Austin Engineering Limited (ANG) Earnings Call Transcript & Summary

That's it. Okay. Thanks, [ Rod ]. I believe those persons who wish to vote in the poll have now done so. I don't think there's any individual who hasn't. We've only got 2 individuals out there, so they say. I now declare the poll process closed. The proxy and poll results on all resolutions will be collated and made available later today on both the company's and ASX websites. Ladies and gentlemen, this now concludes the formal part of the business of the meeting. I will now hand over to our Managing Director, Peter Forsyth, who will provide an update on our current operations and what lies ahead. Over to you, Pete.

Thank you, Jim. Good morning, ladies and gentlemen, and thank you for joining us today for our 2020 Annual General Meeting either in person or via our first-ever AGM video link. Let me start off this morning looking back over the 2020 financial year. For a more detailed look at our results, please refer to our annual report and results presentation release in August. Our results have continued to improve as we've moved through a number of rationalizations across the business over the last few years. Importantly, our net profit after tax has improved, as have our operating cash flows, 2 key measures for us. Austin restructured its debt facilities during this year, and it was an important step for us to signify the end of the balance sheet restructure process that needed to happen to protect the business and ensure that no further equity raises would be required to support working capital needs of the business. What was really pleasing in 2020 was the strength of our cash flow, which led to a net cash position for the business by the end of the year of $8 million. This improved position, of course, led to capital management decisions such as the reinstatement of dividends, which I see as a positive step for Austin, particularly in light of the $26 million worth of franking credits billed by the company. I'm conscious that the revenue line in our P&L has remained at $230 million level over the last 2 years, and we are absolutely resolute in our focus to grow this revenue with quality earnings that will drive further increases in profitability. And I'll talk to this point more shortly. The strength of any organization resides in its people, and Austin is no different. We have some exceptional people at Austin throughout the organization. We have seen a decrease in personnel of around 27% to 1,248 staff and labor hire contractors working on Austin sites. The majority of this decrease was in Colombia, where historically, Austin has operated a large site-based repair and maintenance contract for one of the major mines there. Following COVID-19, together with some of other local community issues, the mine site suspended operations for an undetermined period of time. Ultimately, this led to the mutual termination of that contract and subsequent retrenchment of over 300 people in Colombia. We also saw personnel decreases in Peru and North America due to demand reductions late in the financial year. During the year, we made the decision to restructure the leadership team and created 3 executive general manager positions to lead each of our 3 geographic regions. We wanted to ensure there was executive leadership at the coal base in or close to each of our key operations around the globe to enhance our client coverage and also day-to-day business management at a local level. Over the last few years, we have worked hard to drive a common One Austin mindset throughout the organization, and we believe we have enacted sufficient cultural change and togetherness to allow this regional structure to prosper. We have a mantra at Austin about safety, that it's in our hands. We've made great strides in fostering a safe environment for our employees in an industry that is inherently risky. It is, therefore, a source of great pride of the company that we have seen reductions in key statistics of both total recordable injury frequency rates and the lost time injury frequency rates over the course of the 2020 calendar year, falling by 13% and 29%, respectively. COVID-19 has had a profound impact on all of our lives. We've been fortunate that in the majority of countries that we operate in, mining has been considered an essential service, and the impacts have not been as severe as many other sectors. As I mentioned earlier, our Colombia business was badly impacted by COVID-19 with $4.3 million of related losses during the 2020 financial year, both in regard to operating losses sustained whilst negotiating an exit from suspended site-based contracts and the ultimate retrenchment costs of in excess of 300 employees from our business. I'd sincerely like to thank all of those staff members for their service and wish them well in the future. We also experienced large falls in demand throughout North and South America, as businesses in those locations delayed capital replacement decisions. Fortunately, our order book was already fairly strong in Chile, which has seen the least impact of -- in the South American region. We also experienced falls in demand from our Indonesian facility with minimal workloads in the second half of the year, although this has since recovered very strongly. Another impact of COVID-19 was the delay in a global refinancing deal with a major international bank. As mentioned earlier, Austin still managed to put new debt facilities in place, albeit delayed from original plans. Finally, whilst we did utilize government support to retain our entire workforce in the U.S. up until the end of the financial year, we did not qualify for the Australian government JobKeeper support package. The global mining equipment market has been impacted by the recession. This has impacted Caterpillar's earnings, for example, traditionally a bellwether for mining equipment outlook and has led to reduced capital expenditure guidance issued by large global miners. Whilst this is a concern for Austin, there isn't a linear relationship between OEM, original equipment and manufacturer sales, or even mining CapEx projections to Austin's outlook for a few reasons. Firstly, Austin's products are wear items. And increasingly, we are seeing demand for lightweight bodies that would usually last for between 2 and 4 years, a much shorter time frame for replacement than, say, 10 years ago. This means that unless our clients elect to continue repairing products since they are replacing them or materially alter production plans in their mines, there is only so much they can do to the delayed purchase decisions. One of the tactics that has proved effective is to leverage our innovation to continually deploy improved product into the marketplace to encourage clients to upgrade their equipment to optimize production ahead of scheduled replacements. Secondly, we understand that typically, large decreases in miners' capital budgets usually translate to deferred development capital rather than maintenance capital, which is needed to sustain their operations. Our longer-term success is dependent on a healthy level of development capital and new mines coming on stream. So we'd like to see a reversal of these current downward trends. The guidance issued in August 2020 of underlying net profit after tax in excess of $9 million remains in place. Our expectations are for a stronger second half in this financial year, principally due to results in North America. We have 2/3 of our projected financial year 2021 revenue locked into earned revenue, order book and other committed work, which is similar to the level this time last year. There remain a number of uncertainties, including, of course, COVID-19 spread but also the transition of power in the U.S. and how a democratic leadership will impact on mining outlook in the country, together with securing further orders across all facilities, particularly in North America. We maintain our guidance for the year to June 2021 of an underlying net profit after tax in excess of $9 million. Performance will be led by the Asia Pacific region, which we expect to be strong in the first and second half of the financial year. North America has had a slow start to the year and will likely record a loss in the first half of the year. However, the level of quoting and market activities suggest a materially stronger second half. South America has also had a relatively flat start to the year and is expected to improve in the second half. Given the quantum of potential business that we are aware of and the macro conditions, as we currently understand them, we remain confident in our earnings guidance. If the potential work being tendered upon now is won and delivered in this financial year, earnings would be well in excess of our current guidance. Our vision is to be the market leader in providing loading and hauling solutions to mining companies, contractors and original equipment manufacturers. Key to this vision is placing the needs of our client and innovation at the forefront of everything we do. We believe this will drive returns for our shareholders. If we look at where Austin is today, we have now advanced towards the end of the restructuring activities that have taken a good deal of executive attention over the last few years. Most of our revenue in new products relates to truck bodies. And in this market, we estimate we have around 10% market share globally. This, together with our current suite of high-quality products and a market leadership in customized product solutions, gives us a great platform for organic growth. Over the next 3 years, we have a plan to materially increase revenue from further penetration into emerging markets for us such as Africa, Eastern Europe and Brazil, together with increasing our market share in our already mature markets. We also believe we can achieve strong growth in underground products, buckets and other attachments such as water tanks and tire handlers, as we already have great design for these products but only have a small market share, as our predominant focus has been on truck bodies for above-ground applications. We see a material growth to not only be achievable but also vital to the company's aspirations to more effectively leverage its already established global footprint and drive increased returns. The operating leverage of our business is such that we kept all our facilities full, the earnings potential of the business far exceeds current run rate, and that is before considering outsourced manufacturing through global partners. I look forward to leading Austin on this growth journey over the next few years, and I am confident we can achieve a number of our goals without the need to deploy significant new capital in the business. I'd like to take this opportunity to thank our Chairman, Jim Walker, and the Board for their support as well as the leadership team and beyond within Austin. Also to our shareholders, thank you for your continued belief in the company. I will now hand back to Jim for any questions from the audience.

Thanks, Peter. I hope this has provided an overview for you on the various initiatives that have been implemented across the business and will give you a sense of growth potential. We are excited about the prospect of returning this company to a highly profitable enterprise in a sustainable manner that will drive returns for our shareholders and reward the broader shareholder group. I now invite questions or comments from our shareholders about the operational activities.

When you say you have 10% market share, what's the other 90%?

The other 90% would probably be OEMs themselves and other regional competitors, [ Ian ]. Now the 10% figure that I spoke about, we estimate there's around 20,000 trucks, 150 tonnes to 400 tonnes running around the world. If you estimate the life of a body as 4 to 5 years, that's probably 4,000 to 5,000 truck bodies every year getting replaced. We do in excess of 500 truck bodies a year. That's around 10%. So as noted, we've got 60% of the market. We got 10% just over single digits. So our ability to grow the business is significant, which is great. So it's a replacement market that's really the big opportunity, not just the first bit.

So you're saying you'll be able to [indiscernible] contract [indiscernible] building themselves?

Some do. We do a lot of work with [ Lubeck ] as a first fit, sometimes for a high-powered [ ship ]. And sometimes the customers do request that they have a body like ours on this first fit.

Also, [ Ian, ] just to explain, too, that there are certain markets that we aren't even competing in the moment, for example, Russia. And they're included in those numbers as well, too. All right? So we've taken the total opportunity not just where we are competing, but where we don't compete as well. So you can see the full picture.

For example, Brazil, there's 1,000 trucks operating in Brazil, and we don't participate there. There's thousands of trucks operating in Eastern Europe. We don't participate there. So big opportunity to improve.

Any other questions? No. Okay. Copies of Peter Forsyth's address will be available on the company's ASX websites. I'm now pleased to close this meeting and also ask you to come and join us with some refreshments with the directors and also employees. Thanks very much, everyone.