Amotiv Limited (AOV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Amotiv Limited FY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Graeme Whickman, CEO. Please go ahead.

Well, good morning, and welcome to the earnings call of Amotiv Results for the year ending 30th of June 2025. I'm Graeme Whickman, Amotiv's CEO and Managing Director, and I'm here with Aaron Canning, the company's Chief Financial Officer. A recording of this call, along with the presentation material, will be available later today on the website. I'll start the call by touching on the key messages and group performance on Slide 2. And then I'll go into a review of operating divisions. Then I'll turn over to Aaron to cover off the financial section in a little bit more detail. And then we'll conclude with a short trading update and outlook before conducting the traditional Q&A. So let's turn to Slide 3. Now I consider the overall result is solid, certainly in relative terms, in what was a challenging environment. Some of the cyclical headwinds in 4-wheel drive and LPE persisted through the year. And we pushed hard on the strong powertrain and undercar aftermarket positions and demonstrated really disciplined cost management. We stood up to the Amotiv unified business platform, built as we look to leverage our auto pure play, equal parts efficiency and effectiveness, also ensuring we have the capability to drive the operation in the future. And at the same time, we returned over $105 million in buybacks and dividends, still with a balance sheet that remains positively set for future investment and well within the communicated range of our capital management framework. Then the last to the right, we talk about and we'll finish at the end of the presentation, our view of how FY'26 will translate. And we are expecting group revenue growth in FY'26 with underlying EBITDA of around circa $195 million in what is likely to be still a bit of a challenging environment, but obviously leveraging those strong positions I spoke of earlier on. Turning to Slide 4. We detailed the group's financial results. And you can see overall revenue was up marginally at 1% with powertrain up 3.3%, LP&E down a small part, just below 2% and then 4-wheel drive up by 1.7%. Similar to the H1 commentary, the New Zealand economy, the AEV resellers, and OE channels affected both LP&E and then those same OE channels for 4-wheel drive, versus our expectations. Gross margins were down slightly, reflecting OE volumes, meaning that new vehicle sales and caravans and 4-wheel drive, but that was offset and mitigated by the wider group pricing actions we spoke about at the H1 result, which we got away with effectively. Underlying EBITDA was up slightly ahead of revenue, which reflects some proactive cost management and operational efficiencies. However, underlying EBITDA came in at $192 million, 1.3% down, which is a reflection of the continuing investment, particularly in manufacturing capacity and capability, and that investment trajectory will be detailed later by Aaron. Cash conversion remains strong, which is actually quite typical for our group at just over 90%. And I mentioned earlier, in terms of capital management, we announced the final dividend of $0.22 per share, that's probably a little bit ahead of what most people were thinking. Dividend payments, combined with the ongoing buyback program, represented just over $105 million in FY'25. And then finally, our net debt-to-EBITDA leverage of 1.9x. It's in line with our capital management framework targets, and Aaron will restate that a little later on. On Slide 5, I just wanted to reflect on how we're progressing with our 5-year plan, which is drawing to an end, aptly titled GUD2025, no prizes for creativity there. And we'll talk more about the 2030 plan when we sit with our investors at the AGM in October. We set out on Slide 5, we set out to grow the company and significantly derisk it. You think of non-ICE revenue, you think about customer concentration, you think about geography, and also drive it towards the auto pure play. And we've largely delivered on those balanced scorecard metrics with positive revenue and margin performance, hitting our WACC targets, but below our ROE expectations, all supported by solid operating disciplines such as safety and engagement. And as I said, later in the year, outside of the results season, we'll announce our new Amotiv 2030 plan, which sits alongside the recently communicated capital management framework. So there are quite a lot of clues in terms of what our expectation is in terms of financial outcomes in that strategy. Now you can also see our focus on core metrics such as return on capital employed, and that framework that Aaron will touch on. On Slide 6, I wanted to share how we progressed and the 5 outcomes that we were looking for in pursuit of short- to medium-term growth. Now, in terms of states, I'm happy to share we've made good progress in all. We've quietly gone about Amotiv's unified efforts since introducing this in May '24 Investor Day and then subsequently talking about it at both the half and at our recent Thai investor review. We've kicked off a select number of projects. We'll speak later about this on the call, where we've completed cost-out activities and the 4-wheel drive operating model in LP&E and pickup. And then also in powertrain, we looked at the distribution and all the way through to even our ERP consolidation. By the way, we started this year with the fifth financial year. This is 15 ERPs, and we're already down to 11, so a 25% reduction is close to. So all quietly gone about. I'm really excited to say we stood up South African manufacturing. It's operational. Its exit rate is profitable, and we're keen to start hunting for further revenue opportunities there in the medium term. Offshore revenue continued to grow, and this was nicely demonstrated by the strong Vision X performance in Thailand, doing well for 4-wheel drive. Our operational excellence efforts were well rewarded throughout FY '25. You might have seen the numerous customer design, packaging, and AFR awards that were listed on the right-hand side of the contents page. And then finally, our capital management focus resulted in actions such as the current and ongoing share buyback program, successful debt renegotiation, and updating and publishing our capital allocation framework to ensure our investors have real clarity in this endeavor. Okay. So, turning to Slide 8, we step into a series of divisional slides. So on Slide 8, we detail the key drivers of the 4-wheel drive segment. In Australia, pickup sales were down around 9% or if you exclude BYD with the launch of that particular model, actually down 13% in terms of the core brands that service the market originally. Declines were broad-based, with the top 3 key models, the Ranger, the High Lux, and the DMaX, all down double digits between 16% and 18%. As I mentioned, the Shark launch in the second half, adding about 10,000 units. This is relevant because we don't provide towbars other than aftermarket opportunities. In New Zealand, the story was one of stabilization, some improvement off a very low base. And then looking at ANZ combined, the pickup sales fell by about 8% or 12% excluding BYD. In terms of the SUV medium plus, headline sales were up about 3%, but down 1% if you exclude the RAV 4, which was on a bit of a tear, although positively, the Everest and the Prado saw some strong growth, which is good news. In terms of the actual 4-wheel drive division's performance on Slide 9, it was actually a pretty solid performance in the context of cyclically weak pickup sales, and also caravan and RV. And I haven't mentioned that, but the caravan and RV market is down across the board, around 10%, but actually local production is about 15% year-over-year. So, some tough stuff there to deal with. Revenue was up marginally, supported by a modest acquisition contribution, but the organic revenue was a function of the weaker volumes I've just talked about, but stable fitment rates. Underlying EBITDA was down $1.4 million, reflecting the softening of those volumes and particularly in pickup in H2. The 4-wheel drive team was proactive, though, in their cost measures, and we spoke throughout the year about the New Zealand rightsizing providing a modest offset. South African volumes were negatively impacted by the mix, but I mentioned we exited in a profitable way. We expect that to normalize in FY'26, which is positive. The strength of Cruisemaster and its offering was reinforced, although flat revenue on PCP, but obviously, with the market down, it represents the share gains that they were able to harness. Cost inflation remains a feature of the business landscape, and therefore, strategic aftermarket price rises were successfully implemented in Q3. The 5.5% drop in underlying EBITDA is largely driven by the sizable increase in lease depreciation, reflecting increased Thailand capacity, the new facility in South Africa, both of which are yet to deliver full-year revenue contributions. Progress was made in FY'25 with respect to tapping into offshore revenues with a small but encouraging entry into the U.S. market by U-Haul and the Fox Factory. The other Chinese OEMs will also represent a medium-term opportunity for the 4-wheel drive business, if you think about business outside of our domestic operation, both in towbars and functional accessories, and that's sort of expanding on the recent agreement with GWM. Now, Slide 10 speaks to the impairment carrying value, where a preliminary unaudited range of $180 million to $190 million was released to the market on the 22nd of July this year. So on Slide 10, you can see in FY'25, we completed a year-end value and use analysis of APG, resulting in a noncash impairment of $190 million. Now, through the second half, we have taken a more cautious long-term growth outlook for the business. And as we have articulated in the past, the business has been facing a combination of external and macro factors for some time, including the softer expectations for Australia's new vehicle sales and mix, certainly a more subdued New Zealand outlook with ongoing macro mix changes and a more conservative view of the future cyclical growth in caravan RV plus a bit of FX and potential U.S. tariff headwinds. Impacts on the carrying value are ranked in order of magnitude in the table on the right, with the change to the discount rate being a positive contributor. The lion's share of the impact was centered on the moderation of the 5-year EBITDA growth and the lower starting point. You look at that to the right, and then you come back to the left, and we still remain confident, though in APG's medium-term outlook. This is still a great business. It has a fantastic competitive position, unrivaled amongst its peers. It's got market-leading brands. We've spoken many times about the deep OE relationships. And when we bought that business, I think, on average, about 21 years. It's got fantastic R&D credentials, and that footprint in terms of manufacturing has proven useful in terms of the business wins that we finished off there. All right. So let's move to Slide 11 and the LP&E segment. Now we have provided incremental disclosure on the LP&E segment on Slide 11 to improve visibility and the understanding of the drivers of this business. While the car park growth, particularly within the key 5 years plus cohort remains supportive, but as we've discussed earlier, the combined cyclical headwinds of the lower MVS and the caravan RV and indeed the bus and truck have been challenging for the resellers and also the OE part of the LP business, which totaled about 70% of the segment. Revenues in these channels were down 13% and 18%, respectively. Pleasingly, the offshore portion has grown consistently through the acquisition of Vision X in late '22 and was later complemented by Rindab, VX Sweden. And as you can see from the pie chart on the top right of the slide, this business in terms of VX is diversified across what is largely a solutions-oriented channel, like fire, emergency, and mining. Now turning to Slide 12. The revenue reflects the combined effort of these drivers. Revenues were down just as mentioned under 2%, which includes the full year contributions of some acquisitions on CS and VX. Organic revenues were down just over 8%. And in the infographic on the bottom right, which we've shown how the ANZ market dynamics have impacted the key product categories, that is added disclosure. So lighting down 4% on a weaker domestic reseller and end user demand, partially offset by offshore growth of Vision X. Power Management, up 7%, reflecting investment in new product innovation, and that U.S. growth and then Electrical and accessories, similarly affected by the reseller demand, with some signs of flight to value. Product development was a highlight. It continues to be an integral part of LP&E's DNA products launched in Australia in the last 24 months, a solid 15% of the revenue coming from those. I mentioned earlier on as we encountered some of the headwinds in part of the unified program, we resized the Australian operational cost base, and that continued through H2, resulting in more FTE reductions. You can see the total on the slide of about 85, with a little bit of reinvestment in new capabilities planned for FY'26. The underlying EBITA margin decreased 80 basis points, but stabilized through H2 versus PCP due to price increases and the benefits of some of those rightsizing actions. Exiting FY'25, the reseller demand still remains muted. Any further weakness, though, is expected to be mitigated by some of the annualization benefits from the implemented operating model changes. On Slide 13, we turn our attention to Powertrain. And it's another solid and pleasing performance from the Powertrain undercar division that reflects that continued resilience of the wear and repair market. Filtration continues to deliver strong growth, aided by penetration of commercial vehicle filtration, so more new products are coming through there. The underlying EBITDA margin largely reflects the divisional optimization benefits and a bit of modest strategic pricing, offsetting the freight and domestic inflation. The depreciation increase reflects the new consolidated Melbourne DC for DBA. And underlying EBITDA performance reflects the improved operating leverage from investments in simplifying and streamlining operations as part of a unified, and that's things like the combined DC and some other projects where we've looked for more efficiencies in the ACS and DBAs and Infiniv parts of the powertrain. The Australian car park dynamics are evolving, including a slowing in EV adoption. At the same time, hybrids and plug-ins have increased. That trend is positive for us. But in terms of the investment via Infinitiv, we actually have moderated our spend through H2 commensurate with this involvement, and further changes are going to be put in place in FY ' 261 to consolidate and streamline operations and improve returns. So, talking of returns, I'd like now to hand over to Aaron for a bit more financial detail.

Thank you, Graeme, and good morning, everyone. My name is Aaron Canning. I'm the CFO for Amotiv, and I'll take you through the F'25 results in more detail. I'll direct you to Slide 15. Our reported revenue grew 1%, supported by the full-year benefits of recent acquisitions, most notably within the Lighting Power and Electrical division, with the CES and Wind businesses, and the contribution of a small manufacturing business, Milford in Adelaide, within the Fuel Drive division. Excluding acquisitions, organic growth revenue grew 2.2% and was lower due to softer ANZ reseller demand in the LP&E business and lower new vehicle sales, pickup mix, and caravan RV, and to a lesser extent, New Zealand within 4-wheel drive. Pleasingly, we saw organic growth of 3.3% in Powertrain Hncar. Gross profit grew 0.3% versus PCP, with gross margin percentages slightly lower by 30 basis points as the pricing changes made through Q3 have not fully offset freight, foreign exchange, and other inflationary increases. The full year inclusion of acquisitions within the Lighting Power and Electrical division was also marginally dilutive. Operating costs were lower by 0.6%, largely due to a concerted focus and effort on cost management initiatives as part of Amotiv Unified and lower incentives. As Graeme touched on, we also took steps through the second half to moderate our investment in our EV business in response to changing car park dynamics. From a depreciation point of view, we have provided further disclosure, and we've split our investments made in fixed assets and new sites. Depreciation on fixed assets reflects investments in South Africa, a new Melbourne distribution center, and further investments in our Thailand manufacturing plant. Depreciation and right-of-use assets included new sites and lease agreements, and the inclusion of acquired businesses, CES, Rindab, and Milford. Underlying EBITA at $192 million is in line with our 22nd of July announcement, 1.3% lower than the prior PCP and reflects investments in a range of growth initiatives such as South Africa. Significant items are of the $216.8 million, the vast majority relates to a $200 million impairment charge. Of this amount, $190 million relates to the APG business, as Graeme previously discussed, with the remainder being an H1 impairment charge to the fully equipped business in New Zealand and some small brand write-offs. Further to these, there have been costs associated with restructuring the business as part of the Amotiv Unified, as we have taken steps to resize and restructure the business. This has resulted in costs related to restructuring and severance payments, which will not repeat, and a headcount reduction of circa 5% or 120 full-time equivalent employees. These changes reflect annualized cost savings of $14 million before reinvestment. We provided a separate disclosure of both cash and noncash significant items on Slide 29. Net finance costs reflect a reduction in commitments, improved margins, and refinancing benefits in the year. These have been masked somewhat by the unwinding of acquisition-related contingent payments and increases in lease interest costs. Our effective tax rate, excluding impairments, was 25.9% versus 29.2% in the prior corresponding period, which was impacted by significant items. The effective tax rate excludes APG and fully equipped goodwill elements of the impairments, which together totaled $195 million. Both of these are nontax-deductible. We provided further disclosure on the effective tax calculations on Slide 33. Our statutory NPAT was obviously impacted by significant items and was a loss of $75.3 million. As Graeme touched on earlier, the Board has approved a final dividend of $0.22 per share, bringing the full year dividend to $0.405 per share, in line with last year. In combination with just under $49 million invested in the buyback program for the year, the business returned over $105 million to shareholders, inclusive of dividends and buybacks. In relation to the buyback, we're in our internal blackout trading window since the 30th of June. We intend to recommence this program and remain committed to purchasing up to 5% of issued capital by the time of the AGM in October of this year. I'll turn your attention to Slide 16, net working capital and cash conversion. Our net working capital was broadly flat through the second half and increased 9% versus PCP. Inventory increases since June 2024 have been driven by AU reseller destocking and weaker demand in the Lighting, Power, and Electrical division, predominantly through the second half. It also includes the inclusion of South Africa and Milford in the 4-wheel drive division, and to a lesser extent, some timing impacts in relation to inventory builds as we moved into a new warehouse in our Powertrain and Undercar division. Our payables largely reflect differences in supplier payment timing versus the prior corresponding period. Receivables increased with revenue and also increased due to customer mix in Powertrain and Undercar. But importantly, the one-off receivables issues that impacted our first half did not repeat. Our cash conversion, as Graeme touched on, was strong at 90.6% and stronger through the second half as we previously advised. We finished the year marginally ahead of our 85% guidance, and our H2 cash conversion was circa 105% and reflects the strength of the cash generation of this business. We expect the business to continue to generate strong cash flows into FY'26, in line with our capital allocation targets. I'll draw your attention to Slide 17, capital investment. Our investment in product development was 3.1% of revenue. And as you can see from the chart on the left, it moderated slightly versus the prior year. As we look out to FY'26, we expect our investment to be broadly around 3% of revenue. From a CapEx point of view, we invested $24.7 million, which was slightly below our guidance of $25 million to $27 million provided earlier this year and we continue to focus on upgrading our manufacturing capacity and capability, particularly in 4-wheel drive. The CapEx investment was split broadly 60-40 towards growth and was done intentionally with a view to balancing future investment with ensuring we continue to maintain and improve what we have today. This balance is consistent with our targets as set out as part of our capital allocation framework. And as previously advised, we expect CapEx investments into 2026 to moderate slightly, being up to 10% lower than our investment levels in '25. On to Slide 18, foreign exchange. F'25 was impacted by a stronger U.S. dollar versus PCP. However, this impact was well managed within a volatile spot market, as you can see from the chart on the right. At the half year, we provided visibility to our H2 hedging position, and you'll notice from the graph, we avoided the majority of the volatility that took place, particularly through the April to June period. Looking out to '26, we remain approximately 85% hedged at slightly more favorable rates than the second half of FY'25, and we do not anticipate having to take any out-of-cycle pricing in FY'26 in response to a changing foreign exchange landscape. As we continue to grow our offshore earnings as well, we continue to build a natural hedge in both increased U.S. dollar and Asian currency earnings. Turning our attention to Slide 19 and our balance sheet. The group's balance sheet remains in a strong and conservative position with gearing at 1.9x and within the midpoint of our capital allocation framework range of 1.5 to 2.25. The business continues to deliver stable and predictable cash flow earnings. Leverage increased through H2 as we increased the level of investment in the buyback program. And we expect a moderation in our leverage through the second half of FY'26. We continue to benefit from a largely fixed and long-dated financing base at market-leading rates. We maintain strong support from our lender group with a strong appetite for further support. And importantly, our cost of funds has reduced to 29 basis points versus the prior corresponding period, with refinancing undertaken through the first half, lower commitments, improved terms, and covenants. As we turn our attention to Slide 20 and the capital allocation framework. In February of this year, we announced the formulation of this framework. The purpose of this was to provide greater visibility in terms of how we will deploy capital against a set of key return metrics, both for organic and inorganic investments. We remain committed to measuring ourselves against these metrics. And importantly, going forward, these will serve to guide our target setting for incentive purposes. For FY'25, we performed in line or ahead of all metrics with the exception of return on capital employed at 13.1%. Although this result is well ahead of our weighted average cost of capital, it remains short of our 15% target on a pretax basis. As we turn our attention to FY'26, return on capital employed remains a key area of focus and improvement for the business. I will now hand you back to Graeme to discuss the FY'26 trading update and outlook.

Okay. Well, thanks, Aaron. Before I get to those last slides, I mean, Amotiv is a diversified auto parts company. And in the past, we've spoken in some detail about the attractive addressable markets we service, both in ANZ and increasingly in other parts of the world. Having moved to a divisional operating structure, the scale and the reach of the group have grown over recent years, and the composition of revenue is now nicely split across those 3 operating divisions. Importantly, those divisions have clear competitive advantages. In 4-wheel drive, we nurture deep partnerships the strong manufacturing engineering credentials. In LP&E, a real diverse channel mix, a growing global footprint, and obviously, powertrain undercar, very, very strong defensive most, great brands like Ryco and Westvill, and fantastic customer intimacy. A number of these competencies have allowed for an increasing growth in offshore revenue this year, now to 17% and a good mix of ICE and non-ICE revenues as well. And as just mentioned, the maturing of GUD to Amotiv as an auto pure play allowed us to start leveraging the business in a different way this year. And earlier this year, we announced the Amotiv Unified. Aaron, maybe you want to touch on key updates here?

Yes. Thank you, Graeme. I'll draw your attention to Slide 23. Amotiv Unified is an internally conceived, inspired, and led series of projects that we have segregated into 3 waves. We previously advised that we had commenced a number of projects within Wave 1 and communicated that we expect these to generate efficiencies to be used to reinvest in the business to support future growth and improved shareholder returns. By the end of June 2025, we will have commenced 12 out of the 25 projects with the benefits to be delivered over the next 3 calendar years out to 2027. On Slide 24, as part of Wave 1 projects, we intentionally focused on initiatives that will deliver financial benefits in the shortest possible time. These programs included changes to our workforce and operating model, which we've touched on earlier as well as procurement benefits from a group sourcing approach through to initiatives to drive revenue. This work on Wave 1 projects commenced earlier in this calendar year. We expect further benefits to be derived in FY'26 and into FY'27 from these Wave 1 projects. Turning to Slide 25. In April of this year, we hosted an investor visit to our Thai 4-wheel drive facility, where we outlined $15 million in gross benefits expected to be realized from the Wave 1 projects we had commenced. These annualized benefits have been delivered at the end of FY'25, most notably from the graph you can see through changes to our operating model. As I previously mentioned, this has seen 120 full-time equivalent heads depart the business, with 80 leaving at the end of the first half and circa another 40 leaving through the second half. The vast majority of these changes have been across the Lighting, Power, and Electrical business, with the remainder impacting 4-wheel drive and, to a lesser extent, our Powertrain undercar and corporate divisions. We expect to reinvest a combined $5 million or 1/3 of that $15 million of gross benefits back into new roles such as digital, e-commerce, and AI, with a further investment to support growth in supporting our market-leading brands, with the net benefit in FY'26 being $10 million. If I turn your attention to the following slide and an update on tariffs, we provided an update on tariffs in our 8th of April Thailand site visit presentation. Since then, there have been a number of changes. In summary, the key changes impacting Amotiv have been a lowering of tariffs on South Korean exports to the U.S. from a previously announced 25% to 15%. Importantly, this impacts our Vision X business, which you can see from the slide is the vast majority of our exports to the U.S. There has also been a lowering of tariffs from 36% in Thailand to 19% and a confirmation of tariffs on Australian exports at 10%. As previously advised, tariffs did not have a material impact on our results for FY'25. We took a price in early May of this year to partially offset the impact of tariffs. For the FY '26 year, we expect tariffs to have an adverse impact on margins totaling approximately $2 million. And we continue to monitor and assess a range of opportunities to mitigate this impact as we trade through FY'26. I'll now pass you back to Graeme to cover off the trading update and outlook.

Yes. Thanks, Aaron. Obviously, the tariff situation moves almost daily, doesn't it? Look, from a trading update point of view, after the first 4 weeks of July, powertrain undercar, wear, and repair remain resilient, with good forward workshop bookings. LPE, the AU resellers, and the OE channels they serve remain subdued, but some continued momentum in the U.S. and EU, which is great. And then in Australia, the pickups were up modestly, net of BYD. From an outlook point of view, on the right-hand side, I've already stated earlier, but I'll restate it again, we expect growth from a group revenue point of view in FY'26 with an underlying EBITDA of circa $195 in what is likely to remain a bit of a challenging environment. What does that really mean? Well, core wear and repair categories, we actually expect to remain resilient. That's positive. We think the ANZ cyclical headwinds are anticipated to potentially persist. We've taken pricing actions to support the gross margins. Aaron has mentioned around the net benefits of Unified are expected to be around $10 million. But the combined offsetting that of incentives and U.S. tariffs of about $8 million, cash conversion in line with the capital allocation framework, and we think we can do hopefully better than that, given 75%. And then the completion of 5% of the shares in issue in terms of the buyback, we're committed to pushing that through and getting it done by the AGM as committed originally. And we expect the balance sheet strength to be maintained, and we'll probably see some more deleveraging through in H2. With that, I just mentioned the AGM. We look forward to providing a bit more of an update in that context in that time frame, and also perhaps bringing forward some more thoughts around our 2030 plan and Amotiv Unified. So that concludes the presentation of the results. Before we go back to the moderator, I wanted to take the time to call out the Amotiv team who worked really hard through FY'25, a lot of things happening, a lot of moving pieces. So the Board, Aaron, and I are certainly thankful for their very, very hard work. Okay. Thank you. I'll hand you back to the moderator who can coordinate any questions that you might have.

[Operator Instructions] Your first question comes from Mitch Sonogan from Macquarie.

Yes, Graeme, just on the outlook for the $195 million EBITA, is there anything we should think of in terms of first half, second half split, just with unified benefits and that coming through? And you did touch on it briefly there, just in terms of the outlook. But can you just give a little bit more color, I guess, on how you're thinking about the segment performance to deliver that $195 million?

Sure. Thanks for the question, Mitch. Look, we think the SKU will be largely balanced. There is a bit of timing wrapped up in that, and we'll probably give more of an update, maybe when we're in October as well, but we're not looking at any divergent SKUs of any significance. That really depends on a couple of things. But no, nothing worrying there. In terms of the segment performance, obviously, we don't call that out at that granular level. We felt that the group guidance was sufficient enough given where we're at and what we know to be true right now, and our assumptions around some of the addressable market elements. So clearly, when we call out the ANZ cyclical headwinds to persist, that probably gives you some point of view around how that might impact 4-wheel drive and, to a lesser degree, but still importantly, LPE because they're servicing the caravan and RV, and obviously, the pickup sales. And then we've gone on to say that the powertrain remains resilient. So, without giving specific divisional updates, you can probably conclude how each of the divisions will contribute to that $195.

Yes. And I guess just jumping onto APG. Obviously, the rebased assumptions are there for around a 6% EBITDA CAGR. Can you maybe just talk to any sort of visibility that you have? You usually have a couple of months or 2 to 3 months of visibility there. And I think at the Investor Day, you also had around $20 million of incremental new revenue coming through in that business. You've got South Africa. There are a lot of things moving there, obviously, acknowledging you're talking about the tougher operating environment and pickups being down as well. But yes, do you mind just giving a little bit more of an update on how you view, I guess, the outlook into '26 and beyond that for APG with what you can see at the moment?

Yes. Well, in part, I guess the answer to that question bleeds into what I just said before. So if you think about where APG specifically, a broader 4-wheel drive picking up their revenue ANZ piece, we think that whilst June was a positive number, July was up modestly. But unless we see a material change, we think that the industry size and particularly the pickup size will be in a similar sort of space. And frankly, if I sit and reflect on where we thought FY'25 would have been as an example, looking retrospectively, we're probably about 25,000 to 30,000 pickups lower than what we actually had planned in our original forecast for FY'25 all the way back when we did the business case, and that probably tells you a little bit there. So that's one data point. We're not expecting the cyclical headwinds that we're facing in Caravan and RV to pull back. I'm pleased that at least Cruise Mast has been able to hold some revenues flat year-over-year, which tells us we're getting the market share, but we're not expecting that to come back. So that's, I think, going to persist. So that probably gives you a sense of the revenue potential in both the Australia and New Zealand markets. New Zealand, we don't think we'll be coming back. We've said that. We think it's more depressed for a little bit longer, although we have taken rightsizing actions there. The offshore revenue is modest in the U.S., and I think that will trend along. So that would give rise to the last part, which is the South African piece. And whilst it exited profitably, which is encouraging, that's not a huge piece. And we have no wins beyond the first 2 that we announced. So that's not featuring in the revenue that you mentioned in terms of $20 million. Some of the timing of that revenue wins that you mentioned, as an example, Nissan Navara, you probably have seen that that's been delayed, not in our control in that regard in terms of the model. So the timing of some of the revenue coming through in FY'26 might be slightly different than what we had a look at in the entire Investor Day. That will be the last piece I would make a comment on, Mitch.

And maybe just a final one, either for yourself or Aaron, just in terms of the incentives that you've called out there, I saw that in FY'25 was $4.7 million lower, and you're sort of guiding to that being, I think, a $6 million impact in '26. Can you maybe just give a little bit more color as to what that is? Anything you can provide there would be great.

Yes, sure. So, 2 parts to your question. The first part was an F'25 versus an F'24 comparison, and we called that out of $4.7 million. And look, it's obviously reflecting that we did not deliver on the suite of our metrics for a payment of incentives to all employees in this year. In terms of the FY'26 number versus '25, the delta is $6 million. And obviously, as we're looking into FY'26, that assumes that eligible employees would receive an incentive. So that's the way to think about it, Mitch. I'm not sure if I'm answering your question, if there's anything else you want to expand on.

Your next question comes from Tim Piper from UBS.

Just a follow-on from, I guess, from Mitch's question around the '26 outlook. I mean, you guys have done a good job on margins, obviously, across the LP&E and Powertrain undercar segments in the second half. If we think about sort of group margins carrying into '26, you've called out the $10 million net benefit offset by, call it, $8 million across the incentives and the tariffs. Do we assume that, that second half EBITDA margin is sustainable into '26? And on that basis, if you kind of back-solve the top line, you haven't really baked in much of a revenue recovery within the powertrain undercar and P&E segment. So are we thinking about that the right way? And are you just being pretty conservative on that revenue outlook?

Look, without getting into specifics, Tim, on individual divisions, I'll par it to a certain extent what Graeme has said before. We expect resilience in the powertrain and undercar business in terms of wear and tear. So I think you can probably interpret that. In relation to 4-wheel drive and LP&E, the cyclical aspects of those businesses, sitting here today, we're not expecting those to be a tailwind for us into FY'26. So we're being a little more conservative sitting here today. And of course, we'll have another opportunity to update the market in October at our AGM, and we will have the benefit of a bit more data. From a new vehicle sales point of view, the results in June were encouraging. July was also a little better, but it's too early to tell yet. So we're being a little more conservative on that side of things at this point in time.

And I think it's safe to say, going to your question directly around the margins. I mean, what we haven't called out here, Tim, is we're facing double-digit millions in terms of cost inflation, near high single-digit FX year-over-year comps in terms of the million impacts. And obviously, that's being offset by some of the pricing actions. But the typical margin management efforts that we've been pretty good at, we're applying, but freight, as an example, year-over-year, is going to be up a little bit as well. So Aaron and I are looking at the business and trying to make sure that we land something that's doable, and making sure that we have to take in those other factors that we haven't actually called out in the presentation, but it's still material and still the things we do at the BAU level.

Just on the Powertrain undercar segment, I mean, that was kind of doing a pretty consistent 5%, 6% organic revenue growth. It dropped off in the second half of '25. You've called out a few impacts there from moving premises and things like that. If we take your comments that wear and tear is expected to remain the same, have those one-off or sort of temporary impacts now largely played through that segment, and that headwind comes out of the powertrain undercar revenues heading into '26, and expect a rebound in revenue growth there?