Thank you for standing by, and welcome to the PWR Holdings Ltd HY 2022 Results Presentation. All participants are in a listen-only mode. There'll 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 1 on your telephone keypad. I would now like to hand the conference over to Mr. Kees Weel, Managing Director. Please go ahead. Good morning. Good morning, ladies and gents. Thanks again for dialing in. This time of the year has come around pretty quick, as we all know. I guess we'll get straight into it. A lot of people have already seen and gone over the presentation anyway, so I'm not going to stop and read every individual line, but I'm sure, yeah, we'll certainly do the best we can for everybody. Performance highlights. Overall 22% growth across all key markets. Motor sports, 20% growth again, which is a great result. OE, as we've said, 42% growth due to the strong push for Aston Martin for the Valkyrie program and also the GT500 program that's coming out of the States. Emerging tech, which we always anticipate a fairly big growth there of 36% with a broad customer base and certainly a fairly big input of Micro Matrix this first half. Aerospace and defense, looking at a very strong order book for the second half of the year. It's weighted for the second half. Automotive aftermarket. Probably our biggest thing is they're working on increasing capacity 'cause we are capacity limited there. Online store. We launched the online store on the 15th of December, which is a little bit ahead of schedule. NPAT, a solid conversion, and our dividend of AUD 0.035 per share. Performance challenges. I don't think I have to talk too much about this, but everybody knows, you know, the market uncertainty with COVID changing the rules and guidelines. The international and state borders' closure restricting movements of employees. The employee availability due to government-imposed isolation requirements impacting production capacity. The COVID-19 vaccine mandate. Due to the nature of our manufacturing facilities, we didn't have too many people that could work from home. Social distancing is not always available. The management team has spent considerable time in the planning and implementation of the vaccine mandate for PWR Australia, as well as the COVID-19 safe operating procedures globally to minimize the current and future impact to operations. To protect our employees and in anticipation of the state borders reopening with increasing community transmissions in December, in December last year, we introduced a COVID-19 vaccination mandate for the Ormeau facility, effective from January 4, 2022. That was double jab. That was certainly double jab, have to be double jabbed before they could enter the building. Prior to introducing the vaccine mandate, PWR engaged in an extensive consultation with employees, including holding on-site information sessions with doctors, et cetera. The introduction of the vaccine mandate resulted in the loss of 19 employees. Sorry, nine employees over a total of 300 employees. It wasn't too bad, but they were obviously people's choice. They decided that they didn't wanna be vaccinated. The challenges, other challenges, supply chain. That doesn't come with any surprise to anybody. Lead times and minimum order quantities for raw material. We have increased sale prices where possible to pass on through raw material costs. We have been increasing forward orders and inventory of raw materials to ensure continuity of supply. We've increased finished goods inventory for programs and are warehousing the finished goods in the U.K. to reduce the shipping distances for final delivery to the customer. That was mainly for the Valkyrie program to make sure that the goods were in the U.K. when Aston Martin wanted to draw on them. Inflation goes without saying, has increased. It will continue to put pressure on our wages, rates, et cetera, raw material and supply chain costs. Recruitment and retention, effective onboarding, upskilling and retention of employees is critical to the growth and continuation of the performance of the business. Performance overview. You know, I won't go through every line on the performance overview, but it is very healthy. You know, our revenue is up considerably to what we thought it was going to be, and therefore, all those numbers have dropped into place. Particularly when you look at the first half of last year, we had nearly AUD 2 million of COVID support. To have this result this year with no COVID support was fantastic. The depreciation investment on our equipment over the past year has increased capacity and capability. While first half 2022 EBIT was AUD 2 million higher than the prior period. Depreciation expenses was AUD 1 million greater, because of all the new machinery we have been putting in. Our depreciation costs are going up. Our performance trend, I won't run through every graph there, but it's very healthy on every graph to where we are. Our revenue, our EBITDA, NPAT, and dividend per share. Yeah, when you look at the trend for that, it's been very healthy and very fulfilling. Revenue by market sector for the half year. Motorsports is still very strong. Growth was driven by a broad-based return of Motorsports events for 2022. The automotive aftermarket was constrained by limits on production capacity and prioritizing of high-margin sectors, including Motorsports. Further growth potential is evident, including the online store. OEM includes the Aston Martin Valkyrie program, so our OEM was strong against last year, up 20%, et cetera. Key points. I know this is where a lot of people are looking at key points for emerging tech. On our motorsports side it was up 43% from last year. That was a lot to do with the Micro Matrix matrix cores that we're selling into high-end motorsports coming up on this year's F1 program. The OEM strong growth in cold plates to battery coolers and electronics in high-end electric vehicles. Aerospace and defense is not as good as we would like. The first half is definitely very weighted for the second half. Second half will certainly make up that margin there. Revenue by currency for the half year. As everybody knows, we do have a foreign exchange program that we lock in every year. We are very much protected on that. You know, we have a foreign exchange program that's locked in for at least three to six months ahead of where we are all throughout the year. The U.S. exposure is largely offset by the U.S. production costs. Operating expenses, you know, I think the key points of raw materials and consumables usage increased by 13%. The movement of finished goods inventory and work against raw materials. One of the biggest expenses, employees. We employed an extra for the same period last year. We employed an extra 88 people. That was certainly the big increase there, plus the 3.1% award and market pay rates increase. External recruitment fees, et cetera. I think everybody that's in business today would understand that, you know, employment and employing the right people is expensive. As we increase into some of these niche markets, our some of the disposal, waste disposals that we have to do is getting up there. Other expenses, increased insurance and marketing programs. Balance sheet. Balance sheets, as everybody knows, it's always been strong. It's still very strong liquidity and cash position. We paid out AUD 16 million in cash in September for a dividend. The ROE decreased. The plant and equipment increase completes the majority of the previously announced capital investment. Inventory and prepayments are greater as we respond to supply chain pressures ensuring production continuity. Loans and borrowings include the right-of-use liabilities, AUD 10 million multi-currency and AUD 7.5 million equipment loan that remain in place and not being utilized at this stage. Balance sheet strength is utilized and unutilized facilities provides ability to seize organic and other opportunities. Financial assets unchanged apart from foreign currency movements. Working capital and cash flow key points. Operating cash flow decreased by 45% for the same period last year. For same period including AUD 2 million of COVID payments last year. Prior period include AUD 2.7 million customer contract prepayment. The first half FY 2022 includes 6.4% increase in working capital, including AUD 2.2 million increased trade debtors due to strong December sales and AUD 3.7 million increased inventories and prepayments to manage supply chain risks. Cash conversion and operating activities at 67%. Capital investment financed from operating cash flows and retained cash services. Liquidity position is very strong. Cash reserves at AUD 16.7 million and finance facilities over AUD 17.5 million. Business outlook. Organic growth. Extensive organic growth opportunities. Disciplined approach to selecting which opportunities to progress. Motorsports continue to supply all major motorsport categories as they strive to develop more efficient cooling technology. OEM programs continue to ramp up with long-awaited programs now in production and the expected commencement of the AMG ONE program in the second half of 2022, and negotiations continuing along all future programs. Auto Aftermarket, solid market demand, but we are impacted by insufficient production capacity at the moment. Working to increase production via the introduction of an afternoon shift in selected departments and that is afoot as we speak. Online store. The online store was launched ahead of schedule on the 15th of December 2021, an important sales channel to supplement existing strategies. Business outlook for Emerging Tech. The EV market, we are very well placed to deliver high-performance battery and electronic cooling products to the ever-expanding prestige EV market. Cold plates. The cold plate market has previously been limited to automotive application, is now spreading into adjacent markets, providing an overall larger market. Micro Matrix. Our MMX opportunities continue to grow as the technology matures in its current markets, and it is a R&D focus for aerospace and defense. Additive manufacturing. 3D aluminum printed parts are now included in a growing number of high-end PWR cooling systems. PWR continuing to develop and extend the application of additive manufacturing together with our technical partner, Velo3D. Business outlook for Aerospace and Defense. Second half demand deliveries for key U.S. customers is looking strong for the second half due to increased demand. Australian Defense. Government decision on a large defense program to be made in March quarter. I think there's a decision that will be made within the next two weeks. Subject selection for PWR as part of the supply chain would have a good future growth opportunity over the extended period. International travel. PWR will be reassuming international travel to visit important customers, and we'll be exhibiting at three international trade shows in the second half of 2022. Prototypes. PWR have recently secured prototype contracting with aerospace and defense primes for bespoke systems and have the potential to lead on to production for future platforms. Electric lift. The electric vertical take-off and landing program, PWR remains in a high future growth area for PWR, with several aerospace manufacturers turning to PWR for thermal systems support and manufacture. Hydrogen fuel cell. Fueling technology has been a focus for PWR, providing lightweight and compact solutions to allow our customers to increase energy density for their platform solution. Managing risk for our business outlook. COVID has always been, as everybody knows, a big risk in knowing what to do and when. PWR has been actively planning and managing COVID risk, including introduction of vaccine mandate to gain access to our Ormeau facility in fourth of January. Increased community transmission in January impacted our workforce, and consequently, our production by 18%. Subject to future uncertainty relating to COVID, the temporary delay in production is expected to be recovered in the coming months. Supply chain risk. Supply chain risk shortages have increased the lead time and minimum order quantities for raw materials. To ensure production continuity, we plan to further increase raw material orders and inventory. We have a saying, "We would rather look at it than looking for it." Planning for the future success. In addition to achieving current year targets, the management team laying the foundation for our future growth and success. We will continue to partner with our customers to develop the leading edge in high-performance cooling systems, applying this knowledge to new applications and expanding to adjacent markets where commercial opportunities exist. To ensure we position PWR to capitalize on future opportunities over the medium and long term, we are investing in people, investing in capability and capacity, investing in staff retention. Laying the foundations for the next 10 years+, also for the growth and success. Investing in people. PWR recognizes that people are core to our future business to deliver on current and future opportunities. PWR is investing in growing a headcount to 450 by December 2022. People strategy includes investing in headcount. Growth requires an ongoing investment in people to build headcount with focus on targeted selection and efficient upskilling. Our apprentice program. In 2021, last year, PWR signed up to 12 new apprentices. In the past three weeks, we have signed a further 14 new apprentices, employing 44% apprentices across the range of trades that is continuing to expand the apprenticeship program. The graduate engineering program. PWR has commenced a two-year graduate engineering program where graduates rotate between engineering teams to gain valuable experience before deciding their preferred specialization. Global Engineering Exchange Program. PWR has an exchange program between Australia and North America to expand the professional experience of the engineers and to reinforce the PWR DNA across all operations. Work Experience Program. PWR runs a work experience program for high schools, students interested in career and advanced manufacturing. Investing in capability and capacity. Capital investment. An ongoing targeted capital investment program is critical to stay in the forefront of technology developments and to ensure we have sufficient capacity for anticipated and planned growth. Future CapEx will be focused on a new fit-out facility and our program-specific equipment. Factory footprint. We are continuing to assess the optimal factory footprint to ensure we plan for growth while maintaining efficiency. North America. We have signed a new lease for a factory to add on a further 14,000 sq ft. That will be available before the end of 2022. That is actually a machining facility predominantly targeted for aerospace and defense. Australia is continuing discussions for a new factory to supply growth in late 2023 and beyond. That's an extra factory on our current capacity. Digital systems commercialize full view of digital systems, in particular ERP planning platform to ensure that the systems will support future growth. Certifications. Rigorous certifications and processes are a prerequisite for supplying to our key markets and are essential to improve operating efficiency. In addition to maintaining the AS9100 and the ISO 14001 certifications, we are seeking Nadcap certification for our vacuum braze service and a number of security certifications in Australia and North America to support expansion of the defense program. Investing in staff retention. Retaining skilled staff is critical to achieving our growth plans. We invest in upskilling our staff and strive to provide a rewarding career path. Our staff retention strategies include STI. The PWR STI program has been expanded in recent years to include supervisors and their key team members, providing a direct link between PWR performance and personal reward. Career development planning. We are developing individual career plans for our staff and training pathways. Supervisor training upskilling for supervisors so they can better support their teams. Employee assistance program, independent and confidential support for all our staff and their immediate families. Wheelie Diner. PWR Australia provides morning tea, lunch, and dinner daily for all staff free of charge. Work-life balance. Production intensifies between November and March each year ahead of the new race season. This year, PWR closed in total of 10 days between Christmas and New Year to allow the team to recharge and time spent with family returning fresh start for another busy year ahead. That's basically it for the presentation. I'll certainly welcome any specific questions that might be coming our way. Your first question comes from Cameron McDonald from E&P. Please go ahead. Good morning, Kees and Martin. A couple of questions from me, if I can. Just now that we're sort of seeing a resumption of the normal motorsports calendar, how should we think about the, you know, the growth in that business, you know, now that we've, you know, now that we're back to sort of a normal calendar cycle? Yeah. It's been a little bit hard to forecast that, you know, over the last period of time. Now that some of them are coming back, and these are the smaller programs, particularly in Europe, for instance, that have been probably non-existent or running about half pace for the last couple of years. How we see that is that, you know, you've seen in the first half a 20% increase of motorsport. That was slightly above where we internally anticipated that to be. For the second half, I think it'll be probably similar because as you have said, the smaller programs, race programs will certainly start to be racing this year, in the next couple of months. All their programs will start. We have seen quite a bit of activity in some of the other programs of people spending up money on really start racing this year. You know, I think if we do see that percentage to be around 20% for the second half, I think it'd be a very good result. Okay. Thank you. Then you mentioned the aerospace and defense contract, which you think is potentially coming in the March quarter. Do you know how many other people are bidding for that contract? What the competition looks like? I think the competition is limited, without being cocky. As this particular contract that the primes are bidding for it, they need 80% of Australian content in those vehicles. They're trying to buy everything in Australia. Look, I think we're in very good shape. The two parties that are bidding for the contract with the government, we have supplied both of those companies with product for their initial vehicles, their initial display as in operating vehicles that to show the government their capability. We are certainly with both customers on that. You think it'd be a slam dunk, but you know, it's never done until the AS you would know. You know, you're supplying both bidders. That's as close to a slam dunk as you can get, right? Just a final question from me just on the balance sheet. You mentioned that, you know, the balance sheet remains strong to take advantage of any opportunities. You know, are there any opportunities that you can see out there that are, you know, other than inorganic? How much are you looking to spend on the new factory, particularly in Queensland? There's two questions there. The opportunities are probably more organic rather than a purchase, for sure. As you know, we certainly shied away from any M&As at this stage. Obviously, we've looked and things come across our desk fairly often, but nothing has really suited us that suits our business, so we shy away from that. We've stuck to the organic growth sector. You know, as far as you know, CapEx and future development into the new factory coming up, it's probably in various stages, but we are looking at automation, manufacturing automation, fairly heavily at the moment. That will probably, you know, have some impact into next year, if you like. Certainly won't be too much this half. There'll be certainly impact on next year, whether we could get some efficiencies and et cetera for next year. That's what we're working on at the moment. Okay. Great. I'll let others have a go. Good on you. Thank you. Thank you. Your next question comes from Chris Savage from Bell Potter. Please go ahead. Thank you. Good day, Kees. Good day, Martin. Good day, Chris. How are you doing, mate? All right. Thank you. That hit to production you highlighted in January, Kees. The what? Can I ask, firstly, are you back to normal in February? Secondly, given, you know, January, February, March is so busy for you, when would you hope or expect to sort of make up that production shortfall? Yeah, we'll make up that production shortfall in the next four months for sure. I guess the big thing, Chris, is that nothing has fallen off the table, and we just have to shuffle some timeframes around, what have you. February is certainly back to normal. You know, what we don't catch up from by the end of February, we'll catch up the next couple of months. Yeah, we're very positive about that and there's a lot of things at play for that. Unfortunately, probably the biggest damage was done the first two weeks in January when they opened the Queensland border and everybody decided to party, et cetera, et cetera. We know the result. That's life and that's just something we've got to deal with. Mm-hmm. Work harder. Thanks. Just in that emerging tech result, you highlighted there was a program that was there in the first half of 2021. It wasn't there in the first half of 2022, but you're expecting it to come back or recommence again this half. Can you give us some color on what that program is and how material it is? It's not that material. It's a cold plate program in the States into a military vehicle. Is it? It's a radar. It's a radar. Okay. It's something that we don't talk about too much of what the uses are for. Yeah, it's definitely for a radar electronic cooling plate. Yeah, so that'll be weighted in the second half. Okay. I know Cameron before asked about F1 or motorsport. Can I just ask, with the big changes we're seeing in F1 this year, how's that gonna impact your revenue? Is it a positive impact, a negative impact? What is it? I think it's a positive impact, Chris. As you can see with the Micro Matrix split or the emerging technology split on our page on the split there, you see that Micro Matrix is certainly a big push for that in motorsport. All the new cars this year have some part of a Micro Matrix in that vehicle. It's very high end. It's probably, you know, the best and most expensive coolers that we've ever made that are in that section. I would expect that to continue. I think it's gonna be a very strong year in F1. Okay, great. Thank you. Cheers. Thank you. Your next question comes from Sarah Mann from Moelis Australia. Please go ahead. Morning, Kees. Just a couple of questions on emerging tech. OEM, that seems to be growing quite strongly. I presume that's, you know, EV and that's clearly a pretty large market. Yeah. Initially it feels like, you know, the EV adoption is happening pretty quickly at the luxury prestige end of the market where you have relationships. Are there any OEMs that you are, I guess, not talking to? Or, you know, just give us a feel for which ones you are talking to, which ones you aren't talking to, and the ones you aren't talking to, why not? Well, I think it's like a lot of things you'd like to deal with everybody, but you know, some are priced differently, how we would see the pricing. You know, I think that's with OE. There's always a price pressure there. The thing with that is that you know we're a bit picky and choosy. I guess what we deal with in OE. But the big push for the EV market in the OE sector is electronics and battery cooling. We are talking to quite a few people. At the moment we're very what shall I say? We're a fair way into a couple of programs for prototypes and if those we do win those programs, it's a very expensive program or a very good kicker for us for OE. You know, with our traditional OEs of you know, Valkyrie and obviously now ONE being pushed back, ONE will push into 2024. It'll be 2023 and 2024 programs so that's good in one way. It extends that pipeline. You know, we are working on a couple of programs now that all fit in between 2024 and 2026. Right. In terms of the EV opportunity, you mentioned that if they come off what you're prototyping on, they could be pretty big from a volume perspective. Is there any kind of automation you can implement there, to kind of get some efficiency gains? If so, what would the timeline be around that? Yeah, that's correct. Yeah, we're working on a couple of programs right now that start of production is in 2026. I know that sounds forever away, but it's not really. That's, it'll go pretty damn quick. So there's some samples that we're manufacturing at the moment and they'll in 2024, they want pre-production samples in 2024 and we would like to have an automation line in 2024 for that so we could get our economy of scale and also see if we can get some efficiencies on that program. The individual numbers of those programs are pretty high. Like very high. Got it. Just last question from me, which is a bit of a broader one around emerging technology. I mean, it clearly sounds like there's just a huge range of end market opportunities for your technologies, like, I don't know, hydrogen fuel cell, EV, aerospace, et cetera. Yes. Each of them are like really big in their own right. At the same time, clearly your product is, you know, premium, very high end. When you look at these potential markets, but what percent do you think is actually available to products like yours that are the very high end? I did make a statement a couple of years ago, which seems like yesterday, that our emerging tech part of our business would be equal to motorsport in the next few years. I think the groundwork that we've been doing and the take-up of those opportunities has been very good. You know, I think it'll be still in line with that for sure. 'Cause I think we'll probably do around about that AUD 15 million or AUD 16 million total for emerging tech for the full year against you know what we do AUD 8 million or AUD 9 million for the same period last year for the last full year. It's probably 100% up. To grow it from AUD 16 million to maybe, you know, AUD 25 million-AUD 30 million the following year is certainly in our ballpark. We think there's certainly going to be a very big push. Well, we know there is a very big push of knowing full well what quotes we've got on the table and what prototypes, et cetera, that we're making at the moment for potential programs. It's, yeah, I would say, it's endless. The opportunities are endless at the moment. Right. Thanks very much. Thank you. Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Alex Lu from Morgans Financial. Please go ahead. Morning, Kees. Just a couple of questions from me, please. Yeah, mate. Yeah. Can I just ask about capacity, maybe first up? You're adding new capacity into the U.S. and Australia, but just wondering, do you have enough capacity to service the work that you've got in the pipeline? Do, say, you win the, you know, the Australian defense contract, for example, do you have enough capacity to kind of service all that work before that new capacity comes online? We will have a lot of the bigger capacity a couple of years out and you know program specific. When it's program specific, we'll certainly make it work. The defense program starts in 2024, 2025, and we can actually do that with the current machinery we have and the facility we have. That's not a big issue. Some of the other programs they're looking at will certainly be introducing some automated machinery and robots, et cetera. But they come in on 2025 and 2026, so we have the time. We're certainly putting a lot of infrastructure in place at the moment to make sure we have that capacity for that, you know, the planning of the future. Okay, great. I guess related to that, just on your staffing levels, you know, you've got a goal to reach 450+ by the end of December this year, but you're already at 401. Just say, for example, you hit 450 by, say, June. Will you slow down or will you just continue hiring at the same rate that you are at the moment? Also related to that, you know, are you having to pay up for staff as well? Yeah. Well, staff, I think the world over is expensive right at the moment. With the program, as far as the number of people we're putting on, we're certainly continuing, you know, like most companies are continually just looking for better staff and good quality staff, which is hard to get. We're certainly putting a lot of effort into in-house training and upskilling to do some of that. That's a great thing. Whereas we say we'd like to be at that 450, you know, it's only because we have the work. We're not just putting on staff because we're putting on staff. It's the more staff we put on, the more work we'll be able to do. Over the last few years, as you know, we've been investing in staff and, you know, we don't get a repayment for that for usually six months afterwards. You know, you're investing into your left hand and you're collecting in your right hand. That will always be the case. We'll always will be a little bit behind on that, you know, invest, you collect there. Program specific moving forward, you know, you know, we see a lot of opportunities. We just wanna make sure that we're ready for those opportunities, if you like. All right. Thank you. Thanks. Thank you. Your next question comes from Marshall Venz, private investor. Please go ahead. Hey, Kees. How are you? Yeah, good, Marshall. That's good. Hey, two questions. Well, probably one comment is the first one is, I know from experience if I see PWR putting staff on, that means future revenue. So, you know, anytime you say, "We're putting staff on," I know that's good. Tied into that, you had the COO role filled and now I see there's no one as COO, and you're talking about automation and all that. Presumably it's still a fairly integral role moving forward. Oh, yeah. It certainly is. That is for sure. You know, as you know, we're always looking at growth and people. Yeah, the COO role has been filled and we have a guy that is there, Paul Belshaw. You know, with particularly aerospace and defense there's so much security programs and you know, all the certifications of different licenses we have, et cetera. So he is taking a very strong presence over that. He's, that's where he's come from, that aerospace and defense sector. Yeah, you know, it's as I think as you said in your question, when you're putting more staff on, it's a good thing, which it is. I think you know by experience that we don't have staff sitting around. Yeah, we have so much opportunity right at the moment and have had for some time and we can see that certainly out for foreseeable future. Yeah, we're just looking for great people. I think as we always said, it was never the lack of opportunities, it was always getting the resources to fulfill them. Exactly. One other quick question. Just looking at your revenue by currency, your U.S. currency didn't grow much from 2021 to 2022. Presumably 2021 had sort of the OEM programs kicking in. Not much growth in 2022. Sort of any- Yeah. Cooler around that? Yeah. It'll be probably more weighted on this, on this second half. Yeah, we had you know, with the Ford program, the Ford OE program over there, you know, they had the chip shortages and what have you for that. You know, that didn't operate for probably, you know, two months that it could have. As you know, they closed down over this Christmas period because it's too cold for whatever reason. I'm putting it politely. Yeah, I think we'll see a fairly good take up on that, in the second half. Normal transmission to resume. Exactly. Okay. Thanks, Kees. Good honest. Thanks, Marshall. Thank you. There are no further questions at this time. I'll now hand back to Mr. Weel for closing remarks. Okay. Thank you. Thanks again, everyone. Look, it's certainly had its challenges. We all know that. I think from a personal point of view, I think it's a strong result. Not that we're sitting on our laurels, but you know, as I've said before, we have a lot in the pipeline and looking forward to talking to everybody at the full year. Thank you very much. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.