PWR Holdings Limited (PWH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PWR Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Kees Weel, Managing Director. Please go ahead.

Good morning. Thanks, Rachel. Good morning, ladies and gentlemen. It's this time of the year again, and we're here at Ormeau, Brisbane to speak to all you guys and ladies out there. So we'll get straight into it. Everybody has obviously seen the results, and we feel they're steady, steady and strong in different areas. So just -- if you like to go to Page 3 and look at our results in these times. Just running through a few of the highlights, I guess, and obviously, some of the lowlights as they'll be with the COVID situation as it is today. Fairly self-explanatory. Revenue very similar to last year. EBITDA was up a little bit. The net PAT, and that's the one that we concentrate a lot on, is down 8% from the same period last year and so on. Go through a little bit the ROI and what have you. But cash on hand of $20 million, and cash conversion was down a little bit as well from 100-odd percent down to 94%. Working capital has increased a little bit. And the same amount of employees for the similar period. The -- just one item there of the cash on hand that we have there that there is -- just so there's no -- nothing getting wrong there, but there is a $5 million loan we took out during that period of the COVID as an extra bit of insurance because, I guess, like everybody else, we didn't know where it's going to go and stop. So just so everybody is aware of that. A snapshot, very, very self-explanatory, 100 million shares. Our debt has grown from $4 million to $9 million with -- that explains that $5 million I just spoke about. Net assets are very similar. Revenue, very similar. I would say, net debt down a bit. And everything else is very self-explanatory. So moving on to the next page, the impact of the accounting procedure that we all have to report on, very self-explanatory. I don't -- I'm certainly not an accountant, so I'm not going to run into that. Happy to take any questions. I have -- also, I've got, which I failed to say at the start, I've got Stuart Smith, our CFO, here; and also Matthew Bryson, our COO here as well for any questions that may come up later on through the announcement. The COVID impact. I think we fared reasonably well. Obviously, the biggest impact was in March and April and a bit of May or the other way around -- a bit of March, April and May, particularly, and it certainly came back very strong in June for the results. So very similar to what I've already spoken about, the -- of what COVID has changed, cash at hand, so that facility there. We also have another $10 million of facility that is on standby, if we did need it, which we have up at our sleeve. Right now, cash flow is very close in mind to be managed. We managed not to have any bad debts. We are very strong on our debts very hard, I should say. And no debts were written down or written off. Our part of the things that we've done at COVID, we went to a 4-day week. And on that 5th day, the employees chose. They had a choice to either not be paid on the 5th day or take some from their leave loading right here, which, I would say, probably 98% of the people took a day of leave. So we didn't offer their pay, but they are paid. JobKeeper program here in Australia has provided us a bit over $1.74 million relief through the phase so far and also the -- a very similar program they had in America for our American employees, which is stated there. The directors -- all the directors have certainly reduced their fees and, et cetera, from beginning of April to the end of June. Working capital utilization remains robust. And capital investment program, we paused that, in particular, in April and May, but now we are obviously keep pushing of that. We have quite a few machines that were occurring from overseas anyway. They're late heading their way because of COVID. They are starting to turn up to the premises as we speak. Also, received another Made in Queensland grant of a little bit over $1 million for our CT scanner. And the -- just it's been -- working out last week, we received another $1.2 million for a 3D printing machine, which is arriving the next -- within the next month. So that's all going to plan. On the next page, the overview. We -- yes, obviously, as I said, the 2 main months that were down was April and May. And when you have a head count of a little bit over 300 people across the world, it was a fairly big wage bill to pay each week when there's nothing coming in. We certainly used a lot of that time for upskilling and training people in the premises. So anyway, just going through the overview, the financial overview, it's very self-explanatory. I've run over these numbers, I think, twice already in this presentation. I don't think I need to go into that. I'll move on to the dividend. The dividend -- the full year dividend will be $0.059 a share. As it says, represents 45% of our net PAT, which is on the lower scale of what we normally do with our format is to pay between 45% and 60% of our net PAT. So we chose the bottom side of the scale there. And so the final dividend will be paid on the 25th of September. Financial performance. We seem to be running the same numbers in a different format. I don't think there's a -- to really -- to report on that, that stands out that's different to what I've already said. We have a chart there of the foreign exchange of how that's run through the year, et cetera. So I think it's fair to say it's a very self-explanatory. The next page is a very good cross section of our performance. And the automotive aftermarket, particularly, very strong here in America, particularly through the COVID era or the time of COVID of the big impact of those 3 months. The aftermarket here in Australia was -- here in the U.S. is very strong, as you can see by the number. The other strong areas is obviously emerging tech. We've spoken about this for a couple of years now, and you can see on the numbers that we are progressing fairly well there. And I did say the same last year. We have come up a very small base, a low base, so don't get blinded by the percentage. But it's still a very positive result, something that we're really pushing hard for across both businesses here in America. The OE side is also another -- a very good contributor for the result this year at very strong. We have the programs in America, which we've spoken about before. And we've got several programs in Europe, which have been certainly topping up the American side. So we still feel that -- we still know that there's a lot of OEM in our pipeline moving forward, which we'll come to a bit later on. On the on the next page, it's very similar. It's a financial summary. You'll see that particularly on the revenue by currency. That I hasn't altered too much from the U.S. to the GP, a little bit on the GP side, because of the F1 business not happening in the last 6 months of the last financial year. Next page is our balance sheet. We feel we still have a very strong balance sheet with a strong liquidity and cash position. And we are certainly not wanting for anything for particularly the expansion that we've been doing. And also, as I said before, a lot of the training and upskilling that we've done in those slower months is certainly -- put us in a very good position moving forward. Working capital and cash flow, same again, very, very self-explanatory. I don't think we need to go through every line item. Happy to take questions later on, and Stuart and Matthew are here to assist with any answer that may not be there. On the segment analysis, very similar. There's a bidding there with the OEM sales and revenue growth of over 20% at C&R, which is a great thing. We've been talking about C&R for quite some time now and what that delivered, particularly in the last 6 months has been very good. And considering the progress position that they have in America, we've done very well over there throughout that period. The business outlook. I'll take a bit more time on this here. It's our pipeline for business future and what have you. You can see on the recent pages of -- particularly the OEM and emerging tech has been very strong. We see that is continuing that way. We have a lot in the pipeline and certainly has helped all the cross-training and upskilling of staff, getting ready for when the world is starting to come back to possibly a new normal. The investment program, the CapEx program moving forward, as I said before, we've got quite a few machines arriving this next 2 months, probably 2 months, maybe 10 weeks. So we'll have all that in place and commissioned certainly before November. They -- so a path that there'll be very minimal CapEx being spent in the second half of this financial year. The -- as written there, our dual manufacturing sites, one here in the states, it certainly has given us some flexibility and starting to play out that way. So we have done quite a few programs with this stage of manufacturing for product in Europe. Our specialty build area for emerging tech products and et cetera, that has really pushed -- a lot of future programs that we've been doing here has really pushed us in the right area to do that. Motorsport, as you all know, that's a big contributor. Our motorsports section has been fine. They would have done -- this year, they would have done 22 races, if they went for the full year. And this very, very strong situation as we are today that they will deliver 17 races in this 6 months that we're speaking of right now between July and December. The -- on that, the -- all the teams -- that may not be interest to everybody, but all the teams have signed a new F1 5-year Concorde Agreement, that will bring us into '24 and '25. And that -- so all the players that are there now have committed to that period and to the changes that they have been doing. MotoGP and NASCAR have resumed. NASCAR, particularly, they will do 37, I believe, 37 of the usual 41 races that they do. They've been running 2-races weekly, one on Wednesday night and one on their usual Sunday. So that has resumed and with no real problems going -- working through that in the COVID situation. The OE programs wherein is running to plan, particularly the programs that we've spoken about before. The forward program -- the 2 forward programs we have in America and also several small programs that we've been running in Europe are still on -- certainly, on schedule of what they've been scheduled. The 2 programs that we have spoken about before, and I do -- we miss not to mention them. It was the Valkyrie and also the amg-x1. Both of those programs have been pushed back because of the COVID situation, but certainly no changes as in numbers are still as strong as what they anticipate to do. So no change in the numbers, they've just been pushed back to later this financial year. The Brexit, still a bit of uncertainty there. We have trialed. We have got a company registration in the Netherlands over there to deal through. And if the Brexit is -- becomes awkward and to stop us paying or the customer double dipping in their duties, et cetera, to get our product. As I said before, all the capital programs are a progress to support everybody, and that's certainly going to plan. The -- what I mentioned before is in here, the grant, the new grant of $1.3 million for the new 3D aluminum printer. Now we still feel that we're in for a very strong year this year. We have -- as I said before, we have a lot in the pipeline, particularly with military and aerospace. We have spoken about that before. We have started programs. We have also started shipping to some of those customers during this last month, and it's looking to be a very positive increase in business as well, particularly the micro matrix area and also the emerging tech as well, particularly in the aerospace for high-powered electronic cooling. I think that's pretty well it from me. I like to be straight to the point. And some of these, happy to take any questions. Certainly, might divert them to our CFO, if there's a question in that area. Or if you like to know any more about anything else, I've got Matthew Bryson here, very capable and is certainly very well in touch with the programs that we're doing. So I'll pass over to you, Rachel, to maybe conduct the question there.

[Operator Instructions] Your first question comes from Tom Tweedie from Moelis Australia.

Just a couple of questions from me. Firstly, on the OEM program, given the delays of the programs that are up and running, already factory closures. Do you think that we'll see a backlog into FY '21 of work in addition with work to what the normal run rate would have been otherwise from that work that was sort of essentially delayed in the FY '20 year?

Yes. Look, the run rate as far as those programs are concerned is anything going to be accelerated rather than pushed out. The exact start date of these programs remain a little bit fluid, but they are at least matching or if not a little bit more aggressive in terms of the planned build once the programs are up and running.

Okay. Brilliant. And my second question is on the micro matrix side of things, penetration into Formula 1 at the moment. Are you able to tell us or give us some color on how many teams are using it this season and what you expect next season uptake to sort of to be roughly?

Yes. There are 3 teams that have -- that currently runs some micro matrix technology this current season. There were -- there will be increased amount of micro matrix into next season, specifically with a lot of development. There are programs that are planned for the new regulations that will still involve a number of micro matrix program. But certainly, the COVID period put stock to a lot of development and new regulations that were to start in '21, obviously, have carried over to '22. So there will be micro matrix product growth in Formula 1, but the most significant growth will actually be '22 season despite also there'll still be significant development of those products during '21.

Your next question is from Alex Lu from Morgans.

My first question is just on sales. So Q4 '20 was obviously very weak, and it was very volatile from month-to-month, but you saw some improvement there in June. So I was just wondering if you could just give us a bit of color on how you're seeing things in July and the first few weeks of August, please.

Yes. July and August are on schedule, certainly very strong. And we see -- obviously, know what our plate is like right now. It's very full. And we certainly anticipate a very strong first half, that's for sure.

Okay. And just a question on emerging technologies as well, please. So for the full year, it seemed like it was pretty strong. Sales were up 62%. But if you break that down from a half-on-half basis, it looks like you did $2.7 million in revenue in the first half, but then the second half dropped to $1.4 million. So just wondering what's the reason for that? Is it just timing? Or was there something ongoing?

Alex, that is just a timing thing for sure. That particular sector is going to be one of our largest areas of growth by, I think, some margin. And these sorts of programs are actually often going to come with them with some fairly good forecasting for programs that will run for years. But the revenue stream from those programs will be strong. They'll be more predictable. But some of the timing around them probably remain a little bit fluid. But when they come on, they will be strong, and they'll provide good forecasting for a long period ahead.

Okay. And just one last one for me, please. So yes. So OEM was very strong. So you mentioned a bit about the pipeline there. But just wondering, are you seeing, I guess, the OEMs change their longer-term pipeline, just given the weaker economic outlook or anything like that?

No programs in the automotive space have been directly canceled as a result of the whole COVID, though the timing of these might push out. But we -- typically, we're only talking timing at the moment of probably 6 months or so that we've seen. But of the programs that we have been actively involved with in the development phase and scoping, these programs all still plan to go ahead. It's literally just, again, a timing aspect around staff and some of the development. Some of the development during the COVID period was actually very strong in a number of programs, particularly our European customers working remotely. They had to focus on development rather than actual build and progression of build programs. But the programs are a little further out, actually material during that period because a lot of the people on -- working on those programs were able to remotely focus around product development.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Weel for closing remarks.

Okay. Thanks, Rachel. Thanks very much, ladies and gents. I really appreciate you chiming in. Obviously, we will see quite a few of you over the next couple of days through our virtual Zoom presentation, I guess, that's what we call it. And we'll certainly catch up with you guys next couple of days. So once again, appreciate it. Thank you very much, and we'll talk to you soon. Bye.