Austin Engineering Limited (ANG) Earnings Call Transcript

Good afternoon, everyone. My name is Jim Walker, Chair of Austin Engineering. It is my pleasure to welcome you to the company's 2026 Annual General Meeting. . I'd like to introduce you to your directors and our Chief Operating Officer, Chief Financial Officer and Company Secretary. Sy van Dyk, who is our CEO and Managing Director and nonexecutive Directors, Chris Indermaur, David Singleton, Linda O'Farrell and Ian Stone. Also to our company's Secretary, Sarah Wilson; our Chief Operating Officer, Vince Duraco; our Chief Financial Officer; David Bonomini; our General Counsel; [indiscernible] Global HR and Dean McLean, our global HSE are all seated in the front seat. If you just exclude me today, I've woken up with a very, very funny throat. Sorry, if I have to go over and get the glass water, please understand because I'll be running out of power. Representatives from the company's order to be are here and we'll be able to answer questions on the financial statements in relation to the audit. The Company Secretary has informed me that we have a quorum. I therefore declare this Annual General Meeting of Austin Engineering Limited open. I'm pleased to advise that the shareholders that are not able to attend physically are able to watch and listen to a live webcast of the meeting. The webcast will be an opportunity to view the procedures and presentations at the AGM and for the shareholders to submit online written questions during the meeting. However, the webcast is provided for convening its does not replace a physical AGM. Shareholders will not be able to participate in the meeting or vote via the webcast facility. Given logistics and the fact that people watching over the webcast facility are not taken to be present at the meeting, we propose to address any questions that are sent through over the webcast at the end of the meeting and once submitting formalities are concluded. I'd like to explain the format of today's meeting. Firstly, I will give a Chair address, and then we will consider the resolutions outlined in the notice of motion before I invite Sy van Dyk to give his directors address and open the floor to general questions and answers. Before moving on to the form of today's meeting, I would like to take a few minutes to reflect on Austin's performance during financial year 2026. Following several years of significant revenue growth, the financial year '26 was a year of rebuilding Austin and returning to the fundamentals of the business. The focus was on strengthening operational discipline, improving efficiencies, rightsizing across regions and addressing loss-making contracts. It was a challenging year that tested Austin's resilience. The decline in our share price over the past year has also met disappointing for the Board and for our shareholders, many of whom have been long-term investors in the company. While the financial results were below our expectations. The Board has full confidence in the actions taken and Austin's ability to emerge as a stronger and more resilient business. Austin's financial year performance reflected operational headwinds in our North American and South American divisions, notwithstanding the earnings result, strict working capital management delivered a meaningful improvement in operating cash flow compared with financial year '25, demonstrating that operational discipline being embedded throughout the company is delivering value. The Board declared a fully franked interim dividend of $0.03 per share paid in April 2026, while no final dividend was declared for financial year '26, the Board determined that preserving capital to support the reset of the business was appropriate course of action. A year, management took decisive steps to strength Austin's foundations. This included improving management structures and production systems, enhancing workforce capability, rightsizing operations where required and applying greater discipline to contracts. I'm pleased to report that these initiatives are delivering positive results. Further benefits expected to flow through in this financial year and beyond. In a short while, I'll hand over to our Managing Director and CEO, Sy van Dyk, who will discuss the year in more detail, including turnaround underway in Chile and North America, the demand outlook in APAC, Australia Pacific and how the change is implemented during financial year '26 are beginning to translate into improved performance. Financial year '26 marks Sy van Dyk first year as Managing Director and CEO. His detailed knowledge of together with his operational experience has been important to the company as it has worked through a period of significant change. Austin's competitive advantage is underpinned by our engineering design expertise. A key highlight during the year was the completion of our first market in partnership with U.S.-based [indiscernible] incorporating an innovative ground engaging that's coming now in the business' GETL [indiscernible] system. We have now begun introducing this technology across our mining bucket range in Australia, with encouraging initial customer response. Our austIQ digital platform also continues to mature, providing real-time insights into equipment health for the growing number of customers' fleets and helping them extend trade life. Our people remain the most important asset with safety nonnegotiable priority. During financial year '26, Austin's lost time injury fragrance rate decreased by 50.2% year-on-year to 2, while our total recordable energy frequencies decreased by 36.7% to 8.4. This progress reflects the strength in safety systems and reporting frameworks across our operations while reinforcing the need for ongoing investment in our safety culture, systems and controls, Developing our workforce is another important area of focus. Our welding school programs in Casper and provide hands-on training and future employment pathways. In Australia, our partnership with Kantar Foundation continues to support young aboriginal and through education and employment opportunities. Product and reducing the environmental footprint of mining operations remain important priorities for Austin. Our high performance in premier trade ranges continue to deliver measurable benefits through the reduced dual usage, increased payload capacity and lower field consumption. During financial year '26, Austin Global greenhouse emissions fell by 24% driven by reductions in both Scope 1 and Scope 2 emissions. The Board believes the work undertaken during financial year '26 was necessary and has positioned to operate and scale efficiently from such a stronger foundation. Our priority now is to build on this work and deliver sustainable long-term value to our shareholders. On behalf of the Board, I thank our shareholders for your continued patience and support and look forward to updating you on our progress. This now brings us to the formal part of the meeting. The items of business to be considered at this meeting have been listed in the notice of meeting. The notice of meeting has been available to shareholders on September 30 -- 30th of September 2026, and I'll take it as read. Before we consider the items of business, there are a number of procedural items I wish to draw your attention to. In the interest of transparency in accordance with ASX requirements, I will call a poll on a meeting -- on all meeting resolutions. I'll discuss each of the resolutions in turn, then conduct the poll after last resolution. Each resolution and proxy count -- for each resolution will be displayed on the screen when that resolution is being considered. I am holding undirected proxies in my capacity as Chair, and it is my intention to vote all such proxies in favor of all resolutions. Any directed proxies that are not voted at the meeting will automatically default to me as Chair of the meeting, and I'm glad to vote for those proxies as directed. [indiscernible] from Computershare has agreed to act as returning officer. At the completion of the poll, Computershare staff will collect your voting cards and tally the votes. The persons entitled to vote on the poll are all shareholders [indiscernible] and attorneys of shareholders and proxy holders who hold green admission cards. On the reverse of your admission card is your voting paper and instructions. Yellow admission cards have been issued to nonvoting shareholders who are entitled to speak at the meeting but are not entitled to vote on the poll. White admission cards are issued 2 visitors who are not entitled to speak at the meeting or vote on the poll. If there's any person present who believes they're entitled to vote, but has not registered to vote, please raise your hand and the representatives from Computershare will now assist you. I shall now proceed with the business and order as it is listed in the notice of meeting. Questions on any item may be raised during the consideration of that item, please state your name when asking financial report. The first item of business deals with the financial statements and reports. These have been released publicly and reported to the shareholders who requested them and now lay before the meeting. These financial statements and reports after the financial year ended 30th of June 2026. This is not a resolution and no vote is required. On that note, I now invite questions or comments from shareholders in relation to the financial statements and reports and more generally about the management of the company. As I have advised, representatives from the company's auditors are in attendance to answer any questions, shareholders may will direct them to in relation to the conduct of the audit and in relation to the preparation of financial statements. As there are no questions, we will move to the second item of business. The next item of business asks shareholders to adopt the company's remuneration report for the year ended 30th of June 2026. Unless there is an objection, I will take the motion as being read and refer to the screen of the details of proxies received for this resolution. Whilst this is a nonbinding advisory vote of the shareholders, the views and comments of shareholders will certainly be taken into account by directors when further considering numeration matters. I noticed that a voting exclusion applies to this resolution and as set out in the notice of motion. The Board recommends our shareholders vote in favor of this resolution. As I mentioned earlier, voting of this resolution will be way of pull and conducted after last resolution. Are there any questions on the remuneration report? Okay. So no questions. I'll now move to resolution #2. This item of business is the reelection of Chris Indermaur. Chris has been a Non-Executive Director since July 1, 2016. Details of Chris' qualifications and experience are set out in the Notice of Meeting and the company's 2020 annual report. Unless there is an objection, I'll take the motion as being read and refer to the screen for the details of the proxies received for this resolution. The Board recommends that with Mr. Chris in Boston recommends that the shareholders vote in favor of this resolution. Voting of this resolution is by way of poll and conducted after last resolution. Are there any questions on this resolution? As there are no questions, I'll now move to Resolution 3, participation of Sy van Dyk option plan. This next RSV approval to issue up to 1,951,693 unlisted options to Mr. Van Dyk or his nominee under the company's performance rights plan. The Board, Mr. Van Dyk abstaining recommends that shareholders vote in favor of this resolution. Voting on this resolution will be way of poll and conducted after our last resolution. Are there any questions on this resolution?

[indiscernible]

[indiscernible] lot of work done on this with outside companies.

[indiscernible]

Other questions? Thank you. As there are no more questions, we'll now conduct the poll on Resolutions 1 to 3. Please now complete your voting cards and ensure you print your name and sign where indicated. When you have finished, please lodge in the ballot box being circulated by Computershare, that returning Officer or any other Computershare representative is present know if anyone has any quick queries or requires any assistance to complete voting cards. [Voting]

It appears a voting process has completed. If there's any individual present who has not yet had their completed voting card collected from them from Computershare staff, please raise your hand. I now declare the poll closed. Thank you. As mentioned earlier, the results of the poll will be announced on the ASX on the company's website later today. A recording of the website will also be available on Austin's website following the AGM. Ladies and gentlemen, this concludes a formal part of the business meeting and to compare the met to close. As mentioned earlier, I will now hand over to our CEO and Managing Director; Sy van Dyk, to provide an update on the activities and performance of the company in 2026 and our plans going forward. We will then open the floor up to your questions, after which, please join us for tea and coffee afterwards.

Good afternoon, everyone. I would like to welcome our shareholders, directors, employees and advisers here in the room as well as to joining us via webcast. As you all know, financial year '26 was a difficult year. We identified operational challenges across the business and launched a group-wide improvement plan to address them. And delivering that plan has been our priority. These challenges were internal to the business and within our control to resolve. We responded to a stronger operating discipline, clear accountability and decisive action across the group. While there is more work to do, these measures are beginning to deliver tangible results. Today, I will begin with a brief overview of Austin before reviewing our financial year '26 results. I will then discuss our operational improvement program, the early progress we are seeing in financial year '27 and our priorities and outlook for the year ahead. We will then take questions. On the slide in front of you, before turning to the financial performance, it is worth reminding ourselves of the strength that sits behind Austin. This is a business with more than 50 years of engineering and manufacturing experience. More than 15,500 truck trays manufactured, 6 operating sites across all continents and more than 1,300 employees and contractors. Those numbers matter because the problem we experienced in financial year '26 could not change the fundamental capability of this business. Austin continues to have a global footprint, established manufacturing capability and a substantial installed product Our job now is to translate these underlying strengths into more consistent financial performance. Turning now to what we do. Austin designs and manufactures customized mining equipment that helps customers improve productivity and lower their cost per tonne. Our core products include truck trays, water tags, mining buckets and tire handlers, with truck bodies accounting for approximately 62% of group revenue. Our design-led approach means we tailor each product to the operating conditions at the customer side, helping improve productivity, efficiency and overall operating performance. This also helps customers reduce their total cost of ownership over the life of the product. Our footprint gives Austin the ability to manufacture and support customers across the mining regions in which we operate. At year-end, our workforce totaled 1,340 employees and contractors across the group. That compares to 1,616 in the prior year-end. Reducing the workforce was not something we undertook likely. our capability and cost with the work available was necessary. What matters now is not simply the size of the workforce on the productivity, capability and discipline of the organization we have retained. Our objective is a business capable of responding to demand without rebuilding the costs and inefficiencies that affected our performance during financial year '26. Turning now to our financial year '26 financial results. Unless otherwise stated, all figures are in Australian dollars exclude foreign exchange movements and relate to continuing operations. Financial year '26 was a challenging and disappointing year for Austin. Operational challenges in North America, South America and Indonesia weighed on earnings. During the year, we took action to address these issues, strengthened operating discipline and position the business to improve performance. Group revenue declined 12.7% to $329 million, reflecting softer tray volume demand in North America and APAC. This was partly offset by continued growth in Australian bucket and spare parts. Group EBITDA was $20.4 million compared to $43 million in financial year '25. The decline reflects a $9.3 million loss in Chile, largely associated with a legacy OEM contract as well as lower U.S. productivities, U.S. product mix and higher U.S. outsourcing costs and reduced trade volumes in APAC. Group EBIT was $10.8 million. Despite the earnings decline, cash performance was a clear strength. Operating cash flow increased from $24.1 million to $26.7 million, supported by disciplined working capital management, and a $32.2 million inventory reduction. Net debt fell from $12.8 million to $5.8 million, providing greater financial flexibility as we execute our operational improvement plan. Importantly, the cause of the earnings decline have been identified, and we have -- and are being addressed. Stronger cash generation, lower net debt and early progress from our initiatives provide a firmer platform for financial year '27. This slide places the financial year '26 results on a 5-year context. Revenue increased from $203 million in financial year '22 to $377 million in financial year '25 before declining to $329 million in financial year '26. At a regional level, APAC's revenue declined 15% to $147 million, mainly due to the timing of major tray orders and the softer East Coast and was partially offset by growth in Australian bucket sales. North America revenue declined 13.5% to $127 million, reflecting lower tray demand, customer replacement cycles and product mix. South America revenue was down 3% to $54.9 million, with the cap on the OEM production, partly offset by an increase in service revenue. These factors were also reflected in the regional EBITDA figures. APAC EBITDA declined by $8.3 million, North America by $8.8 million while South America's loss widened to $9.3 million. While full year performance were weaker year-on-year, APAC remains the group's largest contributor and showed improvement in the second half. North America margins recovered throughout the year, whilst revised OEM terms and stronger operating controls in Chile provides a foundation for improved performance in financial year '27. Turning now to cash flow, which was a clear positive for the year. Operating cash flow increased significantly from $2.6 million to $26.7 million, driven mainly by the release of working capital and a $32.2 million reduction in inventory. EBITDA free cash flow conversion improved materially to 99% for the full year. Capital expenditure reduced from $9.9 million to $6.8 million, with investment focused on upgrades to our U.S. facilities and operational equipment. Free cash flow after interest, tax and capital improved to $19.9 million from a negative $6.5 million in financial year '25. This stronger cash position enables us to fund $7.1 million in dividends and a $1.2 million share buyback while also reducing net debt. This reflects the stronger working capital discipline and financial controls now embedded across the group. This slide provides a good picture of the breadth and diversity of our revenue base. By commodity, iron ore each represent 25% of revenue. Oil sands account for 18% and met coal exposure increased from 9% to 15%, while gold came back from 15% to 8%. On the product side, truck trays remained our largest category at 62%. Pleasingly, buckets increased from 6% to 10%, while other products and parts grew from 8% to 10%, further diversifying our product mix. On the customer side, miners represent 83% of revenue, reflecting the depth of our relationship with major operators. Our OEM channel held steady at 8% and continues to be an area of ongoing opportunity for the business. The key takeaway is that Austin has diversified revenue, based across commodities products and customer time. The growing contribution from buckets, other products and parts further strengthens that diversification, providing greater resilience and multiple avenues for growth. Turning now to our regions, starting with APAC. APAC was our largest revenue generating region, contributing 44.7% of group revenue and continues to be the cornerstone of group profitability. Revenue was $147.1 million, and EBITDA was $24.9 million, representing a 16.9% margin. The Australian buckets business was a standout, delivering a $17.4 million revenue uplift and growing from 10% to 20% of APAC's product revenue. We also broadened our customer revenue mix with 51% of work now secured outside single customer relationships. Encouragingly, profitability improved in the second half with margins increasing from 15% in the first half to 18.7% in the second half, reflecting operational improvements and disciplined execution. The order book strengthened throughout the year, and together with continued bucket growth and broader customer exposure, this gives us confidence in APAC outlook for financial year 2017. therefore, illustrates but we want to see more consistently across Austin, stronger product diversification, combined with disciplined operational performance. Our objective in financial year '27 is to build on the second half momentum. Turning now to North America. North America contributed 38.6% of group revenue. Revenue declined 13.5% to $127 million, reflecting customer replacement cycles or delays and product mix. EBITDA was $9.5 million. Our operational improvement plan is focused on improving productivity and production flow while reducing our reliance on external contractors. We have introduced better planning, lean manufacturing practices and workstation KPIs, invested in new technology and focus on reducing supply costs. Our weld school is also helping build on our own permanent workforce. We are starting to see the benefits of these initiatives. Productivity improved from 62% to 80%, whilst our reliance on outsourcing reduced materially. Outsourcing assembly fell from 33 units in financial year '25 to just in the second half of financial year '26, whilst margin increased from 5.8% in the first half to 9.5% in the second half. There is more to do to improve product margins and order conversions, but these are measurable signs that the operational changes are taking effect. Stronger operating base positions the region to convert future demand into higher margins and earnings. Now looking at South America. Revenue was $54.9 million, broadly in line with financial year '25, but the regional results was significantly impacted by the legacy OEM contract. The contract generated $21 million in revenue but delivered a $5.7 million EBITDA loss, representing a negative 27% margin. The region reported an EBITDA loss of $9.3 million compared to a loss of $1.7 million in financial year '25. At last year's AGM, I said we would not accept new orders under the agreement until the terms improved. In March '26, we renegotiated the commercial arrangements, securing better pricing and payment terms. Deliveries under this new revolver terms commenced in late June. We are -- we also appointed a new management team, supported by our North American colleagues and are applying operating practices that have proven successful in We have improved controls of our steel yard and steel utilization, rightsize the workforce and strengthen production governance. Chile is on a path to recovery. The order book is robust, extending to the end of the current calendar year, while further demand is expected. There is more work to do, but the revised commercial terms, new regional leadership and total operating controls position the business for a stronger foundation in financial year '27. Turning now to our strategy on the page. Our strategy remains simple and focused on margin recovery. Customer growth and product differentiation, supported by 3 operating pillars: manufacturing leadership, product leadership and customer focus. On the manufacturing leadership, we are introducing common operating systems across the business. Standardizing work practices and disciplined KPI management. On the product leadership, we continue to design customized products to improve mining efficiency. -- while growing bucket sales and advancing IQ and our boarder digital capability. Lastly, under customer focus, we have invested in our sales teams increase our marketing and trade show presence and expanded customer support across Australia and Chile. I will now turn to the outlook for financial year '27. This is a key slide showing that we are seeing early traction from our operational improvement plans. At 30 September '26, the group order book was $139 million, up 18% from $118 million at the same time last year. October has also started really well, with order intake of $39.7 million. In APAC, the order book is up 52%. Our Batam facility is operating at full capacity. East Coast tray orders have been secured following sustained sales investment, and we continue to diversify our customer base and expand internationally. We have started to manufacture a large dipper bucket for an OEM and the opportunity is significant with the potential to grow to approximately 10 units per year. In South America, the order book is up 33%. Pleasingly, Chile delivered a positive in unaudited year-to-date EBITDA contribution before corporate overheads compared to a loss in the same period last year. This was achieved despite flooding either facility in August and is encouraging evidence that the operational reset is taking hold. We have added specialized manufacturing expertise and remain focused on productivity and cost control. In North America, we expect a softer first half followed by a stronger second half. The order book is down 43% in September, reflecting lower original activity rather than a loss of market share. And I want to actually stress that. There's not a loss of market share. This is lower regional activity. In early October, we rightsized the cost base, including retraining the skills required to meet the demand we expect in the second half of financial year '27 and into financial year '28. Historically, October, November and February are key order ring mines. And October orders secured to date has been $35.3 million, which is great for us into the second half of this year. Across the group, the operational and productivity measures we have implemented are contributing to margin recovery and building a stronger foundation for financial year '27. Turning now to our final slide. Austin's strategic fundamentals will remain strong. Our global footprint commodity exposure and design-led product positions us to help customers increase productivity and efficiency. The actions we have taken provide clear drivers for earnings improvement in financial year '27. In South America, these include the OEM contract reset, new management and total operating controls. North America, the focus is on productivity gains, lower outsourcing and increasing order conversion. While in APAC, the priorities are bucket growth, customer diversification and margin discipline. At a group level, cost control, growing capital discipline and our embedded operating KPIs will support cash generation and financial flexibility. We reconfirm our financial year '27 guidance on underlying EBIT from continuing operations, excluding foreign exchange movement of $17 million to $21 million. We entered financial year '27 as a leaner and more disciplined business with stronger cash generation, lower net debt and clear operational foundations. Our focus now is on translating this progress into stronger earnings and sustainable long-term growth. Before I finish, I'd like I to thank our people. Financial year '26 was a demanding year with significant changes across each of our regions. Our teams in Australia, Indonesia and United States have responded with commitment and a clear focus on execution and we are beginning to see the better efforts of that work. I would also like to thank our customers and partners for their contribution, trust and my fellow directors for their support and you, our shareholders, for your patience and ongoing support. We have more work ahead of us. While we enter financial year '27 with a strong operational foundation and a clear focus on delivering improved results. Thank you. I'll hand back to Jim.

Thanks, Sy. We'll now open up the floor to questions. If you'd like to ask a question, please raise your hand. And once you have the microphone, please state your name first.

[indiscernible] on the present year, you talk about lower regional activity in North America. Could you expand on that a little bit? One of the ways that do you think? And do you see some change in the situation in coming months?

I'll let Sy answer it, but if you listen to it's trap.

I think it's not backed but like One is typical. I don't know that. But if you look at some of the bigger mines is in North America, especially into the oil sands, they have gone through a major expansion program. Our there, $400 million to $510 million of product from OEMs [indiscernible] so forth. And what that meant is that, that order started to available capital to that replacement and therefore, put on hold new or tray replacements, that impacted us. So it's not as if they don't have that need, and that's going to be a pent-up demand at some stage, but they're going to have to As I said, in North America, the big order intake month for us in October, November and February, and the main reason for that marketing year. So they actually budget in North America, mostly on calendar year basis. And once their budgets get approved and they can actually put in capital or replacement, we see those orders come through. That's why if you look at October, said we're just over $35 million of orders intake in North America alone. And that's not in the beginning. So hopefully, that continues into November and into February. The team in North America are obviously very confident that those orders are going to come through based on their discussions with Now nothing is make until we have those orders and [indiscernible]I'd like to go through the approval process of clients, but we are a lot more confident [indiscernible] levels into operating at the second half of this year and into financial year '29.