Thank you
for standing by, and welcome to the BWR Performance Products H1 FY 'twenty one Results Presentation Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session.
I would now like
to hand the conference over to Mr. Keith Weil, Managing Director. Please go ahead.
Thank you very much. Good morning, everybody, that's on the call. I appreciate your time. Yes, just I guess, if you want to walk through a page turn on the results, we'll do that and then we'll revert to some calls. I'm sure there'll be some questions there.
So I think it's a very solid result, to say the least. A lot of our results, we can't talk about, but I think the numbers we can talk about. So just starting off on the revenue line, I'm just going to pick through the key points and we'll leave the rest to your questions. Everybody's revenue up 25, EBIT up 60 and pad up 90. And I think the rest is fairly self explanatory on that page.
Don't think we need to waste too much time. On our performance, with the revenue line, it's across all categories. It's not just motorsport or emerging tech or OEM. It is a lot across all categories. Obviously, emerging tech is the new up and coming area.
So that will take control of that a little bit later on when we talk about it. Sales, the volume, currency, that's all self explanatory. The I will talk about C and R. C and R has been a very big contributor for this first half. They have really excelled over there, particularly in the conditions.
As you all know, COVID has been a problem, but it's certainly been a fear of pain as a business operator in America and to have our sales well over our budgetary area and go up from last year as the credit to the guidance have pulled together. The EBIT margin is self explanatory. And obviously, we had the some job category seats in there, which I'll talk about because everybody handles me on that. And Pat, about 90% over last year. The dividend, it's still on our lower percentage of what we're paying out to be conservative.
That's an increase of 47%. Cash flows, probably saved a few questions there. You'll see how the hell do you do that. But we've had a couple of different categories that have pre paid some contractual commitments due to some due to timing and that was just over that Christmas and the period. So some of the checks coming early.
So we have to put them in. Working capital speaks for itself. EBITDA cash conversion. Loans drawn down on the end of June. Last year, we fully repaid.
Cash on hand is a little bit up from last year of 16, I believe, against last year at 7.9 percent. Go to the next page, it is very self explanatory with the graphs, etcetera. I really I guess the other thing we'll talk about is forward sales orders and the pipeline for the second half and also the first half of next financial year, which we'll talk about that later on. You look at the pie graph on the next page. It's it does pull them out.
OEM and emerging tech and the aftermarket were probably the big ones where It's quite encouraging. And motorsports still has some growth in there, but motorsports still have what we call our big technology driver for that. And our financial performance, we spoke about that before. I don't think we need to go over that again. As we all know that our forward hedging is always 3 to 6 months in advance, so to give us some protection.
On that side, what have you, so I think that's pretty good. Balance sheet, very strong balance sheet, like really strong. And as we know, over the last 3 years, we've spent lot of money on CapEx, and that's about to come to an end to a degree. Obviously, not as much as we've done in the last 3 years. I think last 3 years has been around about $10,000,000 per year on CapEx, and that will come back a bit moving forward.
So everything else on the page is self explanatory. Everybody's got their questions lined up, I'm sure. Working capital and cash flow, same thing. I don't think there's anything there that doesn't that would alarm anybody on that side. So that's all pretty good.
Probably the most important pages or the next couple of pages of the second half of 'twenty one and looking forward to 'twenty two and continue past that. Capital expenditure, we feel we've got to level off a little bit. Efficiency and quality improvements are certainly a thing that we're starting to push down to the bottom line. The other end programs, I think we all know that we've been talking about these for a while. And we have the forward contract, which is a big contributor right now.
Right now, that contract will go through to September. We have got orders from Forward America through to September. So it may go a little bit further, but even if you go to September, it is past what we expected anyway. Then obviously, the other programs that are going to come in possibly a little bit on in June would be the Valkyrie and possibly a little bit of the AMG 500 AMG X1, I should say, which we've spoken about many times before. And but we can only tell you what we know and only tell you what we are told.
So that's okay. Same the USD and the GP, the pound, is we've certainly got a very good hedging program there. Yes, we put that line in there about coronavirus, but I see everybody's getting a jab today. So happy days. Happy days.
I don't know about the anti vaxxers, but maybe they won't be happy. Brand, we are and we have been starting to roll out PWI Global. And in time, you'll see a little bit of the C and R fade off. What have you obviously still have it for some programs in America, etcetera. So you'll see a big push for our global branding as particularly our branding globally.
The online store, we've spoken about this before. It's very close. We'll roll out and sit next to Mr. Bryson here. Next month, we're positive.
It's very positive. We're fast. We'll roll out. And as soon as we get the bugs out of that in Australia, we'll be pushing that through to America and then on to Europe. So that has come about because of during COVID, we've had a very big push for domestic sales and etcetera.
And we have been working on this online store for over 12 months. So it hasn't just dropped in, but it certainly gave us a lot of confidence in the last 12 months of what can happen if you give it a crack. So that sort of thing. Emerging technology, look, it's exciting. We've seen the numbers.
I think we've done 4.2 for the full year last year, and we've done 4.2 for the half of this year. Goes to show that where that's coming from. And as I said earlier, we've been spending money on R and D and CapEx and what have you in previous years. And now we're just starting to see the filtration of that money coming in and the program being started. It does take a little while.
We've spoken about aerospace and military and aerospace defense and whatever for the last couple of years. It does take a little while to get those programs. Those programs are starting to see some light and shed some light through to the bottom line. So we're very excited about that. The vacuum based coal plates and Micromatrix are probably 2 of our big drivers on that.
But now we're also seeing a lot of questions and
R and
D programs coming up for hydrogen fuel cell heat exchangers, etcetera. Bar and plate applications have been doing that for the last 12 months and been very successful there in those programs. So and in middle of the side, the battery and hybrid cooling systems are very tuned into what we're doing. We haven't spoken too much about on this prego with the additive manufacturing. We've been we've had that for some time now.
We've been talking about for 5 years. We've had equipment in
for the
last bit over or roundabout 12 months. 3 of the printers came in the start of COVID. So we had to commissionize ourselves, and it just does go to show with the talented people we do have that are certainly up and running and looking very good for the future. And then the CSD simulation model services that we've been offering around the world has started to really pay off. And as I've said before, we spend money here and collect money there.
Put a lot of money into that area. We did hire someone from overseas to use and relocated to Australia and what have you. So it's been a great story. The superalloy brazing capability, when we were just putting our new vacuum furnace, what have you, When we did the model that up, we just to break our aluminum, it's sort of a temperature of around about that 600 C with the super alloy, particularly with inconol and titanium and those types of stainless steel, etcetera, we need a temperature of around about 1600 C. So when we did put specks out for that furnace, it was more expensive, but it certainly gives us some good range now throughout future programs.
So I know that's sharp and sweet. I think that's everybody likes it. We're more than happy to take some questions and go for me.
Thank session. Our first question comes from Cameron MacDonald of EMP. Please go ahead.
Good morning, Cees. Thanks for the presentation. Question just on motorsport, one relating to Formula 1. With the additional sort of 8 races, if you like, falling into the second half of this financial year, how do we think about the benefit that that's providing to the for the FY 2021 given that you've already had a full calendar year already condensed into the first half?
Yes. That's a good question. That is a good question, but I certainly think that the first half was an upward in our hand to heart. We probably did expect a little bit more out of F1 in the first half and didn't come through fruition really because of a lot of those races. They didn't know whether they're going to have 5 races or 10 races or whatever.
So they were sort of racing from hand to mouth with parts and what have we we're sending parts all over the world. So it was certainly not the normal. I think you should think about this next half or the half that we're in now. I think you should think about that go back to 2019. Go back to 2019 number.
It's going to give you a fair indication for that. So that's how I think you should think about that.
Okay. Great. And then with the growth in emerging technology, as some of those new products start to be sold into what has been traditional motorsport customers,
how do
we think about the potential cannibalization between emerging tech and motorsport?
Yes. I don't think it will be too much of that. It's probably going to be a wee bit of that. Nonprogram, very small part of that. I don't think it will be too much of that because it's particularly Emerging Tech.
We've got 3 or 4 key things in there. You can only talk about micro matrix, cold plates and also 3 d printing and the like. So they're into that emerging tech side. So I don't think you'll get too much of drop out of motorsport and then jump straight into emerging tech. I think there might be 1% or 2%.
I don't think it's going to be a 5% or a 10% or 15% swing in that with some of the programs that we're in. So these programs that we're in are programs that are new and stuff that we have developed ourselves and over the last couple of years and given people the, I guess, the view of they can do better in different areas that we're not doing now. So Systems
are changing and there is increased opportunity rather than stealing from existing business in most instances.
Good. Just very quickly, just on Page 11, the Defense and Aerospace, can you just confirm that you're actually generating revenue from sales to the Defense and Aerospace industry at the moment?
Yes.
Excellent. And the last question for me. Just can you make some comments about the interview you've given in the financial review today, in particular, you should about the discussions you're having in the electric vehicle space?
Yes. I don't think it's anything new there. We've obviously been in that area for some time now. But certainly, the hyper electric vehicle space is very much our area. We're not into Tesla.
We're not into 100 and 1000 of cars and that type of thing. We're in that high volume range, but we are certainly in the range of those Honda vehicles, which is several of them happening right now, which we are on, being built in Europe. And we that's certainly our area that 100 to 150 vehicles a year. And that space is increasing. There is people I'll be careful what I say, but there is people trying to show their flex their muscle, I suppose, what they can do in electric vehicles in the premium side.
Not just land based.
Yes. And it's not just land based either. And certainly, the vertical lift areas, that's drones, helicopters and you name it, there's quite a bit of business going on there. And yes, we are actively dealing with those people as far as a PO and a check concern. So yes, the that side of the business, as we have said before, is growing.
It's exciting. And we feel that we'll have a reasonable amount of income on the emerging tech for this half. And that 2022 will be exciting, that is for sure.
Great. Thanks, Kees.
Thank you.
Our next question is from Chris Savage of Bell Potter Securities. Please go ahead.
Thank you and good morning. Good morning. Keith, I might keep going with exploring some of the comments you made today in the AFR. Have you got Mercedes now in F1?
We're working with them here.
So will you be supplying
Pardon? So I've just got Matt Bryson here with you. As everybody knows, he's here, our CEO. And been our engineer manager for 20 years. So sometimes we got passed by him.
We are doing some work with them now, Chris, but I wouldn't choose to say much more than that. We're always careful about saying that we do what for, but work has progressed in that area.
Okay. And just on that online store, I know, Matt, that's kind of your baby as well.
How does that change the
outlook in automotive aftermarket? Is that now we could potentially double the revenue there in the next few years?
Look, I would absolutely hope so. I mean, I think we've had the view that automotive aftermarket performance aftermarket, not only in Australia, but absolutely in the United States is an underperformer for us as a brand. Going to the online format was sort of the catalyst to rebrand the North American facility now to be PWR North America. It still has its logo with some recognition towards C and R, but it is fundamentally now operating under the PWR logo and products produced out of there produced under the PWR logo. That is to get a common global brand.
And absolutely, we're looking to push our brand to and take opportunity to capitalize on some of the high level programs that we are involved with and we're able to speak of to promote our brand. You will see through a lot of our digital and certainly social media channels going forward a much increased presence, not only talking about some of the programs that we can speak of, but also providing a little bit of a window into PWR as a factory, promoting the Australian and the U. S.-made product and really leverage some of the high level program and credibility that we've got into that form of aftermarket. And the intention behind that is not only could it it's good margin work, but it's also to provide a foundation going forward that justifies all of your resources and all of your capacity that would be fundamentally shared with a lot of these niche OEM programs that we're going into. Certainly, the life of COVID and life showed us that some of these programs can be difficult to read in terms of timing, but we've absolutely got the potential and will capitalize on those when they are available.
But being able to leverage the performance aftermarket gives us a good solid foundation that we can drive those business that area of the business. And it also allows us to develop and grow the business in a slightly different direction in terms of capability and resource that is different from the highly resource hungry and engineering aspects of motorsport and defense and aerospace. So this allows us to grow or certainly continue to service the motorsport industry as we always have, grow the defense and aerospace, which will be in a higher technology bracket. But it's this automotive aftermarket performance aftermarket is about growing the business back to its roof.
3. And just on emerging tech keys, I know you can't really give us much color on the contracts or the clients just due to the nature of those clients. But can you give us an idea how many contracts you've got now in that space? Is it like OEM where you're only ever working on a few contracts? Or are we now talking
a dozen multiple?
No, it's
fairly widespread, Chris. Particularly, yes, we've got a couple of things in that basket when you look at Micromatrix, which we've been working on for some time, as you guys know. And obviously, this last 12 months with the contracts that we've had with coal plates, particularly in defense and those categories. So look, there is quite a bit of pipeline there. We've certainly we've put a lot of structure and resources and CapEx and programs around this area of business going forward.
And yes, I have said in some commentary that we feel that I think the wording is that we feel that emerging tech will possibly dwarf our motorsport in future years. Now that's not to say most of it's going to fall away. Our technical and technology push and what have you is mostly always driven out of motorsports. So it's certainly we're certainly not going to close the door on that. But I think the big driver in future revenue lines is certainly going to be in that area.
So there's to answer your question in a roundabout way, there is certainly a lot more than half a dozen. There's quite a few different customers.
Just last quick question back on that AFR article again. Is the target FY 'twenty four to have emerging tech ahead of motorsports?
Well, as you know, journalists and I'm not quite sure if you fall in the line of that, but sometimes they print what they like to print. Maybe it's probably not what we're seeing. But look, I don't think 'twenty four might be a bit early, but it
I think we'll probably have a better idea at the end of
'twenty two of how we are, but you only have to look at where we are now. We're at probably 25%. At the end of this financial year, we'll be probably at 25% from emerging tech against motorsport. And I'll tell you what, once you start rolling in that area, things will go fairly quickly as they have done with in the office. So yes, I think 24, 25 is certainly on our radar to do that justice.
All right. Thank you.
Thank you. Our next question is from Alex Liu of Morgan. Please go ahead.
Hi there, guys. My first question is just on the change in sales mix. So despite obviously emerging tech and OEM growing quite strongly, You did make a comment that you were able to maintain gross margins steady. So I was just wondering, with the change in the sales mix going forward and the growth in those areas, how do you think about gross margins in the future?
Yes, yes. I think it all comes down to the EBITDA line, Alex. The mix of businesses is certainly changing, for sure. But then your OE line is obviously fairly fairly lowly priced on some of the OE programs. They dodge it down there anyway.
But it is usually a pretty good program to be involved with for future business. And that will continue. But then you look at and that's one of the things that Nachi just spoke about before with our aftermarket our performance aftermarket business, we feel there's certainly a big clawback to be done there. And it's obviously a lot better margin than our OE program. If you look at some of the defense and aerospace programs that we're in, we're into areas that other people can't manufacture.
So when you're the new kid on the block, they give you the hardest part. So whatever the hardest part they have, they will just try these on these guys. So and we've been able to keep a goal at every corner. So I think that will speak for itself. So I think we can still continue to have that EBIT line very strong and certainly our bottom line very strong.
So I wouldn't take too much concerning in gross margin.
Okay. And maybe a question on OEMs. So obviously, a few programs or bigger programs ramping up towards the end of this year early next year. And up to you, that will go for about 12 to 18 months or so. But how do you think about, I guess, replacing those programs in the medium term?
And maybe just talk about that OEM pipeline as well, please?
Yes. Certainly, when we do our full year result, we'll update our OE program. For sure, it's probably time for us to readjustment on there. There's quite a few programs that we're involved in and in early stages. And as you know, the VELCRY and the X1 program and also the GT 40 program, if you like, in America.
That's still the GT 40 program still got another 2 years to run. So although it'll be a small contributor, but it's still a contributor. But the AMG and the X1 will certainly run for 2 years, 18 months or 2 years for sure. So and we're looking at programs that are going to slot into that 23 area right now. So yes, I've said this 12 months ago that our OE contributor to the revenue line is going to fall between $10,000,000 $18,000,000 I know that's a fair gap, but it will fluctuate in different years.
But I think that's still we're still very confident that's where it will be.
Okay. And one last one from me. Just on the competitive environment, Keith. So are you seeing anyone emerge as a competitive threat, especially in that, I guess, motorsports division? And then going into the emerging tech side, I presume you're the new kid on the block.
So how does what's the competitive environment like with, say, military and aerospace, please?
Yes. That's a good question. We're well, I guess, we're waiting there. It's no different how people we are starting in those. So we were in there because there was a space that wasn't quite what we thought service correctly and what have you.
So we made a business of that. Aerospace and Defense is very similar. It's very tight. It's a big community, if you like, very clicky, what have you. But how we started that, Alex, and I'll just explain how that started 2 years ago when I was when Andy, Scott and myself were in the States, we were just looking for new ideas and new things that we could grow our company with.
And we came across coal plates, etcetera. And the word was that there was a lead time of 36 weeks. And we hear that sort of stuff and we go, Holy smokes, there's an opportunity. That's something for PWI. And on our first program, we which we the first contract, which we just in the throes of I finished our first contract, we got that down to 12 16 weeks.
So we're still happy to pay us a premium for, they call that a rush fee. And that was certainly something we enjoyed and what have you, but it certainly wasn't rushed, that's for sure. But we're happy to take the extra money. But and that gives opportunity, and that's what the world's all about. People want to sit around and play cards or you go work and work.
That's what PWR is that's what we do and enjoy every bit of it. And I think that's sort of explains it pretty much.
Great. Thanks a lot, Keith. Our next question comes from the line of Chris Tweedy of Moores Australia. Good morning, gentlemen. Thank you for presenting to us.
A couple of quick ones. First of all, on Formula 1, do
you have any view at this stage
of what the proposal to phase the power unit development from 2022, what implications that may have on cooling given the correlation between cooling and the power unit? Do you have a view on that there?
Yes. Certainly, that freeze has now been agreed with all parties. 22 was driving quite a lot of technical change anyway. The physical layout of the car is different. The packaging of the cooling system presents different challenges as well as different opportunities.
So the engine free doesn't change other aspects that will continue to evolve year on year. The coolers will change due to changes with power unit as well as also aerodynamic changes. And that will continue to happen year on year. So we don't see any real change in the way that the customers will evolve their designs with PWR. That will continue to be the case.
And of course, as they work towards a what will be a new engine likely in 2025, they will start to work in those areas, and that will present different opportunities for PWR also. I mean, there is no release of exactly what they're going to do with that engine formula for 2025. But within the team, it's highly anticipated that it will remain a hybrid formula, so combined with combustion engine and EV drivetrain. But it will take a larger percentage of its overall power unit also overall power output will be from EV. So it will just be an increased amount of power output from the EV, which again will drive new developments and a requirement for new and improved cooling solutions.
All right. Brilliant. Thank you.
The other thing I just sort of touched on it, I just want to try and get a little bit more detail would be emerging technology. Are you able to give us a sense to what percent of that growth was from motorsport and what was ex, as in the aeromilitary versus what drove as a result of that uptick?
I think I answered that earlier on, but there's I don't think there's too much that's coming out of motorsport and going to emerging tech. We could do some numbers on that, but I think China will be very small. It might be in that 3% or 4% range. It's not 10% or 15%. That's for sure.
And as we move forward, I think the other drivers in emerging tech are somewhat going to be outside motorsport, although motorsport that will use some of the emerging tech for sure. But I think the big drivers in emerging tech will be outside the motorsport area as well.
Okay. Okay. And just quickly, how many other teams are you able to tell us are using micro metrics or cold blood at this stage for this season?
Can't tell you that. Okay.
Probably final question for me is just on the OEM ramp up. You pointed out obviously 2 programs coming on at June or end of June. From a capital investment perspective, the upfront spend that you have on OEM, has that already been set up for these programs already? Or do you have to obviously pull up and personnel up getting closer to the start of those programs to start the financial year?
Yes. A lot of that has we've already built that into our program right now. Certainly, personnel wise, you just don't do an extra $10,000,000 of work because the current big OE program is in America, and that's done in the States. And the NICU2 are a little bit different. And as in the AMG, X1 and the VELQUE will be done here in Australia.
The majority of them will be done here. Some parts of those programs will be done in
the States.
We will be putting some extra people on to bolster that at this end. So it's not huge, but it's certainly to say that we will do that. We'll have to certainly add some power, manpower in behind those programs.
That's it for me. Thank you very much.
Thanks, Tom.
Thank you. Mr. Weil, there are no further questions at this time. Would you like to make some closing comments?
Yes. Thank you. Go ahead. I'd just like to thank everybody for the call. I think the certainly the first half has been a little bit what we expected, but we're always we always say that we under promise and over deliver, and we've done that for 5 years.
We're in this for 5 years now. We haven't changed our perception on that. And we think this well, we know the second half will be a very solid second half. So thanks, everybody, for their interest. And no doubt, we'll talk to you on the full year result.
Thank you.
Thank you. That concludes today's call. Thank you for joining us. You may now disconnect your lines.
Thank you very much.