I would now like to hand the conference over to Mr. Kees Weel, Managing Director. Please go ahead.
Thank you. Thank you, Operator. And good morning, everyone. Thanks for dialing in and listening to us this morning. I'm here with Sharyn Williams, our new CFO, and I'd also like to take the opportunity to thank our previous CFO, Martin, for his efforts over the past four years. Firstly, I'd like to outline a few highlights from the half. We focused on a growth opportunity, and our highlights this period strongly reflect that. Overall, our results were slightly ahead of November trading update for both revenue and NPAT. Aerospace and Defence is really building momentum. Our revenues grew 79%, and we landed our first large U.S. Government project order. This was a significant milestone for us and validates the investments we've made to date to build our credentials and reputation in this sector. We've also made good progress in getting race-ready for production across all three locations.
We're already generating revenue and have multiple accreditations, but we want to make sure we have the capacity and credentials to capture the growth from global pipeline opportunities. Commercializing our innovation has been a huge part of our success. We're constantly looking to innovate and develop new and better cooling solutions for customers. Examples of this are our battery cell cooling technology and our MMX developments, which we're generating revenues from. We're underway with fitting out our new Australian factory. We expect that completion November this year.
That's full completion. We will talk some more about those details in the outlook. We're in a good balance, sorry, we're in a good balance sheet position. After the investments made to date, we are still in a net cash position. This reflects on strong cash generation from businesses and also discipline in the way we allocate our capital. Moving on to slide five.
You will recall we talked about four pillars of our strategy last time: innovation, profitable growth, sustainability, and investing in our people. Innovation is driving growth. New products are in market, and we'll continue to invest and ensure we keep our leadership position. It is great to see that our R&D is gaining real momentum, revenue up 79%, and we land our first big order for the U.S. Government project, and we have confidence in the pipeline. Sustainability was the front of mind when designing Stapylton, our new factory, and we will be more environmentally friendly of our new headquarters, but also having a sustainable, profitable, and a growing business. Becoming a member of the Defence Industry Security Program and stepping up our cybersecurity to meet Aerospace and Defence high standards. We have a strong team and strong culture.
We're at 550 global people now, turnover improving, and workplace flexibility trials going on. We also have a team being part of the business for a long time. Over 54 staff members have been with us for 10 years, for over 10 years. 10 members over 20 years, 8 of those over 15, and 36 of 10 years and over. I think that speaks for itself of our people business. Slide six. This slide breaks down where our revenue comes from, and it's a good snapshot of the business mix. We are really happy with the growth of R&D, as we've said before, and the emerging technology area. Obviously, key areas for us, and good to see our efforts being rewarded with orders. Motorsport up 5%, a solid result, especially with teams delaying new designs due for the 26 regulation changes in F1.
OEM was down with two programs wrapped up, but we're being selective here, focusing on high margin work, especially with limited manufacturing space in Australia right now. Aftermarket took a little bit of a hit, but it was largely due to our own making. We adjusted our discount structures to protect margins, which meant some revenue trade-offs. E-commerce is growing, which is great, but we're still seeing some pressure from softer discretionary spending. That's a quick summary of the half year, but I want to take a moment to reflect on where we come from and heading to. Our strategy. As you can see, it's been 10 years since we listed, and I'm just as excited about growth opportunities today as I was back then. Looking back, we're incredibly proud of what we have built.
When we floated, we were primarily a motorsport business, heavily reliant on that sector with significant FX exposure to the pound. Revenue 10 years ago was AUD 47 million. Fast forward to today, and we've transformed into a global recognized leader in motorsports, proudly working with 100% of all F1 teams. We've also evolved to vertically integrate business across three locations, which gives us the flexibility to adjust production, to navigate evolving trade environments, particularly with tariffs and supply chain shifts. Expanding into the U.K. and U.S. has been a natural hedge for us for our FX exposure, reducing our reliance on a single currency. This is a business that generates strong cash flow, and we've been disciplined of how we have allocated capital, balancing shareholder returns with investing in growth. We had options for diversification. We could have acquired an established business or built one ourselves.
After evaluating the market, we took the lower-risk approach, leveraging our existing IP to build it organically. This strategy of investing ahead of the curve, expanding our Australian footprint, upgrading manufacturing capabilities, and entering into Aerospace and Defence has driven our success. Our ability to commercialize new technologies and organically build the R&D business from scratch in just two years has given us confidence to invest further, knowing that the growth potential is there. FY25 marks another pivotal transition year. This is our largest investment to date, but the opportunity is just as significant. Our new Stapylton headquarters, alongside global expansion, sets us up for the next phase, particularly in the R&D and emerging technologies. We've proven our ability to execute, from investments in machining and additive manufacturing to secure NADCAP and AS9100 certifications, all of which laid the foundation to enter high-value markets.
This year, we reached another milestone by securing our first major U.S. Government Aerospace and Defence order, validating the investments we've made to build our reputation. Importantly, all of this has been funded from our own cash flow, and we remain in a net cash position today. We now have multiple revenue streams across three locations, generating AUD 139 million last year, growth that came from deliberate investments in headcount, R&D facility expansion, and capital equipment, enabling the next phase of growth. So let's talk about the next phase of growth, where we're heading to from here. One of the greatest strengths of our business is that we own our IP and technology, which means we're not limited to motorsports. We can apply expertise to other high-value industries.
We've already proven that with the revenue growth in delivered recent years, expanding into Aerospace and Defence, an industry that aligns perfectly with our technology know-how and capabilities. But that success just didn't happen. It was built on prior investments. Just like today, we use excess cash flow to expand headcount, strengthen our cybersecurity and quality systems, and enhance our manufacturing processes. Now we need to take the next phase because we've outgrown our current footprint. Over the past few years, we've tested and proven that we compete and win in this space. We've commercialized our technology, secured major customers, and built momentum. Now it's about being race-ready for the next stage of our growth, particularly in R&D. Getting there isn't just about scaling up production. It requires a full investment in infrastructure to meet the rigorous standards of Aerospace and Defence.
This means additional quality certifications, stronger control processes, enhanced cybersecurity and IT systems, and deeper capabilities in design, simulation, planning, procurement, and production. This is where our new Australian factory at Stapylton comes in, our home base for the next 25 plus years. We're taking a long-term approach to do it right. We've been rigorously planning to fit out and move for the past 18 months, and it's all starting to come together. That said, we've faced some challenges around timing, particularly where we rely on third parties. This means we may have to operate across both sites a little bit longer than expected, and logistics of what will create some financial disruption, not just in revenue, as manufacturing efficiency is temporarily impacted, but it also costs like additional freight pickups and generators while we operate on two locations instead of one.
We'll work to keep that disruption to a minimum, but we want to be upfront about it so there are no surprises. Overall, we're really pleased with the progress, and we're grateful for the Queensland Government's AUD 8.8 million in support, which will be distributed over the next decade as we hit key milestones. We're excited about the future, confident in our ability to execute it, and we are all looking forward to operating from our new headquarters. I'd like to hand over to Sharyn now to talk through our numbers in more detail.
Thanks, Kees. I'll walk through the key parts of our financial performance outlined on slide 11. Revenue for the half came in slightly ahead of our November guidance.
As Kees mentioned earlier, the key drivers of the revenue were Aerospace and Defence, where we saw a strong 79% growth, and motorsports up 5%, both exceeding November guidance. However, OEM and aftermarket revenue came in lower than expected, largely due to the completion of two major OEM programs at the end of FY24, three niche OEM EV programs not proceeding in FY25, even though PWR had received purchase orders in FY24 for this work. The restructuring of aftermarket pricing, where we standardized discount structures to protect margins in a way that balanced volume impacts. The external environment in that space remains challenging, with consumer spending constrained, with this likely impacting the response to the change in our discount structures. While group revenue was down 2%, the larger impact was on EBITDA. I'll unpack the drivers of this by making some comments on manufacturing margins versus overheads.
As Kees said earlier, we are investing ahead of the revenue growth curve, which means higher overheads in the short term before the revenue fully materializes. We've been very deliberate about the type of costs we're putting into the business, and we're very conscious that maintaining a strong manufacturing margin so that when revenue growth comes through, we are able to leverage the fixed costs of the business. Returning to manufacturing margins, these remain robust during the half, with raw materials flat on the PCP. We don't break out the production labor from other sales and overhead labor, but I can say that the increase in production labor during the half was mainly in the U.K. manufacturing headcount, where we had to support increasing volumes in that location. There were some annual wage adjustments contributing to some increase in production labor.
Turning to EBITDA margin, this was impacted by deliberate investments in overheads to drive growth. These overheads are critical to unlocking larger opportunities, and they don't keep scaling at the same rate as revenue grows in the future. We increased aerospace and defence headcount, predominantly in response to the projected growth trajectory of the region in the U.S. These roles largely mirror our successful approach that we've taken in Australia, where we invested in technical expertise, which has been driving strong revenue growth in that space. In addition, we've made some investments in enhanced capacity planning and quality assurance capabilities in Australia. These are critical enablers to ensure that our products meet the high standards of the R&D sector. So Australia is now race-ready to deliver on larger government and higher spec projects. We're already generating R&D revenues, which is great.
These investments we're making now are taking us to a next level where we can capture the larger opportunities. A great example of this is the recently announced circa AUD 9 million milestone order, which validates the approach we're taking. We're conscious of the revenue profile and that labour is our largest cost driver. So to give you some context on the shape of our headcount over recent times, back in December 2023, we had 535 people across the globe. We increased this to 578 at June 2024, but during the half, following the realignment of cost to revenue, that number reduced to 550 at December 2024. So the result of that is there will be some savings through the second half following the reduction in headcount.
The impact reduction year on year is largely driven by the investments I just spoke about, as well as timing differences in tax expenses. The fully franked dividend declared reflects the board's proportional dividend payout ratio and aligns with our disciplined capital allocation approach, ensuring we balance business growth and reinvestment back into the business with shareholder returns. Turning to slide 12, our balance sheet is very strong. The group retains ample liquidity to support our growth plans. Working capital for the group reduced by around AUD 2 million since June 2024, where we had strong debtor collections and made some investments into finished goods inventory. You will note there's a new item on our balance sheet, which is our FX forward contracts provision.
This reflects our accounting treatment of our forward FX contracts, where we're treating them as effective cash flow hedges, where they'll sit on the balance sheet until they're settled. During the period, we made good strides in our Quarry Road headquarters, investing AUD 9 million into that area. We did make an investment of AUD 5 million in our other property plant and equipment across our three other locations. After these investments, the group maintains a net cash position of AUD 6 million at December 24. This is made up of gross cash of AUD 11.5 million, less drawn debt of AUD 5.5 million. We do like to keep some cash across the three locations, but we're very mindful of making sure we minimize that debt expense. The available liquidity, including the undrawn facilities, provides us ample funding capacity to execute our strategy.
Since listing, the group has taken a highly disciplined approach to growth, with the strong cash generation from the business funding reinvestment, leaving no to minimal leverage on the balance sheet. As we move forward, we remain committed to maintaining this financial discipline while chasing and seizing the opportunities that are in front of us. Turning now to CapEx details and our new Australian factory on Slide 13, the group made really good progress during the half. Our investment is twofold: getting all of our three manufacturing sites R&D ready to capture the significant opportunities ahead. This also has a benefit of maintaining flexibility to mitigate the evolving terms of trade and also provides us an opportunity to drive automation and efficiency gains across our global operations. To give some context, the current Australian site consists of four separate leases that we've outgrown as revenues have expanded.
Our new largest Stapylton factory consolidates our operations into one purpose-built site, unlocking efficiencies and greater automation and capacity to support our long-term growth. The full-year CapEx forecast number is AUD 41.5 million, which is predominantly growth CapEx in the form of factory upgrades across the three locations and additional equipment to provide capacity and efficiency. AUD 35 million of this AUD 41.5 million is being incurred in Australia, with the balance spent across U.K. and U.S. Of this CapEx, we've incurred AUD 14 million in the half, leaving circa 28 to be funded in H2. To fund this second half CapEx, we'll utilize both our cash generated in the second half and also a portion of our debt facilities to fund this. We had at balance sheet date available limits of AUD 24.5 million in our debt facility and an additional AUD 7.5 million in an asset finance facility.
This combined liquidity leaves us with significant funding headroom and flexibility. I'll now provide more detail on the financial impact of the new Australian factory outlined on the right-hand side of this slide. As Kees mentioned earlier, this is a critical multi-decade investment, and we want to ensure we do this right, and we want to make sure we capture the full benefits of this opportunity. Firstly, CapEx. In the table at the top, you can see an updated version of the table you saw at the August full year 2024 presentation. We set at the time these estimates were likely to change as we progressed with the new facility and got closer to the moving parts. The factory upgrade itself involves electrical upgrades, including solar, expansion of the offices, connecting services such as air, gas, and power, among other items. A few key changes to note.
Early access rent of AUD 1.2 million is now part of the cost of the asset we're constructing and therefore will be treated as CapEx. This increases to AUD 1.8 million when outgoings on that early rent are included. The AUD 13 million equipment investment will now fall across both FY25 and FY26 due to the logistics and timing of the move. Turning now to the OpEx impacts in the bottom right-hand table, I'll walk through these in detail as they impact the remainder of FY25 and also into 2026. Firstly, the factory move itself. The relocation estimate has slightly increased to AUD 2.7 million due to the need for temporary generators to power some parts of the site. This AUD 2.7 million also includes moving fees and other transition costs. Secondly, the costs that relate to our new lease.
Our new 15-year lease is structured with very attractive incentives, reducing our total lease cash outflows by AUD 800,000 in year one compared to what we pay now. This means moving into this building, our cash outflow will be less than it currently is for the first year. However, AASB 16 front-loads the lease expenses, meaning we'll see an AUD 2.5 million increase in lease costs per year from FY26 showing as expenses on our P&L. These expenses are above the actual cash rental, so present a temporary drag on the P&L initially. The AASB 16 expenses likely commence a bit earlier than the lease start date of July, noting that we're targeting effective control of the site in the next few months. We've popped in there AUD 700,000 for this as an estimate; however, our exact timing is unknown.
The third area of OpEx relates to how the increased investment in capital equipment and the fit-out unwind in depreciation expenses. The current estimate is AUD 2.4 million. You'll note in the prior presentation we had AUD 1 million for leasehold improvements only. Now we've got further visibility on the equipment, the types of the equipment, and costs on the equipment. We've factored in an additional AUD 1.4 million into depreciation into 2026. The final area to call out is the incremental debt expense, given we're drawing down debt. We expect this will increase our debt cost in FY 2025 and 2026 to about AUD 600,000 per annum. We do expect the new factory to deliver meaningful efficiencies. We've got some aspirational targets in relation to efficiency and productivity, but we'll wait until we're operational to fully understand these benefits better. Another investment from the new facility is the investment in solar power.
Sorry, another benefit from the new facility is the investment in solar power. This will reduce our reliance on grid electricity, which is great, create a better environmental outcome, but to quantify this, we do have a larger footprint and increased machinery, so once again, we want to understand the impacts once we're in the facility. Slide 14 speaks to working capital and cash flow. As mentioned earlier, and you'll hear me say it a few times, we remain in a very strong financial position, balancing growth and investments while maintaining disciplined capital allocation. Net working capital reduced since June, and cash conversion was very strong at 127%. This benefited from favorable timing on debtor collections and mitigated the EBITDA reduction as the cash produced from operating activities, which decreased by only AUD 2 million. Free cash flow was negative this half, reflecting our ongoing investment cycle.
This is temporary as we continue to execute on capital investments during 2025. It's important to note that before committing to these investments, we had built cash reserves of about AUD 21 million in anticipation of these costs. This demonstrates the disciplined approach to self-funding growth wherever possible. FX remains a factor for the business that we keep a close eye on. As a net exporter, a weaker Australian dollar benefits us, especially against the USD and pounds. As Kees mentioned earlier, 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 our FX risk, and we do maintain hedges to provide us some budget and forecasting certainty and also act as shock absorbers when FX rates fluctuate.
fully franked dividend of AUD 0.02 per share has been declared and is payable in March 2025, equating to 49% payout ratio. As a reminder, this is consistent with our policy of between 40% to 60% of net NPAT . The group's well-positioned from a balance sheet perspective, with increased debt facilities providing the group stronger liquidity and greater flexibility. Disciplined capital and cost management will remain a priority alongside a strong commercial focus on generating returns from our investments. As we expand capabilities, we're already seeing early signs of the targeted growth opportunities being realized. Kees will now talk through the current trading and outlook.
Thanks, Sharyn. Let's talk about the update and the outlook now on Slide 16. This slide provides a high-level summary of our program pipeline across emerging tech, grouped into aerospace and defence, and on the left, the OEM and motorsports on the right.
The detailed pipeline slides that you usually see are still in the appendix. For Aerospace and Defence, we refined our focus on the top 40 highest value opportunities, ensuring that resources are directed where we see the most potential. I want to focus on the left-hand side first. Aerospace and Defence, we're always seeing just showing the top 40 programs with the most potential. The three things here are our pipeline remains strong, our secure programs have increased each year as we get more traction on this space. You can see that the secure programs have doubled, compared to those in the first half of 2023. These R&D programs have longer lengths and are contracted base, not ordered base like motorsports. This gives us a better visibility of earnings as we lock in more secure programs.
Turning to the right-hand side of the page and looking at motorsport and OEM, even though this had been more subdued last year for some teams holding off for the 2026 regulation changes, we are still growing our key potential programs. There are some tailwinds coming for 2026 as the regulation changes and the 11th F1 team and some programs that we have been nominated suppliers come into realization. For those that aren't close to F 1 regulation changes, basically these changes are increasing the electrical output of the battery systems from 120 kilowatts to 350 kilowatts. This increased power battery will generate more heat and require cooling solutions. That's where we think there is a great opportunity for PWR. Our cooling solutions and the new core technology well placed to play a role in these regulation changes with our partners in motorsport.
Going on to the next slide, 17, I just want to lastly cover the key things we're focused in the second half. Firstly, getting into the new factory is a big priority. It's going to give us many benefits, but it's a big job. The team are doing a great job on this, and it's all coming together. But just a reminder, we will have some disruption to production. We've got to decommission machines, move them, recalibrate them, and in a perfect world, they'll all go in the right order and have minimal downtime. But as we get closer, we couldn't coordinate with people outside of PWR that we can't control. Some of those stars won't line up, unfortunately. So, giving you a heads up that we'll have some disruption that will, in the short term, be in the short term.
The longer-term prize far outweighs our short-term challenges. This, of course, will also flow through to revenue, and we expect 2025 revenue to be 5%-10% below our 2024 revenue. The factory is expected to be fully operational by November 2025. The R&D platform is progressing well. We've achieved a lot already, and we want to nail the U.S. accreditation footprint and the U.K. accreditations and capability by 2027. Remember, we've all been investing over the years, and we've kicked R&D goals. This gives us confidence to keep investing. As you saw in the pipeline slide, it's getting more secure and continuing to grow. One of the things found is the R&D pipeline timelines are longer, and delivery of orders can be over a longer period. So we're confident in the growth. We're just remaining cautious on the timing of the delivery of revenues.
We've already started the design work and regulation change for the regulation changes, and continuing to increase market share in motorsports and bring new production to market. We'll be pragmatic in the OEM space, making sure that we're selective in the programs we take on to ensure the returns reflect the investments. In aftermarket, we're pushing for market share growth in North America and Europe while continuing to bring new products on the market. Finally, our global operating model is so important and is a huge advantage. The benefit is having flexibility to respond to evolving terms of trade risks, and the key benefit is the current environment. This expansion and investment is being done on a disciplined manner, and we have a conservative balance sheet and are keen to retain our approach for minimal leverage to grow.
Our capital allocation decisions will continue to be pragmatic with a balance sheet between shareholders, a balance between shareholder returns, and investing in growth opportunities. So thank you very much for listening. We're open for questions, and hopefully, between Sharyn and myself, we'll be able to answer those questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Alex Lu from Morgans Financial. Please go ahead.
Good morning, Kees. Morning, Sharyn. Can I just start with the FY25 guidance, please, for revenue to be down five to 10%?
Just wondering, can you give us a bit of an indication on how that looks across the different segments? Obviously, the ones that are most reliant on Australia will be most affected, but yeah, any color on that would be much appreciated.
It's probably a little bit across the board, and it's more about timing. We put that out there because of timing, really. Obviously, we're starting to move on the 1st of April, machinery, and the 1st of May, we'll be moving sections of the manufacturing plant in Ormeau. So really, in an ideal world, as we've said, an ideal world, all the stars will align, but we're cautious, and maybe none of us are operating in an ideal world today. So it's really timing on some of the programs and more specifically timing on our Aerospace and Defence.
And when you look at that last order that came in for nearly AUD 9 million, we'll certainly have the capability of getting the production done on time, but there's other things that there's other parts that go onto that part before it can be delivered to the supplier. So there is a third-party thing there that we rely on, unfortunately. So that is going to skew our number a little bit. And the good thing about it is we're not losing the business, that the business will obviously flow into 2026. So we see it as a timing issue. We don't see it as losing. We have certainly great visibility of our pipeline and where we are today. It's just a matter of getting those products made and out the door before the 30th of June. So we haven't lost the work. We won't be losing the work.
It's more about timing, so I'm a great believer of being upfront, and as you know, we've done it for 10 years, just saying it as it is and being upfront. So it's more of that message.
Okay. Thanks, Kees, and I guess, more importantly, and this flows into long-term as well, but do you think that'll damage any of your relationships with your customers where they might have to wait a little bit longer for their products and things like that, so I guess, have you communicated this with your customers that there could be some potential delays and things like that, and they may not get it in June, they might get it in July or August, etc.?
Yeah.
No, we've definitely had very good communication with all our customers moving forward, and they're 100% on board, and they've obviously built a little bit of a timeline on their product that it's not going to kill them. So they're very 100% backing on our approach. It's not our intention to be late, but as we've said before, there's things that are going to be outside our control, and we have mentioned in there that we'll be using some generator power for a period of time. That's not ideal. It's certainly not ideal, but that's unfortunately one of those things that has happened in the program moving towards a particular date. So I don't see it as a major issue that we're going to lose any customers or any program. It's more of a timing thing.
And also, on top of that, Alex, sorry, I think everybody knows that we always underpromise and overdeliver, and we've done that for 10 years, and I can't see that changing.
Right. Thanks a lot, Kees.
Thank you.
Thank you. Your next question comes from Elijah Mayr from Goldman Sachs. Please go ahead.
Good morning, Kees and Sharyn. Just a couple of maybe just following on there with the revenue guidance and sort of noting you mentioned the dates around moving machinery and manufacturing. Is there sort of risk as well into the first half, 2026, noting that you're expected to be fully into the new facility in November this year?
No, there's certainly no risk for 2026 at all.
We're very well catered for 2026, and we've got November in there as a long date because there will be a couple of machines that will be moving in October and what have you, which we can't move any earlier than that. So it'll be only a couple of machines out of about 45 to 50 machines. So I don't see that as a big issue and a big problem to our 2026 output.
So you guys are still sort of consistent in terms of a normalized run rate of production and manufacturing, or at least business operations from that second half 2026?
Oh, absolutely.
And then maybe just quickly on sort of the FY25 guidance, and maybe specifically around, I guess, employee costs, just noting that there's some changes made there given the operating environment and the moves and the shifts. You had AUD 32.7 million in the first half.
Can you sort of give a sense of what the second half is expected to be and sort of what the normalized run rate of those employee costs are?
It won't actually give forecast numbers for the cost, but just to give you the guardrails that might help. So the headcount that was taken out in November, we didn't really see the benefit of that in the first half. It was mainly probably six weeks' benefit. So you would need to flow that through for the full second half of this year. So if you just worked on an average salary rate by those number of heads, it's probably a good way to get there. The other thing is, in terms of additional labor, we would have gotten in to manage peaks of revenue, etc. We'd be mindful about the timing of bringing those on.
No problem.
Thanks for the question.
Thank you.
Your next question comes from Sarah Mann from Moelis Australia. Please go ahead.
Morning, Kees and Sharyn. First question for me is just on motorsports. So clearly, I know you said that we were in an impacted period, but just curious around what you're thinking for the timing of the potential uplift in spend from the Formula 1 teams with the new car and potentially with the new team joining as well. Is that kind of something that we could see in this current half, or is it going to be more the back end of this calendar year?
Yeah. I think we'll see it more so in the first half of 2026 for sure. As you've said, there's another team, which is automatically, well, sort of in a nice way, 10% more revenue because there's 11 teams instead of 10.
And also the new rays on top of that, particularly, as I called out earlier, the battery component. On the electrical side, the cooling of that is massive, and we're very fortunate enough that we're dealing directly with the engine manufacturers because that comes into the engine module for the 2026 program. So yeah, we're very heavily involved in R&D and pre-production items right now as we speak, but there'll be a little bit of an inflow for that for this half of 2025, but the main inflow for that will be at the start of 2026.
About the headcount, thanks, Sharyn, for the context that you've given. Just trying to understand as well, though, I guess, the rate shift in terms of the mix of the types of headcounts. Obviously, you're investing in higher skilled, more expensive R&D specialist staff.
So should we be assuming that even though you've got the benefit of kind of the lower headcount, it doesn't all just drop through because you're substituting them with more expensive staff?
In terms of the mix over time, you're right, it would tweak it up a bit, but the headcount did come out across all locations. They could have been, as you say, some of the headcount that might not have been at the top end of town, but I don't think they're material movers in your assumptions. So yeah, I think you could still take a pragmatic approach to getting to where you want to get to on headcount assumptions.
Right. That's really helpful. Thank you. And then just a broader question just about the U.S. defense environment.
So clearly, there's been some talk, and who knows what eventually happens, but the Department of Government Efficiency potentially going after cost out in defense. Are you seeing any of this impact, I guess, how the defense primes are making contracting decisions, or what's the talk amongst some of your customers around this, if at all?
There's a little bit of chat. There's obviously, I think, the whole world's chatting, but there's certainly a fair bit of correspondence happening down the pipeline, and it's certainly coming our way. A lot of phone calls and a lot of opportunities, certainly a lot of further opportunities have sort of come about the last few weeks for sure. But they're long-term. It's a bit of a long road for some of those when it comes to opportunity to actually winning the deal and then producing and what have you.
So that's probably a 12 to 18 month program. But there's certainly some uptick in inquiry, as you would expect, which is helpful. And yeah, I guess the whole world's waiting to see what's really going to happen, but there's a lot of push, absolutely a lot of push for a lot of countries for looking after their borders, etc., etc. So we can only see an uptick in Aerospace and Defence spending globally.
Right. Thanks very much.
Thank you.
Thank you. Your next question comes from Angus Hewitt from Morningstar. Please go ahead.
Hi, Kees. Hi, Sharyn. I think most of my questions have been answered, but I've got a, I guess, just a follow-up on that headcount line of questioning. The increase was previously flagged as ahead of the curve supporting growth, and from memory, more increases were planned for 2025. So that reduction in headcount was a little surprising.
What's changed?
Oh, well, a lot of things have changed. When you look at our big picture, some of the headcount, and as you know, people you put on probably don't perform as well as you'd like, and when the bar gets a bit higher, sometimes you have to have a, I might say, a clean out, but you've got to certainly make sure that the people you are employing are on point, and so as we've done for a long time, we haven't really had the opportunity or necessity to really have a close look at what we're doing, but as I say, as the bar changes a bit and gets higher, you have to have great people doing great things, so some of the people that we did unfortunately let go probably weren't up to standard, and there's no free rides, right?
At our place, there's absolutely no free rides. So just setting the tone of where we're going and efficiency and what have you in the new factory, we just can't carry people. So it's more along those lines.
Yeah. Okay. And those roles are mostly just across the board. Is that what you were saying, Sharyn?
Yes. In terms of if you look at the practicalities of even the growing revenues over the period, there is an element of putting headcount into certain areas of, say, production. As the revenue shifts across those as well, you will have headcount attrition from that. Whether you choose to replace them when you're looking at the revenue you're looking at in the near term, that's where you do get some evolving headcount whereby attrition comes out.
So while the headcount put in has been largely R&D focused, when the team had a look at the time around where they needed the headcount, there were some that come out of production labour as well. And just part of the natural looking at where you need resources. So it wasn't a category by category. It was certainly considered trimming across the board.
Okay. And with the new factory and the pipeline that we've got going forward, we could see a step up again from 2026. Is that reasonable?
Specifically in headcount?
In headcount, yes. Specifically in headcount.
Y eah. I was going to say we have the other OPEX costs on that slide. In headcount, it'll really be about what we need for the revenue and work we've got in front of us.
There won't be people underutilized there standing around just because we've got equipment there where we've invested more. It'll be more of a, what do we need to get the work out the door? I don't know, Kees, if there's anything to add on that, but.
Yeah. Yeah. Yes, well by moving to this new factory, we are obviously pushing for efficiencies and what have you, and I think the space and the way the factory is laid out, that our in-house efficiency number is achievable, and we'd certainly like to be doing a lot more work with the same amount of people.
Okay. Thanks, Kees. Thanks, Sharyn.
Thank you. Your next question comes from Tim Piper from UBS. Please go ahead.
Good morning. Just one on the Aerospace and Defence outlook.
Just on the eVTOL side of things, you sort of noted the composition of the near term, relatively small, AUD 1.5 million. Is that sort of an annualized revenue number that you're thinking about for eVTOL in the short term?
That number was just in terms of our pipeline, what kind of programs we've got in there in terms of size. So it wasn't meant to be indicative of a run rate or anything, Tim. It was just to give a materiality that at the moment, it's not a big portion of our pipeline itself.
Right. Okay. But that is yet to sort of go into more commercial production. But the AUD 1.5 million, that's just dependent on the time for ramp-up?
Yeah. It was very much around pipeline and what's in that pipeline summary in terms of programs and work, etc.
Okay.
Just in that pipeline slide, FY 2025, where you've got 30 secured programs, what's the rough breakdown between what's already in production and what's for future production in that 30?
You're talking about the OEM Motorsports 30 on the far right?
No, the.
Oh, sorry. The regs secured.
Yeah. Aerospace. Yeah.
We haven't got that in front of us,
Sharyn. We haven't got that in front of us, Tim, but I'm sure we can dig that out for you.
Okay. Just thinking about the second half, you're kind of calling out that sort of a bunch of this work is being deferred from sort of second half of 2025 into 2026 for Aerospace and Defence sector in particular.
Has the second half outlook changed in terms of the quantum of dollar contracts that are sort of there in terms of landing in this second half? Or there has been some that have kind of dropped out of the pipeline that you'd expected to be there in the second half as well that's contributing to the guidance for 2025?
Nothing's dropped out. Nothing's dropped out. Maybe just moved a little bit. And I think we're always going to get that with Aerospace and Defence that they'll move out a little bit because of timing, not only for us, not particularly for us, but for the other parts of their equipment build. We have really no problem. And then they'll push it out because they haven't got other producers of the equipment that are on time.
So it's likely that some of those things will be pushed out, but the job hasn't fallen away. It'll be just pushed out into the first half of 2026.
Okay. Got it. Thanks.
Thank you. Once again, to ask a question, please press star one. Your next question comes from Luke Durbin from Oracle Investment Management. Please go ahead.
Hi, guys. Just a two-part question for me, just on the balance sheet. I understand the AUD 30 million debt facility is largely to assist with the Stapylton transition. Is that correct? And then further on the. Okay. Good.
And then the fact that you are taking on a little bit of debt for this, is this a reflection that the business is maturing a bit and likely to be a longer-term shift in the capital structure, or would you more anticipate the debt being paid down from cash flow in the shorter to medium term?
Oh, I think only after being here for a month, I wouldn't want to talk on behalf of Kees and the team, but there is appetite to take on some debt for certain strategic projects. But in terms of it being a step up in leverage moving forward, that's something, I guess, as a team, we'd look at the risk profile of each thing.
If you look historically, the business has churned out quite a bit of cash, so being very mindful about funding growth from that and making capital allocation decisions: do we give that cash back to shareholders? Do we look at reinvesting it in growth? There's certainly a lower risk appetite. I don't know if you want to make some comments, Kees, but my initial views.
Yeah. That's correct. But also our initial debt for the building now, we'll anticipate paying that off fairly quickly through cash income over the next two years. So we haven't got an exact date on that, but I think we'll probably have that paid off by the end of 2027, where we are. And then other things, it's just great having that opportunity, I guess.
If we do want to have some debt and what have you, I think we have a very, very good association with our bankers and what have you, and they look at it very positively. So they don't get too much out of us anyway because we haven't got any debt with them.
Oh, Phil. He's probably on the call,
Phil. Yeah. Good on you, Phil. Thank you. But no, they're very quick and very upbeat when we ask for a little bit of a hand just to do this new building and what have you. But I do certainly want to make it very, very clear we're not going to borrow money to pay dividends, that's for sure. So rest assured, anything that we borrow will be put into good play and excess cash of operating cash will be paid out in dividends.
So shareholders have a right to get that. And I think we've done it very well in the past 10 years and will continue to do so.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Weel for closing remarks.
Okay. Thank you. Thanks, everyone, for dialing in today. And thanks, Sharyn. I know it's your first line of duty today. You've only been here for three or four weeks and taking over the reins from Martin. And I know Martin is definitely in very good hands. But thank you for your input so far. And we look forward to seeing everyone and talking to everybody in the roadshow in the next few days. So thank you very much.
Thanks, everyone.
That does conclude our conference for today. Thank you for participating. You may now disconnect.