Emeco Holdings Limited
Managing inflation and supply chain risk
& FY22 guidance update
onlyJune 2022 usenal
EMECO MANAGING INFLATION AND SUPPLY CHAIN RISK
The business model Emeco has developed positions us well to absorb cost inflation and manage supply chain risk to outperform our competitors
We do this by the following:
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We have the ability to procure low-cost midlife asset cores. Asset cores are equipment that require major rebuilds to return them to operational capability (OEM level capability is required to perform these rebuilds). The Emeco group has this capability internally through our Force Workshops and expertise. As this in-house capability is rare, demand for these cores is low and we are able to buy them cost effectively for minimal capital outlay
The Force business rebuilds midlife asset cores both for retail customers and Emeco's open pit and underground rental businesses. This removes our reliance on procuring new or low-hour equipment with long lead times and inflation heavily impacting availability and price
Force has the ability to extend the life of our existing open cut and underground rental assets. Extending existing assets is the most cost effective and capital efficient strategy to sustain earnings
Force rebuilds the majority of our components. This provides us a cost advantage, protects us from component price increases and crucially provides reliability of supply of key components that keep our fleet working
We have the asset management, planning, component monitoring and maintenance capability and resources to run midlife assets cost effectively at customer project sites
We have a large skilled workforce and we work hard to ensure these valuable resources are applied efficiently. We invest heavily in our workforce to both attract and retain quality people
The above capabilities provide a buffer to inflationary cost pressures and provides us a strategic and cost advantage
versus our competitors
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1. PROCURE MIDLIFE ASSET CORES - MINIMAL CAPITAL OUTLAY & CREATES OPTIONALITY
Strategic procurement of midlife asset cores enables us to have capacity available to both replenish and grow our fleet, and provides us optionality with minimal capital outlay
| Emeco is constantly scanning the second-hand market | Core D11T Dozer when purchased | |||
» We seek both surface and underground mining equipment | |||||
cores that fit our target fleet configuration | |||||
| The upfront cost of used equipment cores ranges between 3% and | ||||
15% of the price of new assets | |||||
» | This enables us to hold capacity at very little capital outlay | ||||
| Cost effective purchase of used equipment cores provides the | ||||
only | |||||
flexibility to rebuild as and when required. We can: | |||||
» | rebuild these cores to replenish the fleet; | ||||
» | increase rebuild activity to provide growth assets; or | ||||
» if we wish to preserve capex, we can hold these cores for | |||||
future rebuild | |||||
| This process allows the workshops to rebuild as a production line or | ||||
pivot to support retail customers | |||||
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2. FORCE ABILITY TO REBUILD MIDLIFE ASSET CORES
Force rebuild capability provides Emeco with a strategic and cost advantage versus our competitors
| The Force business rebuilds equipment, both for retail customers and Emeco's | Force Rebuilt D11T Dozer | |||
open cut and underground rental businesses, at OEM standards | |||||
| Having the ability to both rebuild equipment cores and extend the life of existing | ||||
rental equipment provides Emeco a cost and quality strategic advantage vs our | |||||
competitors | |||||
| The Force rebuild capability enables Emeco to procure equipment cores. This | ||||
provides the following benefits: | |||||
only | » | Minimal capital outlay to hold capacity | |||
» | Optionality around timing of investment in rebuild of cores | ||||
» Cost advantage vs our competitors | |||||
» | Protection against inflation and availability of new and low-hour | ||||
equipment (which Emeco formerly relied upon and our competitors | |||||
remain exposed to) | |||||
| During FY22, Force rebuilt 30 midlife asset cores, as part of Emeco's asset | ||||
replacement program, and extended lives of 12 assets in its rental fleet, | |||||
achieving: | |||||
use | » Upfront capital cost at a ~60% discount to new equipment | ||||
» ~18% discount in capital cost per hour over equipment life | |||||
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» A forecast average IRR of 25% over the rental life on the assets | |||||
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CASE STUDIES - PROCURE MIDLIFE CORES AND REBUILD THEM
Emeco has demonstrated the value of this process through multiple purchases over the last two years
The following examples demonstrate Emeco Group creating value through our disciplined approach to planning and executing on procurement and rebuild of midlife asset cores:
Underground package of equipment cores, out of QLD | |
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» Acquired asset cores at 85% discount* to price of | |
equivalent new asset |
» Rebuilt and put to work by Pit N Portal » Forecast IRR of 25%
12x dozer cores, out of Canada
» Acquired asset cores at 85% discount* to price of
use | equivalent new asset |
» Rebuilt by Force and put to work by Emeco » Forecast IRR of 20%
15x haul trucks, out of WA
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- Purchased May 2022 nal» Forecast IRR of 20%
- Prior to the costs of rebuild
BEFORE
Core Simba Production Drill
AFTER
Rebuilt Simba Production Drill
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Emeco Holdings Limited published this content on 14 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 June 2022 23:32:02 UTC.