PWR Holdings Limited (PWH) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. The appointed time has arrived. I couldn't start early, because we have people online. So good afternoon. My name is Teresa Handicott, and I am the Chairman of PWR Holdings Limited and of today's -- look, I just said to Lisa. It says, good morning, and I'm going to change it to afternoon and then I forgot, I read the script. And I'm the Chairman of today's Annual General Meeting. On behalf of the Board, I warmly welcome you all to our AGM. It's great to see so many of our shareholders and our stakeholders here today at our state-of-the-art manufacturing facility. For those of you who are able to join us for lunch, I hope you enjoyed the food, but more importantly, the opportunity to interact with PWR folk and your fellow investors. So I warmly welcome those who could not join us in person, but who will be watching us via our webcast. As you may have noticed, we've got products on display as we always do. But due to both our own IP and to confidentiality arrangements with our customers, we ask that you don't take photos or any videos of any product. In addition to those participating in the meeting today, we have received proxies from 166 shareholders representing approximately 51% of the issued capital. As I said, the meeting is being webcast live, and a copy of this recording will be available on our website after the meeting. I'd now like to introduce my fellow directors. Firstly, the man that needs no introduction, Kees Weel, the founding shareholder and Managing Director of PWR. Kees is a globally recognized automotive cooling expert. His ability to lead constant change and ongoing growth continues to be critical to PWR's success. Jeff Forbes, Jeff has been a director since company listed and chairs the Audit Risk and Sustainability Committee. Jeff is an experienced listed company Director, who contribute strong financial capability and extensive experience in global operations and in the U.S., in particular. Roland Dane has been a director since 2017 and is an experienced business owner across a number of sectors, but in particular, and importantly for us, in the global motorsports industry. Kym Osley. Kym joined the Board in February this year. He is a widely respected aerospace and defense industry executive, with extensive connections across the defense ecosystem in Australia and overseas, including connections with the defense force government and private defense and aerospace-related companies around the world. Amanda Holt is our newest recruit commencing in September this year. Amanda is an accomplished and respective senior executive and defense industry leader. Amanda has been SYPAQ's Chief Executive Officer since 2015, and she brings aerospace, defense and cybersecurity skills to our Board. We also have many of our senior leaders here today, and I'm going to ask them as usual to stand up as I introduce them. First of all, Martin McIver, who's our Chief Financial Officer. He is now an integral part of the team. Matthew Bryson has been with PWR for over 20 years and leads the technical and commercial team. Andi Scott is our GM of Advanced Technology. He's a highly experienced engineer and leads the growth in our aerospace and defense business. Ben Nielsen is our Senior Project Engineer, who works closely with Matt Bryson, and he's been with us for over 15 years. Jason Hicks is our newly promoted General Manager of Production in Australia, and he's been with PWR for over 20 years. Lisa Dalton has been our Company Secretary since pre-listing. Everyone else had to stand up, Lisa. She is an experienced Company Secretary and governance expert and provide support to the Board and to the business. Debbie Bodill joined us this year as our Group Financial Controller and has already made herself invaluable. Jake Howard joined PWR in January this year as our Human Resources Advisor, and he's a very experienced human resources manager and he leads our global HR team. Tim Pahn is GM of our Global Performance aftermarkets business. He's unable to be with us today because he's busy selling product at a Trade Show. I'll also introduce our leaders at PWR North America and PW Europe, who can't be here today for travel reasons. Mick currently is currently the interim General Manager for PWR North America; and Wayne Rodgers is our Executive General Manager for PWR Europe. Both of these gentlemen have been instrumental in setting up the new manufacturing facility in PWR Europe. Could you also welcome Erin Neville-Stanley, the audit partner of KPMG, who's the company's auditor. Also here is Stephanie Davieson, a partner from Clayton Nutz, our lawyers; and Jessie Yerma and other representatives from our share registry, Computershare. Today's meeting will proceed as follows. Firstly, I'll make assure address summarizing some key points from the 2023 financial year including progress on the implementation of PWR's strategy. Kees will then review the financial performance and operational developments for PWR and for the past year and talk about our expectations and plans for the future. Shareholders will then be able to ask questions about company, my address or Kees' presentation. And because we're webcasting, that's why I'm going to ask you to come up to the microphone to ask your questions, please, so that they are recorded for those watching online. If you can't come up, though, please just raise your hand and we'll bring a microphone to you. We'll then undertake the formal business of the meeting, each time, I'll take your questions specifically regarding each of the resolutions, and we'll take any final questions at the close of the meeting. In my presentation today, I will provide information on the company's strategic objectives and how it performed in the 2023 financial year. As today is my last day as Chairman and a Director of PWR, I'll also take the opportunity to more properly introduce you to your incoming Chairman, Roland Dane. Your Board continues to spend considerable time on the group's strategy and its implementation, growth, profitability and excellence are the 3 pillars of PWR's strategy. We understand that the decisions that we make today not only affect the current financial year, but the medium and long-term prospects of the company. A few years ago, we made the decision to leverage our knowledge and capability in the motorsports industry to the aerospace and defense sector. And since that time, we have made truly great strides forward. We've achieved AS9100 certification to enable our growth in these industries and added to our companies by achieving Nadcap Accreditations for both our credit chemical processing and heat treatment applications. We've successfully grown our capability in the U.S. through the opening of our dedicated aerospace and defense machining facility. We've very deliberately built a pipeline of talent to develop that part of the business ably headed up by Andrew Scott. And more recently, we appointed aerospace and defense capability to the Board with the appointment of both Kym Osley and Amanda Holt, both of whom will be standing for election at today's Annual General Meeting. We are pleased to achieve year-on-year revenue growth of 48% in the aerospace and defense sector in the financial year 2023. Andrew Scott and his global team have succeeded in positioning the PWR brand in the sector in a very short period of time, and they are to be congratulated. Also, over the last financial year, we expanded our capability in Europe, to enable us to manufacture some of our products closer to our European customers. We made the decision to do this in Rugby in the U.K. And in February of this year, we opened a new manufacturing facility where we have co-located the PWR team from the U.K. with the teams from both Dockings Engineering and Bespoke Motorsport Radiators, the 2 businesses that we recently acquired. We're very proud of our new facility in Europe, and we'd like to share a video with you so you can see how far we've come. And you will not fail to recognize the PWR DNA at work in this facility. [Presentation]

Kees told us yesterday that, that was filmed by a drone with someone operating it from upstairs. So that's just a little bit of today's technology amazing. I think we probably could tell that when it flew through the machine. It's probably the only way that it could be done. Besides our ambitious growth plans, the other 2 pillars of our strategy, ensuring that our growth is profitable and ensuring excellence in everything we do are equally important. During the year, we continued to invest in our people and their development with the establishment of a dedicated production training function, which has at its vision to develop a PWR Academy for job-related learning and development. We have 14 of our talented employees about to embark on a Certificate II in Engineering which will be undertaken here at PWR's manufacturing site in collaboration with TAFE Queensland. We also invested a record amount of $15 million in leading-edge technology and equipment to support our business and $2 million to acquire businesses in the United Kingdom to establish our European manufacturing base. In financial year '23, our profitability pillar kept the team very focused, and PWR delivered a record NPAT result of $21.8 million, up 4.4% on the prior period. The group retained a strong cash balance of at 30 June 2023 of $17.6 million and remains debt-free with access to its $10 million multicurrency and $7.5 million equipment finance facilities to support future operational requirements, if that be required. Cash flows continued to be impacted by the decision in financial year 2022 to increase our inventories of raw materials in response to global supply chain challenges, including the impact in the war in Ukraine on global aluminum supplies. Now, that these global supply challenges seem to be subsiding, we have commenced reducing raw material inventory holdings to historical levels, increasing the EBITDA to operating cash conversion ratio to 86%. It was 66% in the previous financial year. The group continued to deliver on its growth objective through implementation of its ongoing capital investment and research and development programs while still producing a strong return on equity at 25%. Considering these results and the balance sheet position, the Board has declared a fully-franked final dividend of $0.089 per share, taking the full year dividend to $0.125 per share, an increase of 4.2% on last year's full year dividend. For our shareholders, this translated into a total shareholder return over the 3-year period up to June 2023 of 103%. PWR's relative total shareholder return against the companies in the ASX 300, excluding Energy, ranked PWR at the 88th percentile of the benchmark group, an outstanding result for which Kees and the team are to be congratulated and one which the entire company should feel very proud of. I certainly am. As previously announced, I will not seek reelection today and will conclude my term as your Chairman and Director of PWR at the conclusion of today's AGM. It has been both a privilege and a pleasure to serve on the PWR Board for the past 8 years, working with my Board colleagues and the management team to guide this impressive organization over this pivotal period. It's been an amazing and deeply satisfying journey, of which I am very proud to have been part of. Thank you to all of the people at PWR who have worked with passion and drive to deliver significant and transformative growth since PWR's listing on the ASX. Thanks to my Board colleagues who have brought their individual experience and expertise that has resulted in strong collective contributions and collective decision making. Particular thanks to Kees, who, along with the then Chairman invited me on this journey. To the indispensable Lisa Dalton, for agreeing to join when I put her name forward for the role she has so ably performed. Kees, I think it's probably one of the best things we've done for PWR. Jeff. Jeff Forbes, who has been here since listing and Roland who joined soon after. We have worked together over a long period, striving to deliver the best results for shareholders, having the robust conversations when we needed to, but always with a collaborative spirit with a very clear objective of continuously moving this very special company towards achieving its potential. I thank Kees and all shareholders for your support and for the opportunity to serve you as a director since 2015 and is Chairman since 2017. I wish Kees, the Board and PWR the very best for what I believe to be a very bright future. Now, I would like to call on your new Chairman, Roland Dane, to speak to you. Roland has the unanimous support of the Board in this role. He has substantial Board, leadership, operational and financial experience, and he's been a Board member here, as I said, since March 2017. So I'll now ask Roland to come up and say a few words.

Thank you, Tessa. Those very big shoes to fill. I'm delighted and very privileged to assume the role of Chairman as we continue with an unwavering focus on growing this great company. I'd like to think of myself because of my background not as Chairman, but hopefully as a head coach. As Teresa mentioned, I've been on the Board for some years now. But by way of background, I've been in the motor racing industry all my life as well as the broader automotive world for 18 years. I was CEO of Triple Eight Race Engineering based in Brisbane. Most successful team of Australian Motorsport, and I continue my involvement there as a nonexecutive chairman. I've also served on the Board of Supercars Australia for some 14 years. So on behalf of the Board, our people here, I wish to sincerely thank Teresa for her chairmanship of PWR over the last 6.5 years. She's played a pivotal role in the success since the listing on the ASX in 2015, and she leaves an amazing legacy of good governance and strong stable growth. Personally, I've learned a hell of a lot from Teresa. We -- since the time we've overlapped on the Board. She's been an amazing role model and she truly embodies PWR's DNA of respect, passion and teamwork. I think I speak for the whole Board, particularly Jeff and Kees on our journey over the period where we've overlapped with Tessa. Tessa has taught us so much of our good governance in an ASX atmosphere and ASX setting, that, honestly, we wouldn't be capable of doing the job that I hope we can without that education over the last few years. Thank you, Jeff. And enjoy your new life. I'm sure you're going to be gallivanting around the globe, send us a postcard from time to time. I think, Matthew, step up, please. I think it's only appropriate that you make a presentation to Teresa. And now, I'll hand you over to the boss. Kees to give you an overview of our performance and going forward. Kees. Thank you.

Thanks, Roland. Good afternoon, everybody. Let's hope the rain can stay away for maybe another half an hour or so. It will be a great day. So I hope you everyone enjoyed your lunch, and thanks to our chefs, Grant, Hahn and Kopu putting on another good feed. And let's see, if we're going to top of that next year or something else. I'm really pleased to see that, we're able to get quite a few shareholders here today through our plant and facility and which has grown significantly since we listed in 2015. With a solid performance behind us, I'm pleased to take you through both financial and operation highlights of what we achieved over 2023 year, as well as provide an update on where we'd like to see the '24 financial year, taking us. Some of the performance highlights. '23 reflects as an outstanding effort contributable staff globally during the year. Revenue was up across all key markets and geographies. Of note is strong performance of revenue out of Europe, 18% up and Australia 17% from OEM product and Motorsports. The teams in Australia and Europe are to be congratulated for that achievement. Revenue in Aerospace and Defense was up 48% to $10.5 million and now represents approximately 9% of our total sales. We continue to invest in new equipment, factory space and headcount to support growth, investing now and collecting later. We established U.K. manufacturing facility to increase global capacity and also to support further expansion into our European markets. We expect our budget CapEx program for '24 to be funded from cash reserves as we have done and generated -- and cash generated from operations. In addition, we have significantly undrawn facilities -- finance facilities should we need them. As mentioned by our Chairman, we paid a full fully final dividend of $0.089 per share, making a total dividend of $0.125 for the 2023 financial year, an increase of 4.2% over prior year. We delivered 103% total shareholder return over the last 3 years. And as Tessa said, this was an 88th percentile in -- when compared to the ASX 300, excluding energy stocks. Revenue by market sector. Motorsport remains the largest market and important technology driver for PWR. Motorsport revenue grew 13% with the growth across several major motorsport categories, given our current penetration into major motorsports categories, we expect more moderate revenue growth for '24 and beyond. Automotive OEM grew 19% due to the continuation of existing programs and commencement of new programs. Aerospace and Defense grew 48% as we expand the number of customers and programs. As these programs progress into full production, we expect Aerospace and Defense to be an important contributor to the global growth in '24 and beyond. Automotive aftermarket had 12% growth. Demand in this market remains strong, and we are still continuing to work on the increase of production capability and capacity and improving our markets efforts. The business outlook. PWR is a vertical integrated manufacturing company, which we do everything in-house. This is one of the major reasons we've been able to grow our revenue and to pursue into new markets, including aerospace and defense. We are able to control the lower and supply chain risk for customers. The newly established European manufacturing facility in Rugby continues to expand starting from an empty factory at the end of January this year. The team has delivered a world-class facility, increasing our global manufacturing capacity and providing local engineering and manufacturing support for all our European customers. The number of potential size aerospace and defense opportunities continues to grow across Australia, Europe and North America, supporting our view that aerospace and defense will be an important contributor to growth in '24 and beyond. We continue to leverage our knowledge gained in motorsports sector to become a key supplier to large aerospace and defense organizations in the new and earlier stage of projects due to our technology and reduced lead times and our high-quality of standards. The continuation and introduction of emerging and advanced technologies into our manufacturing process ensures we retained at the forefront of manufacturing capability and complexity for both existing customers as well as potential new customers and industries. Pipelines, we continue to deliver existing OEM programs such as Valkyrie AMG X1, Rimac, Nevera, Koenigsegg, et cetera. We're also in discussion with several other parties for new OEM programs. The OEM pipeline continues to expand with discussion about size and timing of future programs is ongoing. Pipelines in other areas. Other than OEM production pipelines, we continue to expand and develop with expanding aerospace and defense programs and the uptake of emerging technologies across a range of customer markets, in particular, motorsports and aerospace and defense. Investing in people. Of course, it goes without saying that we continue further growth for PWR comes down to staff in Australia, U.S. and Europe. They will continue to drive production innovation and customer-focused solutions. Both of which are central to our strategy and continued growth and success. PWR has now over 500 team members globally. And with the continued growth, our ability to attract and retain top talent is another key pillar in our strategy. PWR is investing in growing its headcount, is actively recruiting for several roles and the employment market has become slightly, but remains tight for quality staff. We also invest heavily in apprentices, work experience students, both school and university graduate engineering programs. Most of our people demonstrate every day PWR's DNA, respect, passion and teamwork. Retaining talent and people is vital, for maintaining quality production, efficiency and achieving our growth targets. This involves providing a clear and rewarding career path, ongoing development training and a range of employment benefits. In Australia, we provide breakfast, morning tea and launch daily. Several years back, I proposed to the Board of expanding our short-term incentive program to include supervisors and key staff. The Broad SDI program provides a direct link between our performance and personnel reward for their employees -- for key employees, I should say. As a different number of staff here today at PWR shareholders, and allowing them to share in our ongoing success, investing in capability and capacity to achieve our growth potential, it is imperative that we continue to plan well ahead, investing in the latest technology and of course, factory space for manufacturing. CapEx was higher in 2023 due to the timing of purchase orders and extended lead-times for equipment ordering in the prior years. '24 CapEx is to be expected to be similar to the historic average, excluding CapEx for Pacific new customer programs. This year, we expand our global capacity planning function to improve efficiency within the factory and to better utilize our global capacity. The new factory which we announced this morning that we've -- together with the Queensland Government. We've signed a lease for a new factory of just over 20,000 square meters, which is approximately twice -- a little bit over twice as big as what we have here and that is really investing for the next 20 years. At last year's AGM, we told you about the vision to move to a brand-new manufacturing facility. And today, it's happened. So we've signed a 15-year lease with a 25-year extension, and an option for around 21,000 square meters facility out statements and with plans to undertake a purpose design fit out and moving in around about July 1, 2025. Planning for the new site will consider growth in our headcount numbers, traffic access, manufacturing flows an opportunity to increase the use of automation where appropriate. The Queensland government has supported our decision to expand Australian manufacturing base through an investment in Queensland grant program. Under the grant, PWR will receive $8.78 million in support over a 10-year period provided PWR meet investment and headcount targets over the grant period. The investment in Queensland program has provided a real incentive to stay-on-home soil and grow, and provide over time hundreds of new local jobs as a result. Our short-term vision is to set PWR up for the next 20 years of growth. I will say that, we had the Minister here this morning, Cameron Dick, who was present to hand over that grant this morning. So thank you to the State Government and their willingness to support manufacturing and export in Australia. It always comes to the catch. Nothing is free. And it's all about jobs. Jobs in Queensland and particularly export, so thank you. Before I hand back over to Tessa, I'd like to give my personal thanks to Tessa for making us what we are today. We spoke about this yesterday after our Board meeting, had a bit of a laugh, how I talk Tessa into one coming on our Board as a Director. And then when the opportunity came up, could she -- could we persuade her to take on the chairmanship Time flies. It seems like yesterday. But by how we have achieved a lot. And it goes without saying that without Tessa's guidance and I guess, keeping us blokes in line more so than anything, has done a fantastic job, and we really wish Tessa well in the future. And as Roland said, she'll be doing some trips and go about and around, and I'm not quite sure whether you'll have time to send us a postcard. But anyway, Tessa, thank you very much for your leadership. And I'd like to now hand back to Tessa to take your questions. Thank you very much.

Thanks, Kees. We'll now be happy to take questions from shareholders about the company, its management, future plans. So I once again ask, if you can to come up to the microphone. If you can't, we'll bring one to you. Who's going to kick off?

Only a fairly recent shareholder, but also a very keen one, and I'm also a member of Teaminvest. Just regarding the pipeline slide that was in the FY '23 results and that one covering the multiyear contracts, is there an inflation combined in that? Or do you allow for that in your pricing?

Sorry, an inflation component?

Yes. Do you allow annual or whatever reviews of the - ?

Kees -- or do you want to take that up? Give Martin a go.

He's the money man.

Yes. The contracts are structured in 1 of 2 ways. One is if it is, say, a 2 or 3-year fixed contract, we build an inflation into our price calculations for that fixed price. Alternatively, there's a -- there'll be horizon for mechanism to cater for changes in wage or changes in material costs. So it's certainly taken into consideration.

You coming up?

As a shareholder, I'm assuming it's all under control with the power and -- try again. So what are your plans just to mitigate increasing energy costs?

Do you want to talk to that, Kees?

Yes. With the new factory part of the fit-out and the moving into that where we certainly, the plans are to do a lot of solar, the current fabrication, I guess, on the structure of the roof, there is a roof loading on there that we can put 1.5 meg on there. So, we'll be certainly making use of all that.

Okay. And just my last question is when you move into the new building, whether it be a dedicated place for shareholder meetings?