as mining sector production volumes remain robust for key commodities including coal and iron ore.
Force Workshops maintains margin discipline
Force Workshops reported total revenue of $141M for 1H26, stable versus $143M in 1H25. The revenue mix shifted strategically, with internal revenue increasing $7M to $62M as workshop capacity was redirected to service Emeco’s rental fleet. External revenue decreased $9M to $79M.
Total Force earnings (before intercompany eliminations) improved marginally, with Total Operating EBITDA of $18M (up 2%) and Total Operating EBIT of $15M (up 4%) on the prior corresponding period. Internal earnings grew $2M, partially offset by external earnings which declined $1M.
Labour utilisation remained high throughout the period. The business completed 84 machine rebuilds (versus 66 in 1H25), although average job sizes were smaller year-on-year. Force continued to provide support services to XCMG for their battery-powered fleet in preparation for delivery to Fortescue, positioning the business for the emerging electrification wave in mining equipment.
The workshop segment’s focus on internal work supports the higher-margin rental division whilst maintaining technical capability and labour productivity. Business development efforts are concentrated on maintaining a pipeline of offsite rebuild and heavy fabrication works across eastern and western regions. Field-based services remain in strong demand, with the company assessing opportunities to expand volumes in this area.
For investors, the Force Workshops performance demonstrates margin discipline and strategic resource allocation. The shift towards internal work supports Emeco’s rental fleet competitiveness, whilst external work on customer-owned equipment provides cyclical balance and maintains technical relationships across the mining sector.
CEO signals shift to growth-focused capital allocation
Ian Testrow, CEO and Managing Director, outlined the strategic pivot in the company’s 1H26 results commentary. The focus has shifted from balance sheet repair to disciplined growth, backed by strong operational performance and financial flexibility.
Ian Testrow, CEO and Managing Director
“The business is well positioned to maintain first half performance into the second half period. Our business strategy and capital management program are now focused on disciplined organic and inorganic growth.”
Management has identified four strategic priorities for the next phase of growth:
- Growing the portfolio of fully maintained rental projects
- Expanding the low-capital maintenance services offering
- Further developing artificial intelligence and operational technology capabilities to expand competitive advantage
- Actively monitoring competitors for consolidation opportunities
The decision to preserve capital rather than return it to shareholders via dividend or buyback reflects confidence in near-term growth opportunities. The board has elected to prioritise growth opportunities expected to emerge over the next 12 months, with no dividend or share buyback recommended for 1H26.
The reference to “actively monitoring competitors for consolidation opportunities” signals M&A is on the agenda. With net leverage at 0.5x and a $355M revolving credit facility in place, Emeco has the balance sheet capacity to pursue sector consolidation without compromising financial strength.
Investment in AI and operational technology targets competitive advantage expansion. Emeco is building digital capabilities to enhance fleet management, predictive maintenance, and operational efficiency, which should support margin improvement and customer retention over time.
For investors, the strategic priorities provide clarity on capital allocation. Emeco is positioning for disciplined growth, not aggressive expansion. The emphasis on fully maintained projects and maintenance services aligns with the company’s capital-light, high-ROC strategy, whilst the M&A focus signals potential for sector consolidation that could accelerate scale benefits.
Outlook and guidance for 2H26
Operating conditions in the mining sector remain positive. Emeco has stated the medium-term production volume outlook is robust, despite recent commodity price volatility. This provides confidence in sustained demand for equipment rental and maintenance services across the company’s core coal and iron ore customer base.
Management has set a ROC target of 20% for the second half, representing a 200 basis point improvement from the 18% achieved in 1H26. This target signals continued focus on capital efficiency and earnings quality.
FY26 sustaining and improvement-based capital expenditure is expected to be approximately $170M to $175M. Growth capital expenditure will remain limited until fleet utilisation exceeds 90%, consistent with management’s disciplined approach to capital deployment. FY26 depreciation is forecast at approximately $160M to $165M.
The company has flagged approximately $15M in non-recurring cash expenditure for FY26, covering ERP system implementation, takeover defence costs, restructuring, and refinancing expenses. The reference to takeover defence expenditure suggests the board is alert to potential approaches.
Key focus areas for 2H26 include:
- Ongoing improvement of financial metrics, particularly ROC and cash flow
- Fleet utilisation and optimisation
- Growth in fully maintained rental projects
- Expansion of maintenance services offering
- Continuing to build competitive advantage through cost and operational performance improvements and further digitisation
Emeco is also preparing for FY26 sustainability reporting requirements, with preparations underway to reduce greenhouse gas emissions and meet regulatory disclosure obligations.
For investors, the outlook provides clear performance benchmarks. The 20% ROC target is achievable given the earnings trajectory and capital discipline demonstrated in 1H26. Limited growth capital expenditure protects cash generation, whilst the company retains optionality to deploy capital opportunistically if high-return projects emerge.
The takeover defence reference is notable. At current leverage levels and with strong cash generation, Emeco could be an attractive target for larger industrial services groups seeking exposure to the mining equipment rental sector. This adds a potential M&A premium to the investment thesis, separate from the operational growth story.
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