Amotiv Limited (AOV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Amotiv Limited FY '24 Results Earnings Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Graeme Whickman, CEO. Please go ahead.

Well, welcome to the earnings call of Amotiv results for the 12 months ended 30 June 2024. As mentioned, I'm Graeme Whickman, Amotiv's CEO and Managing Director. And I'm here with Martin Fraser, our company's Chief Financial Officer. Now, recording this call, along with the presentation material will be available later today on Amotiv's website. I'll start the call by touching on the key messages, highlights, and operational division summary then I'll turn it over to Martin to cover off the financial section in more detail. And then we'll conclude with a short trading update outlook and a summary of our strategy before we head into the Q&A. So, let's start Slide 4. Overall, the result was really pleasing, delivering good organic growth and contributions also from acquisitions. The result was in line with the guidance given at the May Investor Day and demonstrates the strong execution in an operational and financial sense, with gross margins expanding and an excellent operational performance gain. Cash conversion was strong. Net debt reduced and the balance sheet was further strengthened. We advanced our key strategic growth initiatives, including the greenfield initiatives aligned to the forward drive and trailing in the lighting, power, and electrical divisions and their respective growth corridors. And, through these divisional growth corridors, coupled with the ongoing resilience of our powertrain and Undercar division, we expect further group revenue and EBITDA growth in FY '25. When you turn to Slide 5, and we'll unpack much of the slide later in the material. But Amotiv is now a diversified auto parts company that enjoys resilient, largely ice-agnostic and non-discretionary revenue streams. The scale and the reach of the group has grown over recent years, and the composition of revenue is nicely split across our 3 operating divisions. On Slide 6, I'm excited to share the key financial highlights. And after that, the same perspective within the operational lens. So, the group financial highlights, which are both consistent with guidance and pleasing on many fronts with overall revenue growth of 7.7%, including just under 6% of organic growth. Importantly, we increased gross margin, slightly reflecting price and currency management through a year, which allowed us to reinvest for growth, including greenfield activities, which I'll speak about a little later on. Including the increased investment spend, EBITDAR grew in all segments and combined to deliver a 5% underlying EBITDA growth at the group level. EPSA grew at a slightly slower pace, reflecting a one-off tax benefit of around $3 million in the FY '23 period, which didn't repeat. Turning to the balance sheet. Cash conversion was essentially 93%, exceeded expectations. A little bit of a pattern of creditor payments in June. That was a bit more favorable. Importantly, our net debt-to-EBITDA leverage is notably lower, driven by strong cash conversion and the Davey divestment net of the FY '24 acquisition activity. This brought down leverage to the bottom end of our targeted midterm range of 1.6% to 1.9%, which was great. And then the final dividend of $0.22 was announced consistent with the prior year and the full year at $0.405, which was up $0.015. Now, as we advanced the financial outcomes, we also did operationally. And on the next slide, I'm really pleased at some of the key indicators that measure the operational quality of our efforts. Leading with safety, we delivered decent year-over-year safety gains and are currently significantly better than the benchmark level. Our employees are indicating this with the focus as to how they market the surveys, which is evident in the increasing safety commitment score. Talking of scores, our employee engagement also increased year-on-year, which is awesome, beyond the global average, and from memory only being 2 or 3 points away from the top quartile global average was is fantastic. And then if you turn your attention to measures of efficiency or quality, then our net working capital ratio and warranty outcomes are also positive. In addition, we've been working hard to improve our efforts with suppliers, waste and carbon emissions all improving well from last year. On the other part of that slide, I'm also proud to see many of our businesses feature and customer supply awards. And that's a repeated effort year-on-year we see this. And third-party awards such as the AFR Innovation Awards and some of our businesses have been featuring in those awards now for 4 and 5 years and are also fantastic. What pleases me most, I think, really is, we've got on a journey. And we're a considerably bigger business. We've increased our footprint, manufacturing, geography. We've almost doubled our employees quite literally. We are a different business than a few years ago, and yet we proved we can integrate sensibly, and methodically, and importantly, continue to deliver great results, but in a great way. Some results without compromising on some of those key inputs you're seeing on that slide. Now, when I say we're a different business, we've also shaped ourselves to be a stronger and more resilient company. And on the next slide, you can see a business that's diluted its customer base, taking on more of the automotive life cycle with a real nice mix of what we call traditional aftermarket and what I would describe as targeted OEM and OES business, high-quality OEM and OES business. In doing so, we've been flexing stronger PD muscles, the product development muscles, which reflects in part along with acquisitions now 16% of our revenue gained from offshore. Of note, we have actually targeted a 15% as the goal in the past 2025 plan. So, we're a little bit early. Talking of offshore revenue. The next slide speaks to our addressable markets. Now, we've dimensioned the ANZ TAM and then some of the specialist parts of the offshore TAMs. So, not the total offshore TAMs, but the specialty parts, the things that really are important to us and relevant to our operating divisions. And whilst you need to note that the ANZ TAM includes all of the aftermarket segments, some of that, we actually don't wish to participate in things like oil and transmission. But what's really evident if you look to the right, as the largest supplier in ANZ, we still have a great market share opportunity. And, of course, the offshore markets, those specialty parts of those TAMs are a great interest where we can participate. Given the opportunity, though, we've had to recognize how we wish to attack the domestic and offshore markets. And on the next slide, we can see some important changes to enable us. So, in FY '24, we moved to a divisional operating structure. Each division has a clear point of view on how to and where to grow. The divisions represent the reporting segments also and help with a more aligned and simpler reporting structure for our professional investors to follow. It also allows us to drive further cost and revenue synergies now and in the future. You can see each division is relatively similar in size and aligned around our strategic growth corridors. Now part of our growth aspirations comes the need for identifiable competitive advantages that need to be in possession to be successful. And each division on the next slide, I believe, has some terrific unique advances. Some that arrived at over time, some with the extra product development investment, and some just due to the local conditions we're engineering our products for in Australia. And 4-wheel drive, we've got deep customer relationships, legendary brands, and engineering and manufacturing capabilities in the setup that are very hard to replicate. Equally, our lighting power and electrical is a sales and marketing machine domestically. It's grown its diversity of customer revenue as it expands its product development investment. And now, this is tied to a selective global footprint. And then finally, our powertrain and undercar. It's the domestic jewel in the crown, strong brands, a great defensive position with obvious custom intimacy. Now, as a subset of our overall growth initiatives, on Slide 12, I wanted to talk about some of the greenfield efforts previously detailed at the Investor Day and at the year-end of last year. And you'll be aware of the particular investment tied to these. This is not to say we don't already have a vast quantum of what I would call exciting growth initiatives to existing customers or domestic markets or even forward lighting convention filtration. But this is about the specific greenfield initiative spoken previously. And, I'm encouraged at the progress of the 4-wheel drive manufacturing South Africa expansion, not often you can set up a new geography with the foundation customer. And I'd encourage Allison to dive into the appendix to see how the SA markets and its Euro export program mirror so closely our ANZ market vehicle profiles. At the same time, our Vision X efforts to grow the product range have continued. We've been working on the specialist parts of the offshore TAM and profiling both the higher IP Narva products were appropriate. Of course, a similar but slightly nuanced approach to the European market through Vision X Europe is also underway. And then finally, with a strong and profitable Powertrain division, we're using this as a springboard to greenfield and have those first-mover credentials and thought leadership in the EV aftermarket in ANZ with Infinitev. And I'd like to own this emerging market as the industry revenue will grow. With the leading hybrid and EV battery player in ANZ as it stands, it's an emerging aftermarket, and we have discipline, and I mean disciplined investment to ensure we're ahead of the curve with hybrid repair already profitable. Now, on Slide 13, before I touch on the divisional review, I wanted to bring forward an important slide from our May Investor Day. I trust we were clear at our recent Investor Day about our 6 key strategic imperatives that inform both our organic and inorganic growth approach. To the right of the slide, you can see 4 areas that support our growth opportunities. That's divisional optimization, product development investment, the greenfield expansion, and bolt-on acquisitions. And that intersection of the imperatives on the left and the drivers on the right is where we believe great growth opportunities exist within our existing portfolio and from strategically aligned bolt-ons. So, from Slide 15, I'm going to update each operating division, including the relevant drivers. On Slide 15, that is, we start with the forward-driving trading division. And the drivers, I think, are pretty clear. The new vehicle sales, the segmentation to pick up, some medium plus SUVs, and more particularly, the APG top 20. Now, we covered all of this ground in the May Investor Day. Essentially, we've seen some ups and downs across the top 20, that's the ANZ combined that you'll see there. And these, of course, all have a nuanced impact. With that, I mean, at a brand level or a model series level, suffice to say, it was a net positive for our operations, although really only in Australia. You also note the caravan production and import industry size, which is an important part for the trading piece of the division, and that shows an estimated decline, small declines are getting flagged at the recent Investor Day. Now, as we get into the divisional results on Slide 16, the result for 4-wheel drive was directly in line with goals. Our EBITDA grew just under 8% across that division and up about 8.5% at APG. The APG numbers are footnoted per our commitment to break them out for the foreseeable future. And this was exactly in line with our May guidance with better supply conditions in Australia across the year, offsetting the model mix in the New Zealand challenges. New Zealand was essentially breakeven in FY '24. And it's pretty apparent, actually, when you separate them out, you can see that OS was up about 19%, but New Zealand was down 20%. Our trailing was weaker in the last part of Q4, but still, we believe we're comparatively better in the industry, still feeling confident about that trajectory. We saw overall divisional margin improvement, which was pleasing and gains from manufacturing efficiencies from ECB, Kisber, and Thailand drove this outcome. Let me now just touch finally on the SA expansion just a little bit more before I get to functional accessories. Now, this exciting expansion into South Africa is absolutely a low-risk expansion. I've mentioned it was on the back of a foundational customer. And essentially, it's leveraging our existing engineering efforts. We already engineer all these products for the same customers just in a different geography. The operations plan for the launch is all exactly where it needs to be and production trials start in Q2. Now, of course, the 2 customers we've secured in South Africa being Ford at Volkswagen, they're acquiring functional accessories. And so, let me unpack the overall functional accessory performance, and let's jump to Page 17. Now, I was really pleased to see further punch accessories wins, again, higher than reported in H1. At that point, it was $20 million, and the year finished with $29 million, that's incremental revenue wins, reflecting the recent wins with the Nissan Navara, which was brilliant. So, overall, in 2024, we won the first-ever [indiscernible] within cargo management product. We won the South African business with Ford and VW and then the Nissan Navara function accessories. This is on top of the exit of 2 domestic competitors like Queensland and Vulbas, where we picked up business. So, it's a great year that bodes well for the future. And not backed into that $29 million incremental is the MOU signed with the Chinese AUTO-manufacturer, GWM. So, let's see where that progresses. But clearly, that comes at a certain cadence, and you can kind of get a sense of that revenue cadence over the next few years. In summary, I think the chart bottom left is a really satisfying trend. Now, on Slide 18, we turn our attention to the drivers for both LP; lighting power and electrical, and a powertrain and undercar. And although some are shared between both divisions, you can see the relevant division icons to noting which applies. On the left-hand side of the slide, we have the drivers that are discrete to LP and E and then the drivers become shared as we transition across the slide to the drivers on the right-hand side, the shared across both divisions. On Slide 18, I would say, at present, I'd call out some of the key dynamics of those drivers. The pickup and SUV segmentation is strong. It's still a nice dominated new sales market. The other 2 OEM drivers see bus and truck registrations remaining solid, actually growing year-over-year, and some weakness, as previously mentioned in the caravan and RV market. Now, if you think more about the aftermarket, you can see those drivers, then the car park, it continues to grow. It's getting older. The proliferation of the car park is getting more and more liberated and all play to a motor strength. So, nicely placed from a structural point of view. Now, the next page, we detail the LP and E outcomes, where we had solid organic and acquisition growth. Now, the diversification of this whole division has played well in FY '24, was a strong and healthy mixture of that growth across differing revenue streams. Organic revenue up just over 7% including acquisitions, a healthy 13% up versus the prior year. And when I say healthy or resilient, I look at where the revenue is coming from, meaning channel, customers, and geographies. So, as an example, the 18% of revenue coming from new products. And the 2 points of 2 percentage points extra coming from offshore, all reflecting our deliberate efforts to drive this diversification. Linked to the new product percentage of revenue in FY '24, I also love the chart that details the new product development in dollar terms. That's the moment that gorgeous green line with a healthy 23% CAGR. Of course, some of these new geographies or channels, I mentioned, are still in the growing stage, and I'm excited about the FY '24 acquisitions, which bolstered these ambitions with Rindab in Sweden and CES in Australia, delivering what I think to be extended reach and capability. Now, the last slide before I hand over to Martin is the powertrain and undercar divisional update. The result was a solid one from this division. It reflects the resilience of the wear and repair market. It also reflects some new customer acquisitions, driven by new products and steady growth from offshore markets, a decent split of price and volume. You can get a sense of that in the bottom right chart showing the combined filter volume growth. I'm not sure we've actually shown that before, and that was terrific growth. Each business delivered growth in that division, except for DBA, which will not be new to our investors. We spoke about that with some operational challenges at the distribution center, which will be resolved over FY '25. So, I was very happy with the margin outcomes, particularly in such an inflationary period and the margins net of the infinitive spend were stable. We're working hard on the first tranche of divisional optimization and have put it from our prior plan for a new brakes DC, distribution center in Sydney, to now a Mellon-based DC which will also act as a DC for collection filtration to reduce external 3PL costs. So, this sort of signals, I think, the first step in that optimization and indeed, there's further ERP consolidation work, and therefore, future back-office efficiency saves over the next few years. By the way, something that we have proved out with the AAG integration. This is not new for us, and we know what we're doing here. Finally, in our emerging part of the Powertrain division, the Infinitev business is experiencing steady growth, the hybrid battery repair, up a small base though. And the EV component has seen a deepening of the relationships with OEMs, although the overall operation will require an incremental 1.5-or-so in FY '25 to get that aspiration of leading the EV aftermarket in place. Okay. All right. Well, let me turn the mic over to Martin for some more financial detail. Martin?

Thank you very much, Graeme, and I'd like to say good morning to everyone on the call. I'll start today on Slide 22, which covers the group financial result, which is presented on a continuing operations basis and therefore, excludes Davey, which was divested in the first half. To the right, we split out in the commentary, organic and acquired revenue and underlying EBITDA. Also, as Graeme said, we reported revenue growth in excess of 7% and organic growth of 5.8%, again, demonstrating the group's earnings resilience. COGS, which includes costs on acquisitions, increased at a lower rate than reported sales growth indicative of margin management efforts, including currency management and pricing as well as the need for additional gross profit to address inflation and OPEC costs. Higher operating costs reflect the group's growth strategy, including greenfield initiatives, product development spend, and corporate costs to support [ Alianca Group], and I'll speak to 2 of those elements in greater depth later. Higher depreciation was driven by the acquisitions in '24, some PPE additions, and lease extensions. Consequently, underlying EBITDA increased 5% to $194.6 million. Below underlying EBITDA, the inventory step-up expense relates to the acquisitions of CES and Rindab, and which we increasingly referred to as Vision X Europe, which will not repeat next year. The acquisitions have also driven higher amortization of customer relationships. Pleasingly, financing costs decreased following the disposal and acquisition activity combined with the net operating cash flows. The result in the FY '24 tax rate is broadly represented by our likely short to midterm tax rate, noting the rate is up from the prior year, which benefited from a one-off $3 million deferred tax provision write-back. Now, let's turn to 23, where you can see the tangible evidence of where we are investing resources or capital to support medium long-term growth. To the left, you can see the increase in product development expense in value and as a percentage of revenue over the midterm. And that should be no surprise given the revenue growth of new products and that was ably demonstrated by the lighting parent and the electrical segment was Slide 19 that Graeme spoke to earlier. This expenditure reflects our willingness to continue to support further product range extensions and product innovation. And in the near term, we expect the PD spend as a percentage of revenue to increase slightly next year. To the center of the slide, the CapEx has also increased to support growth. The increase in FY '24 was driven in part by tooling CapEx for new products, both in APG and 4-wheel drive. And for APG's laser capacity upgrade, which was budgeted at the time of the acquisition and actually deducted from the acquisition payment. We finally made those payments. The FY '25 forecast of $25 million includes CapEx to completely establish in the South African facility. Other production CapEx and 4-wheel drive and expanded [ Roy car ], I guess and DBA warehouse in Melbourne that Graeme spoke to before, consolidating IMG and a single site in KeySto to support their midterm organic growth ambitions and the BWI facility to renew also to support their midterm growth aspirations. So, we will be well set to pursue our ambition and midterm growth. We've got some potential planned expansions in the early evaluation stage for LPE and 4-wheel drive in Asia, and those are not included in that $25 million projection. If they mature wrong, we will give you updates during the year if that's likely to result in expenditure in FY '25. To the right of the slide, we highlight the FY '24 greenfield OpEx and net spend, which is pretty much in line with the expectation, what we talked about at the Investor Day, and we expect that to continue at similar levels next year. Slide 24 demonstrates that we've returned to a more usual net working capital pattern. However, cash conversion was higher than expected due to a more favorable pattern in year-end payables than we expected when we were with you at the Investor Day. At an organic level, net working capital growth tracked below organic revenue growth, which was especially pleasing considering the organic businesses reduced debt of factoring by $13 million year-on-year, in line with the plan and what we've previously communicated as early expectation. Turning to FY '25. We'll have start-up net working capital from the South African operations, both work in progress and debt is coming online, and we expect creditors to likely normalize towards more usual levels. And, of course, we'll have debt as an inventory increasing to support our organic growth. Hence, at this point, we anticipate cash conversion in the region of 85% next year. Although I note will remind you that H1 is always more working capital intense than H2. Now, let's move on to Slide 25, where you can see the trajectory of debt and leverage since acquiring APG during FY '24, reflecting APG's relatively short cash cycles and our acquisition and disposal activity. The chart in the middle of the page shows our compelling debt profile where a long duration, mostly fixed price debt, which is a standout feature. It is providing healthy insulation from a currently increased interest rate environment. On that slide, we provide reference BBS-wide pricing before bank margins and unused line fees, which would typically add another 2% to corporate, such as a motive to give a full cost of floating borrowing rate of circa 6.3%. As you can see, our all-in rate is compelling and well below that level. We handed back some banking facilities in FY '24 to lower unused line fees and have a few facilities to renew next year. We still have noteworthy borrowing capacity and a significant borrowing covenant headroom. We are, therefore, well-placed to support GUD's growth aspirations. We expect net debt to reduce further next year even after paying out an assumed Vision X earnout tied to the 3-year earnout targets. I'll now hand back to you, Graeme.

Okay. Thanks, Martin. Much appreciative, there are some impressive financial results here really, please. So, let's turn to the July trading update. Footwall drive trailering accessories have seen solid growth in revenue, although the New Zealand and the Caravan RV softness has continued into FY '25. LPE has had a slower start in Australia, experiencing solid revenue for growth for truck and power management products mitigated by lower orders from a major reseller and a softer carrier RV market, and we've seen solid growth in the non-ANZ revenue. Powertrain and undercar have experienced solid growth revenue. There's been no significant change to reported garage activity levels, about 2 weeks for bookings nationally, although one small nuance there the Victoria metro is probably 0 to 2 weeks. However, labor tightness remains a constraint, and we are still observing a consumer shift to service rather than major repairs. In terms of the outlook, so that's Slide 27, we expect further growth in group revenue and underlying EBITDA in FY '25. Our view is that the wear and repair market is expected to stay resilient. New vehicle sales projected to remain stable, although New Zealand continues to show softness broadly. And actually, our 4-wheel drive manufacturing at APG is looking at cost reductions and they're underway in terms of manufacturing footprint there. We're also closely monitoring indicators of ongoing softness in the caravan RV market and just generally the broader economic conditions, as I'm sure you'll hear all through the reporting season. Our corporate cost is expected to be around $40 million, reflecting the annualization of the platform reset that we took you through at May Investor Day, the product development spends as a percentage of revenue expected to be slightly higher in FY '25. Our core currencies are 80% hedged and Martin and our group treasury have done a marvelous job in terms of where they've been able to hedge that. With the group remaining focused on margin management, we're forecasting cash conversion to be around 85%. The CapEx is expected to be around $25 million, as you heard earlier, Martin mentioned that there may be a bit more there depending on whether we see the merits. But when we say a bit more, we're talking in a onesie-twosie type stuff. And then finally, we possess a strong balance sheet. The leverage position is supportive of the growth initiatives that we've spoken on whether they be organic or indeed inorganic. So, at this point of the presentation, I'll just say that we look forward to providing a further update at the AGM in the 21st of October. So, moving to Slide 28. I want to finish to remind you of our FY '25 key imperative as well as our overall next horizon of aspirations. We've spoken in some detail about our competitive advantages across the divisions, attractive TAMs we service, the significant ongoing and greenfield actions to drive our business forward. In this slide, I'll highlight what I think to be some of the key outcomes to push for in pursuit of growth. The divisional optimization opportunities, how we rolled out South Africa, the continued increase in profitable offshore revenue whilst not relenting on the pursuit of operational excellence. And, of course, we'll continue to evaluate the bolt-on acquisitions. And, of course, all of that links to our wider aspiration for the next horizon, which on Slide 29 is characterized. And this slide was shown back at our Investor Day. And I think it's very clear about our aspirations. We're now an automated pure play. We have high expectations of employee engagement and safety across our divisions. It's a company that continues to positively diversify its revenue sources while we optimize the divisions and the platform we've built, all in support of consistent growth ambitions and, of course, financial outcomes of high quality and sustainability. So, that concludes our presentation in terms of results. Before we go back to the moderator, I wanted to take the time to call out the leadership team, some of which are on the call listening, we're really hard through FY '24 and to each of our employees across the globe. As mentioned, we're in an exciting inflection point for Amotiv, even the new name, of course, and our next stage of growth. That next horizon wouldn't exist without their overall commitment and relented efforts in the last year. So, thanks to you all, myself, Martin, and the Board are really thankful for that hard work. Finally, I do know there are additional slides in the appendices, including a glossary of terms, some supporting financial input for modeling, and also some slides carried over from the May 2024 Investor Day. I think good context that you might want to read that is relevant to the overall presentation for today. So, with that, I'll now hand you back to the moderator, who will coordinate any questions that you may have. Thank you.

[Operator Instructions] Your first phone question comes from Russell Gill with JPMorgan.

Just firstly, on the guidance and the outlook that you've given there. You've given to, I guess, growth in both revenue and EBITDA, and we know there's an acquisition coming through in those numbers. The July trading update, I guess, looks a bit more mixed relative to, I guess, the perception of growth going forward. Is that just a timing issue you see in July, and you expect, I guess, a bit of an improvement over the 12 months? Or how should we read that July, I guess, mix trading update relative to the guidance around growth?

Look, I think I'll take the question in 2 parts. We're expecting growth for us, and that's not just coming from acquisitions. So, clearly, we would expect organic growth and that's implied and maybe we need to be more specific about that. But absolutely, so we're expecting growth. The second part to the question. Look, and I say this almost every year, July is not necessarily a great benchmark in our minds as to how a year might progress. There's been some Julys that we've had double-digit growth that it's really around timing in some instances. And also now we have some offshore revenue in July can be slow in some summer months in Europe, as an example. Yes, clearly, we've spoken to some softness in the caravan RV market. That's clear. We're watching that pretty closely. And, yes, clearly, NZ has remained soft, and we're taking some actions in a manufacturing plant there to reduce some costs there. But at the same time, as I say here, we are expecting the aftermarket to be resilient. We don't see any signs of the new vehicle market abating. And with that, comes obviously, the revenue tied to things like functional accesses and the like. So, I would say the July trading update is a mere snapshot of 1 month. The other economic indicators still give us confidence to be able to say that we expect to move the business forward year-over-year.

And secondly, a similar question just on focusing on the gross margin piece going forward. And maybe, Martin, you can talk around some of the hedging and how you're thinking about price over the next 12 months. Freight rate has obviously gone up materially year-on-year. I understand you're hedged out till the end of FY '25 on that front. But can you just talk through, I guess, the weighted average price you put through in '24? And what sort of you're anticipating at this stage you need to do to keep the gross margin picture similar?

Let me answer a little bit of that, and then I'll hand over to Martin. Let me just talk to the margin piece. We've been more specific around our gross margin. Normally, we don't actually feature them in our presentation, we'll obviously talk to them when we're in our individual conversations because we do run the business on an operating margin and an EBIT outcome to sales. Having said that, though, we wanted to demonstrate that in choppy times, because we're still in choppy times, we've still been able to expand our gross margin. When that drops down into the EBITDA sales margins, I just want to be clear, where we've seen some degradation, whether it be 4 points or 6 points. If you actually either take out an acquisition or you take out the greenfield spend sale on an infinitive then every one of those divisions has got stable margins. And in the case of 4-wheel drive has actually grown its margin. So, I just want to make sure that was clear. In terms of perhaps the pricing and the freight and the like, Martin, partly to pick up on that.

Yes. Well, perhaps I'll just pick up on freight as the first half. We've got our Mandarin Freight consortium with a number of other corporates, that contract runs through to the end of June 30 next year. We're managing to secure containers on that rate, notwithstanding that you've seen spot rates spike considerably. That price is up on prior years. I don't have the exact percentage to hand right now but I'll have it before I meet you later. But it has been very much considered in our budget. So, I think we will manage to deliver the freight costs on the budget unless we see what we saw with COVID with effectively vessels being taken out of the market. So, I think we'll cycle through that. Turning to currency because that's a key input before I get to price, last year, we ended up with a full-year rate of around between what we've hedged and got a spot around about 67%. Our budget for this year is 67.2%. We're hedged 80% of H1 a little bit H2 at around about $0.67. We're quite good at sort of putting orders on the market and waiting the market gets there. And that's really served us well. So, we lost prices at the beginning of the calendar year. So, we're probably going to reprice the beginning of next going year, we want to be back now with sort of 3 cover back to a more annual tempo. And I want to hold just to fill out your question. Those price rises were generally around about the 3% to 4% in the aftermarket where businesses with the OEMs that repricing tends to happen with the model refreshes. And a lot of those model refreshes CC is a lot coming in FY '26 in particular. And a lot of those functional accessories coming on, which will come on with good day 1 margins. But for those that reprice, I don't really want to call out that percentage right now Russell, otherwise, I'm giving our customers advanced notice and our business leaders discuss the price increases they want to take to their customers when they want to take it. But I'm confident that we will be able to, in calendar '25, get price rises to couple what we might need to for currency. We will try to continue to manage that down to close to net impact. So, we're really only having to cover the domestic cost inflation and important of COGS inflation, which so far hasn't been too bad. So, I'm pretty confident on all that.

So, just around that, just to finalize, are you getting any abatement, I guess, on the steel side in the APG business?

Yes, we have had some abatement. Yes, that is correct. That is correct. And also, sometimes that abatement follows the tie part. So we're also quite nimble to try and lock in the abatement and steel but also do our Tiber hedging. So, we can make that a net positive, a generally pretty good at that. But yes, we have had some steel that…

And having said that, Russell, we don't hedge at a commodity level. We have a lead time in terms of the steel relationship. So, you might not see all of that there. And batches going to offset domestic cost inflation that is pretty high compared to historic times for businesses like APG. So, a part of that mix that we've been able to successfully manage for now 4 or 5 years in terms of margin management.

And just a final question. Just to talk through your balance sheet and, I guess, capital deployment over the next 12, 24 months. Your balance sheet and you're even guiding to next year that you'll be below your targeted gearing range even post the Vision X earnout. It's 3 years later post-APG when everyone had a heart attack when your gearing went above that range, but your share price is basically where it was when you raised money to buy APG. How are you thinking about, I guess, capital allocation in the business in terms of you've got your footprint across your 3 verticals? What multiples you'll pay for businesses relative, I guess, to gearing in your business and I guess, the equity value and the flip side of that is buying back stock?

Yes. Look, Russell, we'll come forward and I'll speak with the Board had on that, we'll come forward as a Board with our view of a capital management framework in the coming months which I think will signal to our shareholders our particular point of view. You already know clearly the leverage range we like to operate in and where we'll go to. You already know the sort of range of dividend space that we operate in now, and you're getting a bit of a signal, obviously, clear around the level of capital allocation and things like product development. I think we'll paint a clearer picture to you. We wanted to have a measured approach with that. And that will link to Amotiv's next 5-year horizon, and we'll be a little bit more specific about that also, Russell, now 3 or 4 years ago around the GED 2025 plan. Suffice to say, at the end of the day, the balance sheet for us is a bit of a weapon in my mind. And whilst I say that we're always going to deploy it with discipline. There are plenty of opportunities where we think we can get great returns.

You've just written my note, balance sheet is a weapon.

Well, bearing in mind also Martin's and the team's ability to get a compounding debt profile, I think that's a bit of a weapon as well.

Your next question comes from James Ferrier with Wilsons Advisory.

Just a couple of questions just around the greenfield spend and just the cadence of investment there, maybe including product development. On the greenfield side of things, there was a $3 million or thereabouts investment in FY '23, it stepped up to 6 million in FY '24. How do we interpret that in terms of the headwind it is to current year EBITDA. Is that a $3 million headwind to FY '24 EBITDA? Or is that a $6 million headwind to EBITDA?

Well, the net of the $6 million would carry through, that's the specific question, although we have signaled that we maybe want to spend a little bit more Infinitive but the burn the cash burn on to other parts initiatives might be reduced. That's what we're thinking. What we're not saying is there's an additional 3 on top of the 5.8% that was in the pack. And that's kind of how we're thinking about it.

So, sort of a consistent level of spend then relative to '24?

Yes, correct.

So then, to take that into the FY '24 result, what was sort of 8% revenue growth, 5% EBITA growth. And thinking back to the Investor Day where you talked about a business that's delivered organic CAGR sort of 9% EBITDA growth. Obviously, the ability to achieve that is influenced by the trading environment more broadly currently, but also to the extent to which you are front-loading investment into the business. And I'm just interested in your thoughts around whether this is a sort of a 12-, 24-month journey before the fruits of that investment are born. Or is this a longer period of headwind to earnings growth before you would return to those sort of high single-digit CAGRs that we've benefited from, and we've seen in the past?

Yes, it's a great question. And you can see, I'll answer it relatively expensively sorry, for the model. You can see that we're signaling product development as a percentage of revenue to be slightly higher this year. We've talked about an increase in CapEx, and we will continue the greenfield initiatives. But some of those greenfield initiatives, so as an example, part of that greenfield work is obviously expansion in South Africa, that suddenly starts to get profitable. We would expect some of the product development returns to come through. Where we've got initiatives such as a slow burn like a greenfield activity in, say, the U.S. or indeed EV aftermarket leadership in our own domestic market, and that's going to be a longer burn. I wouldn't put a 12- to 24-month time frame on it. It certainly won't be in the next 12 months. We've already sort of indicated that even though we do expect growth. But that sort of 24-month mark onwards is probably a fair assessment. It's in that sort of space. It's not in the former. We, as an example, not that we talk about it very specifically these days, we're about to launch a new LPE catalog this year. It's got 700, and I think we're 800 new SKUs on a base of, I think, 6,000 SKUs or something like that. You've got the launch of all the functional accessories, but all those things actually take front-end PD, which, of course, is OpEx. So, it's a bit of a mixture of a PD story as much as the initiative, the greenfield initiative story. And that's why it's more of a blended improvement over time. But we're doing all of that in that platform reset with the expectations to be able to deliver the CAGR, and what I would say, near to midterm.

And last question, the headwinds and the challenges that disc brakes Australia faced in the year. Can you put some numbers around that for us just so we can understand what sort of benefit is likely to flow once the new warehouses in place?

Look, we only just got the keys, as we said in the pack, we'll start the combined DC, which is part of that divisional optimization I spoke of. This is where I want to get the cost synergy benefits over time because naturally when you talk about headwinds around greenfield and like your prior question, James, we're also looking to try bolster our margin on the cost side of our business as well. It's not just all about the revenue synergy. So, we won't see the full benefit of that in FY '25 at all. And probably we're not going to mention the specific deltas that the 4WDA as a specific business had last year. But it was in single-digit million type territory is what I would suggest in that sort of one or so in terms of its EBIT impact. So, we need to do a job on that, and that will happen over FY '25, and I would expect to see that return in FY '26. And you won't realize this, but you have to think in your mind, that business when we first bought it, the actual unit volume going through that warehouse is literally 103%, I think it is higher in unit volume than when we first bought it. So, it was bursting at the seams. And that sits on Martin and my shoulders in terms of perhaps we didn't move quick enough to put that warehouse in a better spot. So, it's a long-term good news story, short-term pain story.

Your next question comes from Sam Teeger with Citi.

Can you please give us a flavor just from what you're hearing from New Zealand in the 4-wheel drive segment now? And how that translates to how you're thinking about the recovery trajectory. And in the first half, do you expect your 4-wheel drive EBITDA growth given the issues you're facing there?

Look, obviously, it ends out as a total economy pretty soft at the moment. So, it's not just obviously 4-wheel drive that's being impacted. There's a wider question around the economic rebound there. Now there are some noise that there's a little bit more confidence in the economy. There's some noise that maybe the Reserve Bank moves with some pace who knows. That's hard for us to air. What we do know is if you look at the New Zealand new vehicle market, let's take a patchy question on APG and the 4-wheel drive more specifically. If I looked at the financial year, FY '24 to '23, and there's a slide in the deck, I think it's Slide 38, you can see the quantum of change, right, year-over-year. And that's the disparity between the 2 markets. On that slide, you can see pickups for Australia, up 13%; and New Zealand, down 27%. SUVs, which are medium plus, which is really important to us, down 23%. And so, it really is a tale of 2 countries at the moment. And it is very hard to work that through. I mentioned earlier, Sam, we've taken the view that, that division has just gone into consultation about 3-ish weeks ago with the workforce, and we are downsizing the workforce to reflect what the throughput is at the moment. It doesn't mean though that we can't flex back up. If you speak to many of the OEMs in that market, they expect that the, say, the pickup segmentation to return on an ongoing basis around that sort of 20% mark. Traditionally, it was around 24%. It dropped to 12% through recent times when their clean car tax came in. They think that it should be around the 20% mark. So, not a structural change. What they're also encountering though, as an industry size that's in the 130s, not the 160s, and that talks to the economic malaise that's going on there. So, my view is that it will come back. We're having to make some structural changes to ensure that at least will reflect the malaise at the countries at the moment. But it will inevitably come back, the industry wants to sit at 130 forever. And it will weed out a few of the competitors and just we will grow stronger over time. So, I think it's more of a timing. And whether that's 12 months, 18 months, I don't know, but we're also not sitting on our hands in terms of our cost base there either.

So, with these cost base changes you're making, do you expect that forward drive segment to show positive EBITA growth in the first half?

But that won't take effect at enough time. We were going through that consultation period. There's a lag that sits there. So, that remains to be seen, Sam.

And then in terms of the outlook for the LPE segment, July is being impacted by lower orders from a major reseller. Just any sense in terms of timing when you think that headwind will ease and how come the PU segment is not seeing the same headwind? I imagined that the reseller also is a customer of the PU segment.

Yes, but not necessarily. They have different levels of revenue percent just tied to the divisions that our customer might actually influence. They're different types of products. So, at the same time, you're talking about filtration, I think there's probably -- if you're that reseller, you do not want to lose at a minimum, any of the pedestrian traffic where you think about your business. So there's a bit of that rolling through there. And look, I would suspect that it is about timing and you'll hear from that customer a doubt about their inventory positions and what they want to do there. So, I think there's a bit to unpack there, Sam. But at the end of the day, you also have to remember our powertrain goes to independents as well. So, there's a good volume there that sits outside of that particular reseller. So, it's nuanced is how I would characterize it, Sam.

And then just lastly, I mean, you touched on it a little bit so far, but maybe if we can elaborate just the expectations for 4-wheel drive new car sales in Australia over FY '25. We're hearing anecdotes of more dealer inventory, more dealer discounting, and then you've got the new vehicle emission standards, which we'll need to deal with as well.

Look, I would expect, as we've said in this pack that they should remain relatively stable. With dealer inventories lifting, what you'll probably find is that the OEMs will actually step in at some point and actually do something they haven't done for quite a few years now and actually support and subvent the interest rates or indeed direct cash incentives to get away to the drive always. What that will do, will spook the market and spurt a typical spiff approach that you'd see in the U.S. market. So, you'll see other people entering the market have been on the sidelines waiting because vehicle prices are overtime highs. So, the vehicle manufacturing community will likely incentivize the market. But I'm sure they'll be disciplined about that because they've learned some lessons through the COVID period. But I still think there's still some energy left in the market. And you can see with where it's coming from in terms of SUVs and pickups, it's the global trend anyway. So, we're not bucking a trend here in terms of segmentation and our economic cycle is such that I think that there's still some energy that sits there. So, that's why we make that comment, and fitment rates are not changing either. So, whether people are debating a soft landing in the stack or a hard landing, what we're not seeing is equipment rates changing and our forward drive division at all in terms of contract accessories or indeed specifically [indiscernible].

Your next question comes from Tim Piper with UBS.

Just one on the lighting, power, and electrical business, you've kind of split out there what the offshore ANZ contribution is. And you've given us what the greenfield investment is in sort of BWI and some of the U.S. growth from an EBITDA point of view. I mean, assumedly, Rindab is within that offshore step-up in revenue, which looks somewhat comparable to the 2 percentage points. Outside of Rindab, can you talk to what kind of revenue generation you're getting out of some of those greenfield initiatives in the U.S. in this segment organically?

Yes. So, the greenfield initiatives are actually quite low in terms of revenue contribution. When I say greenfield, I'm talking specifically to our greenfield or projector, so that's separate to VX, so separate Vision X, and greenfield for both projector and an ultimate lighting range in Europe. Realistically, the offshore revenue is primarily and distinctly coming from FY '24, that is through Vision X in the U.S. and its activity and naturally, the flow-on of the portion of the time we've owned Rindab. So, that's how I'd characterize that. And we've said previously, that we were only ever expecting, I think, a little ever used at the half or in fact, that the outlook last year, modest, I think was the word we used, modest revenue growth, and that's coming to fruition. That's more about foundationally ensuring that we kick off well into that market as opposed to some large girth as opposed to setting the foundation directly.

So, I think that segment did high single-digit organic revenue growth in '24. Is that sort of top line achievable in '25 organically in your view?

Sorry, could you restate that question? The first part I missed, we had a glitch.

Yes, the Lighting Power and Electrical segment did, call it, 7% organic revenue growth in '24. Is that an achievable high single-digit outcome in FY '25 as well?

Well, clearly, we're not getting guidance to them. You will put me in a box and my co-sec will burn me to the ground, no doubt. Look, what I would say is that, we've been building a division with product development capability or the international footprint would have viewed over time that we have good CAGRs. Now, what that exact outcome this year looks like is a combination of a number of things, and it's about the launch timing of new products. It's about how we complement Vision X. What I will say is, I'm confident about the business. I like the way George is running the business, I see huge potential, but we're going to do it in a disciplined way. And so, again, I'm not trying to skirt your specific question. I'm just not willing to give guidance around specific numbers in a forward view.

And just on the powertrain and undercar, your commentary in the July trading update, sort of talking about solid revenue growth and resilience in that market and then looking at the earnings growth achieved in '24, noting there's obviously a drag within those EBITDA numbers from the greenfield investment. I mean, I think you've gone from sort of biannual price increases to potentially annual price increases now. So, similar to the last question, asking for guidance. But outside of the greenfield investment, is this going to be a segment that can continue to deliver sort of those organic historical growth rates you called out previously?

This business, I said and I meant is the jewel in the crown, it's just a wonderful set of businesses that sit in the division. They're well-run. And part of that well-run statement is they have good margin management. Strip out infinitive and you can see stable margins in the bloody inflationary period. We don't look to go, we look to recover. There's domestic cost inflation to consider a bit of COGS inflation coming through. And so they will have to accommodate that. I would expect them to be deliberate, and Martin's already mentioned, perhaps in pricing in the latter part of the financial year as we balance the margin and all those inputs. So, that's the best I can give you in terms of a response, Tim. What I would say, though, upon reflection is, let's not treat in our minds because I certainly don't have powertrain undergo, particularly powertrain. There's still growth and unit volume in that market, whilst we have a significant market share. You've just seen on that slide between the 2 filtration companies, they grew 5% in unit volume as units are not pricing. And there are other parts of this market and filtration that we can step into. And part of that growth has been in commercial vehicles where we're more a passenger vehicle and light-duty vehicle market. So, there is also unit volume growth in that power trend. It's not just about a pricing play.

Your next question comes from Elijah Mayr with Goldman Sachs.

Just a couple for me. Do you have any recent feedback, I guess, direct from the OEMs that you can share in any of the normalizing of supply and particular models that would improve APG into FY '25? Knowing that sort of, I guess, in the second half '24 is impacted by the 3 added [indiscernible]. Just some comments on how that's looking and what you should sort of expect into '25 for ABG.

Yes. Look, I mean, obviously, it's hard to attribute too many comments to our OEM customers. You can actually see just how Berry still has been through the course of the year when you actually look at the 4-wheel drive slide and you look at what's happened with the top 20. And, you can see range are up 20%, but down 5%. You got Triton down 12 demap 36. So, that essentially tells you 2 things realistically, and I put my OEM hat on. It's either a reflection of model timing or it's a reflection of supply. It's less a reflection of demand at this stage. That might turn and it might become much more of a demand-led market, but not certainly the information you're looking at on Slide 15. So, the Hilux supply constraints hurts them. You can see that. And you can still see that in the calendar year. But I'm sure that, that will improve in terms of where that comes from. The Triton as an example, were there in the midst and heaven on the mist of a launch, and they've got a new trio there. I would expect that to reverse. I would expect and hope as an ex-forward guide at the Ranger continue to have the bought-out park as well. So, what I mean there is, I think that you're going to see a little less volatility through FY '25. And I said that about FY '24 versus '23, and that transpired, and I think we'll see some improvement again. And that's why I look at the outcome and I look forward in my head and think about the OEM cycles, and that gives me some confidence to say that I expect to see some more stability in new vehicle sales as part of the outlook. And I think we will advanceable down the ground again for 4-wheel drive because we have access to some of those models that are launching. And then you think about FY '26 when you got full years of Toyota Hilux. You got the new Nissan Navara, which we just announced, you got a full year of South Africa. That again gives me confidence for the next financial year. So, that's how sort of considering the OEM position and how it relates to 4-wheel drive.

And just the second one, just noting that in the back half of FY '24 during June, a major customer in that call was restricting intake of products during that month. Can you sort of give some color on how much of the impact that had and whether that continued into July and August? Or was there some reversion in a bit of the sales bump?

Look, I can't talk to that particular customer. What we said as a major reseller has been a bit slow to return. Yes, we noted that one of our major resellers was in a bit of a hiatus. And as the year-ended, I guess not all that has flowed through as yet. So, I would expect maybe that, that should come back. I think it's a list of entities. So, it's not appropriate for me to comment. I think I said this in the outlook as well, we are still watching the general economic situation, right? Given what I've just said about OEM volumes, what I see in FY '25 and FY '26, I don't want to appear or sound live or Martin around our confidence. We also recognize we're in a softer market at the moment, but we're fortunate because the market's reserves are generally state and resilient. So, we are watching closely, and we'll take action if necessary. Whether that inventory positions we've made the resellers that are slow to return or whether that relates to some softness, I don't know. We are a lagging indicator. But we do recognize the market is in a little bit of a different state, but we'll see how that particular major reseller plays out in the next 1 or 2 months.

Your next question is online from Patrick Tadaaki with Pendal Group. Can you talk to Chinese supplier prices? We have heard across a number of Chinese manufacturing categories that pricing in local currency is down versus 12 months ago.

Look, we haven't seen any material changes, Patrick. You have to remember also that the history lesson to us here is that, when I actually first started, we worked for the first 2 years on operational fitness. Part of that was actually supplier efficiency. And we took some percentages out of our COGS at the time to make sure that we could bolster our margins. And then we obviously went to COVID, and obviously, the historization there is that we treated our supply as well. We didn't see as many increases perhaps others. So, the peaks and tropes have been a bit different to us. And so, we're still getting a very competitive cost base out of our Chinese supply base. We look at currency, and we think about how that interacts with it. We have made some changes in terms of sourcing to engender slightly better outcomes where we put more volume into certain suppliers. But what we're not seeing, Patrick, is some, what I would call material benefit from the particular question you're asking as it stands today, and nor is that baked into our view of our budget for FY '25.

Your next question comes from Mark Li with CLSA. Can you explain the attraction of Milford Industries acquired for $7 million on 31 May? Would you still like to do more deals in the coming year, presumably in the full drive accessories and trailering and lighting, power, and electrical division?

Yes, sure. Let me answer this in reverse order. So, the answer is, and we've said it in the pack, we still remain interested in attractive bolt-ons. Those bolt-ons will be in either our 4-wheel drive and trailer or will be in the lighting, power and electrical. That is aligned to our strategic vision as to where we think growth comes from. Don't be surprised if they're either onshore or offshore because we're aspiration to continue to diversify and just build that resilience in this company. So, that's how I'd characterize the last part of the question. Milford is a small operation based out of Adelaide, and it makes cargo barriers. It's a functional accessory. It supplies to OEMs. It was an area where we were selling some cargo barriers, but it was an acquisition that really fitted nicely. It sells a few tow bars as well that has some retail footprint, which we're turning into a ton Performance Center in South Australia linked to what our investors saw as an example of a ton Performance Center at the Investor Day. So, it's growing our network of those at the same time, buying a company that has OEM relationships and functional accessories where we weren't necessarily strong because it was a small part of our business. So, it's a beautiful fit, but it's a small business. And we have announced that we will close down that manufacturing operation and put that to our Thai facility and the small part into Kestra. We will continue to use the business model, that unique setup I spoke of earlier on between our Thai and Australian manufacturing footprint. It's a great operating footprint. And yes, we will bolt on. And what 4-wheel drive successors and trailering and more formally APG, Jason, who runs that division has just got a beautiful track record of integrating businesses and getting them up and running and then utilizing that footprint. So, that's how we see it fitting in.

There are no further questions at this time. I'll now hand back to Mr. Whickman for closing remarks.

Well, the closing remarks are short. Thank you for taking the time to pay attention to our results. As I said earlier on, very pleased with both the financial and operating outcomes. I'm pleased that we've been able to keep our operational rigor and grow it year-over-year and yet do the same financially, particularly within that, keep our people safe, and keep them engaged. And, at the same time, hopefully give us a strong glimpse at our recent Investor Day, where we're going, why we're doing certain things, the platform that we reset, and the growth corridors that sit in front of us. So, with that, I look forward to the conversations over the coming 3 or 4 days. Thank you for your time. Thanks, Martin.

That does conclude our conference for today. Thank you for participating. You may now disconnect.