Amotiv Limited (AOV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Amotiv Limited H1 '25 Results Earnings Call. [Operator Instructions] On today's call we have Mr. Graeme Whickman, CEO; and Mr. Aaron Canning, CFO. I would now like to hand the conference over to Mr. Graeme Whickman. Please go ahead.

Thank you and welcome to the earnings call of Amotiv's results for the 6 months ended 31, December 2024. I'm Graeme Whickman, CEO, Manager, Director, and more importantly, I'm here with Aaron Canning, the company's new Chief Financial Officer. So welcome to you, Aaron. Looking forward to hearing from you. Some of you would have met Aaron at the AGM, and you're certainly getting an opportunity to hear from him today, and our subsequent roadshow this week. A recording of this call along with the presentation material, will be available later today on Amotiv's website. So I'll start the call by touching on the key messages, highlights, and operating divisional summaries. Then I'll turn over to Aaron covering off the financial section in more detail. And then we'll conclude with a short trading update and outlook before conducting Q&A. So let's turn to Slide 4. Overall the result reflects what has been a challenging environment through the half and into H2. We've leveraged our mode of strong positions, and you'll see a lot of our disciplined cost management. It's been a half where we've continued to invest in growth, to ensure we leverage the, what we call the Opportunity Rich Future growth and an updated capital allocation framework lens. You'll see we're well positioned for a stronger H2, which we talked of at the AGM with business wins, pricing, and substantive actions all within our influence. Importantly, our strong capital position is able to support both our continued buyback program and investment in the growth imperatives. And finally, we reaffirm again that we fully expect growth in both revenue and EBITDA in FY '25 with a slightly stronger H2 skew. So turning to Slide 5, where we detail the group financial highlights. You can see overall revenue growth for the half at 2.3% with PU up at 5.8%, LPE up at 3.6%, and 4-wheel drive softer by 1.9%. Now as communicated at the AGM, the headwinds continue across the New Zealand landscape, the caravan and RV sector and a little bit of the APG Top 20 models. Our gross margins were down slightly, due to the inclusion of the LPE acquisitions, unit volumes and some higher freight costs, and some adverse 4-wheel drive mix. Although we are taking pricing in early H2 across those segments. Underlying EBITDA was up slightly ahead of revenue increase, which reflects some proactive cost management and operational efficiencies. However, underlying EBITDA, so EBITA came in at $97 million, 1% down, which is a direct reflection of the continuing investment in the half, for the near and medium term future growth, and that investment trajectory will be detailed later in the financial section from Aaron. Cash conversion remains strong, which is typical for our group, and the headline would actually have been even greater if not for some one-off impacts that Aaron will also call out later. We announced an interim dividend of $0.185, which is flat versus prior period and sits alongside my earlier comments about the continuing buyback program. Finally, our net debt to EBITDA leverage of 1.75x for the half, remains conservative and in line with the capital allocation framework targets you'll see later in the deck. Now on Slide 6, I'm excited to share how we're progressing on the FY '25 strategic imperatives we detailed in FY '24 year-end, and also at the AGM. Now we've spoken in some detail in the past about our competitive advantages across the divisions, the attractive TAMs we service, the significant ongoing and strategic growth actions to drive our business forward. And in this slide, we highlighted what we think to be the key 5 outcomes to push for the pursuit of growth. And in that order, we originally talked about divisional optimization, which we've matured to enterprise optimization/Amotiv Unified and we'll see a slide shortly about Amotiv Unified. It'll give you more color. How we rolled out South Africa, the continued increase in profitable offshore revenue, the pursuit of operational excellence, and then capital management for organic and inorganic growth. Now, in terms of status, I'm really happy to share, we've made really good progress on all. We've quietly gone about our optimization, and our early Amotiv Unified efforts since introducing this at our May 24 Investor Day. We've completed cost out activities in 4-wheel drive, rightsizing in LPE and powertrain distribution, ERP consolidation with efficiencies across the enterprise, resulting in a reduction of our cost base, by about 80 FTEs through the first half and a further 20 actually in H2 of FY '25. I'm really excited to say South African manufacturing is up and running, and earning revenue as of H2. The product's gone really well in terms of budget and timing. I congratulate both Jason and his team, and I'm sure Aaron will take all the credit for that budget in terms of time and budget. Well done Aaron. And of course as we bed down this operation, we'll start hunting for further revenue opportunities over the medium term. Building our offshore revenue continued and this was nicely demonstrated by the strong Vision X performance and also Thailand doing well for 4-wheel drive. Our operational excellence efforts were well rewarded through the half, with a considerable and I do mean a considerable array of external awards, and ongoing people centric hurdles achieved. And then finally, our capital management focus resulted in actions such as the current and ongoing share buyback program, a successful debt renegotiation, and then the updating and today publishing of our capital allocation framework, really to ensure that you, our investors, have real good clarity about this endeavor. On Slide 7, we're reminded that in late FY '24, we moved to divisional operating structure and re-segmented the divisions represent those reporting segments and help with a more aligned and simpler reporting structure. The scale, the reach of the group has grown over recent years, and the composition of the revenue is nicely split across those 3 operating divisions. We also know in the background that the group has diluted its customer base. It's taken on more of the automotive life cycle. A nice mix of traditional aftermarket, and what I would describe as targeted OEM and OES business. And in this half, 15% of our revenue was gained from offshore. So I'm very pleased in that regard. On Slide 8, we detail our strategic imperatives, to drive growth. And I trust, we were clear at our recent Investor Day and year-end, about our 6 key strategic imperatives that inform both our organic and inorganic growth approach. That's on the left-hand side of the slide. And to the right side you can see that there are 4 areas that support our growth opportunities. Our matured term enterprise optimization, and I'll give you a bit more detail in the next slide on that. The product development investment that's driving new business wins, like U-Haul in the U.S., discipline changes where we're learning like our lighting, power, and electrical U.S. go-to-market optimization. And then finally bolt-on acquisitions, which we work studiously in the background on. And therefore the intersection of the imperators on the left and the drivers on the right is where we believe great growth opportunities exist within our existing portfolio and as we said before, strategically aligned bolt-ons. Now for investors with good memories, you'll notice the top left -- right, item #1 has been changed from divisional optimization to enterprise optimization. And we introduced for the first time, the term Amotiv Unified. So let's slip over to Slide 9. And I want to give you a flavor of the body of work we've already started in this half. So Slide 9 speaks to our thinking about leveraging our recent move to an automotive pure play. It's a methodical and deliberate effort to ensure that we drive efficiency and effectiveness, within a series of defined business platforms. It's also a subset of our next horizon and strategic refresh, which over the next half you'll hear more of. And importantly, it's been internally led by our new Chief Strategy Officer, David Cecil, who joined us in Q2. So the Amotiv Unified business platforms, they're internally conceived, internally inspired, internally led activities, which is the natural evolution that we've been indicating since our Investor Day last year. There are 3 waves with careful management in terms of avoiding initiative overload, and it certainly pays attention to the right cultural and practical change management. We've already kicked off wave 1 in the first half. It's leader led with what I'll call augmented assistance of subject matter experts, where we see fit. It's a multiyear effort. And if you look at the slide, the middle of the slide details the universe of platforms under the microscope. And then to the right, what platforms we're actually targeting for the wave 1. Now we'll be looking for either efficiency or effectiveness improvements in these key 8 platforms. And that could range from removing subscale manufacturing and consolidating that all the way through to sensible ERP consolidation and consolidating kitting, so real tangible benefits in terms of effectiveness. In April, we'll give you more detail when we host our Asian facility visit for investors. Needless to say, there are some benchmarks on how and how not to lean into these types of work streams. And at the end of the day, this is about the unification of Amotiv, keeping the critical elements of our success, but leveraging the power of the group and scale. Something by the way, our teams are leaning into, not away, and we've been building proof-of-concepts and leadership capability. And what I'd say here is our organizational maturity is supportive of this next step. Okay. Let's move on to the divisional summaries on Slide 11. We start with the 4-wheel drive. The result was a solid performance, and I mean that in light of the weak pickup sales and SUV sales, and the continued weakness in caravan/RV and the overall New Zealand market. Revenue dropped slightly, but was supported with a little bit of modest acquisition contribution. Underlying EBITDA margins were flat on the back of good margin management in the face of certain cost inflation factors. Therefore the 4-wheel drive team were proactive in their cost control measures. As you look all the way down to EBITDA, you can see a drop of about 8%, and in the face of the above comments where pickups were down across ANZ by more than 12%, and in fact you look at it in Australia down by 16%. Hence the comment around actually a solid outcome in light of that. We were happy with the new business wins in the half. That trend just continues. I love it. A further $16 million on the back of our engineering credentials and also interestingly some capture of Chinese OEM business, which is an interesting trend. We've made good progress on our strategic imperatives, and many of these speak to the support of the second half, such as South Africa up and running, business wins in the U.S., cost outs completed in New Zealand, and some strategic pricing and a little bit more further operating model optimization in H2. Now on Slide 12, we turn our attention to LPE; lighting, power, and electrical. So the revenue in the half certainly reflects some challenging ANZ dynamics, this being offset to a degree with a very positive U.S. revenue performance. Overall revenue being up just over 3.5% via acquisitions and organic down. The EBITDA margin underpinning this was stable at the organic level, however at the divisional level it dropped as we wait, and I will say expect in H2 to see the acquisition cost synergies within our influence start to roll through. Progress on our strategic imperatives and H2 confidence, are buoyed by a number of critical factors. Firstly in ANZ such as some modest reseller destocking normalization, the price increases from Feb, the cost synergies I just mentioned, acquisition, and the rightsizing actions taken in H1 flowing through. And then secondly, in the U.S. and Europe, I've talked about our go-to-market optimization in the U.S. and some wins with Volvo and Scania. Then the last slide, before I hand over to Aaron, is powertrain. And the result reflects continued resilience of the wear and tear market, which is served by this division. We experienced strong and above system growth and filtration, actually including some really good growth in commercial vehicle filtration, also with strong gasket performance offsetting a softer domestic brake business, as we went through our transition of the new distribution center in H1. Margins were held through appropriate cost control, and also the flow through of the FY '24 late pricing, and that sort of offset freight and domestic cost inflation factors. Our progress on the strategic imperatives were encouraging, and leads to a modest H2 skew. This is driven by the productivity and cost benefits of the new distribution center for brakes, coupled with some strategic pricing in this segment, and some disciplined investment in the Infinitev EV business. Okay. Well let me turn the mic over to Aaron now, for some more financial details. Aaron?

Thank you, Graeme and good morning, everybody. My name is Aaron Canning, and I have the pleasure of presenting my first set of interim results as the CFO of Amotiv. Just directing your attention to the group financials on Slide 15. As Graeme mentioned earlier, revenue grew 2.3%, which was supported by acquisitions, most notably in our LPE business, being CES or Caravan Electrical Solutions, and our Swedish business Rindab, and to a lesser extent the inclusion of acquisitions in the 4-wheel drive business being Milford. Organic revenue was 3% lower due to LPE, most notably in ANZ and a softer 4-wheel drive business, most notably due to new car sales being lower, Caravan, RV market, and New Zealand. Our gross profit grew 5% with margins being slightly lower, due to the inclusion of the LPE acquisitions, CES, and Rindab, and were impacted by higher freight costs, and adverse mix in the 4-wheel drive division. The benefit of price increases in H2 FY '24 flowed through to this first half, which partly offset inflationary cost increases in the half with further price increases to take effect across the second half of this year, across all operating divisions. Our operating costs were pleasingly 1.6% lower, in what was an inflationary environment, and reflects the sustainable changes we made in the half, to deliver a more efficient operating cost base. Within this total operating cost, we invested $3.6 million in the expansion of our LPE business in the U.S. and our EV business, Infinitev. This compares to $2.7 million in the prior period. Depreciation, we've split this out for you to show for further disclosure, which highlights the investments we've made in the half in fixed assets, in new sites and locations, which would include South Africa, a new distribution center for powertrain in Melbourne, along with the integration of our CES, Rindab and Milford acquisitions. Underlying EBITA at $97 million is margin low with prior period, and reflects the investments that we've made in the period in growth initiatives. Significant items, which is $22.4 million and a large number that I want to go and explain in more detail. We do have a separate slide on this in the appendix, which details this further. But of the $22.4 million, $10.3 million relates to cash costs due to restructuring and new business setup costs such as South Africa. We have taken proactive steps to streamline our cost base, as part of the evolution of Amotiv, with a particular focus in Australia and New Zealand in both the 4-wheel drive and our [ LP&E ] businesses, and to a lesser extent the powertrain and undercar division. These changes totaled 80 FTEs or full-time equivalents exiting the business in the first half. And as Graeme mentioned earlier, we expect approximately 20 further FTEs to depart in H2, through further optimizing operations and natural attrition. We expect the cash significant items cost in the second half, to reflect these changes and other changes and we expect that cost to be in the range of another $3 million to $5 million. As I said earlier, we break out significant items both in terms of cash and non-cash on Slide 24 as part of the appendices of this presentation. The total of 100 FTEs exiting the business through FY '25 reflects approximately 4.5% of our workforce, with an annualized cost saving between $10 million to $12 million, which we will look to reinvest some of these benefits in F '26, to support future growth initiatives. Non-cash costs within significant items totaled $12.1 million, the largest of which relates to a $10.4 million impairment. We've taken the decision to impair the carrying value of our fully equipped business in New Zealand by $9.8 million, which includes goodwill and brands. This business makes fiberglass canopies for pickups, and utility vehicles in that market. The New Zealand new car market remains subdued, and we have an expectation that the current market will remain challenging for longer, and we felt it was prudent to take this approach, to an impairment in the half. There's also some minor impairments relating to some brands in the LP&E division again, which is outlined on Slide 24. Our net finance costs, we've also taken the opportunity to split these out further for further transparency. It reflects the reduction in our commitments, improved margins and benefits of refinancing, which are starting to flow through with our interest costs actually being $2.1 million lower. That's within net finance expenses. Within that number there is the benefit, the benefit is masked by the NPV impact of the unwinding of the earn-out provisions for our Vision X business in the U.S., Rindab, and CES. And I would note that's in Note 5, of our appendix 4D. Our tax rate for this half excluding impairments was 28.4% versus 30% in the PCP. This is largely reflecting of the higher proportion of offshore earnings, particularly in the U.S. and Thailand that the business is now starting to generate. Of course goodwill impairment is non-deductible, hence the effective tax rate is 33.1%. Statutory impact from continuing operations was $33 million, impacted by those significant items. The Board approved an 18.5% dividend in the half, in line with last year and complemented by a buyback. We now have 140.1 million shares on issue with a dividend payment totaling just under $26 million for the half. On the share buyback, we announced this at our AGM on 21st October, last year. We commenced that program shortly thereafter. We continued to buy shares up to and including the 31st of December. The program has been on hold since this -- since then due to our internal blackout trading window. Our intention is we will recommence this program in the second half, and we remain committed to purchasing up to 5% of our issued capital by October of this year. On Slide 16, outlines our net working capital and cash conversion. Our net working capital has increased nearly $23 million since June 2024. It is too high and it remains an area of focus for the business, to improve through the second half. In particular, inventory and improving our stock turns, without compromising our competitive advantage of the breadth and depth of our range will be a focus for the second half, and also beyond as part of the Amotiv Unified platforms. Specifically in relation to inventory since June, there has been 3 drivers of that increase, the first being a destocking impact with AU resellers or Australian resellers in LPE. We expected Q2 customer reordering patterns to be stronger than what they were, and hence our inventory levels remain elevated in that operating business. In 4-wheel drive, we built inventory in South Africa ahead of revenue being recognized from January, and in the powertrain and undercar business, we transitioned to a more efficient Melbourne warehouse where we intentionally increased inventory in this period to manage that transition. When it comes to all 3 of these drivers, we expect these to normalize in the second half. Payables largely reflects timing differences in supplier payment times and inventory flow. And on receivables, there were some one -- there was a one-off impact related to a major Australian reseller that related to an overdue payment that was not received in accordance with terms in the half. It is now being paid. And there were also some historical rebate claims dating back a number of years that were also claimed in the period. Both of those issues totaled $11 million, and we do not foresee those repeating in the second half. Reported cash conversion was 76.5%, impacted by receivables. If I exclude the reseller issue as I've just talked about, cash conversion would have been over 87% for the half, and as you can see from that table on the bottom right there, that would have been a very strong result for this half. It is our intention to continue to reduce the reliance on receivables factoring over the period and into 2026, and it is our expectation that our receivables factoring for FY '25 for the end of this year, will be lower than the same period last year. We anticipate cash conversion for the full year of FY '25 to be around 85%, noting that the business naturally has a lower working capital, and a stronger cash flow performance in the second half and we are not expecting repeats of those one-offs, as I said before. On to Slide 17. This chart here from left to right really continues to show our investment, our continued investment in product development and our capability in this space, as being an enabler and source of future growth. Our current investment levels at 3.2% of revenue, are expected to continue through the balance of this year. A mix of CapEx investments -- our mix of CapEx investments is increasingly reflecting the change of the shape of the business. With more investment in supporting our offshore growth ambitions, in places such as South Africa and Thailand being great examples of that. And I'll direct your attention to the graph in the middle. Our full year CapEx spend is expected to be marginally higher, up to $2 million higher than we previously advised at the AGM in October of last year. We expect it to be in the range of $25 million to $27 million, and we previously advised it to be around $27 million. We expect this to be a high watermark for the business with a reduction in CapEx expected into 2026. The chart on the right, shows our investment is balanced between investing and maintaining and improving our existing capabilities, with investing in growth initiatives that are expected to deliver a future return. The FY '26 forecast, includes the establishment of our South African facilities, other production capacity increases in 4-wheel drive, our Melbourne warehouse for powertrain, and consolidating our IMG business onto a single site here in Melbourne. On to Slide 18, to my point before around the increased offshore earnings of this business, I wanted to direct your attention to the first chart, first of all, in relation to U.S. dollar exposure. We are well hedged for the second half, as you see from the graph. Our hedging is at favorable rates versus spot, and this coverage obviously begins to taper off from the beginning of May. We remain active in the market should there be any material movements in the cross rates between the Australian dollar and U.S. dollar, between now and then. However, if current spot rates remain broadly unchanged, as we head towards the end of this second half, we will look to reassess pricing to take effect from FY '26 to mitigate any headwinds to our operating margins. And as we continue to grow our offshore earnings, to the chart on the bottom right, we are building a natural hedge, in terms of our increased U.S. dollar earnings and Asian currency earnings, the total of which both now represent 25% of NPATA contribution in the half. Next slide, please. Our balance sheet remains in a strong position, we have a long-dated debt profile and as Graeme said earlier, our leverage remains at conservative levels of 1.75. The business continues to deliver stable and predictable cash flow earnings, and we do not expect any fundamental change to our leverage from our existing operations for the full year. We continue to benefit from a largely fixed, long-dated financing support from our lenders with market leading rates, and strong support from these lenders. And to the chart on the right-hand side, our cost of funds have actually reduced 80 basis points on PCP, largely reflecting lower commitments and margin improvements, with the further benefit of our refinancing to flow through into the second half. I want to direct your attention to a new capital allocation framework, which Graeme touched on earlier. What you can see on this page is the formalization of our capital allocation framework that will guide our investment choices and decisions and align to our strategy. We will measure our performance against these metrics on an annual basis and report these externally. We will look to link our performance to internal performance benchmarks. It's a framework that we believe will ensure we deliver for our shareholders both in the short, medium, and long-term. We will continue to ensure it remains fit-for-purpose for the business, and we will also use this as a lens to guide and assess both organic and acquisitive opportunities. The metrics you can see from the right-hand side of the page, refer to a continued view around the cash generation of the business, and putting a floor around our expectations, looking forward on that. To the sustaining capital point, I touched on ensuring that we continue to balance investment in both what we've got, and also in generating future growth. From a target leverage range, we're going to maintain our leverage within 1.5x to 2.25x, absent major growth initiatives. We're going to be disciplined when it comes to looking at projects, and value accretive M&A, and we're going to continue to have a lens in relation to rewarding our loyal shareholders, with payout ratios above 50%. And we'll look to complement that through additional returns, such as the bid share buyback. And importantly, in terms of return on capital metrics, again, from both an organic and acquisitive lens, we're looking to deliver returns at greater than 15% over the medium term, for both organic and acquisitive opportunities. So I'll now hand you back to Graeme, to discuss the trading outlook and update.

Okay. Thanks, Aaron. Thank you for taking us through that. A lot to consume there and well-articulated. Thank you. So in terms of trading update, a pretty truncated January, a lot of people coming back in late and the like. I haven't really seen any significant change in reported garage activity levels. Sort of the same 2 weeks or so for bookings. The January performance in terms of new vehicle sales and ANZ and the combined market, those trends have basically continued. And importantly, we've seen the South Africa revenue commencing in January, and that's also in line with plan. In terms of outlook, let me reaffirm, we expect further growth in the group revenue and underlying EBITDA in FY '25, driven by a slightly stronger H2 skew. This supported by factors largely well within our control, and these include the new business wins and product launches, the likes of South Africa, modest mix improvements, and APG Top 20 models, probably see a little more Prado. Q3 pricing actions are already taken. The restructuring and optimization benefits that we're seeing with Amotiv Unified already in place. We expect the corporate cost to be lower than prior year including the investments that we're making in Amotiv Unified. The cash conversion expected to be circa sort of the 85% that Aaron has mentioned, and that all will leave us with a strong balance sheet, and a leverage position that supports the growth we've planned and spoken of in earlier slides. And then lastly, I just wanted to repeat that we'll have an opportunity in our investment calendar to chat with you more other than the roadshow we're about to commence with, as we're investing, sorry, hosting our investors in an Asian facility visit in early April, and that's something you can plan on. Okay. Well, that concludes the presentation of the results. Done in 30 minutes. Before we go back to the moderator, I wanted to take the time to call out the Amotiv team, who worked really hard through H1. The Board, Aaron, and I are thankful for that hard work. And then finally, I've spoken in the last 12 months about the inflection point, about the next horizon for Amotiv. In this pack, you would have seen evidence of us rolling this out in a planned and deliberate manner. And I'm really excited by this prospect, and where we continue to take the business. So with that, thank you for your time. I'll now hand you back to the moderator, and will coordinate the questions that you may have. Thank you.

[Operator Instructions] Your first question comes from James Ferrier with Wilsons Advisory.

Can I firstly ask you about the LPE segment? You talked there about the U.S. dollar revenue performance. Can you give us some color on what that looks like, excluding Vision X, which perhaps gives a more pure read on the greenfield investments with Projecta, et cetera?

James, sorry, I'm a little confused to your question. Are you talking about [ E ] performance or the revenue performance, sorry?

The revenue, so this is Slide 13 where you talk -- sorry not Slide -- that's Slide 12, I should say, where you talk about the U.S. dollar revenue growth. And just, yes, trying to get a read sort of excluding Vision X. And therefore perhaps a more clean read on how well you're executing on those greenfield initiatives with Projecta, et cetera?

Yes, that's fine. So essentially, if you looked at it, at a total divisional level, if you do extract -- I'll answer the question in a couple of parts. If you would extract the Vision X revenue, then the remaining LPE would be down just about 11% or so. I think it is from memory. I don't have that number straight in front of me, but it's around that. So that gives you a cleaner version of the total division. And then the growth in Vision X in itself. If we were to group it all as U.S. for one second, including the fact that we folded Projecta in there as part of our optimization, by far the significant majority is in the Vision X area, quite considerably. The Projecta improvement is great, and it's coming off a small base, as we're folding it in. In fact, we're seeing it quite significantly higher, but it's off a way small base. So the pure Vision X effort in its entirety has grown very nicely.

Very, very pleasing to hear. On the corporate costs, I think I'm right in saying the previous guidance back in August was for around $14 million in FY '25. What's changed with the revised guidance or what's driving the revised guidance there?

Yes look, James, much like we are looking very closely at our operating businesses, we are doing the same in relation to our corporate costs. We run a pretty lean ship, as I'm sure you're probably aware. And so, look, it's a combination of factors. It's less people. It's also making sure we're really cost conscious around any discretionary expenditure. And then thirdly, the PCP was a bit higher. There was some higher incentives in the PCP, so it's really people, less people, some discretionary expenditure in productions and the PCP being a bit higher. And to be fair to some of our members of the team, they've done some great job in terms of insurance renewals, and other things where there's been some material improvements. So well done to them. And sorry, James, I have wondered in the back of my mind your question around Vision X, if it relates to the earn-out. Suffice to say that they've triggered the earn-out that will be paid. And you'll be reminded that, that only started at 10% CAGR over the 3 years and I can tell you it's higher than the 10%. So hopefully that gives you confidence and now capability to acquire something offshore and grow it materially through that period.

That has been a good contributor. Last question, and this is one for Aaron. Probably just your comment earlier on the unified program, and the sort of the cadence of reduction in FTE there. I think you gave a number or you gave some guidance around the annualized benefit of that program. What was the dollar benefit to earnings in the first half?

Look, a lot of that happened late in the first half, so it wasn't material. So it was Q2, James. And so as Graeme talked about, in terms of that second half skew, we're going to get the full benefit of that in the second half. So it's not a material number in the first half. Happens sort of in November, so not a big number. Hopefully that answers your question.

Your next question comes from Russell Gill with JPMorgan.

A couple of questions. Just presently on the LPE sector, you made some commentaries about the inventory and destocking. Also commentary that a major customer, I guess, failed to pay you on time. Just maybe had some broad comments about that sector from a domestic standpoint. What you're seeing there, I guess, from an underlying demand perspective relative to, I guess, some operational challenges that might be happening at your customers. And, I guess, if there's any comments you can provide that around different product mix and the like?

Look the same -- thanks for the question, Russell. The same thematic existed as we commented at the AGM, and actually as we were foretelling at the end of the year. We're seeing, we saw some destocking, we talked about that and that really didn't come back through the course of the half. We're certainly in a less stronger typical macro environment, but we've had great success in that business with Caravan and RV and that's been at quite a low ebb through this period. And of course New Zealand, New Zealand's somewhere between probably 10% and 12% of its revenue typically, and that's been pretty flat. So that same series of thematics have continued through the half, Russell, from when we last spoke. In terms of the payments, I think that likely administrative error, and that's already righted itself. So we don't expect that to repeat, and I certainly wouldn't and hopefully we didn't try to conflate a payment statement with weakness in the structure of that particular segment. That's not the point we're making.

That's fair to say. The exit run rate for what you see for the end of the half, is you see the inventory relatively clean in the channel. So there's no further destocking to come, and it should be sell in, sell out relative to demand?

Well again obviously we never comment in any specific customer, but I think what you've just said amply describes the situation. If anything, I'd argue it's probably a little more thinner than it normally would be, given we still track sales out, and clearly our sales have been at a way different trajectory. So I think your comments are perfect. One probably a bit lean on them, probably what you'd even think.

Second just on the 4-wheel drive segment. Just want to get a better understanding of, I guess, the operating leverage in this business. The revenue was down 1% and the EBIT was down 8%. Just to get a better understanding, you're pushing pricing through here. How do we actually understand the operating leverage in this business, if we get a recovery, how do we think about, I guess, the margin in that business? Because it's pretty substantial deleverage on quite a small revenue. Is it because it's price rather than volume that impacts throughput? How should we think about leveraging that business going forward?

Well, I'll make a -- I'll take a stab at that and then pass to Aaron. If you looked at the organic revenue, then it tells you a slightly different story in terms of the core piece. You've got some acquisitions rolling through there that sit in the background, and we talked about modest acquisition contribution. Even if you were to peel out and look at the organic revenue, was around, I think, 5 point and the burden if you strip it out further again, might be about 6s and 7s. That is kind of the revenue position and that's off a back, so therefore it translates a little bit more consistently with what you've just said about EBITA. But what that is in the face of is obviously pickups that are down in Australia, 15.8%; in New Zealand combined 12% and SUVs down a little bit, and a continuing weak caravan market. And so the way we view that is that's transitional nature and actually we said was a solid result. Don't get this wrong, by the way, we're not sitting and patting ourselves on the back, but we think that's a solid outcome given actually when you think about the traditional throughput implications of the operating drop through, we've been able to find other ways, and other parts of that 4-wheel drive business, specific APG, to get share of growth and wallet that even though we've seen drops even more significant than the pickups. Our revenue, our EBIT has dropped at half the rate as an example of the pickup percentage drop in Australia. So I think, we've done well in the face of that. But at the same time I would expect to see some further operating leverage drop through, as we see some of the volume tickle back a bit, and some model mix ticking back as well. And Aaron, I don't know if you wanted to add.

Look, I'll just complement Graeme, Russell. So to answer your question, look, it's what is the greatest driver? Volume or price. Look, volume. So with softer volume, you do get deleverage because it's largely a manufacturing business. And so with increased volume coming through, we will see margins improve. In terms of price, you can see in our comments on Slide 11, we are looking to take some price in the second half. There wasn't a lot of that in the first half. And also on cost, we took some cost out in New Zealand, which we'll get the full benefit from in the second half. But to come back to your question, volume is important given it's a manufacturing led business and you get more volume, you get the operating leverage; you get less volume, you get the inverse. So and where we've had less volume, we've taken proactive steps to manage our cost base, and we'll continue to do that if we see volumes remaining soft in the future.

Aaron, just because you did talk price, it's not just, I guess, the U.S. dollar strength, there's [indiscernible] strength with your big manufacturing facilities over in Asia. If everything did remain spot from here, what sort of price rise is required for, I guess, FY '26 that you'll need to implement at the start to kind of keep margins group flat?

Look, so for the balance of this half, as I articulated before, we're well cut. So your point is, look, if things don't move, what sort of prices would we look to take? And it's not just in this business, it would be across all of our operating businesses. But we haven't worked that through yet, is the honest answer. And we're focused on landing the price rises that we've got in the second half first. And we do this in consultation with our customers here as well. So I don't want to get dragged into a number because it is a bit of a hypothetical, Russell. But I will draw you back to if it remains where it is, we will look at price to mitigate any risk to our margins.

And I think just to add that, Aaron, I mean, Russell, I think you know well, you're a student of the game, and you've watched our business for a while. We've been pretty disciplined in our margins management and we have margin maintenance as one of our key factors. We've yet to go into the budgeting cycle. FX is one of those elements. Domestic cost inflation, the freight, we've seen elevated freight as an example in this half, a lot of moving parts. But what I would reply back to you is I think history is a good lesson here in terms of our ability to have the pricing power, but also to keep those moving parts well-oiled and still result in our core margins ticking along nicely.

I mean just look at a very final question just on your, I guess, now formalized articulated capital allocation framework. I just noticed in the flowchart around what the business themes, like it says value accretive. Should we deem a 15% ROCE a hurdle for investment? And obviously let's call medium term 3 or 4 years, but that's now a hurdle on making acquisitions because, I guess, if we rewind a couple of years, there's obviously in this result some write-downs of intangibles, and things like that. Obviously New Zealand went backwards a rate of knots. But are we seeing 15% as a hurdle as opposed to when we deem value accretion and the whole concept around business diversification away from, I guess, ICE led and domestic supply customer base is done, and therefore we could allocate that 15% medium target relative to the opportunity of buying back AOV stock?

Yes, that's a pretty good way to think about it, Russell. At the end of the day, having a capital allocation framework is about choices and about where we choose to invest our capital. It is a framework, not a set of handcuffs, I would note, so that these are guiding principles. But when it comes to things like making choices to buy back stock or to invest in an organic opportunity or an acquisitive opportunity, we will make those choices based on the return metrics that we see from those various options. So the -- look, whether hurdle is the right word, it is a target. And we're going to be assessing all investment choices through the lens of that target, amongst other targets.

I think the board and Aaron and I worked hard on this and we have a point of view around what we think is acceptable returns for our shareholders. I think that's a big stake in the ground. I think the point you're also making, Russell, is that we've made acquisitions in recent times to diversify the business, to become more and more resilient. So we've got a mixture of OEM, we've got a mixture of aftermarket. We've got a mixture of different geographies. We've upped the rate in terms of PD and other things. And we're expecting that to pay-off. I would venture an opinion that the derisking of our business, as I would like to call it, over the last 5 years, if we were working at 70% of 100% of our effort derisking, and the other 30% to grow the business, that'll be changed, because the derisking work has been done. And part of that's come through acquisition, part that's come through investment. So I think Aaron's point is dead on. It's a much more stringent hurdle mindset, as opposed to diversification to get the resilience of the business, because the base business now has got some resilience to it. We've got levers to pull. So I think Aaron's point is really well made, and I just want to make sure that your viewers that we're not looking to try acquire further resilience through diversification. We've got that now. It's now building on what we've got, with the hurdle right in mind.

The next question comes from Tim Piper with UBS.

Just follow-up on the LP&E segment. Just with this reseller destocking, what was the trajectory of that through the half? It sounds like your comments might have suggested it got a bit worse than expected in the second quarter, just in relation to your second half skew on the outlook. I mean, at the AGM outlook, I think you called out a reseller destocking. Unwind in the second half is one of the drivers of the skew, that sort of doesn't appear to be there in the outlook commentary on today's slide?

Yes, I'll answer in 2 parts, Tim, and please, Aaron, to jump in.

Sure.

I think it's less that it got worse through the half. It just didn't. We thought that maybe at the back end of the half, we might start to see it unwind, but we didn't see that. So that's how I'd interpret or how I'd ask you to interpret our comments. And then in the second half, what we said actually, and you will notice in each of the 3 divisional slides, what we think is important in terms of progress and strategic imperatives. And also why we think skews in the second half are important in the LP&E. You'll actually see that's in there. So we talk about a modest unwind of the resale destock. So we're expecting that to be part of H2 of LP&E. We didn't want to build a laundry list in the outlook. Otherwise I get a bit tired trying to list them all. But certainly it's in our thinking, it's in our planning. And no, it didn't get worse in the half, it just didn't unwind as we thought it might be at the back end. Aaron?

Yes, I'll just add to what Graeme said, Tim. So the point I made around the inventory being elevated is it really comes down to our inventory purchasing cycles. So we were purchasing inventory through that Q2 on the basis that we thought this reseller destocking was largely behind us. But it continued for a little longer through that second quarter. And as such we were left holding some elevated levels of inventory. It's good inventory, it's just elevated. And to the comment that we make, we talk about normalization of reseller purchasing patterns on Slide 12 for LP& E. And so sitting here now, we see a lot of that noise behind us and we see a more normalized cadence to both sales in and sales out dynamics for that business in the second half.

Second one on APG, South Africa. Can you give us some sense on through the first half, what kind of costs might have been carried in that segment on an underlying basis? And then now with revenue starting in January, the trajectory towards EBITDA breakeven, and then profitability within South Africa?

Yes, it's just over 2, sort of between 2 and 2.5 that rolled through. So that's what you can sort of think about. And then, sorry, your second part of the question was more the revenue piece, is that correct, sorry, Tim, in the half?

Yes. As revenue ramps up, the move to breakeven and profitability this half?

Yes, we actually, and maybe I'm giving too much information there, we actually spent slightly more than we originally budgeted for because actually we're putting in further equipment there that actually we don't currently have business for, which might be a nod to the fact that we're going to go hard and try to win some incremental business beyond functional accessories, not material, but just a little bit more. The other thing is that, originally, we would have a progressive ramp up at the beginning, sorry, at the end of the half. And we're actually able to capture the full ramp. So we actually went from zero to hero in terms of a supplier to Ford and VDub on day 1. We were actually going to do a progressive ramp. It was going to be a slow progression over a month or 2. So we actually got the full revenue, which is great. It put the pressure on us, because we actually put another full shift on and employ another. I think it was 47 people. That's a good problem to have. And so the revenue ramp has actually been pretty high trajectory from the get go. The teams, the factories returned, I think, mid-January, which is a normal shutdown. And we're right into it. So the revenue ramp's good. And you can probably remember that we sort of articulated that the annualized revenue, on a typical run rate of that business when we talked about the conquest wins now a year ago, was somewhere in the region of $6 million to $8 million or something like that, in terms of pure revenue. I might got that number not specifically accurate, but it's around that region.

Yes. Tim, I'll just direct you to Slide 24 and it actually breaks out the South African number. So it's 2.7, but in that number there's a bit of U.S. 4-wheel drive expansion. So as Graeme said, it's broadly around $2 million, but you can see it's better than '24.

Yes. So it's been taken below the line. That's not within the operating underlying…

Correct.

Segment. Yes, got it. Just one last one from me again on the second half outlook, just for APG. Again, your expectations around model mix improvements in terms of a driver in the second half, how material is your expectation around that and what are the key changes you're expecting to flow through from a mix point of view?

Look, we said modest and it's sort of, and again, we always at peril call our individual model, and then everybody gets a bit confused. But you certainly know, and we did talk to both at the full year and the AGM, that the likes of Toyota Prado was down in some months, 90% in any given month and that model now is on stream, launched. They had to delay it, you remember that from last year. They had some problems with their Hilux, and then they had to delay their Prado around some engine stuff, and now they're fully in motion and without talking any specific customer. I do know that, that particular brand has some significant order bank volumes waiting there, for production to come in. So that's the model mix sort of the space. Other than that, we're sort of expecting relatively similar APG Top 20. We're watching carefully about the quantum though, in terms of the number of units, given that the first half pickups were down 16%. So we're just watching that carefully. You are also starting to see some of the OEMs come in, and spruce the market in terms of incentive spend. So we'll see how that plays out.

Sorry, can I squeeze in one real quick one? I think before you have mentioned that you're going from biannual price increases to annual. There was one in January. Just confirming that you said that you would consider going with another price increase in July at current spot FX. Did I hear that correctly?

Yes, look, if -- look, I didn't say July, I said '26. But -- so my point there was if we get significant erosion in our margins due to foreign exchange, we will have to reprice to protect margins. That's the statement. I didn't say it was a certain month, I said '26.

Your next question comes from Elijah Mayr with Goldman Sachs.

Just a couple from me. Maybe just firstly on just calling out sort of a net investment of $3.6 mil that was included in the adjusted EBITDA. Can you give us some guidance, I guess for the second half in terms of expectations around some of that net investment, and how should we look at that ongoing or how much of that is kind of sort of one-off as you're integrating these businesses?

I'll answer that. So of the $3.6 million, the majority of that relates to our Infinitev EV business. And you would have heard Graeme talk to a disciplined EV investment in the second half. So what does that mean? It means that with the evolving and changing nature of the electric vehicle market, the hybrid market, the makeup of the car park here, that category is changing. And we must change how we approach that dynamic. And so what that means is that our second half investment in that space will be lower than the first half investment, whilst protecting our IP and capability in that space. But we're doing that more through a cost-conscious lens, and also doing that to stand back a little and actually see how that category evolves and changes. You will know recently, if you looked at the data that actually EV sales have come off quite significantly, not only in Australia, but also in offshore markets. So we're just ensuring our investment is commensurate with the opportunity that we see in the short to medium-term in that space.

Yes, that's clear. And then just maybe secondly sort of back on APG in the 4-wheel drive business, obviously noting significant drops in sales. Can you sort of talk to, I guess, if there's been any change in fitment rates, you sort of called out pick-up sales is still high at 90% and SUV is around 50. Is that any change kind of year-on-year in sort of what you're seeing from a consumer behavior perspective?

A sharp question indeed. And that's why we actually put the fitment rates on the slide. So on the 4-wheel drive slide, we actually purposely did that in anticipation of that question and the short answer is no. So fitment rates are not impacted, have not been impacted, and generally aren't impacted even in the most dire of times, because they're essentially a functional purchase there. In some cases they're considered, and I don't like this term to be a grudge purchase, because they are required to tow something. So no, we're not seeing any fitment rates drops. And then the functional accessory element of that, they're standardized parts of vehicle lines, so models. So they come. They're not somebody ticking the box. So no, we've not seen that at all, Elijah.

Your next question comes from Mitchell Sonogan with Macquarie.

Just following on from Tim's question before on APG, you mentioned about the mix, but maybe just talk to what visibility you have on the new vehicle volumes in the second half? And I guess at a high level, what is factored into your guidance there, noting that you mentioned first half pick-ups in Aus were down 16%?

Mitch, you sound very European after you returned from your sabbatical. The assumption and the background is that it's a similar sort of new vehicle sales environment. At this point we might be expecting a tiny bit of improvement in New Zealand, but that's not super material. We're expecting, as I said earlier, maybe a slight improvement in the model mix. But what we don't have in the second half is some Hail Mary trajectory around new vehicle sales, in either of the markets. So that's what the predication is. As you know, we have generally between 2 and 3 months' worth of purchase order sitting in the bank. That depends on which vehicle manufacturer we're talking about. So that's kind of the baseline assumption. As Aaron said, within that though, there's some strategic pricing to take place that applies to some of that OEM business. And obviously we get the benefit of the cost outs that we've placed in the first part, particularly in NZ. Some more operating model cost outs in H2 to come. That reflects actually a beneficial mix improvement between our OEM, OES, and aftermarket. So those are the sort of thinking things, certain factors that drive the H2 point of view.

And just on the gross margin at 44% in the first half with the different price rises, sort of you're pushing through. Should we expect that to remain largely steady or will we expect a bit of an improvement in the second half?

Look, a marginal improvement. The first half, which we said was down 75 basis points, was a combination of the integration of some acquisitions that had lower gross margins, and didn't have any synergy benefit in them, and some adverse mix there in our 4-wheel drive business. So as Graeme touched on before, if I talk to the acquisitions, we're expecting some synergy benefits to flow through the second half. So that will be positive on gross margin. Pricing, as I said before, will be positive. And the mix comment on 4-wheel drive, as Graeme has touched on, we don't anticipate, maybe a modest improvement on mix, but not a significant difference. So if you put all of that together, Mitchell, yes, an improvement. A modest improvement in gross margins in the second half.

And look, I think that the tangible piece around the cost synergy and acquisition, because we've used it in the pack, and I asked it earlier on, I thought, geez, that sounds too corporate. The reality of that is that, we've got a business called CES that is generating a certain level of revenue regardless of the caravan situation, right. We have a competitor's products currently being installed in the CES solution to their end customer. We are in the process of switching out that competitor's products to our Projecta product. That is the cost synergy piece we speak of. So it's in our control and it's in the process of being rolled out. So that's why we have confidence in that regard.

And just a final one, Graeme, just in terms of the continued resilience in the wear and tear market, can you maybe just provide a bit more detail on how you're seeing that? Has there been any volatility through the recent periods and, I guess, just any particular areas of strength or weakness to call out?

Look, I mean, as we come in to our earnings announcements, we double down on our field reviews and checks, even down to the state level. So it gives us confidence around our view of bookings and wait times. And there's been, over the last 12 months, comments I've made around, there's a little bit of disparity versus certain states. So there's a little bit of a thematic there at times, that hasn't changed. We've talked a little bit about some of the major repair deferrals, which so much of ours is wear and tear as opposed to massive repair. So there's a little bit of that, but that really hasn't changed. Some commentary around the edges around service deferral, but that hasn't really come to massive fruition. And if indeed that did, we'd still get the cycle back when somebody still comes back. So those have been some of the thematics that have been rolling around in the background for probably the last 8, 9, 10, 11 months. So I'm probably repeating myself, but there's certainly been no major change as we've entered and completed this half in that powertrain business much. So I'm afraid, I it can't give you any new volatility or new thematic. It's much more of the same.

Your next question comes from Sam Teeger with Citi.

Sounds like you might pull back some of the Infinitev investment, which would be helpful for near term earnings growth. But can you talk a bit about the plans for the rate you'll be investing in greenfield opportunities going forward compared to what you've recently been doing?

I'll give you the first answer and then I'll ask Aaron to add. So you probably noticed that the word greenfield has been slowly, but surely eradicated out of the pack, because it becomes a rod for our back. Because we're always going to be investing in strategic growth. But I think the point to be made here is, and I'll call out the $5 million or nearly $6 million, $5.8 million we spoke about for the last year and a half, which comprised of LP in the U.S. and a bit of South Africa and certainly Infinitev. We always reserve the right to modify our view of the cash burn involved in those activities. South Africa we've done. LPE is an example. You'll see in the pack, Sam, that we talk about LPE go-to-market optimization. That cash burn which we used to call greenfield has actually been reduced, and we've actually decided to pull the Projecta work into Vision X. So naturally the cash burn drops away in that so what we used to call greenfield, will drop away. And then the Infinitev business, Aaron has already spoken of that. We're just taking a really disciplined view of the cash burn of that business. We don't want to lose the competitive advantage we have. But at the same time, we need to be sensible. And so, we what we communicated to at the year-end in terms of potential spend, it will be lower by the time we finish the year. And we'll continue to moderate any investment relative to the reward, with some of those hurdles we spoke about in the short-term. So Aaron, would you like to add.

Yes, look, just on the terminology first, greenfield, as Graeme said, we're going to be moving away from that. However, we're not going to move away from obviously our disclosure and transparency around where we choose to invest shareholders' hard earned funds. So we'll continue to disclose that, we're just getting away from that title. And as Graeme says, this business is a growth business, and we're going to be investing in growth opportunities and we'll call them out accordingly. Look, I think Infinitev has been well spoken too. Second half investment will be lower than first half. Look, year-on-year, Sam, for the full year, it will still be up on the prior full year. And then likewise we're looking at those other areas, BWI, the U.S., et cetera as well, and just not backing away from the opportunity, but just doing that through a more cost-conscious lens.

Yes, I think that'll be well received. Second question, what type of accessorization rates are you seeing or expecting on Chinese 4x4s versus what we've typically seen with more legacy OEMs such as Ford and Toyota? Just trying to understand, to what extent could this be a different customer, and then we could have different accessorization rates going forward as the car park potentially changes?

Look, I mean, you've heard me talk in the past, SUV passenger vehicle fitment rates of 10s in terms of tow bars, SUVs around the 50s, and then pickups around the 90s. What you're seeing is a continuation of the same trend. So you're seeing, if you think about SUVs, we're really interested in medium and large SUVs, not the small SUVs. And a lot of the Chinese entrants are actually small SUVs. So in terms of fitment rate, that's just not a concern for us. If you think about pickups, pickups are going to be interesting, Sam, because in the first outset, some of the Chinese pickups don't have the towing capability that the existing brands do. And so those brands potentially will be constrained in their potential ramp up. But as they grow their towing capability, I'm talking, say, the [ Shark ] at the moment as an example. So will there need to actually have a requisite tow bar to support that? And at the moment it doesn't. And we actually have that, which is fortunate, as you would expect, because we have 93% market share. At the same time, you're going to see the Chinese brands start to export their vehicles not just into our market, but the other markets. And that's why it's so interesting to make the point that we made around the win we have with GWM. We are going to ship Thai made tow bars to China for GWM models, to then be fitted by their parts and accessories divisions in markets like Brazil, parts of Europe, and indeed our own market. So if anything, our engineering credentials offers us a great opportunity with those Chinese brands, because they cannot do it. So it'll be interesting to watch. But I think we're well positioned, Sam. And I don't think the fitment rate certainly in the Chinese pickups will differ at all of any consequence, because at the end of the day, those pickups are being bought for functional reasons.

And then last question, just in terms of the guidance which assumes reasonably similar new vehicle volumes in the second half, compared to the first half. If we do get a scenario where we have 1 or 2 rate cuts over the second half potentially as soon as this month. Graeme, based on your experience at Ford, would you expect new volumes to pick up reasonably quickly or is there likely to be a bit of a lag?

Well, I think you'll have that combined with the level of discount spend. And the discount spend will probably be the bigger determinant than the rate cut. The rate cuts will be important, so it gives confidence, particularly as such a large proportion of vehicles are actually financed, not bought, as you already know, for cash. So that does help. But it'd be the inducements for people to step back into the market who've been sitting there for the last 1.5, 2 years thinking, I'm not paying full tote. So I think that's probably more likely a bigger driver. And look, we haven't thought that way through in terms of our forecast, nor have we indeed, even we're still reacting to tariffs. As an example, you'll note in the pack, we talk about the fact that Korea, Thailand, South Africa, Vietnam, where we have major manufacturing, we're all in tariff friendly and tariff favorable jurisdictions. So that may be a bit of a spurt to our American aspirations again. So we're working through some of those macro rate cuts and tariff things quietly in the background, working out how we can make lemons, I'm sorry, lemons -- lemonade out of lemons. Did I really say make lemons?

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

Okay. Well, thank you for your time today. I appreciate the attention. I also enjoyed the quality of the questions. Aaron and I are looking forward to spending time with our investors, and some of the sell-side experts over the next few days. As I said, we reaffirmed our guidance. We feel convicted to what we are going to achieve this year. And more importantly, hopefully we have given you a flavor of this next horizon, whether it be our view of capital management frameworks, in terms of capital allocation frameworks, and also Amotiv Unified. And I'm personally very excited about this notion of unification of our automotive pure play. So with that, looking forward to the conversations, and have a great day. Thank you.

Thanks, everybody.

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