Further to Auto's notes, I have been running some numbers on...

Further to Auto's notes, I have been running some numbers on this very aspect to understand what this may look like and hence where they may direct the free cash flows (it can go one of 4 ways - voluntary debt repayment, increase in cash on hand, capital investment decisions or distributions to shareholders).

In this half year, they have used surplus operating cash to voluntarily repay debt (net repayment of about $2.1m) plus a further $1.8m (net) directed towards purchase of additional equipment. So about $4m of free cash generated and with these items, no movement in cash on hand.

This is in line with past reporting periods. We have seen voluntary retirement of the trade receivables loan occurring as the primary "sink" for free cash outside of capex decisions and share buy-backs for the past 3 years. They seem intent on winding down their balance sheet debt in favour of using what I would call "specific item debt" in the form of equipment finance. Balance sheet debt (Receivables financing) has been reduced from $23.6m at 30 June 2021 to a total of $9.7m at 31/12/23 - meanwhile lease liabilities have gone from $24m to $58.5m in the same time period.

Note that with the increased turnover, there was some (very modest) net investment of cash in the working capital position - on my figures, only about $550k. This suggests strong working capital management.

I think they will certainly generate a further $4m+ of free cash in the second half (so maybe $8m to $9m for the full year) and I expect to see if these current balance sheet "investment" patterns using free cash flows repeat.

Their stated shareholder value proposition is to "return 40% to 60% of previous 2 years' rolling average operating NPAT" and last FY "operating NPAT was only $149k and this year is shaping up as "> $5,500k" meaning the 2 year average at circa $2,800k and 40% of that being $1,100k. They already have "returned" $243k via share buy-backs and that program remains open, so they will probably elect to fulfill shareholder value through continuation of the share buy-back in the second half (dividends are likely off the table until they start paying tax again and that is a long way off given the $32m of tax losses).