Austin Engineering Limited (ANG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Austin Engineering H1 2024 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. David Singleton, CEO and Managing Director. Please go ahead.

Good morning, everybody, and thank you for joining us for this interim financial results call. I'm joined this morning by the CFO, David Bonomini, and we'll take you through a selection of the ASX slide pack over the next 30 or 40 minutes, and I'll do some of those myself, and David will pick up on the financial slides as we go through. As a CEO, there's bad moments and there's average moments and then there's really good times. And I have to say, it's a real pleasure to present the results in this period. It's not only because the result is so strong and we'll talk about that in a moment, but we really are now on a strong and sustainable path of revenue and earnings growth following the Austin 2.0 strategy that we put together some while ago. Now, we set out 2.5 years ago to redesign the Austin business to deliver the kind of financial results that reflected the quality of the underlying business. And we can see now how that is coming together. Our objective in that strategy was to invest in new products around the world and that has happened and we've seen those products successfully going into service. But we were very focused on delivering a new operating model for the company to drive down costs in 2 of our key input areas, and that is the cost of steel for our products and the cost of labor for building those products. And we've made a great deal of progress on that. We set up a new business called AustBuy, and you'll be hearing a lot more about AustBuy, not only today, but in the future for reasons I'll talk about later. AustBuy is our procurement business, supply chain procurement business that has done an incredible job in driving down the cost of steel that we use in our business, and that's getting on for half of our total costs. And of course, we've been driving down the average cost of labor by using our Indonesian-based business in Batam much more effectively throughout our operating model. So both of those have really had an impact. And the third part of that strategy has been quite an interesting one, which is that we have listened hard to the customer who has said that the capacity to deliver, reliably deliver into their supply chains is a key measure for them. And as a result of that, we deployed what sometimes gets called the build and they will come strategy by building capacity, additional capacity around the world in Chile, in Australia and in Indonesia in particular and more lately in the United States. Build that strategy and they will come and they have absolutely come to the business as you can see through the results. The other big positive I think for us that excites me is that, the improvement, the continued improvement in the business has been broad and across the business. We've seen step change improvements across the business delivered by what is now an excellent management team made up of a number of people who've been here for many years and some new blood into the organization. A lot more depth in our management team than we had a couple of years ago and that really excites me about the opportunities that we have for the future. And then I look across the business and you can see how that management team is now performing. In the U.S.A., we've seen incredible improvement in the order book and the capacity to deliver that order book. In Chile, that business has turned around from one that's really been quite an underperformer to a really strong performance that we see in this first half. Perth has undergone a massive upheaval program as we realigned that business to work more in a more integrated fashion with Indonesia and for Perth to become along with our business in Mackay, the Mainetec business in Mackay, the basis for an expansion into mining buckets. And we're seeing real positives coming out of that program. And in Indonesia, very high levels of growth coming through in that business being delivered really effectively by the team out of Indonesia. And AustBuy, a new business started up at the beginning of the year that's beginning to make significant bottom line contributions to the business as well. So I'm going to move on to the next slide, that's Slide 3 in your -- if you're reading from the ASX pack, so it's Slide #3. And I've talked about in this slide that delivering, what is really an outstanding set of results and creating a new performance benchmark for the business, When I reflected on that, I thought that was more really about a new performance baseline for the business, because I think we will measure the improvements of this business from this position that we're at today, many years into the future as we see more growth coming through. All the businesses were way up on their revenue, compared to the prior corresponding period, led by Chile actually up 48%, but are thumping performances on revenue across the board from all of the businesses. But importantly, we're still seeing good, solid demand from our customers who are, as we know, in this particular products -- for our particular products, this is sustaining capital for them, which is critical capital for them to continue to invest in, in order to make sure that they get the mining performance. And as I say, you can see how that has played out in the revenue base. EBITDA up 70% to the prior corresponding period that's important because I think it shows a couple of things. One is the benefits, of course, from the revenue expansion and some of that margins come from there. But also the business now is much more efficient in its manufacturing and its supply chain. And that's critical to the business because we're nowhere near -- whilst we're improving rapidly, we're nowhere near running at full speed and that says there's a lot more opportunity to come both on the revenue side driving EBITDA and the efficiency side driving EBITDA as well. And all of that has created an impact which is up 2.8x from the prior corresponding period to $15 million. For those of you who follow us closely or remember our original guidance at the beginning of the period was for net profit after tax of $10 million to $12 million. It was updated more recently to $12 million to $14 million. And as you can see, we're recording an NPAT of $15 million in this result. Cash flow has been solid at $6.9 million with some cash flow tripping over into the new, well, the second part of the financial year. So as the case with cash flow, sometimes it comes in before the end of the year and sometimes it doesn't. We saw some quite lumpy cash payments dropping into the early part of the second half, but good solid cash flow performance. Order book continues to be a highlight. David will talk about that a little bit more later on, but some really good performances across the business. I'll talk about that when I do the sector analysis a little bit later on. But importantly, that gives us real confidence about the second half in FY '24. And indeed, the order book strength is such that it's already giving us a lot of confidence about FY '25. One of my favorite metrics on this slide, not always talked about, I know, but is our return on equity, which has increased to 27% in this period, shows that we're using investors' money wisely. We are a low sustaining capital business that's delivering great returns, and that's why we're getting that kind of performance, that kind of return on equity. And as a result of that, and the improvement to the net debt position of the business to $11.4 million. We have now reinstated the dividend for the business, which initially will be paid at $0.04 per share, but that is fully franked and will continue to be so, I think, well into the future. I'm going to turn now to the next slide and that's Slide #5 in your ASX packs and it's titled H1 FY '24 Highlights. The reason for this slide really is because context is important, and the result is a point in time, but it's the rate of change, if you like, and the improvements that we're seeing and the results that really are indicative about what we can expect as we go forward. We started up the Austin 2.0 strategy towards the end of the FY '21 financial year. You can see we were running at around about $5 million or $6 million worth of EBITDA in the first half for many years before that and then we've seen this series of step change improvements to EBITDA since FY '21, a 49% compound annual growth rate in that. For me, as a manufacturing engineering person, to see a solid business like this delivering real products but able to grow at rates that kind of look more like a software, new world software business is great to see and I think as again I would say indicative of how we feel about the future for the business. I'll now move on to the next slide and that's Slide #6 in your ASX pack. And I'll just focus on the left hand graph for a moment. And this is a graph that looks at the EBITDA percentage. So the previous one was the EBITDA dollars million. This is EBITDA percentages. And again, you can see a similar kind of trend in that we've gone from sort of 6% type EBITDA's in the first half and now improving rapidly, well into double figures now. I've been saying for some time that our target delivered margins out of our business is about 18% to 20% EBITDA averaged across the group. And we're making very good progress towards that. And when I make the comment, as I did before, about how efficiency will continue to improve and drive margins up, that's the gap between that 14.5% and 18% that we're seeking to deliver. And I think, there's a very good chance we'll be at that run rate by the end of this financial year. Certainly, all of the things on the ground are coming together, which would suggest that that will be the case. I look on the right hand side, I talked about the return on equity earlier, but again, you can see how modest amounts of sustaining capital and equity that we need to run this business with improving margins is really driving our ROE up to very, very strong levels and demonstrating, as I said before, that we are using shareholders' money wisely. And this comes after a period of quite heavy, relatively heavy investment for us in refreshing some old equipment that we had around the business. So I think that, our levels of sustaining capital are likely to drop in the future rather than anything else. So strong performance on ROE. All Right. I'm going to pass you over now to David Bonomini, the CFO for the business. I've had the pleasure of working with David for significantly over a year now. David's one of those very accomplished CFO's who is capable not only of having a tremendous command and direction around the numbers, but also plays an important part in the way the business is run and operates and gets very involved in a lot of the things that we do in the organization and has been really important in the growth that we've seen and the business going forward. So I'll hand over to you now, David, for the next few slides.

Thanks, David, and good morning, everyone. It's a pleasure to be here. I'd just like to reiterate Dave's comments. It's really been a group team effort in delivering this performance. It's a credit to them and it's -- as I said, it's a pleasure to present these numbers. Just looking at the financial performance slide, I'm just going to highlight a couple of things and then we'll go into a bit more detail in the coming slides. The group delivered a strong first half revenue growth up 26%, a net profit up 178%. You'll note that, there's an increase in depreciation expense. This is really coming from the prior facility years, -- facility investment and depreciation on the additional premises, which is really supporting the production capacity expansion. The tax effect of 5%, tax rate, effective rate of 5% is benefited from a one-off credit of about $1.5 million from the completion of the Mainetec acquisition tax effect accounting. Turning to the next slide. Full year revenue is really on a strong trajectory, upward trajectory. We're seeing growth across all business segments. This revenue growth is benefiting from, I guess, the compounding effect of the 89% recurring revenue per annum. It's also benefiting from the expansion programs funded in Batam, Chile, Australia, through the Mainetec acquisition, has lifted our production capacity. And as Dave mentioned, the strength of the order book from Batam, U.S. expected to be full well into the FY '25 year, something we really haven't seen in recent times. Just turning to the next slide. Net profit growth of 178%, which is really a phenomenal performance compared to the prior year, is being driven by some of the strategies that we've put in place with the Austin 2.0. So we're seeing the manufacturing leadership strategy, driving down costs and lifting margin. One part of it is AustBuy, which has been successful reducing our steel cost base across the business. Investment in new manufacturing systems in Batam and now Perth with the retooling will raise margins further from here. And we continue to see pricing improvements across all business segments. The group will continue to benefit from the manufacturing leadership strategy and the new systems well into the second half. Turning to the next slide. Looking at the order book, the order book compound annual growth rate is 30% per annum, and is benefiting from the new strategy that David and the team launched, which is a sales and marketing strategy. The strategy has seen the Australian sales team strengthened, with sales team expanded to the East Coast of Australia. Also, there's additions of new product support managers to the team. We also expanded the U.S. and Chile sales team, and the group's order book has strengthen -- will continue to strengthen in the second half. Turning to slide, the next slide. Working capital has been a major focus for the group. We've worked hard to just bring awareness to the business about cash flow and working capital and the management of working capital. And as a result, we're seeing raw materials reduced by about $7 million across the business. There's still more work to do there. There's still more opportunities to achieve and improve working capital. And we're seeing the raw materials move into the work in progress as the revenue grows. The reduction in raw materials is benefiting from the central procurement team, AustBuy. They've really kind of secured and controlling the purchasing and demand and planning for the procurement of the steel, and they're heavily involved in the negotiations of our major steel suppliers. We're also seeing ongoing improvements in customer collection and trading terms. So there's still work -- there's always work to continue to tinker and work with your major customers to help and improve the trading terms and the delivery of those products. And we keep working and chipping away at that, and we're seeing incremental gains there month-on-month. The customer advance payments, which is where we receive up to 20% to 30% of our cash on commissioning of steel and orders being placed, has been solid. It could have been higher. Unfortunately, as Dave mentioned, cash flow can be a bit lumpy, and we're waiting on a significant contribution from a major customer of about $10 million. And it was delayed, unfortunately, until February, so we couldn't actually reflect it into the cash position. But the outlook in terms of the cash is, on the basis of that, we'll strengthen. We'll continue to see further reduction in inventory. There's still a bit of work to be done in Chile, to unlock some of their excess inventory. So we should see the cash flow continue to improve through the second half into the balance of the FY '24 and into the FY '25 years. Turning to the next slide. Operating cash flow continues to trend in the right direction. We're hoping to convert, there's a big focus on us converting our profit to cash. So we're really focused on that. And a big part of that is delivering the operational performance through the business, which the business is doing. And then also then managing our working capital and our trading terms with our partners. In terms of improvements, we've combined the operational performances, improvements from Perth, Indonesia and AustBuy. We're seeing really strong performance there across that group. And there's further upside to come out of those regions. And also inventory reduction. I mentioned it to you in the previous slide. We're still working through some of the Chile excess inventory. There's about $10 million there worth of opportunity to really unlock. This is something that AustBuy has been instrumental in controlling. They've been down there. We've got now, I guess, a central procurement supply chain demand across the business now that is managed from the center. So that means, for example, Chile can't place any more orders unless they can prove they need this deal for future orders. So it's a real credit to the team. They're working extremely hard. They're also consolidated the purchasing power and the scale of our procurement to really leverage our position with our major steel suppliers. And we're really getting some really cost -- downward cost base as a result of that. Just turning to the next slide. As well as -- our net debt, net debt, as Dave mentioned, $11.4 million. It is heading in the right direction. We reduced it through, paying back some of the term loan debt that we have with the acquisition of Mainetec. But we see the net debt still on that trajectory of delivering a net cash position for the full year. This is on the back of the operational performance. That will continue -- that's going to continue to strengthen in the second half and should be in a greater position to convert that operating performance into cash. And then as I mentioned, there's opportunities in inventory and we'll continue to focus on other working capital initiatives like our customer trading terms, as well as managing our supply chain. Thanks for the time today, and I'll pass you back now to David.

Thank you David, I'll carry on now. I'm going to talk a little bit about the different sectors in the business, not something I normally spend a lot of time on when we do these presentations, but some great things happening around the company that are important to understand for the future. So I thought I'd spend some time on it this morning. So I'm going to start with Page 16 in your ASX pack, it's the sector analysis for the Asia Pacific business. And we've combined the Asia Pacific business made up of our Australian business, which is the Perth business that builds buckets both the original Austin buckets as well as the Mainetec buckets used in the in the West, the Mainetec business in Mackay, Queensland. One of our little unsung heroes, the AUSTBORE business in Queensland and Mackay as well, which is a machining componentry business and rapidly growing Indonesian business in Batam, the really beating heart of a new industrial strategy. And the reason that we've combined those businesses is they have now become extremely integrated in the way that they work. And so it makes a lot of sense to put that together as one group. The sector revenue is up 19% to the prior corresponding period, very, very strong sales growth, and the EBITDA margin up now to 10% and on a good strong upward trend. Over the last period of time, we've been completely rebuilding our sales organization in the APEC region under a long-term employee of the company called Brad Higgins. Brad was previously the general manager of Austin in Indonesia, came back to Australia, with, as I said rebuilt the sales team and they had a tremendous first half, and I'm sure will continue to play a major role in the growth of this business going forward. What I think is really important is that the Australian business under the leadership of David Irvine, David's quite new to us, but that bucket business is important. This is being the half when we have completed the transfer of all of our truck tray manufacturing out of Australia and up to Batam. In fact, we delivered our last tray out of Australia in October. And we've been retooling the business to build mining buckets. Mining buckets are more complex, more difficult to build, need a lot more process control. And so we've been going through the education process of that training process, the new systems. And David's been doing that very effectively across the business. Buckets, I think buckets are going to be, mining buckets going to be a really important part of our business as we go forward, something we started focusing on a couple of years ago, because in the hard rock business, we will sell a mining bucket for $200,000, $300,000, $400,000, $500,000 apiece. And they'll come back every year for a rebuild for the next couple of years, and then they'll be replaced on year 3. So it's a really good revenue stream. And we moved about 80%, 85% of our manufacturing business up to Indonesia, and that has been replaced very, very quickly. That vacuum -- that manufacturing vacuum was replaced very, very quickly with the bucket throughput from a number of customers. So it just goes to show how strong the demand is when you can move so much of your business to somewhere else and then all of that gets replaced by something else. Austin, Indonesia, really, as I said, beating heart of our manufacturing strategy gives us real cost and capacity opportunities. We put -- we did a lot, as you will remember, in increasing the capacity in that business over the last year or so, and we find ourselves now running at really high capacity levels. Business run under a manufacturing guy called Ed Lawley, Ed's done a great job in increasing the throughput of truck trays in that business from probably 8 or 10 per annum to hitting about 28 and on its way to 30 per annum now. And that's been a very fast and very well executed improvement, and means that the Indonesian business will have a very strong second half, because they were ramping up through the first half and they've got the second half at a good steady run rate. We've got all the orders we need to keep that business pretty strong throughout the second half. I'll move on to the next slide now, which is Slide 17 in your packs to talk about the USA. I think that the performance in the USA has obviously been very strong. Again, we can see revenue up 29% and maintaining good strong EBITDA margins on their throughput. The market in the USA seems to be going through a similar cycle to what we have seen previously in Australia, that more and more of the mining companies are looking for opportunities to improve the efficiency of their businesses. And when they look at customized truck trays and customized buckets, they see that opportunity, it gives them a really high return on investment when they go to customized truck trays typically. And as a result of that, the USA wins customers and retains its previous customers really well. They have Johnny Greer, who's the general manager there, has done a great job in building that business up step-by-step. And they've got, as we said on the slide here 1,670 truck trays in service around the United States, all of which every day are hauling 28 million tonnes of ore, which is wearing them out progressively, and therefore, they have to be replaced at regular intervals. So just on its own, that's a tremendous backlog of work -- recurring work that's going to come through there into the into the future. As revenue has increased, we've increased manufacturing capacity in the United States. So we've put what I might refer to as feeder factories into place, a new facility in Casper itself that is producing side wall, front wall and canopy assemblies and then feeding those into the main factory. We've got some equipment starting to come out of the factory in Mexico, and we deliver some selected equipment out of Batam into the United States as well. So that's how we've managed to deal with that kind of expansion. So a really strong performing business continues to be robust and like it -- feels like a snowball running down a mountain. The third sector I will direct you to is Slide #18 in your ASX pack. South America, which is a Chilean business located in Antofagasta in the north of Chile in the mining region, a copper mining region of northern Chile. Again, a rebuilt team in South America under Gaston Miranda, who has done a great job of taking a business that really has been underperforming for many years and through a new management focus and really focusing on improving the quality of the income with product-based sales and developing new customers. We've seen that in the results now with revenue up 48% and margins now up recorded 25.4% in the first half. We can probably expect that to soften a little bit back down towards our 18% to 20% margin rate in the second half, but really very strong performance. And they have recently, and I'll comment on this again in a minute, but they've recently completed a test and evaluation tray for a major OEM. They've done that successfully. It's past muster. And that looks like a very major new customer will join the Austin group soon. And the first deliveries of those new trays are almost certainly out of Chile. Okay, I will move on now to Slide #18 -- sorry Slide #20 in the ASX pack. The strategy for this business remains the same, strong focus on manufacturing leadership, which is around the way we procure products and the way we manufacture those products around the world and the capacity that we put in place to meet the demands of our customers. It's been such a strong strategy and has worked and delivered very well for us. Product leadership, the intent to continue to invest in products. And a change -- just change to of emphasis in that strategy now to focus on customers. We having -- we have put investment in place in Australia in the United States, in Chile, in all of our regions to increase the amount of sales people we have, the amount of product support people that we have, and we're seeing that payback very handsomely. So the strategy pretty well remains the same. I move on to the next slide now which is Slide #24 in your ASX pack. And I wanted here to just pick out a few things to think about over the next 6 months or so. These are the things that we see happening as we go forward. I probably could have written 10 or 20 here, but so I worked hard to try and bring this down to 4 key things that will come through over the next period of time. The first one of those is order book strength. We've talked about that quite a lot on the way through. We do see some very strong and important steps though in all of that. We have, as I've said, passed a qualification by one of the major truck OEM builders in the world, who is looking for us to build trays for them -- truck trays for them in Chile and in Indonesia for Australia and the Asian market. It's taken us probably 2 years of development with them to get to the point where they're comfortable with that. And Chile recently successfully delivered a test and evaluation type tray, and we can expect quite significant orders coming out of that program into the future. So that's a watch this space. I think we're going to be talking a lot about that particular program in the future. We have a, I think, our second biggest contract, long-running contract that's been going several years now in the United States. The customer has indicated to us towards the end of the last calendar year that he intends to extend that contract for another 3 plus 2 years or up to 5 years, which is great news, and that's going to drive a lot of throughput through the United States in the back end of FY '24 and into FY '25. Rio Tinto, who you know are a very important customer to Austin. We've seen that contract growing in size. We have a very extensive program of work for them for truck trays that will run well into FY '25. And we've seen a big uptick in mining bucket work for them as well, which has been very satisfying. And that program just seems to keep expanding, which is good news, great news for us. Chile's biggest order that they've had for several years, a recurring program that they've had for many years. We've also been notified of the customers intention to extend that contract for several years, further 3 to 5 years and going forward. And we have a new program in Indonesia with one of the biggest mining services companies in Australia who are refurbishing their very large fleet of mining trucks in Batam. And they're bringing those in from Indonesia as well as from Australia and other places around the world. And we've been given the role of refurbishing those truck chassis. We delivered the first of those in February this month. And that's a strong program, high volume, and we expect to see that going for another 5 or 6 years. So, lots to kind of celebrate as we -- with programs that are going to give us more order book strength as we go forward. The second one of those objectives was Batam and USA manufacturing expansion. Batam just continues to grow, continues to support the group, and we will take further steps to increase capacity there over the next period of time. And we -- it has been confirmed that we can now do that through leasing additional capability in Batam in the place where we have our current workshop. So it's not a capital item for us. But it will allow us to continue to grow what has been a very successful business. The USA, similarly, we announced some while ago that we've got a USD 20 million grant from the State of Wyoming to build a new facility in the U.S., which again, will support the expansion of the U.S. business and great that the state of Wyoming was able to supply the capital to build that facility. And I think in Australia, given the demand we're seeing for mining buckets, I think, there's a very good chance that we'll be doing further expansions in Australia in the future. AustBuy, so the third one of these objectives, AustBuy, we've mentioned it a few times on the way through, David talked about it before as well. This is our supply chain business led by a guy called Gerry Tessier, who it's our newest business, Gerry 's ex-Komatsu has brought a great deal of market knowledge and capability to our procurement program. And we're buying, as David said, we're buying steel centrally now and allocating that to the business units. AustBuy is a profit center, deliver the profit in the first half or deliver an increasing profit in the second half. And I think could be, could be one of our most profitable business units in FY '25. So I think we'll be talking a lot more about AustBuy over the next 6 to 12 months. And then the last, the fourth box on that is that cash flow will be, strong cash flow will be a feature of this business. We don't have any significant capital investments ahead of us. We invested $2.8 million in capital -- sustaining capital in the first half. That was really about refreshing some of the equipment that we have around the place, completing that program of work that we started a couple of years ago. It's pretty well all done now. And also, as we've been growing Indonesia quickly, that's required a bit of capital, a new welding kit and that sort of thing as we've gone through that. And again, we're pretty well at the end of that program as well. So I think if anything capital will, which is modest anyway, will be somewhat less in the in the second half. We do have -- we are going to invest in upgrading our tooling further, put some robotics into our Australian facility. For all the reasons that we've dwelt on from time-to-time, the good news is that we have a grant from the WA government that will support 50% of that investment around robotics and improving the capacity of that business. And of course, I've talked about the grant that we have in the United States as well. So as a result of that, we see cash flow as being strong. We maintain a position on that, and that's allowed us to reinstate the dividend. I'll now move to the last slide, and I know this, I know you well, so I know many of you will already be -- will already turned to this slide, but Slide 25 in your ASX packs, which is the full year guidance, very clear, very simple. We expect to see FY '24 revenue in the range of $310 million to $330 million, which is a long way from the $200 million that we were at only a couple of years ago. So $310 million to $330 million, it's up 24% on FY '23, which itself was a very strong year. And with full year NPAT guidance of $31 million to $33 million, which is up 75% from FY '23. And as we've been saying for some time, we expect the company to be debt-free by the end of FY '24, as we deliver more of the cash flow into the second half. And on that note, I will bring my presentation to a halt and see whether there are any questions.

[Operator Instructions] First question today comes from Philip Pepe at Shaw and Partners.

David, great result, a very detailed presentation actually. I don't have many, but maybe just a point of clarification. The $10 million inflow that was due in December, now in Feb, has that actually come in or is that due in the next couple of days?

David, do you want to pick that up?

Yes. We've received that mid-Feb, so that's the cash result, Philip.

Perfect. Excellent. And secondly, just on the guidance, I've had a couple of demands about whether that on what tax rates assuming that, have you got the $1.5 million one-off in the guidance or is that outside the guidance?

David?

Are you referring to the $1.5 million.

Yes, the $1.5 million.

Yes, that's included, that's reflected in our numbers in the half.

Yes. That's for the $31 million to $33 million for the full year?

Yes, it includes that. Sorry?

Yes, so without it we're looking at $30 million to $32 million, $31.5 million kind of thing.

Yes.

And going forward, let's say for FY '25, what's the normalized tax rate for the company?

It's a good question. We haven't done the forecast yet, but it's fair to say that in the Australian region now, we're still utilizing historic tax losses. So the really only 2 regions that will incur tax is Indonesia and U.S., and that's around the 21%, 22%. So, yes, so I have to do that work and provide that analysis for you. But it will be probably low-teen, high teens depending. I mean, we have got tax strategies in place with transfer pricing, and a few other things where we're trying to mitigate and utilize and shift some of the profit back to Australia to maximize Australia's position with the tax losses. So it should be relatively low a tax effective rate.

Your next question comes from James Lennon at Petra Capital.

I think my question was kind of answered in the previous question there, but just to clarify, so the tax that you paid this half, you're not expecting that to continue the second half, but what was the rate sort of going forward that you think you'll pay?

If I answer that one, the tax, it depends like in the U.S. pretty much all of their tax payments occur in the first half. So they're all their installments from the prior year are cleared. And then for the Indonesian, they've got monthly installments over the course of 12 months. So we'll see a little bit of tax outflow, tax payment outflow and the cash flow in the second half. And then in terms of the effective tax rate, yes, it will remain like probably around 10% to 12%. But again, low effective tax rate as a result of the, I guess, the Australian position we're in.

And just one more, just on the OEM contract you mentioned there in Chile. Have you sort of quantified what that might be worth and you know how much of that is actually going to be in the numbers for you for full year guidance?

Yes, I'll take that one, Jim. So the way this contract works is that there is a an enabling contract, if you like, which we have been through with the customer. And then there's a series of purchase orders that need to be placed both in Chile and we think into Indonesia as well over the next few months. I can't -- I'm not I'm not in a position yet to be able to put some numbers around that. I will say that relative to our other major contracts around the world, this is a going to be a, we believe will be a very significant contract. We'll perhaps say some more about that when the first purchase orders actually drop. We think they're reasonably imminent and when that when that comes through we'll talk about it. But I think it will have a significant effect on Chile and then into Indonesia as well.

Right. And just in terms of the timing, say it all does go to plan, it sounds like it's a large enough contract that you'll pretty much get consistent visibility on what you'll have to deliver into that year. Is that the case? Will you be fairly predictable?

Yes, I think, it's going to be fairly predictable. I think it's going to be significant in terms of size. I think, it's going to be predictable and I think it's going to be long-term. We should see the first signs of the impact of that in the second half of FY '24. It's really down to how quickly they get the purchase orders to us, but I think we'll see some impact in FY '24. I think we'll see some very significant impact in FY '25.

[Operator Instructions] Your next question comes from Trent Barnett at Euroz.

Great result. My question is just -- I think you've got about $25 million of lease receivables. Can we have an update on timetable to turn that into cash?

Yes. So this is -- so just so everybody understands that, we have 1 contract that's been going on for several years where we sell truck trays in South America and then we get into a blue chip company, but then we get paid a lease rate over the next 4 years. And as a result of that, we have a lease receivable of around about $25 million. We've been looking to refinance that lease, so that we can take the cash onto our balance sheet and use that for a period of time. We've been working on that. The contract -- the underlying contract that that lease receivable is around is currently being renegotiated and extended. I mentioned that when I talked about the Chile sector, that the company has said that it intends to extend the contract, and I and has indicated that as part of extending that contract, they will changes -- they will be -- they will allow some changes to the structure of that contract, which will mean we will then be able to refinance that receivable. So that's a couple of steps to do, but they've indicated to us that they are supportive of that and they intend to renegotiate the contract. So, it's possible in the next 6 months, but South America runs at its own pace and doesn't get speeded up by people in Australia. So, I'd like to think that happened in the second half can't guarantee it.

Okay. But by the end of the calendar year, hopefully.

I would think hopefully by the end of the calendar year, yes.

Thank you. That concludes our question-and-answer session. I would like to hand it back now for some closing remarks.

Okay, well for those of you who have stayed through to the end, thank you for your time and I'm going to, David and I are going to speak to many of you over the next few days and we'll see some of you at conferences no doubt in the future. I'd like to thank you for the support that you've given the company over the last 2 years, a couple of years in particular. As I indicated at the beginning, I really do see that the strategy for this business has now come together. It's now delivering the results that we always knew it would. It's been progressively improving, but we're seeing very strong performance now across the board. It's not a cure-its-egg it really is. We're seeing good performance everywhere, but there is still room for improvement. And we think that the genesis of that improvement is already in place and we should see that coming through in the future. Thank you everybody.

Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect your lines.