Thank you for standing by, and welcome to the PWR Performance Products H1 FY 2021 Results Presentation Conference Call. All participants are in 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. Kees Weel, Managing Director. Please go ahead. Thank you very much. Good morning, everybody that's on the call. I appreciate your time. I guess if we want to walk through a page turn on the results, we'll do that. Then we'll revert to some calls. I'm sure there'll be some questions there. I think it's a very solid result, to say the least. A lot of our results we can't talk about, but I think the numbers we can talk about. Just starting off on the revenue line, I'm just going to pick through the key points, and we'll leave the rest to questions. Everybody's rev it. Revenue up 25%, EBIT up 60%, and NPAT up 90%. I think the rest is fairly self-explanatory on that page. Don't think we need to waste too much time. On our performance with the revenue line, it's across all categories. It's not just motorsport or emerging tech or OEM. It is a lot across all categories. Obviously, emerging tech is the new up-and-coming area. We'll take control of it a little bit later on when we talk about it. Sales versus currency, that's all self-explanatory. I will talk about C&R. C&R has been a very big contributor for this first half. They have really excelled over there, particularly in the conditions. As we all know, COVID's been a problem, it's certainly been a fair time as a business operating in America. To have our sales well over our budgetary area and well up from last year, it's a credit to the guys that pulled it together. The EBIT margin is self-explanatory, obviously, we had some JobKeeper receipts in there, which I'll talk about because everybody hammers me on that. NPAT of up 90% over last year. The dividend, it's still on our lower percentage of what we're paying out to be conservative at an increase of 47%. Cash flows, probably save a few questions there. You'll see how the hell do you do that? We've had a couple of different categories that have pre-paid some contractual commitments due to some years of timing, and that was just over that Christmas and New Year period. Some of the checks coming early, so we had to put them in. Working capital speaks for itself. EBIT to cash conversion. Loans drawn down end of June last year were fully repaid. Cash on hand is a little bit up from last year. It's AUD 16 a bit against last year at AUD 17.9. Go to the next page. It is very self-explanatory with the graphs, et cetera. I guess the other thing we'll talk about is forward sales orders in the pipeline for the second half and also the first half of next financial year. We'll talk about that later on. You've got the pie graph on the next page. It does pull them out. OEM and emerging tech and the aftermarket were probably the big ones where it's quite encouraging, and motorsport still has some growth in there. Motorsport's still what we call our speed technology driver for that. Our financial performance, spoke about that before. I don't think we need to go over that again, as we all know that our forward hedging is always three to six months in advance to give us some protection on that side, what have you. I think that's pretty good. Balance sheet. A very strong balance sheet, like really strong. As we know, over the last three years, we've spent a lot of money on CapEx, and that's about to come to an end to a degree. Obviously, not as much as we've done in the last three years. I think the last three years has been around about AUD 10 million per year on CapEx, and that will come back a bit moving forward. Everything else on that page is self-explanatory. Everybody's got their questions lined up, I'm sure. Working capital and cash flow, same thing. I don't think there's anything there that would alarm anybody on that side. That's all pretty good. Probably the most important pages are the next couple of pages of the second half of 2021 and looking forward to 2022 and continued past that. Capital expenditure, we feel is going to level off a little bit. Efficiency and quality improvements are certainly a thing that's starting to push down to the bottom line. The OEM programs, I think we all know that we've been talking about these for a while. We have the Ford contract, which is a big contributor right now. Right now, that contract will go through to September. We have got a order from Ford America through to September. It may go a little bit further, but even if it goes to September, it is past what we expected anyway. Obviously, the other programs that are gonna come in possibly a little bit in June would be the Valkyrie and possibly a little bit of the AMG 500, AMG ONE, I should say, which we've spoken about many times before. We can only tell you what we know and only tell you what we are told. That's okay. Same, the USD and the GBP, the pound, we've certainly got a very good hedging program there. Yeah, we put that line in there about coronavirus, but I see everybody's getting a jab today, so happy days. Happy days. Don't know about the anti-vaxxers, but maybe they won't be happy. Brand, we are and we have been starting to roll out PWR Global, and in time, you'll see a little bit of the C&R fade off, what have you. Obviously, you still have it for some programs in America, et cetera. You'll see a big push for our global branding as PWR branding globally. The online store, we have spoken about this before, it's very close. Roll out, I'm sitting next to Mr. Bryson here. Next month, we're very positive it'll pass. We'll roll out. As soon as we get the bugs out of that in Australia, we'll be pushing that through to America and then on to Europe. That has come about because of, during COVID, we've had a very big push for domestic sales, et cetera, and we have been working on this online store for over 12 months. It hasn't just dropped in, but it certainly gave us a lot of confidence in the last 12 months of what can happen if you give it a crack. That's the thing. Emerging technology, look, it's exciting. You've seen the numbers. I think we've done 4.2 for the full- year last year, and I think we've done 4.6 for the half of this year. Goes to show where that's coming from. As we've said earlier, we've been spending the money on R&D and CapEx and what have you in previous years, and now we're just starting to see the filtration of that money coming in and the programs being started. It does take a little while. We've spoken about aerospace and military and aerospace defense and whatever for the last couple of years. It does take a little while to get in those programs, but those programs are starting to see some light and shed some light through to the bottom line. We're very excited about that. The vacuum-based cold plates and Micro Matrix are probably two of our big drivers on that. Now we're also seeing a lot of questions and R&D programs coming up for hydrogen fuel cell heat exchangers, et cetera. Bar and plate applications, have been doing that for the last 12 months and been very successful there in those programs. Needless to say, the battery and hybrid cooling systems are very strategic to what we're doing. We haven't spoken too much about on this [inaudible] with the additive manufacturing. We've had that for some time now. We've been talking about it for five years. We've had equipment in for the last bit over or around about 12 months. Through the premise came in the start of COVID, so we had to commission those ourselves, and it just does go to show with the talent of people we do have that they are certainly up and running and looking very good for the future. The CFD simulation model services that we've been offering around the world are starting to really pay off. As I've said before, we spend money here and collect money there. We've put a lot of money into that area, and we did hire someone from overseas two years ago and relocated to Australia and what have you. It's been a great story. The superalloy brazing capabilities, when we just put in our new vacuum furnace, what have you, when we did model that up to braze aluminum, it's sort of temperature of around about that 600 degrees celsius. With the superalloy, particularly with Inconel and titanium and those types of stainless steel, et cetera, we need a temperature of around about 1,600 degrees celsius. When we did put the spec out for that furnace, it was more expensive, but it certainly gives us a good range now throughout future programs. I know that's sharp and sweet. I think everybody likes it. We're more than happy to take some questions, and over to you. Our first question comes from Cameron McDonald of E&P. Please go ahead. Good morning, Kees. Thanks for the presentation. Question just on motorsport, one relating to Formula one. With the additional eight races, if you like, falling into the second half of this financial year, how do we think about the benefit that that's providing for FY 2021, given that you've already had a full calendar year already condensed into the first half? Yeah, that's a good question. That is a good question. I certainly think that the first half, and us putting our hand on our heart, we probably did expect a little bit more out of F1 in the first half, and it didn't come to fruition really because of a lot of those races, they didn't know were they were gonna have five races or 10 races or whatever. They were sort of racing from hand to mouth with parts and what have you. We were sending parts all over the world. It was certainly not the normal. I think you should think about this next half or the half that we're in now, I think you should think about that, go back to 2019 number. It's going to give you a fair indication for that. That's how I think you should think about that. Okay, great. Thank you. With the growth in emerging technology, as some of those new products start to be sold into what has been traditional motorsport customers, how do we think about the potential cannibalization between emerging tech and motorsport? Yeah, I don't think it'll be too much of that. There's obviously going to be a wee bit of that. I'm talking a very small part of that. I don't think it'll be too much of that because it's, particularly emerging tech. We've got three or four key things in there. You talk about Micro Matrix, cold plates, and also 3D printing it and the like. They're into that emerging tech side. I don't think you'll get too much of drop out of motorsport and then jump straight into emerging tech. I think there might be 1% or 2%. I don't think it's gonna be a 5% or a 10% or a 15% swing in that with some of the programs that we're in. These programs that we're in are programs that are new and stuff that we've developed ourselves over the last couple of years and given people, I guess, the view of they can do better in different areas that we're not doing now. Systems are changing, and there is increased opportunity rather than stealing from existing business in most instances. Great. Thank you. Just very quickly, just on page 11, the defense and aerospace. Can you just confirm that you're actually generating revenue from sales to the defense and aerospace industry at the moment? Yes. Excellent. Thank you. The last question from me, just can you make some comments about the interview you've given in the Financial Review today? In particular, I'm interested about the discussions you have in the electric vehicle space. Yeah, I don't think there's anything new there. We've obviously been in that area for some time now. Certainly the hyper-electric vehicle space is very much our area. We're not into Tesla. We're not into hundreds and thousands of cars and that type of thing. We're not in the high-volume range, but we are certainly in the range of those hybrid vehicles, which is several of them happening right now, which we are on, being built in Europe. That's certainly our area, that 100-150 vehicles a year. Got to be careful what I say here, but there are people trying to flex their muscle, I suppose, of what they can do and in electric vehicles in the premium side. Not just land-based ones. Yeah. It's not just land-based either. Certainly the vertical lift areas, that's drones, helicopters, and you name it. There's quite a bit of business going on there. Yes, we are actively dealing with those people as far as a PO and a check are concerned. Yeah, that side of the business, as we have said before, is growing. It's exciting. We feel that we'll have a reasonable amount of income on the emerging tech, for this half, and that 2022 will be exciting, that is for sure. Great. Thanks, Kees. Thank you. Yep. Our next question is from Chris Savage of Bell Potter Securities. Please go ahead. Thank you and good morning. Morning. Kees, I might keep going with exploring some of the comments you made today on the AFR. Have you got Mercedes now in F1? We're working with them, yeah. So will you be supplying Matt Bryson. Pardon? Sorry, I've just got Matt Bryson here with me. As everybody knows, he's our COO and been our engineering manager for 20 years, so sometimes we get passed by him. We are doing some work with them now, Chris, but I wouldn't choose to say much more than that. We're always careful about saying who we do what for, but, yeah, work has progressed in that area. Okay. Just on that online store, I know, Matt, that's kind of your baby as well. How does that change the outlook in automotive aftermarket? Is that now we could potentially double the revenue there in the next few years? Look, I would absolutely hope so. I think we've had the view that automotive performance aftermarket, not only in Australia but absolutely in the United States, is an underperformer for us as a brand. Going to the online format was sort of the catalyst to rebrand the North American facility now to be PWR North America. It still has its logo with some recognition towards C&R, but it is fundamentally now operating under the PWR logo, and products produced out of there are produced under the PWR logo. That is to get a common global brand. Absolutely, we're looking to push our brand and take opportunity to capitalize on some of the high-level programs that we are involved with and we're able to speak of, to promote our brand. You will see through a lot of our digital and certainly social media channels going forward, a much increased presence, not only talking about some of the programs that we can speak of, but also providing a little bit of a window into PWR as a factory. Promoting the Australian and the U.S. made products, and really leverage some of the high-level program and credibility that we've got into that performance aftermarket. The intention behind that is not only because it's good margin work, but it's also to provide a foundation going forward, that justifies all of your resources and all of your capacity, that would be fundamentally shared with a lot of these niche OEM programs that we're going into. Certainly, the likes of COVID and the like showed us that some of these programs can be difficult to read in terms of timing. We've absolutely got the potential and will capitalize on those when they are available. Being able to leverage the performance aftermarket gives us a good, solid foundation that we can drive that area of the business. It also allows us to develop and grow the business in a slightly different direction in terms of capability and resource that is different from the highly resource-hungry and engineering aspects of motorsport and defense and aerospace. This allows us to certainly continue to service the motorsport industry as we always have, grow the defense and aerospace, which will be in a higher technology bracket. Automotive aftermarket, performance aftermarket is about growing the business back to its roots. Sure. Just on emerging tech, Kees, I know you can't really give us much color on the contracts or the clients, just due to the nature of those clients. Can you give us an idea how many contracts you've got now in that space? Is it like OEM, where you're only ever working on a few contracts, or are we now talking? It's very Several dozen, multiple? Yeah, no, it's very widespread, Chris, particularly, we've got a couple of things in that basket when you look at Micro Matrix, which we've been working on for some time, as you guys know. Obviously, this last 12 months with particularly contracts that we've had with cold plates, particularly in defense and those categories. Look, there is quite a bit of pipeline there. We've certainly put a lot of structure and resources and CapEx and programs around this area of business going forward. Yeah, I have said in some commentary that we feel that, I think the wording is that, we feel that emerging tech will possibly dwarf our motorsport in future years. Now, that's not to say motorsport's gonna fall away. Our technical and our technology push and what have you, is mostly always driven out of motorsport. We're certainly not going to close the door on that. I think the big driver in future revenue lines is certainly going to be in that area. To answer your question, in a roundabout way, there is certainly a lot more than half a dozen. There's quite a few different customers. Just last quick question back on that AFR article again. Is the target FY 2024 to have emerging tech ahead of motorsports? Well, as you know, journalists, and I'm not quite sure if you'd fall in the line of that, sometimes they print what they'd like to print. Maybe it's probably not what we've said, but, look, I think 2024 might be a bit early, but I think we'll probably have a better idea at the end of 2022 of how we are. You only have to look at where we are now. We're at probably 25% at the end of this financial year. We'll be probably at 25% from emerging tech against motorsport. I'll tell you what, once you start rolling in that area, things will go fairly quickly, as they have done with anything else we've done. Yeah. I think, 2024, 2025 is certainly on our radar to do that justice. Great. Thank you. Thank you. Our next question is from Alexander Lu of Morgans. Please go ahead. Hi there, guys. My first question is just on the change in sales mix. Despite obviously emerging tech and OEM growing quite strongly, you did make a comment that you were able to maintain gross margins steady. I was just wondering, with the change in the sales mix going forward, and the growth in those areas, how do you think about gross margins in the future? Yeah. I think it all comes down to the EBITDA line, Alex. The mix of businesses is certainly changing, for sure. Your OE line is obviously fairly lowly priced on some of the OE programs. They dot you down there anyway. It is usually a pretty good program to be involved with, for future business. That will continue. You look at, and that's one of the things that Matthew just spoke about before, with our aftermarket, our performance aftermarket business, we feel there's certainly a big clawback to be done there. That's obviously a lot better margin than an OE program. You look at some of the defense and aerospace programs that win. We're into areas that other people can't manufacture. When you're the new kid on the block, they give you the hardest part. Whatever the hardest part they have, they go, "Let's try these on these guys." We've been able to kick a goal out of every corner. I think that'll speak for itself. I think we can still continue to have that EBIT line very strong and certainly our bottom line very strong. I wouldn't take too much concern in gross margins. Okay. Maybe a question on OEM. Obviously a few programs or bigger programs ramping up towards the end of this year and early next year, and hopefully they'll go for about 12-18 months or so. How do you think about, I guess, replacing those programs in the medium-term and, maybe just talk about that OEM pipeline as well, please? Certainly, when we do our full-year result, we'll update our OE program, for sure. It's probably time for a readjustment on there. There's quite a few programs that we're involved in and in early stages. As you know, the Valkyrie and the X1 program and also the GT40 program, if you like, in America, the GT40 program's still got another two years to run. Although it'll be a small contributor, but it's still a contributor. The AMG and the X1 will certainly run for 18 months to two years, for sure. We're looking at programs that are going to slot into that 2023 area right now. I've said this 12 months ago that our OE contributor to the revenue line is going to fall between AUD 10 million-AUD 18 million. I know that's a fair gap, it'll fluctuate in different years. We're still pretty confident that's where it'll be. Okay. One last one from me, just on the competitive environment, Kees. Are you seeing anyone emerge as a competitive threat, especially in that, I guess, the motorsports division? Going into the emerging tech side, I presume, you're the new kid on the block, so what's the competitive environment like with, say, military and aerospace, please? Yeah. That's a good question. Well, I guess we went in there, it's no different how PWR started in the motorsport. We went in there because there was a space that wasn't quite what we thought serviced correctly and what have you. We made a business of that. Aerospace and defense is very similar. It's very tight. It's a big community, if you like, very cliquey, what have you. How we started that, Alex, and I'll just explain how that started two years ago, when Andrew Scott and myself were in the States. We were just looking for new ideas and new things that we could grow a company with, we came across cold plates, et cetera. The word was that there was a lead time of 36 weeks, and we hear that sort of stuff, and we go, "Holy smoke, well, there's an opportunity." That's something for PWR. On our first program, the first contract, which we're just in the throes of finishing our first contract, we got that down to between 12 and 16 weeks. Which they were happy to pay us a premium for, they call that a rush fee. That was certainly something we enjoyed and what have you, but it certainly wasn't rushed, that's for sure. We're happy to take the extra money. That gives opportunity, and that's what the world's all about. People want to sit around and play cards, or you go to work and work. That's what PWR does. That's what we do, and enjoy every bit of it. I think that sort of explains that pretty much. Great. Thanks a lot, Kees. No. Thank you. A reminder, to ask a question, please press star, then one. Our next, Tom Tweedie of Moelis Australia. Good morning, gentlemen. Thank you for presenting to us. A couple of quick ones. First of all, on Formula one, do you have any view at this stage of what the proposal to freeze the power unit developments from 2022, what implications that may have on cooling given the correlation between cooling and the power units? Have you got a view on that yet? Certainly, that freeze has now been agreed with all parties. 2022 was driving quite a lot of technical change anyway. The physical layout of the car is different. The packaging of the cooling system presents different challenges as well as different opportunities. The engine freeze doesn't change other aspects that will continue to evolve year on year. The coolers will change due to changes with power unit as well as also aerodynamic changes. That will continue to happen year on year. We don't see any real change in the way that the customers will evolve their designs with PWR. That will continue to be the case. Of course, as they work towards what will be a new engine, likely in 2025, they will start to work in those areas, and that will present different opportunities for PWR also. There is no release of exactly what they're going to do with that engine formula for 2025. Within the team it's highly anticipated that it will remain a hybrid formula. Combined with combustion engine and EV drivetrain, but it will take a larger percentage of its overall power unit, also overall power output, will be from EV. It'll just be an increased amount of power output from the EV, which again, will drive new developments and a requirement for new and improved cooling solutions. All right. Brilliant. Thank you. The other thing, we've sort of touched on it, I just want to try and get a little bit more detail, with the emerging technology, are you able to give us a sense to what% of that growth was from motorsport and what was X, as in the Aero military versus what drove as a result that uptick? I think I answered that earlier on. I don't think there's too much that's come out of motorsport and gone to emerging tech. We could do some numbers on that. I think trying to be very small, it might be in that three or 4% range. It's not 10 or 15, that's for sure. As we move forward, I think the other drivers in emerging tech are somewhat going to be outside motorsport, although motorsport will use some of the emerging tech for sure. I think the big drivers in emerging tech will be outside the motorsport area as well. Okay. Just quickly, how many of the teams are you able to tell us are using a Micro Matrix or cold plate at this stage, for this season? Can't tell you that. Okay. Probably final question from me is just on the OEM ramp-up. You pointed out obviously two programs coming on at June or end of June. From a capital investment perspective, the upfront spend that you have on OEM, has that already been set up for these programs already, or do you have to obviously tool up and personnel up getting closer to the start of those programs, the start of the financial year? Yeah. A lot of that, we've already built that into our program right now. Certainly personnel-wise, you just don't do an extra AUD 10 million of work because the current big OEM program is in the U.S., and that's done in the U.S. The next two are a little bit different as in the AMG ONE and the Valkyrie will be done here in Australia. The majority of them will be done here. Some parts of those programs will be done in the U.S. We will be putting some extra people on to bolster that at this end. It's not huge, but it's fair to say that we'll do that. We'll have to certainly add some manpower in behind those programs. All right. That's it from me. Thank you very much. Thanks, Tom. Thank you. Mr. Weel, there are no further questions at this time. Would you like to make some closing comments? Yes. Thank you. Go ahead? I'd just like to thank everybody for the call. I think certainly the first half has been a little bit what we expected, but we always say that we underpromise and overdeliver, and we've done that for five years. We're in this for five years now. We haven't changed our perception on that. We know the second half will be a very solid second half. Thanks everybody for the interest and no doubt we'll talk to you on the full-year result. Thank you. Thank you. That concludes today's call. Thank you for joining us. You may now disconnect your lines. Thank you very much.