PWR Holdings Limited (PWH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Teresa Handicott, and I am the Chairman of PWR Holdings Limited and of today's Annual General Meeting. There is a quorum of shareholders present, and I formally declare the 2020 Annual General Meeting of PWR Holdings Limited open. On behalf of the Board, I warmly welcome you all to our virtual AGM. Although we are not able to meet in person today, I'm pleased we will have been able to come together virtually to update you on the company, give you an opportunity to ask questions and deal with the business of the AGM. In addition to those participating virtually in the meeting, the holders of 151 shares or approximately 45.35% of the issued capital are here today represented by proxy. I will take the notice to convene the meeting as read. This meeting is being webcast live, and a copy of its recording will be available on our website after the meeting. Firstly, I would like to introduce the Board and senior management of PWR here today. The full details of their background and experience are included in the annual report and on the company website. Firstly, Kees Weel, the Founding Shareholder and Managing Director of PWR. Kees is our passionate and visionary leader and a globally recognized automotive cooling expert. His energetic and strong leadership delivered in a calm and confident manner has been critical over these past months. Jeff Forbes, who has been a director since the company listed and chairs the Audit and Risk Committee. Jeff brings strong financial capability and disciplines to the Board as well as extensive listed company experience. His experience with global operations and the U.S. in particular is invaluable. We have been very grateful for Jeff's experience and wise counsel when considering the many financial issues that COVID-19 has presented. Roland Dane, who brings a wealth of experience and knowledge of the [Audio Gap] officer. Matthew has been with PWR for over 20 years, 15 years as the General Manager of Engineering. Matt was one of Kees's original employees. And finally, Rebecca Lonton, our HR Manager, who has been with PWR since 2016 and supports Kees in looking after our 300 staff globally. I would also like to welcome Erin Neville-Stanley, the audit partner of KPMG, the company's auditors; and Stephanie Daveson, a partner at Clayton Utz, the company's lawyers. The meeting will proceed in 5 parts today. Firstly, even though we are meeting virtually, our innovative and creative team at PWR wanted to give shareholders a chance to undertake a tour of our state-of-the-art manufacturing facility at Ormeau, so not to be defeated, our Chief Operating Officer, Matthew Bryson, has put together a virtual factory tour for you to enjoy. Following our virtual factory tour, I will provide a short address summarizing some key points for the 2020 year. And next, Kees will review the operational developments of the company for the past year and will talk about our expectations and plans for the future. Kees and I have prerecorded our addresses so that you have a visual as well as the audio. We will then open the meeting to questions and comments from shareholders. This will be followed by the formal business of the meeting, at which time we will take your questions specifically regarding each item of business. Before our virtual factory tour, I will quickly run through how to use the Lumi platform to ask a question and how to vote. I will give all shareholders a reasonable opportunity to ask questions and make comments, and we will endeavor to answer all your questions at this meeting. Note that these may be moderated or amalgamated if we receive multiple questions on the same topic. You're free to submit a question or comment at any time during the meeting through the Lumi AGM platform. I will deal with questions and comments about the company after the presentations by Kees and me. When we consider the first item of business today, you will have an opportunity to ask Erin Neville-Stanley, the company's auditor, any questions about the conduct of the audit, including the independence of the auditor, the preparation and content of the auditor's report and the accounting policies adopted by PWR. Questions on the remuneration report will be dealt with at resolution 1, and similarly, any questions on my reappointment will be addressed when we consider resolution 2. Questions can be submitted by shareholders and proxy holders at any time, starting now. [Operator Instructions] Please note that, while you can submit questions from now on, I will not address them until the relevant time at the meeting. Voting today will be conducted by way of a poll on all items of business. Computershare, the company's share register, will be the returning officer for the purposes of the poll. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this item will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button, as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare the voting closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time, and once again, I will give you a warning before I move to close voting. Proxy holders with directed votes will have those votes all voted as directed. All open votes held by a shareholder or a proxy holder will be voted in accordance with the option you select via Lumi. If you are participating as a proxy, I ask that you ensure that any vote you cast is in accordance with your instructions. Where I as Chairman have been given an undirected proxy, I intend to vote in favor of the relevant resolution. Persons who are entitled to vote on a poll are all shareholders, representatives or attorneys of shareholders, proxy holders and authorized corporate representatives, except those precluded by law or the listing rules as set out in the notice of meeting. Subject to the exclusion set out in the notice of meeting, all those entitled to vote at the meeting will have 1 vote per share [ held by ] [indiscernible]. Thank you for your patience with all of that information. Please now enjoy a short virtual factory tour of PWR's state-of-the-art facility at Ormeau, followed by presentations by myself and Kees. [Presentation]

I hope you enjoyed that virtual tour of PWR put together with passion by Matt and his team. Without preempting Kees's presentation, I would like to say a few words about the progress of PWR. 2020 has been a very disruptive year both globally and particularly in Australia. The bushfires at the beginning of 2020 saw a significant impact on families, the economy and the environment. After that calamity, COVID-19 hit the world, and one of the first commercial casualties here in Australia was the cancellation of the Melbourne Formula One grand prix. This was the beginning of what continues to be a significant global medical and economic event. Despite these events, PWR has continued to perform and has adjusted operations as best as possible for the rapidly changing economic impacts of COVID-19. PWR was fortunate to have a very strong balance sheet going into the crisis and used this to best effect by ensuring all staff are retained during this period of reduced economic activity. PWR also acknowledges the contribution of JobKeeper in Australia and the Paycheck Protection Program in the U.S. For financial year 2020, net profit after tax was $13.1 million, which was an 8% decrease on the previous year's result, a pleasing outcome considering the external circumstances. Our balance sheet had seen our net positive cash position continue, and we had over $20 million in the bank at 30 June 2020 after drawing down $5 million when COVID-19 struck. In these circumstances, we felt it was appropriate to decrease our total ordinary dividend per share by over 31% from the financial year '19 payment. Your Board is very focused on PWR's strategy, as managing growth and diversifying the business both have their own set of challenges and demands. The company has set in play aspects of the strategy identified in financial years '18 and '19. And during financial year '20, PWR has focused on the following strategic objectives: efficiency improvements in the supply chain and operations; building capability, systems and processes to support profitable growth; and revenue diversification through new products and industries. I will now briefly address each of these, starting with efficiency. Development of our engineering capability continues, as does product research and development and the creation of associated intellectual property. This all now takes place in one center of excellence at Ormeau. In parallel, with the successful commissioning of the new U.S. manufacturing production line, our U.S. facility now has doubled the manufacturing throughput capacity of Ormeau. This places PWR in a strong position to grow operations globally and service customers from either manufacturing facility. To achieve this growth efficiently, we need a robust operating model which supports and does not hinder product, customer and technology enhancements. Supply chain optimization and centralized shared and corporate services are all instrumental in achieving efficient growth. I will now move to capability, systems and processes. Following the operational capital investment program of the past 2 years, PWR now has significant production capacity and capability, which it is focused on getting a return from in financial year '21. In addition to the investment in a CT scanner, 3D mental -- metal printers and vacuum brazing equipment, PWR has also invested in its staff. During COVID-19, we retained all staff and used the period of slower activity to train and cross-train production staff, which will have benefits when the economic activity increases again. Finally, to diversification. Revenue diversification has been a strategic focus since financial year '17. And this takes time to formulate and execute successfully, but we are now starting to see the benefits. Our cold plate technologies as well as opportunities in electronics and battery cooling are showing promising signs in both existing industries we serve as well as having applications in new industries such as aerospace and military. In addition, the recent commercial release of our micro matrix products is another key driver for our strategy of diversifying our revenue base across products and industries. I'd like to acknowledge and thank my fellow directors Jeff Forbes; Roland Dane; and our Managing Director, Kees Weel. Our Board has a strong and diverse mix of skills, and we have needed all of them as we faced the challenges this year has presented. We have approached every decision with regular and robust discussions, but it has always been cohesive and collaborative, resulting in constructive contributions and deliberations about what PWR had to do. Like all Boards, we have seen a lot more of each other this year, but I've reflected often over this period how fortunate we were to have a Board that was so readily available, eager to engage and participate; and how freely we could all express our views, think things through together and reach a consensus decision. My personal thanks to my colleagues. As important as we recognize our role is, we are the mere overseers. We currently employ over 300 staff worldwide, and I would like to publicly express the Board's appreciation for their significant contributions and sacrifices this year. And I want to take the opportunity to publicly acknowledge the considerable efforts of management, particularly in the early days of the crisis. They approached the challenges with an appropriate sense of urgency but with intelligence, practicality and importantly care for our staff but balanced with dedication to our customers. They worked longer-than-usual hours while being paid for a reduced 4-day week. The financial year '20 result is a credit to them. Finally, thank you, our shareholders, for your ongoing loyal support. I can assure you we have you clearly in our minds with every step we take. I will now hand over to Kees to talk to you about his favorite topic, PWR.

Good morning, and thank you for joining us today for the PWR 2020 Annual General Meeting. With a steady financial year behind us despite some of the challenges thrown our way and everybody else's, I am pleased to take you through both the financial and operations -- operational highlights of what has been achieved over FY '20 as well as provide an update of where we'll -- see ourselves in 2021. Revenue, $65.7 million. EBITDA, $21.6 million. Net PAT, $13.1 million. Dividend per share, $0.059 per share. Cash on hand, $20.8 million. EBIT-to-cash conversion, 94%. And full-time employees of 292 worldwide. The financial highlights reflect the outstanding effort contributed by all staff during financial year '20. Revenue was up marginally. With over 87% of our revenue being earned in Great British pounds or USD in financial year '20, exchange rate movements will always have an impact on our results positively or negatively, and for the financial year '20, this was a positive of $0.5 million. We have derisked a portion of the future exchange rate risk through foreign exchange contracts through to June 2021. As mentioned by the Chairman, dividends of $0.059 per share for the FY '20 year was decreased by 31%, not counting the financial year '19 special dividend of $0.03 per share. Working capital management continues to be an area of focus, and our strong EBITDA-to-conversion ratio was mained (sic) [ maintained ] at 94%. We are still in a net positive cash position and expect our budget CapEx program for financial year '21 to be funded from cash reserves and cash generated from operations. In addition, we have significant unutilized financing facilities. This was a strong performance considering the circumstances; and reflects the benefits from a restructured C&R, continued growth in our key markets and the successful execution of our strategy. Motorsport has been a major driver of all the higher revenue in financial year '20 despite the COVID-19 pandemic, and further growth is expected moving forward. The emerging technology segment and products are expected to see further sales increases in financial year '21, together with the previously announced OEM programs we (sic) [ which ] have started to come on stream in FY '20. We anticipate that these both will be important contributors to our growth in FY '21 and beyond. Key staff changes. With the transformation of C&R to a fully fledged manufacturing center, a new General Manager, Steve Rasso, was appointed in 2020. Steve has had more than -- I beg your pardon. Steve has more than -- has had more than 30 years experience of Tier 1 OEM heat exchanger experience. As a mechanical engineering graduate of the University of Dayton, Ohio, he has held various management positions in manufacturing operations, engineering and quality at DaimlerChrysler, Behr, MAHLE Behr before joining C&R to lead our OEM programs. In addition, with global expansion and a future in what we expect significant growth has led to a review of our organizational structure; and the creation of a new position, Chief Operating Officer. This role has been filled by the appointment of Matthew Bryson, effective July 1, 2020. Matthew, a mechanical engineer, has been with PWR since the year 2000 and was one of PWR's original employees. Matthew has held the role of General Manager of Engineering for 15 years, thus bringing considerable industry knowledge and experience to the role. Of course, continued further growth comes down to all our staff in Australia, U.S.A. and Europe. They continue to drive product innovation and customer-focused solutions, both of which are central to our strategy and our continued growth and success. PWR has now over 300 team members globally, and with continued growth, our ability to attract and retain top talent is another key pillar in our strategy. Efficiency and productivity are central to our operations as we expand and continue to grow, which will remain -- which will maintain and extend our competitive advantage in the market. We cannot become complacent, and we will always challenge and question what and how we do things to ensure we stay at the forefront of both technology developments and customer requirements. Centers of excellence. As previously mentioned, we have now 2 manufacturing hubs able to service customers in every part of the globe. A key aspect of our corporate strategy is having centers of excellence for the different aspects of our business, including manufacturing operations, engineering, design, testing, research and development and corporate services. These will ensure appropriately located and resourced specialist teams collectively focused, delivering the best outcomes for the group. Technology developments. The continued introduction of advanced technologies into our manufacturing processes will ensure we remain at the forefront of manufacturing capability and complexity for both existing customers as well as potential new customers and industries. We are continuing to invest in advanced manufacturing technologies. And as previously announced, we have taken possession of a 3D CT scanner, 2 3D aluminum printing machines, an extra 2 VARIAXIS CNC machines with robot-loaded palletized systems, an extra 2 VF-4 CNC Haas machines and a state-of-the-art vacuum brazing furnace. That in itself is significant. In the past 6 months, all these machines have been installed and commissioned. In this financial year and beyond, these equipment will be crucial to the ongoing development of our advanced manufacturing capability. Product initiatives. Our new micro matrix and cold plate products have been extensively tested and have recently been commercialized. These new products provide compelling solutions to both new industries and existing customers, with initial sales and project commencement engaging in -- customers in the motorsport, aerospace and military segments. These products will allow us to diversify our revenue streams and customer needs across the global advanced cooling technology market. The year ahead. Key focus is continuing our revenue diversification. Emerging technologies. We have already commenced sales in new categories, including military and aerospace. And over the next year, we intend focusing on this with some strategic engagements and increasing our penetration of these new segments to ensure we build a robust and diverse revenue base with long-term contractual prospects and new programs and customers. There are 3 product offerings comprising in -- emerging technologies. The first one, micro matrix. The micro matrix lab is fully operational and has been designed for future growth of this new technology and is creating new opportunities in existing motorsport markets applications but, more importantly, opening up applications and projects in higher-technology markets of aerospace and military, where they share similar goals to motorsport, targeting high thermal performance from space-efficient packaging. Over the past 4 years, micro matrix has been a full-blown R&D center, with the design evolutions and process development at new levels even for PWR. The past 12 months, we have been manufacturing these new products and building interest in this technology from a whole new customer base. The future looks very strong. The second one, cold plates. During the past 12 months, we have been heavily involved in R&D and production of electronic cooling plates. This liquid-cooled cold plate technology has ever-increasing opportunity in applications of communications, computing and energy storage, where technology developments are producing ever-increasing thermal loads that require new technology solutions. These programs opportunities for cooling electronics and battery cells are being generated in high-end motorsport, military and aerospace. With PWR's combination of in-house CNC machining and brazing and complemented by our increased value-adding services, we continue to present to our customer base a complete solution provider who is agile and adaptive to react to new product development and carry these product developments into production programs. Over the last 2 months, we have been supplying surface cooling plates of this nature to a military customer in the U.S.A. Additive manufacturing is the third part of emerging technologies. PWR have high-temperature SLA and aluminum powder additive manufacturing machines now in house and Pacific (sic) [ specific ] technical agreements to produce world-leading aluminum heat exchangers using disruptive additive methods. PWR has partnered with VELO3D to lead the way in the additive aluminum heat exchanger market for aerospace, defense and motorsport. VELO3D are a disruptor in the market, as their machines possess world-leading benefits to enable support-free structures to be produced, which significantly increases the design potential for complete (sic) [ complex ] heat exchanging geometries to be produced. PWR and VELO3D have collaborated to produce the first-ever aluminum machine, which is at our PWR headquarters here in Australia. Our commitment to additive manufacturing of heat exchangers is about adding yet another capability to PWR, which enables us to control and offer world's best solutions for thermal management. Our strength is the diversification of technology on offer and to ensure for each application we can offer customers the most effective design to suit each system application to reinforce our position as a total solution provider. We have the reaction and -- reflexibility. Thank you for joining us today and for your continued support of our business of PWR. I would like now to hand you back to our Chairman, Teresa, to address the formal items of the business. Thank you.

Before I move to questions, Kees will provide a short update on the outlook for PWR.

Thanks, [ Tess ]. I know everybody is interested in to know how PWR is traveling for the first half. I have to qualify that I'm -- what I am going to say by stating the obvious, which is that we don't have a crystal ball and we are not in a position to predict how COVID will impact PWR's future performance. That said, based on our results to date, even with the cessation of JobKeeper from the end of September, we are optimistic that PWR's EBITDA for the first half will be broadly in line with the prior corresponding period.

We will now be happy to take questions from shareholders about the company, its management or future plans. If you haven't already asked your questions, please do so now via the Lumi platform. I will ask the company Secretary to read aloud the questions and the name of the shareholder who asked the question.

Thank you, [ Tess ]. We had one question from shareholder, [ Mr. Gregory Uman ]. And the question is: The tagline is advanced cooling technology, but from the virtual tour it looks like we are an advanced additive manufacturing facility able to produce more than just the items on the [ current SKU list ]. The question is, can we manufacture other products in addition to what we make now? And is there any value in providing services revenue by outsourcing the manufacturing expertise within the company?

Yes. We can produce other products that we're doing now, and currently we are manufacturing products for outside the cooling platform that we usually do. So there's a lot of areas in the business, particularly with the 3D printing, that we do -- we have several customers using that side of the business right now.

Are there any other questions?

I don't have any other questions, [ Tess, please ].

I'll just pause for another short period just in case someone is still typing. As there are no more questions, I will now move to the business of the meeting. There are 3 items of business to deal with today. The items to be considered will appear on the screen. Shareholders will be given an opportunity to ask questions on each item of business via the Lumi AGM platform using the procedure I summarized earlier. The first item of business is to consider the financial reports, the directors' report and the auditor's report. These reports are all contained in the 2020 annual report. The Corporations Act requires that these reports be laid before the meeting. There is a requirement that shareholders vote on approve or adopt the financial reports. However, the Board takes the view that shareholders should be afforded an opportunity for questions regarding the financial reports or other matters relevant to the performance of the company. Shareholders are entitled to direct audit-related questions to the auditor, Erin Neville-Stanley from KPMG. I note that no written questions to the auditor were submitted prior to the meeting. If you have questions on the financial reports, please ask them via the Lumi platform. I'll just pause again.

So no questions received, [ Tess ].

Okay, ladies and gentlemen, as we have no questions on the financial reports, I will now move on to the formal resolutions to be considered by the meeting. The first formal resolution to be considered is the adoption of the remuneration report for the 2020 financial year. The remuneration report is part of the directors' report, which is contained in the 2020 annual report. The Corporations Act requires the remuneration report to be submitted to shareholders for consideration. The company's remuneration policy and practices are designed to attract, motivate and retain high-quality people. They are built around the principle of being competitive in the markets in which the company operates. The directors unanimously support the adoption of the report. The screen shows details of the proxies received on this resolution. The adoption of the remuneration report is now open for discussion. If you have a question or comment on the remuneration report, please ask it now via the Lumi platform.

There have been no questions [ to take, Tess ], on the remuneration report...

Ladies and gentlemen, as there is no questions on this report, please now cast your vote on the remuneration report via the Lumi platform. [Voting]

Ladies and gentlemen, the next item of business is the reelection of myself as a director. I will hand the chair of the meeting over to Jeff Forbes to deal with this item of business.

Thanks, [ Tess ]. Ladies and gentlemen, Teresa retires in accordance with the company's constitution and, being eligible, offers herself for reelection by the shareholders. Teresa's qualifications and experience are set out in the notice of meeting. The remaining directors unanimously recommend Teresa's reelection. The screens shows the -- shows details of the proxies received on this resolution. If you have any questions or comments on the reelection of Tess as a director, please ask them now via the Lumi platform. Ladies and gentlemen, as there is no further discussion on the reelection of Teresa Handicott as a director, please now cast your vote via the Lumi platform. [Voting]

I now hand the chair of the meeting back to [ Tess ].

Thanks very much, Jeff. And thank you, shareholders. Ladies and gentlemen, that concludes our discussion on the items of business. In a couple of minutes, I will close the voting system. Please ensure that you have cast your vote on all resolutions. I will now pause to allow you time to finalize your voting. [Voting]

[indiscernible] question that will be asked [ here, Tess ]. [Audio Gap]

Thank you, Computershare. Please close the polls. If you have any further questions or comments, please ask them now via the Lumi platform. We do have one further question that is coming directed to Kees. I take the question is from [ Luke ] [indiscernible].

Can Kees speak to which of the 3 alternative technologies he is the most optimistic about?

I certainly think micro matrix has a big future, particularly in aerospace and military and high-end motorsport. That's not to say that our 3D printing, which is only very young, in its infancy at PWR at the moment -- so [ Luke ], I think the whole 3 items that we've listed, particularly cold plates and 3D printing and micro matrix, are all guaranteed to make some very big impact in our future revenue and business long term. Thank you.

There are no further questions, [ Tess ].

As there are no further questions, that draws today's meeting to a close. Results of the polls held at today's meeting will be released to the ASX after the meeting. On behalf of the Board, I thank you for your virtual attendance and for your continuing interests in the company.