Thank you for standing by, and welcome to the Austin Engineering FY 2022 Results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. David Singleton, CEO. Please go ahead.
Hi. Good morning, everybody, and welcome to the Austin Engineering FY 2022 results presentation. This is David Singleton. It's interesting. It's a year now since my first presentation on Austin Engineering and it feels like the business has changed quite dramatically in that period. It's a delight really to be able to go through some of the features of the business as we will do over the next 15-20 minutes. You'll remember that this journey, at least for me, started a little bit over a year ago when I was on the board of Austin Engineering, and the board wanted to carry out a strategic review, which I agreed to do. One of the things that we identified with Austin was it had a very strong brand as a business.
In the market of customized truck trays and buckets for the mining industry, it really does have the strongest brand in the world. We also identified that the company provided strong operational advantage to mining companies. That is to say that the efficiency improvements out of these customized products have a really significant impact on the overall efficiency of mining operations, of both mining services companies as well as the mining companies themselves. Therefore, presented a great deal of financial opportunity to them. The other thing we identified was that the business had good international reach, which meant that when we were developing and improving products, we were able to sell those products across a broad spectrum of companies around the world. That gave a unique position.
Nobody else in the world, other than the big OEMs, has anything like that kind of coverage. However, when we looked at the business, we found that the financial performance of the business and some parts of the business were not what we would have expected. That was an area that obviously we put a great deal of focus on. As a result of that strategic review, we put a new plan into place, which we called Austin 2.0, with a number of elements to it, some of which I'll touch on as we go through today. I'm gonna turn though now to slide number two in your pack, which gives the financial highlights for the business over the last 12 months.
As you can imagine, as you read down through these highlights, it's a great pleasure to be here talking about them today. NPAT up over 5x to AUD 20.6 million, but also importantly, well ahead of our initial guidance, which was AUD 18 million for NPAT. Again, you know, well ahead of last year's performance. As a result of that, earnings per share are up to AUD 0.0355 per share. Again, 5x increase from last year. Revenue up 3%, although actually the performance on revenue is much stronger than is apparent for that number.
Principally, and Gareth might talk about this a little bit later, but principally because, in FY 2021, we pulled forward, or the company pulled forward quite a significant amount of revenue from FY 2022 into the FY 2021 year, and as a result of that, bolstered the number in FY 2022 and reduced the revenue impact in FY 2022. If you go back and reallocate all of that, you'll see that actually revenue is up quite strongly in the FY 2022 year. I think that's been a good feature of the business and perhaps hidden by the way things fell. Couple of things I'm very pleased about with the business, and I would like to emphasize on this slide, is that net debt is now down to AUD 1.2 million.
At the end of FY 2021, it was AUD 9.6 million of net debt, and in fact, had increased to AUD 18.6 million of net debt at the end of the half year. I think that improvement in cash flow in the business really represents the performance of the business going forward as well. The order books up 50%. It's probably one of the most pleasing numbers that I see on the chart here today. Not because it's more important than those other numbers, but because it gives us a real indicator to how the business is likely to perform through the FY 2023 year. Post the end of the results, and we talked about this last week, we completed the.
Sorry, we announced the acquisition of Mainetec, a very innovative, high quality, mining bucket builder, based on the East Coast of Australia. I'll talk a little bit more about the impact of that later on in the presentation. I'm going to move forward now to slide number four. This just graphically outlines the improvements that we've seen as we've started to implement Austin 2.0. I use the word started very clearly in the sense that we're a long way away from the full impact of the changes we've made in this business hitting all the financials. There's a lot more runway left.
We've seen the percentage EBITDA numbers increase from what was, you know, in that range 8%-10% over the last few years, jumped in FY 2022 to 16%. I think very meaningful change in the performance of the business, in such a short period of time. That translates, of course, to much stronger NPAT and therefore a return on equity, which has increased from what was typically around 10% and below, up to 19%, during FY 2022. That's always, for me personally, a key figure to keep an eye on, to make sure that the way we are investing in the business meets high hurdles.
We're going to move forward to slide number 15 now, and I'd like to introduce Gareth Jones, who's the Chief Financial Officer, who will take you through some of the detail of the financial results.
Thank you, David, and good morning, everyone. Before we get into the numbers, I just wanna point out again that the figures in the presentation are on a statutory continuing operations basis, and where necessary, any FY 2021 comparators have been restated for discontinued operations. Just moving on to the table on slide 16. Let's look at financial performance. As David's already alluded to, you know, we've seen a solid turnaround operationally in FY 2022, and this has delivered a significant improvement in financial performance. David already says, as he mentioned, the AUD 5 million increase in revenue is, there's two parts to that in terms of the story. It's the impact that COVID has had in Western Australia, but more so the pulling of work forward into FY 2021.
What we've therefore seen in FY 2022 was a slow start to the year, impacted by work shifting, but then a steady build up. The second half of the year has been significantly ahead of the first half of the year. What we will see now is that trend continuing through FY 2023. I think that the key highlights really for me in this year have been the major turnaround that there's been in both North and South America. You know, North America has had the highest EBITDA percentage that they've ever achieved. And in South America, we've got profit, you know, pretty much for the first time since we acquired those businesses. It's been a tremendous turnaround that we've seen there.
That improvement, combined with the restructuring and cost efficiency measures that were implemented early in FY 2022 as part of the Austin 2.0 strategy, have really delivered a significant improvement in EBITDA, which is up 155% on last year to AUD 32.5 million, and a 16% average EBITDA margin for the year. Again, that's we've ended the year in a very strong position. Depreciation and amortization have fallen year-on-year, and this is due to assets being held for sale. We made a decision at the end of FY 2021 to close some of the unprofitable operations that we had in South America. Those assets stopped depreciating, and we've seen the benefit of that fall in depreciation and amortization.
There was also some amalgamation of and consolidation of operations on the East Coast. All of those properties that were involved with those businesses have now been sold, and I'll touch on that on the cash flow slide in a moment. We've also seen a 40% or greater than 40% reduction in interest costs, and this is as a result of the new HSBC financing facility that was put in place from August last year. That's really benefited us tremendously in terms of the interest rate that we pay on that facility. And I think that, you know, again, the thing we should be celebrating here is where we've ended up with NPAT of AUD 20.6 million. You know, it's 500%+ up on last year and exceeded guidance.
I think that's just testament to all the hard work that the business has put in to delivering that operational improvement and the financial improvement that's come off the back of that. I'll just move on to page 17 now on the cash flow. The big turnaround on the cash flow has been the swing from an AUD 8.3 million outflow in 2021 to an AUD 4.7 million inflow in 2022. Now the table will just look at a reconciliation from EBITDA. I'll just highlight the key movements here. Working capital is as usual one of the big players in cash flow movements. This is due to work in progress.
As I mentioned, H2 was a strong year, but it was strengthening as we went through H2. If you look at the last quarter of the year, activity kept increasing through April, May, and June. It was ramping up right through the entire last quarter. As a result of that, we've actually, you know, of that AUD 12.4 million movement in working capital, AUD 11.3 million of that is in work in progress. So it, you know, it's a good position to be in and obviously that will start to unwind as we get into the first quarter of FY 2023. Movement in receivables and payables, obviously you see on the next slide in a moment, net each other off. The other cash outflow was income taxes paid and finance costs of AUD 2.7 million.
In an operating cash flow perspective, the other movements are made up of the release of a few provisions. These were the restructure and the move of the head office from Brisbane that happened at the start of FY 2022. Those provisions have been released, and there was a bit of rework that was required, and there was a provision for that which we've released. There was a AUD 4.4 million movement as well in a finance lease receivable, and this is in relation to a contract that we have in South America. The other part of the AUD 9.7 is the gain on the disposal of the properties that I just mentioned of AUD 1.9.
That's what allowed us to end in a much stronger position than we've been in the past with a AUD 4.7 million inflow. Moving on from cash flows from investing activities. We had three major properties, one in Colombia, one in Chile, and one in Mackay that we've sold. The proceeds from the sale of those properties, plus some other plant and equipment, is AUD 12.9 million inflow for the year. We've reinvested part of that money into capital projects. Of the AUD 4.2 million, the bulk of that has really gone into the advanced manufacturing that's been implemented in Perth and also in Indonesia. Finally, from a cash flow perspective, we paid AUD 2.7 million in dividends through the year for the interim and final dividend.
That basically meant that we had a net cash inflow for the year of AUD 10.7 million. If I just move on to slide 19. This is just some highlights on the balance sheet movements. David's already mentioned the significant improvement we had on net debt, down to AUD 1.2 million. Yeah, which is a tremendous result. A couple of the ratios on there. I just wanted to highlight really that we are, you know, we're tracking well below the covenants required under our HSBC facility. That will continue even though we've taken on the new debt facility for the Mainetec acquisition. We'll continue to track below the covenants that we have in place there.
Again, in terms of looking at working capital, the table on the right-hand side just highlights that. You can see that it's work in progress as the key movement. Raw materials remaining flat. You know, we're ensuring that we maintain sufficient stock to manage supply risk, not just in terms of delivery, but also in price. The movement on receivables and payables pretty much net each other off. The story on working capital movement is all around work in progress. Finally, we've the dividend that we will declare for FY 2022 will be maintained at AUD 0.003 per share with a record date of 7th of October and payable on the 27th of October.
At that point, I'd just like to hand back over to David and move on to slide 23, if you could please.
Okay, slide 23 deals with strategy of the business. Everything we do, of course, is anchored in a forward-looking medium-term strategy for the business. Probably the best way to think about that now is that we are pursuing two things. One is clear cost leadership against our competitors, and the second thing is to make sure that we've got product leadership as well. I'll deal with those two things over the next couple of slides. As far as cost leadership is concerned, it really comes down to two things. Our business is relatively straightforward. It has two major components to it. One is steel, and the other one is the application of labor to turn that steel into products.
What we've identified is that, outside of the major OEMs like Caterpillar and Komatsu, we're one of the largest buyers of high-hardness, high quality steels in the world. That has allowed us to, for the first time, start to aggregate our steel purchases across all of our businesses, and to go directly to the steel mills, both in Europe and Australia, and in the United States, and compete for that steel production. As a result of that, we're confident that not only do we now have access to the cheapest steel for our products, but actually that it is significantly cheaper than many of our competitors. That gives us an inbuilt competitive advantage that we can continue to maintain. In addition, the second part, remember, of that cost base is labor.
Austin is quite unique in having a well-established business based in a low-cost manufacturing country in Indonesia. We've had our Indonesian business for 12 years. We've realized that this business can give us a tremendous cost competitive advantage, not only cost but also access to labor, where, you know, in Indonesia, we find that we have a near inexhaustible access to skilled labor, which is completely the opposite to what we find in Australia, of course, but also in North America and South America. Our ability to bring cost leadership really gives us the ability to compete effectively. Now, I'll make it clear, and I've said this a few times before, that our objective is to have cost leadership, not price leadership.
The way that we deal with that is to make sure that we've got the best products or we've got product leadership as well. If we bring those two things together, then that cost base that we've got can really transfer into margin improvement, some of which we have seen this year. I'll emphasize that we're really at the beginning of the implementation of this. We've certainly seen cost improvements for advanced manufacturing and the procurement processes this year. There is still a long way to go in the implementation of that, and therefore, a lot of benefit to come. I'm gonna turn now to leading products, and I'm gonna go to page 24 for any of you following the presentation yourselves.
You'll know that last week we announced that Austin would buy the Mainetec business in Australia. Mainetec originally based only on the East Coast of Australia, but now has a manufacturing plant on the West Coast near Perth as well, and Henderson near Perth. Where I was first introduced to this business, actually, by one of our key customers, who said to us that they were great supporters of the Mainetec bucket product, but felt that the business needed assistance to grow and develop. Needed R&D type dollars and support in order to grow their business and felt that the business would probably be up for sale. That was about nine months ago.
We've made it our job to get to know Mainetec well, get to know the founders and the directors of that business and their business well, and that has led to the acquisition that we announced last week. I'm really excited about this acquisition. I think it's going to create a whole new dimension to the business and of course fits in very well with the core business. Mainetec produce a premium product called the Hulk bucket, which has particular applications in very demanding environments. Hard rock, lithium, and iron ore-type mines would be significant users of this type of equipment. They're also a designer of dipper bucket systems.
Now, for those of you who are not familiar with dipper buckets, and I can tell you a year ago, I wasn't. These are the largest buckets in the mining industry. They're worth about AUD 1.5 million-AUD 2.5 million apiece. Very material in the revenue base. Mainetec has carved itself out a position, producing upgrades to dipper buckets, and are now present on 26 of the 31 systems that exist in Australia. They've really got themselves into a preeminent position. If I tell you one more fact, you'll understand why we're interested in that. There are 31 dipper buckets in Australia, world's most sophisticated market. In North and South America, there are 450 active dipper buckets that we can now access through the Austin companies in those countries.
I'm gonna move now to slide number 25. You'll see that we bought Mainetec on an EBITDA multiple post synergies of 2.3x. Based on broker reports from Euroz and from Petra, we have an average Austin EBITDA multiple on the same basis of around about 5x. You can see from an accretion point of view, it's a very positive acquisition. That's not really the main game. If you look in the central box here around cost-based synergies, you can see what I was talking about earlier is going to create great leverage in this business. Our steel costs in Austin are less than half what the Mainetec business was paying. We get an immediate synergistic benefit through just bringing our steel costs into the Mainetec business.
That's a relatively straightforward thing to do. We've already done it with our own business, and all we have to do, and are doing right now, is extend that into Mainetec in order to deliver some of those synergies. Secondly, the labor cost savings and access to labor that I talked about through using Indonesia as a hub for manufacture of systems and subsystems for these pieces of equipment is now also available to Mainetec as well. Now, that takes a little bit longer to bring that into the supply chain. That'll take a few months for us to get that up and running, as opposed to steel, which will happen in a few weeks. But nonetheless, we'll start having an impact on the cost base of Mainetec through this year.
They're the two things that will drive, you know, real significant increase in the value of the Mainetec business. In that synergy analysis, those cost-based synergies are the only things that we put into our analysis. What we didn't do was add in the third box here, the market-based synergies that we talk about. Which is the ability for us to sell the Hulk premium range of buckets into the Americas. Probably the piece that I'm most excited about is the ability for us to take the strong and commanding position that Mainetec has in the dipper bucket market in Australia and move that into the Americas where the market is well over 10x larger than the market that they have done so well in Australia.
That's really why we see this business as adding so much to what we're doing. Last thing I'm going to talk about before we bring things to an end is I remember talking a year ago about how we were going to invest in new products for the business, and we have done that, and we've launched two new ranges of products in the last few months. Slide number 30, for those of you using packs, you will see a launch of a new tray called the HPT, High Performance Truck Tray. It's our lightest ever truck tray and Austin has always been known for lightweight truck trays. It's our lightest ever truck tray. In this particular application gave a leading mining company 7.3 tons more payload per journey.
Now, just to put that into numbers for you, that creates an extra AUD 2.8 million worth of ore per truck tray per year. If you think about the impact that's having on the miners. The large miners will have hundreds of these truck trays going backwards and forward. The impact is hundreds of millions of Australian Dollars of additional payload that can be carried with this truck tray. Therefore, the importance to them as a company very high. For us, it's actually been product engineered to be easier to build. It's actually a lower cost truck tray for us at the same time that can command a premium price.
That's what delivers on the sort of issues that I talked about before, about how we get product leadership and cost leadership, and that translates into better margins in our products. Move now to page 31, which highlights the launch of our HPX bucket range. This is a new range of high-performance buckets with significant improvements over the bucket ranges that we had previously. It has been part of the successful sales increase that we've seen in buckets over the last 12 months. I've reported a couple of times previously that bucket sales have increased by 4x over the last 12 months to the year before, compared to the year before. A lot of that's on the back of this new bucket range that we have launched.
I'm going to go to the page that I'm sure you all turned to first when you picked it up this morning, and that is the outlook page that's in front of you. For those of you reading packs, this is page number 33 in your packs. From a general market point of view, we continue to see strength both in North America, South America, and in Australia. Notwithstanding the kind of choppy markets that we're seeing around the world with all sorts of macroeconomic concerns. The mining industry itself, as many of you will know, continues to drive forward strongly. Our market in the mining industry is really about tons moved. It's not related to the capital investment market, but we are related to the numbers of tons mined and moved by the major miners.
We see strength in that in oil sands, strength in coal, and resilience in hard rock, and iron ore as well. The basis of our business continues to look pretty good to us. That's led us to give guidance of an increase in our net profit after tax by around about 17%, circa AUD 24 million, which will be a record for this business. I'll just emphasize that that excludes any contribution from Mainetec. The reason for that is that we will update guidance when we've had a little bit more time, just to make sure that we're clear about the contribution that Mainetec will make this year. I think we've already given you some indications of that previously.
Company order book at the end of the year was at AUD 135 million and that's AUD 50 million up from last year. That suggests that we've got a strong run into the first part of FY 2023. Okay. At that point, I will bring the presentation to a halt and hand over for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from James Lennon from Petra Capital. Please go ahead.
Oh, good day, David. Great results. Just a quick one from me. I think in here you've mentioned that you've still got some non-core assets, held for sale, telling me about AUD 1 million now. I'm just keen to know what.
What we can expect in terms of is there any more reorganization or discontinuing of businesses that you expect to make, or should it be fairly clean, you know, this time next year?
Hi, James. It's Gareth here. No other restructures or reorganizations going on. What we've got left here is a property. It's an office that we got in Peru. Now that's on the market and being heavily marketed at the moment, so we expect that to be sold through the course of this next financial year and just some of the minor assets which are on the East Coast that should go as well. That should be it then. We'll be on a clean slate moving forward through FY 2023 then.
Fantastic. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one. We'll pause for any further questions to register. Your next question comes from Patrick Moore from [KMP Super]. Please go ahead.
Hi, Patrick. I don't know whether you're speaking and you're on mute, but we can't hear you. Nope, we might need to move on.
Thank you. Once again, to ask a question, please press star one. Your next question comes from Trent Barnett from Euroz Hartleys. Please go ahead.
Hi, David. Hi, Gareth. Just on the margins in Asia Pac, they were a bit weak in the second half. I mean, is that already rebounded now that the COVID impact's over or it might take till the second half of FY 2023?
Yeah. Morning, Trent. Good to talk to you. I think it'll take a little bit longer than that. I think they'll probably start to bounce back in the second half. We're certainly seeing strength come back, and we're not so badly affected as we were in the early part of the second half, but it will take a little bit longer for that to come back fully, I think.
One of the features, and I talked about it in the announcement, is that we've kind of in some ways been a little bit of a victim of our own success in Australia in that we've got a lot more product diversity in our order book, in the second half of the year and moving into FY 2023, and that's as a result of winning a lot more bucket work and also winning truck bodies in with different customers and in different locations than we had previously won. That's been a really good outcome. That change in diversity from a very consistent manufacturing approach in Australia to one where there are lots of different products going through has sort of brought down efficiency levels and therefore margins into that business.
Now we'll get used to that and we'll understand how to cope with that and that'll take us a little bit of time. It's really a good thing, but it has kind of changed the profitability of that business for a while. I think it'll be further into the back end of this year that we'll start to see that recovery.
Okay, that's great. I guess that leads into obvious growth for that division in FY 2024 if margins are sort of on the growth then into FY 2024 from here.
Yes, I think that's right. I think it will take us a little bit of time to settle that down.
Yes.
The market itself remains very strong. I mean, this is a market where, over the last 12 months, we have won a lot more work for truck bodies on the East Coast of Australia. You'll remember a story I told, probably at the half year where we'd redesigned our truck trays to meet the coal market requirements on the East Coast. That's been successful in winning a number of programs over there. And as I've said previously, I'm also selling a lot more buckets into the market than we have sold in previous years. You know, it's really good news in terms of the fact that we've made some changes. We've pushed on the East Coast and we've been successful. We've pushed in the bucket market and we've been successful.
We now just need to learn how to kind of manage that more effectively in our manufacturing operations, and I'm sure we will. There's a lot of work going on to do that right now.
Excellent. Okay. Thank you.
Thank you. Your next question comes from Patrick Moore from [KMP Super]. Please go ahead.
Can I be heard this time or not?
Yes, we can hear you now, Patrick.
Sorry about that. A couple questions only or one kind of your dividend payout ratio is about 30%. Are you likely to continue with that?
Yes, I've made some statements about how we're thinking about dividends both in the announcement and in the presentation. It'd be worth having a look at that. There are a couple of factors here. First of all, you know, my focus is to make sure that our return on equity in the business stays high and above about 18%. That gives us some guidance to how we use cash, whether we use that in the way that we've used it recently for an acquisition or whether we increase dividends. I do think that if we
Other question, sorry.
Sure. If we can use cash well in order to grow the business in the way that we have done recently, then that for me will be the priority.
Okay, that's excellent. Thank you very much. The other thing is your EBITDA to sales ratio. It's moved up very nicely. Can you see much more growth in that area or not?
Yes. I do believe that there is some growth in the EBITDA margins, and I gave some indicators to that when I was talking earlier about.
Yeah
You know, we see the ability to have cost leadership both at the labor level and at the steel level, but we're not done yet in terms of the implementation of that. We've seen some good success, and we've done well so far, but there's a lot more to go. I think we will continue to be able to drive up EBITDA margins over time as a result of the implementation of that activity.
Well, on my workings, it looks as though your AUD 24 million guidance will be exceeded, and good luck with that. Thank you very much for your comments.
Well, let's ask me that question again at the end of the year, Patrick.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Singleton for closing remarks.
Okay, just a few closing remarks. I do feel. I hope I've given you the impression, and I do fervently believe that we are very much just getting started. Some things were easy to implement, like the overhead reductions we did a year ago. Some of the design changes we did to products, which allowed us to sell more product on the East Coast of Australia. The push on selling more buckets. These were relatively straightforward things for us to do and have been very successful. What will take us longer is the implementation of labor cost reduction strategies which are absolutely underway. In order to get that implemented more broadly in the business, just takes time.
As does the broader implementation of reducing steel costs, which we are already doing in Indonesia and Australia, and we are now moving into Chile, and then we'll move into the U.S.A., afterwards. There's plenty of opportunity there for us to continue to drive down costs. You can see that there's been a real focus on innovative new products, and we will continue on that line. I think the dipper bucket opportunity that comes out of the Mainetec acquisition is a really exciting one, and I'm looking forward to how that develops over time. I do believe that the integration of the Mainetec business will add a whole new dimension to Austin, because they are such an innovative business.
You know, they're going to bring all sorts of value to the company that we've only started to touch on. We live in, of course, a choppy kind of market. There's no question about that. There are lots of macroeconomic pressures going on around the world. Many of you will be familiar with the mining industry itself. The market remains strong in pretty well every sector that we can see. I'd just like to emphasize to you that our business is. We build wear products that wear out over time, and very quickly, some of those products.
Therefore, our market is very much around tons moved by mining companies, not by the cost of the product necessarily, and certainly not by the investment cycles that go into opening up new mines. I'd just like to emphasize that. Probably the last bit here before I finish is we have done reasonably well in avoiding too much cost input type of risk. We've done well in shielding ourselves on steel cost increases, which have been incredible. I've never seen an increase in steel costs like we've seen in the last 12 months. 100% type increases in basic raw materials like steel. But nonetheless, we've managed to maneuver to protect ourselves reasonably well. Of course, labor price movements are now coming into the market.
Again, we're in a position to be able to protect ourselves from that because of the use of Indonesia. Increasing use of Indonesia in the mix of labor that we will use around the world. Lots of good things to be focused on in the business that I think we'll see more of over the next 12 months. Thank you very much for your time this morning. I appreciate. I know it's a busy period and some of you, I guess, I will see over the next couple of days on the East Coast. Thank you for your time.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.