PWR Holdings Limited (PWH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PWR Holdings Limited FY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Kees Weel, Managing Director. Please go ahead.

Good morning. Good morning, everyone. Before I hand over to Matthew and Sharyn, I just wanted to update you on a number of items, including my health and recovery. Presently, I'm back at work on a part-time basis right now. As I continue to improve, I will increase that time that I spend in the office. I'm still actively doing physio and rehab. Most of you will see me during the presentations during this next week. You will certainly see me at our AGM at our new premises at 28 Quarry Road, Stapylton here on the 17th of October. I will now hand over to Matt and Sharyn, who have done an exceptional job in my absence. So thank you.

Thank you, Kees. I am Matthew Bryson, acting CEO, and I'm joined by Kees Weel, Managing Director; and Sharyn Williams, Chief Financial Officer of PWR Holdings Limited. I joined PWR in January 2000, working alongside of Kees and his son, Paul, from the very early days and helping to grow the business from its foundation. Initially, joining in the capacity of design and mechanical engineering, this quickly grew to include key customer contact responsibilities as it was evident that PWR's real competitive advantage was through customer engagement to partner with them to engineer a solution that they wanted rather than selling a developed part number. During my years at PWR, I've held responsibilities through engineering, operations and commercial functions, and I now lead an excellent team who share the same passion and sense of achievement to deliver world-class solutions to our diverse global customer base. Since stepping into the acting CEO role, I've been drawing on that background and working with Sharyn and the rest of the team to keep the momentum going as we position PWR for the growth and opportunity we see ahead, whilst Kees remains supportive of our team and our objectives. Today, I'm pleased to present our full year results for financial year '25. This presentation will provide an overview of our financial performance, strategic priorities and future plans. Turning to Slide 4. FY '25 has been a transitional year, one where we delivered on guidance while investing in the foundations of our next phase of growth. I'll touch on key achievements and challenges over the past year, including the transition to our new Stapylton headquarters while continuing to drive growth in our core markets. For the financial year '25, revenue was down 6.7% to $130.1 million, in line with the guidance set at the first half result. This was a solid performance delivered during the relocation of our Australian facility and the impact of Cyclone Alfred, which cost us 4 days of production. The declines in EBITDA and NPAT reflected OEM contract completions, relocation costs and investment in our next phase of growth. Importantly, cash conversion was robust, giving us the flexibility to invest and the balance sheet remains strong with modest leverage. The factory transition gained momentum in May and June with our foundation production areas operational at Stapylton, this was a proud milestone for the team delivered in the face of continued delays to our permanent electrical connection. But in true PWR style, we mobilized three generators and managed the move effectively to ensure continuity of our production. Looking forward, we enter FY '26 with a strong order book position across Motorsports and A&D. Our ongoing shift towards emerging tech solutions continues to strengthen our competitive positioning, broadening our customer base and improve our visibility as the pipeline matures. At the same time, we've scaled our operational capability to support this global growth. So while FY '25 was a transitional year, it has strengthened our platform, not only in Australia, but in our U.S. and U.K. operations as well. We, therefore, start FY '26 with increased capacity, expanded capability and a resilient order book, positioning us well for profitable growth this year and in the future. Turning to Slide 5, strategic priorities. Despite being a transitional year, we delivered on the 4 key strategic priorities in FY '25, the new Australian factory, our A&D platform, profitable growth and our global operating model. The new Australian factory is now operational at Stapylton. Phase 2, the final stage of the relocation is expected to be completed by the end of this calendar year '25. This phase will see a steep change in our controlled atmosphere production areas to improve capability, business continuity, product quality and compliance. Our A&D platform continues to mature with further NADCAP accreditations in the U.S. facility, installation of new furnace and anodizing capabilities in Australia and strong growth in the number of relationships PWR has where we are an approved supplier. We saw continued growth in our key market segments of Motorsport and Aerospace and Defense. Our R&D investments continue to bear fruit, reflected in the 21% growth in emerging technology revenue. Our progression towards a global operating model continued with both our U.S. and U.K. sites increasing manufacturing volumes on the back of enhanced capabilities and targeted capacity investments. Our key driver of this success is our team. Pleasingly, team turnover has improved by 9 percentage points. This is a critical success factor in our skilled workforce to bring knowledge and experience required to deliver high-quality outcomes for our customers. Turning to Slide 6, revenue and market sector. This slide breaks down revenue by market sector. This FY '25 mix highlights significant growth in Aerospace and Defense, steady growth in Motorsports and declines in OEM and aftermarket revenues. Aerospace and Defense delivered a 28% year-on-year growth with half 2 flat on half 1. Importantly, no revenue from the U.S. government project was recognized in FY '25. So this represents a solid result. Initial orders were fulfilled for MRO, maintenance, repair and overhaul customers, creating a revenue stream for PWR -- a new revenue stream for PWR. Motorsports delivered growth in both halves, reflecting the consistency of this revenue stream across a broadening customer base. We generated growth in Formula 1 and World Endurance Championship programs and saw increased adoption of new technology solutions in likes of MotoGP, driven by packaging and aerodynamic performance gains. Our Formula 1 powertrain programs are maturing, specifically in our micro matrix and battery cell cooler projects for an increasing number of car manufacturers and teams participating in the LMH and LMDH hypercar classes where we are supporting steady growth. OEM revenue declined following the completion of two concurrent high-volume, high-complexity OEM programs and cancellations and delays in niche EV programs. However, half 2 performance improved, supported by incremental spares orders from high-end platforms. Automotive aftermarket revenue declined due to two factors: a deliberate revision of discount structures to improve our margins and softer domestic sales as the Ranger program matured following strong launch phase revenues. To Strategy and turning to Slide 8, our company journey and future plans. We're very proud of our journey over the past 10 years since listing. Over that time, we've achieved milestones, including becoming a leader in Motorsports, diversifying into Aerospace and Defense and achieving vertical integration. Looking ahead, our focus is on further building the Aerospace and Defense platform, capturing share in adjacent markets and leveraging the platform to drive the next phase of growth. Turning to Slide 9. The global leader in thermal management. To recap on PWR, we are a global leader in thermal management with a flexible, vertically integrated manufacturing capability. Our advanced manufacturing capabilities and global footprint support our growth in emerging technologies and new markets. We have a strong presence in Motorsports, Aerospace and Defense and other high-performance cooling applications. This sets us up well to capture the Aerospace and Defense opportunity as outlined on Slide 10 to follow. Slide 10, positioned to capture Aerospace and Defense growth. The global Aerospace and Defense thermal management system market is forecast to grow at 6.6% CAGR, reaching over $24 billion by 2034. This represents a significant opportunity for PWR, and we are investing in and leveraging our technical expertise and innovative solutions to capture that growth. PWR has made great progress delivering revenue of $26.9 million in FY '25, a 56% CAGR since FY '21. Our competitive advantages are driving this growth. Our vertically integrated global footprint, specialized equipment and capabilities and strong R&D leverages Motorsports technology transfer. We will continue to invest in our compliance readiness to further strengthen our position as evidenced by NADCAP accreditations, our CMMC 2.0, which are critical to us to achieving approved supplier status. The number of approved suppliers has increased from 11 in FY '21 to 46 in FY '25 to now include the key defense players. This is a testament to our commitment to excellence and our ability to meet the stringent requirements of our partners and positions us well to capitalize on the long-term growth of the A&D market. Turning to Slide 11, capabilities and capacity for future growth. We continue to build our Aerospace and Defense platform, investing in specialized equipment and maintaining robust quality system accreditations, including NADCAP for heat treatment and chemical processing. Our CMMC 2.0 cybersecurity program aligns us with the U.S. Department of Defense standards, which have evolved from a self-assessed approach to an externally audited standard, which has resulted in higher costs than initially planned. We've strengthened simulation and testing capabilities, production planning, procurement controls and our manufacturing capability and warehousing now spans three locations to support growing demand. A key enabler is our expanded Australian factory, where we have doubled our capacity to support revenue growth for the next 25-plus years. The new space enhances production flow efficiency and allows for increased automation. This investment is expected over time to reduce unit costs through productivity gains and improve the working environment for our team, including development opportunities via the new PWR Academy. During FY '25, we rigorously planned to minimize disruption during the transition, and we will continue to do so as we progress Phase 2. We anticipate further modest financial impacts in FY '26 half 1 through Phase 2. The electrical connection is now expected to be completed in October, and we will experience some production interruption of up to a week as the substation is connected to the grid. We're looking to obviously minimize that where we can. We will continue to power operations with four generators until this time. Phase 2 in its entirety is expected to be finished by December '25. Once completed, this will deliver a new -- will deliver a steep change in our environmentally controlled production areas to meet customers' demand for these high-end products. Turning to Slide 12, strategic plan. PWR's strategic plan focuses on four key areas: innovation, profitable growth, sustainability and investing in our people. In the area of innovation, we are committed to continued R&D investment, which is generating increasing revenue from new technologies and an expanded product range. We're investing in new automated and higher capacity equipment and exploring enabling technology to design applications and solutions using alternative materials. From a profitable growth perspective, we have confidence in our forward pipeline and are disciplined in our production and capability expansion. Our capital is allocated towards growth segments of Aerospace and Defense, Motorsports and emerging technology. We are focused on achieving efficiency gains through automation and process optimization over the medium term. And we are optimizing manufacturing costs by leveraging our global operating model and production flexibility. Moving on to sustainability. We are committed to sustainable practices, including the installation of solar and water treatment plant at our new Stapylton headquarters. We are members of the Defense Industry Security program in Australia and are upgrading our cybersecurity with U.S. CMMC accreditation underway. We're also measuring Scope 1 and Scope 2 emissions across our global operations. Finally, investing in our people. We have a global team of 590 skilled, dedicated and passionate people. Our team retention is focused on workplace benefits and flexibility. The PWR Academy facilitates a talent pipeline and a multiskilled workforce to support growth areas. We are expanding talent pathways to broaden our reach and support innovation and growth. Our team are key to our success. I'll now hand to Sharyn to walk through our financial performance in more detail.

Thanks, Matt. I'll walk through the key parts of our financial performance outlined on Slide 14. The transition from our Ormeau location to Stapylton sets us up well for future growth. As flagged earlier this year, a relocation of that magnitude created some disruption and inefficiency as we operated across both sites as we decommissioned and recommission machines. Despite this, in almost a week of lost production from Cyclone Alfred, we delivered $130 million of revenue at the upper end of the guidance range. As Matt mentioned earlier, FY '25 revenue was driven by Aerospace and Defense and Motorsports. Motorsports delivered 4% growth and delivered growth across both halves compared to the prior year. Aerospace and Defense recorded a strong 28% annual growth but was flat half-on-half. The absence of any of the $9 million U.S. government project revenue was the main factor we saw the second half flat on the first half. Importantly, the production on these parts has commenced in half 2, providing momentum moving into financial year '26. As flagged at the half year, OEM and aftermarket revenue came in lower than the prior year, though with different dynamics at play. OEM declined year-on-year due to the completion of two major OEM programs. However, the positive was OEM delivered a stronger second half with the U.S. division growing year-on-year. We evolved the aftermarket strategy at the start of FY '25, focused on ensuring our effort is matched by appropriate returns. This transition is twofold. Firstly, prioritizing repeatable products. This can be done via high-performance workshops and distributors or high-volume platforms like the Ford Ranger compared to one-off or low-volume custom designs. Secondly, standardizing our discount structures to protect margins in a way that balances volume impacts. These changes were made against a challenging backdrop with consumer spending constrained, which did weigh on volumes. However, they position aftermarket for more sustainable profitability. At the group level, while revenue was down 7%, the larger impact was on NPAT. I'll unpack the drivers of this by focusing on margins and overheads. Firstly, our individual product margins are very robust. They reflect our premium products, and we're seeing this through our quoting tools and the way that we're pricing our products. Manufacturing margins, however, reduced slightly due to lower revenues in terms of quantity. There was also some increase in production headcount in U.K. and U.S. as the volumes ramped up in these locations. Late in the first half, you saw our discipline around headcount, where we rightsized headcount in line with our expected revenue decrease in the second half before reinvesting in production headcount in May and June to support our anticipated FY '26 growth. We saw a 1 percentage point increase in raw materials as a percentage of revenue with some inflation in repairs and maintenance and consumables coming through as well as our increased machinery footprint increasing these cost lines. Matt touched on the opportunity we have in the Aerospace and Defense market. Transforming the business to have the capability and capacity to capture this opportunity is a central part of our strategy. To execute on this, we are investing ahead of this revenue curve, which does mean higher overhead in the short to medium term, before revenues fully materializes. These costs are deliberate and targeted supporting the criteria and compliance levels required to be an approved supplier. Examples of this include the NADCAP accreditations in the U.S., the implementation of our new quality assurance system and additional resourcing in A&D engineering and sales teams to facilitate the growing pipeline of supplier relationships. These investments are largely fixed costs, which we will be able to leverage as the pipeline matures from the approved supplier status growth that we've seen to moving into production and delivery for these customers. In the P&L, the cost increases I just referred to can largely be seen in the 13% increase in employment costs year-on-year. Approximately 4% to 5% of this was increase in average headcount year-on-year, which we've outlined on the performance overview slide. This also reflects some change in composition and location of the headcount, where we see annual wage rate increasing as we transform our headcount across locations and also into professional roles such as the A&D roles. We did see wage rate growth above inflation. our R&D investment increased to $12.7 million, up from $11 million in FY '24, demonstrating our commitment to innovation and long-term growth. We saw a 21% increase in emerging technology revenues, which is a testament to this R&D investment over time. Our NPAT before the relocation cost was $12.4 million, delivering a 9.5% margin. After relocation costs, NPAT was $9.8 million. Turning now to tariffs. As announced in April 2025, the impact of U.S. tariffs in our FY '25 year was not material. It ended up being around $300,000. We have included the latest available information in an appendix on Slide 26. An important aspect of tariffs is the impact will be both direct and indirect. Direct tariffs are imposed as product is imported into the U.S. business and the indirect impact is the inflation that flows through U.S. suppliers cost basis. We have taken steps to address this tariff impact, including customer discussions on tariff funding, incorporating landed costs, including tariffs into our quoting tools, exploring manufacturing locations and also local supply chain opportunities. We've also sought to understand how tariffs interact in the defense space and also prototype and sample spaces. Lastly, we're also undertaking reviews of tariff valuation methodologies to ensure that we are commercially minimizing our tariff impact where possible. It has certainly been a complex area to navigate, and we have seen some variations in interpretation since implementation, although we are starting to see this stabilize now. The most material tariff for PWR is the 10% country tariff on goods partly manufactured in Australia and finished off in the U.S. A less material, but still applicable tariff in some cases is the motor vehicle tariffs. Fortunately, our Motorsports products for non-passenger vehicles remain under the 10% country tariff. However, differing motor vehicle parts fall within the definition of motor vehicles and others do not. So there is a subset of PWR's motor vehicle products that are captured under the 25% passenger vehicle tariff. In addition, a small volume of aluminum derivatives imported into the U.S. face higher tariffs, although this impact is expected to be minor. One area of complexity to understand has been tariff stacking. For example, the Motorsports tariff do stack with the country tariff to a total of 35%, whereas the aluminum tariffs do not stack. Again, this applies to a less material portion of our U.S. imports than products that have the 10% country tariff. Overall, we expect the direct tariff impact in FY '26 to be about $1.5 million with the indirect inflationary effects likely to flow through into our U.S. site cost base over time. We continue to monitor the interpretations of the tariff announcements on our business. Finally, a fully franked final dividend of $0.02 per share was announced, bringing the total FY '25 dividends to $0.04 per share, in line with our proportional payout policy of 40% to 60% of NPAT. We remain disciplined in our capital allocation decisions; balancing shareholder returns with investment in growth. Moving on to Slide 15, our CapEx and Australian factory update. CapEx for FY '25 was $40.6 million, about $1 million lower than anticipated due to timing. The focus of this investment was predominantly the expansion of our Australian site and the addition of new equipment, which expands our production capabilities, capacity, automation opportunities, compliance and business continuity. For FY '26, we estimate a CapEx of $21 million, which includes $1 million carried over from FY '25. This investment will see us complete the Stapylton factory upgrade, extend our U.S. A&D capabilities and also our emerging technology capabilities. To call out some specific investments, it does include the Stapylton electrical connection upgrade and substation, which has proven to be more complex than initially discussed with Energex, adding an incremental $2 million. Once this is connected in October, our investment in solar power will reduce our reliance on grid electricity, which ideally offsets the cost due to having a larger factory footprint. Further investments include a step change in our controlled atmosphere environments, new materials capabilities and new software for our scheduling and planning system to enable realization of efficiency gains. The Australian factory FY '25 operating expenses came in below estimates for the relocation and transition to the new site. Moving into financial year '26, we do expect some modest one-off costs of around $0.5 million as we relocate our controlled atmosphere production to Stapylton. This new site will lift our cost base in three areas. Firstly, increased right-of-use asset depreciation and interest due to our new 15-year lease. It is structured with attractive incentives, reducing our total lease cash outflows in year 1. However, as you'll be aware, AASB16 front-loads lease expenses, meaning we will see an increase, as outlined on the slide, in lease expenses per year from FY '26. Secondly, leasehold improvements and equipment depreciation will increase year-on-year. The current estimate of $2.3 million per year reflects the new fit-out, our equipment and this unwinds in our depreciation expenses. The final area to call out is the incremental debt expense given we are drawing down debt. We expect this will increase our debt cost in FY '26 to about $700,000. Our strategic investments in CapEx and particularly the Australian factory is essential for supporting our growth and enhancing our production capabilities. These investments will enable us to meet the increasing demand for our products and ensure our long-term success. Moving now to working capital on Slide 16. Our working capital decreased by $7 million since June '24, driven by strong revenue collections and higher payables. Cash conversion remained strong at over 100% with favorable cash collection timings, which mitigated the EBITDA reduction, resulting in operating cash flow down by $4 million. Free cash flow was negative as expected this year, reflecting the ongoing investment cycle. Importantly, we purposefully built cash reserves of around $21 million ahead of these commitments, demonstrating the disciplined approach to self-funding growth where possible. FX remains an important factor for the business. As a net exporter, a weaker Aussie dollar benefits us, especially against the USD and Great British pounds. A key advantage of our global manufacturing strategy is the natural hedge that it provides with our cost base increasingly denominated in USD and GBP. We actively manage FX risk, maintaining hedges to provide some budget certainty and to act as shock absorbers when FX rates fluctuate. Turning to Slide 17, our balance sheet. Our balance sheet does remain strong with cash of $4.5 million and undrawn facilities of $25 million. We have made investments in factory footprint, equipment and technology while maintaining a conservative leverage position. Since listing, the group has pursued growth with a disciplined approach. Strong cash generation has funded reinvestment, leaving minimal leverage on the balance sheet. We remain committed to maintaining financial discipline while chasing the opportunities in front of us, alongside a strong commercial focus on generating returns from our investments. As the group expands its capabilities, we are already seeing the early signs of the targeted growth opportunities being realized. Matt will now talk through the pipelines, current trading and outlook.

Thank you very much, Sharyn. Turning to Slide 19, our A&D pipeline. Our Aerospace and Defense pipeline continues to strengthen with a broadening customer base contributing to order book resilience. Currently, 80% of the top 40 programs scheduled for FY '26 are secured programs, while EVTOL contributes less than 20% of the FY '26 to '28 pipeline, it represents global upside given uncertain timing and scale. The strong pipeline momentum is underpinned by the strong uplift in approved supplier status, up 119% on PCP to 46 relationships. This now covers all key defense players, including Tier 1 primes. On the right-hand side of the slide, we have provided the key segments for A&D. The initial circa $9 million U.S. government order is now expected in FY '26. Production is underway despite external delays. We are optimistic about potential follow-up orders in future years upon successful delivery of this order. As discussed earlier in the past, a pleasing aspect of the A&D result was the fulfillment of initial MRO orders. MRO or maintenance, repair and overhaul focuses on existing platforms such as commercial aircraft. MRO typically represents 60% to 70% of total project life cycle costs, offers longer lead times and provides greater visibility. PWR is continuing to grow its presence here, helping to balance the business by further diversifying the customer base into more predictable revenue streams. Turning to Slide 20, OEM, Motorsports pipeline. Our Motorsports product development in emerging technologies is strong, and we're excited by all that 2026 and beyond has to offer for PWR. As mentioned in prior slides, our program growth in micro matrix and battery cooling cell carriers are primary drivers underpinning this growth and new technical regulations in Formula 1 drives innovation within the teams and their critical supply chain partners such as PWR. New regulations of the scale being implemented we'll see a rapid development of solutions to continue to optimize performance throughout the early seasons. So we see this as being a dynamic and changing environment for some time to come. Adding to our list of supporting Motorsports emerging technology opportunities is a strong presence and growth in LMH and LMDH classes, now the premier sports car endurance racing classes with increased manufacturer participation. We're building on the number of programs we supply to OEM. And whilst our revenue in this sector has recently declined on prior year due to high-end program completions, our presence in niche OEM opportunities continues to expand with new program engagements offering volume such as the 800 vehicle hypercar referenced on this slide and with the supporting commencement of the Ford Mustang S650 program late in FY '26. Our future focus in OEM is not exclusive to automotive with industrial and marine sector leads giving confidence in new opportunities for PWR advanced cooling and emerging technology adoption. Our work also in MRO and exploring different materials also provides opportunity in these new spaces as well. Turning to Slide 21, our business update and outlook. So with a disciplined strategy and strong platform, we remain confident in our ability to achieve our strategic objectives while creating long-term shareholder value. Our strategic priorities are the new Australian factory Phase 2, the electrical connection currently scheduled for October '25. We have the completion of our micro matrix wind tunnel and additive manufacturing facilities by the end of calendar year '25 and to leverage investment to deliver productivity gains. We will build our A&D platform through U.S. accreditations, cyber and footprint expansion expanding our customer base and product range, balancing higher value longer term with higher volume repeatable business such as MRO, adding U.K. accreditations and capability staged to match opportunity. Our global operating model will optimize cost and manufacture through global footprint and production flexibility. Our medium-term pathway to margin recovery through strategic investment in capacity, capability and accreditations underpinning growth. Execution focus on maturing pipeline and capitalizing on opportunities. Our final summary on business outlook is across Motorsports and Formula 1 regulation change and pipeline building momentum expected to grow -- support growth in FY '26 and beyond. Aerospace and Defense, with delivery of our order of the U.S. government project expected in FY '26 with a focus on capitalizing on accelerating global defense spend. Our OEM medium- to long-term pipeline is rebuilding momentum and expect stable revenue in FY '26. The Performance aftermarket showing muted growth due to continued reshaping of the sales mix towards higher value, higher volume projects. We expect modest margin improvement in FY '26, influenced by higher volumes with improved operating leverage and early productivity gains, partly offset by investment in U.S. tariffs with current estimate being $1.5 million through -- though final impact may vary. We have U.S. cyber accreditation, CMMC 2.0, approximately $800,000 ongoing. We have our CEO transition as a one-off, approximately $500,000 and our Australian factory, referring again back to Slide 15. This concludes our results presentation, and we thank you all for joining the call today and for your continued support of PWR. On behalf of Kees, Sharyn and myself, thank you.

[Operator Instructions] Your first question comes from Alex Lu from Morgans Financial.

Can I just start with margins, please? And just that modest margin outlook that you're expecting in FY '26. Just wondering, does that take into consideration all the one-off costs or do we need to kind of back them back out?

No, in terms of the modest margin increase, you'll see that where we've called out some margin improvement, that's only partially offset by the cost below. So on a net basis, we're still expecting some margin improvement at the bottom line. Just to expand on margin, Alex, we look at margin in two buckets. One is product margin on each individual product. We're still seeing very robust, very strong margins on individual products that represents the premium products that we sell. So a really strong product margin still. The second bucket of margin is where we've increased capacity. And it's in that area, Alex, where we're really looking at, we've now increased capacity, so not fully utilizing that capacity or overheads, et cetera, and that's where we're seeing some margin compression, not at the individual product level.

Okay. Great. That's good. And then just to clarify, Sharyn, on those one-off costs. So you've got the $0.7 million relocation generated costs and then you've got the CEO search costs of $0.5 million. Do you -- and I guess the tariff cost of $1.5 million, do you think that could be mitigated in FY '27? And just wondering anything else that's one-off, please?

Sure. Certainly, that tariff impact, we are looking to mitigate. And as we outlined at the half, we've certainly got some opportunities there -- sorry, at our announcement in April. We've got some opportunities there in terms of already having a U.S. location of manufacturing, which is a real positive. Certainly, commercial discussions with customers happen because we're not largely locked into long-term contracts for a lot of our Motorsports, for example. We're also making sure that we're really interpreting the tariffs correctly and making sure that when those products are imported, that they are reflected correctly. We did see a bit of noise in that space, and I'm sure the customs people have been very busy with people querying and having to correct tariffs, but we're certainly very active in this space. So ideally, we can mitigate that over time.

Okay. And maybe just one last one for me, please, on Aerospace and Defense revenue. So that was up 28% in FY '25. It doesn't sound like it was driven by EVTOL. So just wondering what types of projects or work drove that revenue increase? And I guess, what types of work are you seeing in the pipeline?

Yes. Thanks, Alex. I'll take that one. Yes, obviously, there is some EVTOL in FY '25 results. But we've got quite broad engagement across that industry. Certainly seeing some uptick with regards to MRO. That's a space that you hear us more recently talking a lot about, wasn't previously a focus for the business when we first went into that A&D market sector, but recognize that quite quickly now and then engaged with some key partners that are offering opportunity that is more scalable as we increase our production capability and capacity to grow into that more at our speed, less dependent on some of the programs that may be defense related. So we -- there's a good mix of that from, I'll say, cold plates. That's always been a strong area for product growth and revenue for Aerospace and Defense. And I'll say, other emerging tech areas with micro matrix, some interesting additive programs as well and some programs supporting, I'll say, alternate energy source propulsions. So yes, it really is quite broad and certainly some exciting foundations that sort of underpin our A&D space.

Your next question comes from Elijah Mayr from Goldman Sachs.

Just a couple of questions. Maybe just firstly on -- following on, I guess, on A&D and more broadly emerging tech. Just noting that sort of down half-on-half and you sort of called out some delays there. How should we think about that in first half '26 and I guess, sort of wider FY '26 in terms of when those delayed revenues will be coming through and just the overall growth in that emerging tech and A&D division in FY '26 given the transition?

So yes, we still see very strong growth in A&D. As far as the delays that we've called out, that now is seemingly freed, and we have expectation of that U.S. government project to be delivered in full in FY '26 with the information we have available to us now. And then from an overall revenue perspective, we still see A&D being our strongest growth long-term markets.

Is that expected to grow in FY '26, just to understand there is a bit of transition still happening in first half?

Yes. No, it is definitely still expected to grow in FY '26.

Excellent. And then maybe just on the transition, sort of expected to come in before the end of the year in December. Just noting December and January can be a tough time to get things done. What's the risk that this completed transition stretches into second half '26? Or how confident are you to get in place and fully operational by the end of the calendar year?

At this point in time, we have no expectation for that to go beyond calendar year. I think it's fair to say that the experience of moving into this factory has taught us that you can't always rely on third parties, which is an unfamiliar space for PWR. Obviously, well-publicized delays with regards to electrical connection to this factory is evidence to that. But with respect to the things that are inside of PWR's control and from what we see from externals, we see no reason why we won't be fully here and operational in all capacities by the end of calendar year.

Excellent. I might just sneak in one clarification question. Just with the medium-term margin targets over 3 to 5 years, is that referring to net profit margins or just margins across the board?

Correct, net profit.

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