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 at 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. 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 Kees and his son Paul from the very early days and helping to grow the business from its foundations. 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 2025. This presentation will provide an overview of our financial performance, strategic priorities, and future plans. Turning to slide four, FY 2025 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 2025, 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 four 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 remained 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. In true PWR style, we mobilized three generators and managed the move effectively to ensure continuity of our production.
Looking forward, we enter FY 2026 with a strong order book position across motorsports and AMD. Our ongoing shift towards emerging tech solutions continues to strengthen our competitive positioning, broadening our customer base, and improving our visibility as the pipeline matures. At the same time, we've scaled our operational capability to support this global growth. While FY 2025 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 2026 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 five, strategic priorities. Despite being a transitional year, we delivered on the four key strategic priorities in FY 2025: the new Australian factory, our AMD platform, profitable growth, and our global operating model. The new Australian factory is now operational at Stapylton.
Phase II, the final stage of the relocation, is expected to be completed by the end of this calendar year 2025. This phase will see a step change in our controlled atmosphere production areas to improve capability, business continuity, product quality, and compliance. Our AMD 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 defence. 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 six, revenue and market sector. This slide breaks down revenue by market sector. This FY 2025 mix highlights significant growth in the aerospace and defence, steady growth in motorsports, and declines in OEM and aftermarket revenues. Aerospace and defence delivered a 28% year-on-year growth, with half two flat on half one. Importantly, no revenue from the U.S. government project was recognized in FY 2025, 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 One and World Endurance Championship programs and saw increased adoption of new technology solutions in, like MotoGP, driven by packaging and aerodynamic performance gains. Our Formula One powertrain programs are mature, specifically in our micro matrix and battery cell cooler projects for an increasing number of car manufacturing teams participating in the LMH and LMDH hypercar classes that we are supporting with 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 two 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 turn into slide eight, 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 defence, and achieving vertical integration. Looking ahead, our focus is on further building the aerospace and defence platform, capturing share in adjacent markets, and leveraging the platform to drive the next phase of growth. Turning to slide nine, 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 defence, and other high-performance cooling applications. This sets us up well to capture the aerospace and defence opportunity as outlined on slide 10 to follow.
Slide 10, position to capture aerospace and defence growth. The global aerospace and defence 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 revenues of $26.9 million in FY 2025, a 56% CAGR since FY 2021. Our competitive advantages are driving this growth. Our vertically integrated global footprint, specialized equipment and capabilities, and strong R&D leverage of motorsport 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 for PWR to achieving approved supplier status.
The number of approved suppliers has increased from 11 in FY 2021 to 46 in FY 2025, to now include the key defence 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 AMD market. Turning to slide 11, capabilities and capacity for future growth. We continue to build our aerospace and defence 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 Defence 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've doubled our capacity to support revenue growth for the next 25+ 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 2025, we rigorously plan to minimize disruption during transition, and we will continue to do so as we progress phase II. We anticipate further modest financial impacts in FY 2026 half one through phase II.
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 optimize that where we can. We will continue to power operations with four generators until this time. Phase II in its entirety is expected to be finished by December 2025. Once completed, this will deliver a step change in our environmentally controlled production areas to meet the customer's 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're 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 defence, motorsports, and emerging technology. We are focused on achieving efficiency gains through automation and process optimization over the medium term, and we're 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 plants at our new Stapylton headquarters. We are members of the Defence Industry Security Programme in Australia and are upgrading our cybersecurity with our 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 flexibilities. The PWR Academy facilitates a talent pipeline and a multi-skilled 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 Ormo 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 recommissioned 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 2025 revenue was driven by aerospace and defence and motorsports. Motorsports delivered 4% growth and delivered growth across both halves compared to the prior year. Aerospace and defence 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 two, providing momentum moving into financial year 2026. 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 2025, focused on ensuring our asset 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 positioned 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 the 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 right-sized 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 2026 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 defence 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 materialize.
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 AMD engineering and sales teams to facilitate a 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 cost year on year. Approximately 4%- 5% of this was an 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 AMD roles. We did see wage rate growth above inflation. Our R&D investment increased to $12.7 million, up from $11 million in FY 2024, 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 2025 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 US business, and the indirect impact is the inflation that flows through US suppliers' cost bases. 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 defence 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 motorsport 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. 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 tariffs do stack with the country tariff to a total of 35%, whereas the aluminum tariffs do not stack.
This applies to a less material portion of our U.S. imports than products that have the 10% country tariff. Overall, we've sectored direct tariff impact in FY 2026 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 2025 dividends to $0.04 per share, in line with our proportional payout policy of 40%- 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 2025 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 2026, we estimate a CapEx of $21 million, which includes $1 million carried over from FY 2025. This investment will see us complete the Stapylton factory upgrade, extend our U.S. AMD 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 Enedec, 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 costs 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 2025 operating expenses came in below estimates for the relocation and transition to the new site. Moving into financial year 2026, 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 one. However, as you'll be aware, AASB 16 front-loads lease expenses, meaning we will see an increase, as outlined on the slide, in lease expenses per year from FY 2026.
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 costs in FY 2026 to about $700,000. Our strategic investments in CapEx, and particularly the Australian factory, are 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 2024, driven by strong revenue collections and higher payables.
Cash conversion remains 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 at $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 AMD pipeline. Our aerospace and defence pipeline continues to strengthen with a broadening customer base, contributing to order book resilience. Currently, 80% of the top 40 programs scheduled for FY 2026 are secured programs, while eVTOL contributes less than 20% of the FY 2026 to 2028 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 for 46 relationships. This now covers all key defence players, including Tier 1 primes. On the right-hand side of the slide, we have provided the key segments for AMD. The initial circa $9 million U.S. government order is now expected in FY 2026. 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 pack, a pleasing aspect of the AMD 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 lifecycle costs, offered 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, our 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 One drive innovation within the teams and their critical supply chain partners such as PWR. New regulations of the scale being implemented will see a rapid development of solutions to continue to optimize performance throughout the early seasons. 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 the strong presence and growth in LMH and LMDH classes, now the premier sports 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 years 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 support and commencement of the Ford Mustang S650 program late in FY 2026. Our future focus in OEM is not exclusive to automotive, with industrial and marine sector leads giving confidence in new opportunities for PWR event 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. 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 a new Australian factory phase II, the electrical connection currently scheduled for October 2025, the completion of our micro matrix wind tunnel and additive manufacturing facilities by the end of calendar year 2025, and to leverage investment to deliver productivity gains. We will build our AMD 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.
A final summary on business outlook is across motorsports and Formula One regulation change and pipeline building momentum expected to grow, support growth in FY 2026 and beyond. Aerospace and defence, with delivery of our order of the U.S. government project expected in FY 2026, with a focus on capitalizing on accelerating global defence spend. Our OEM medium to long-term pipeline is rebuilding momentum and expects stable revenue in FY 2026. 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 2026, 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 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.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speaker phone, please pick up the handset to ask your question. If you would like to ask a question via the webcast today, please enter it into the ask a question box and click submit. Your first question comes from Alex Lu from Morgan's Financial. Please go ahead.
Morning guys. Morning, Kees, Matt, and Sharyn. Kees, great to have you back on board and wish you a swift recovery. Can I just start with margins, please? Just that modest margin outlook that you're expecting FY 2026, 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 flow. 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 represent the premium products that we sell, so a really strong product margin still. The second bucket of margin is where we've increased capacity. It's in that area, Alex, where we're really looking at we've now increased capacity, not fully utilizing that capacity or overheads, etc. That's where we're seeing some margin compression, not at the individual product level.
Okay, great. That's good. Just to clarify, Sharyn, on those one-off costs, you've got the $0.7 million relocation generated costs, and then you've got the CEO search costs of $0.5 million. I guess the tariff cost of $1.5 million, do you think that could be mitigated in FY 2027? Just wondering, you know, anything else that's one-off, please?
Certainly, that tariff impact we are looking to mitigate. As we outlined at the half, we've certainly got some opportunities there. As added in 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, 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. We're certainly very active in this space. Ideally, we can mitigate that over time.
Okay, thanks, Sharyn. Maybe just one last one from me, please, on aerospace and defence revenues. That was up 28% in FY 2025. It doesn't sound like it was driven by EV tolls. Just wondering, you know, what types of projects or work drove that revenue increase? I guess, you know, what types of work are you seeing in the pipeline?
Yeah, thanks, Alex. I'll take that one. Yes, obviously, there is some EV toll in FY 2025 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 AMD market sector, but recognized 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. 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.
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. It really is quite broad and certainly some exciting foundations that sort of underpin our AMD space.
Okay, great. Thanks a lot, Matt. Thanks a lot, Sharyn.
Thank you. Your next question comes from Elijah Mayr from Goldman Sachs. Please go ahead.
Good morning, Matt, Sharyn, and Kees. Good to hear you back in action, Kees. Just a couple of questions. Maybe just firstly on, following on, I guess, on AMD 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 that first half of 2026 and I guess sort of wider FY 2026 in terms of when those delayed revenues will be coming through and just the overall growth in that emerging tech and AMD division in FY 2026, given the transition?
Yeah, we still see very strong growth in AMD. 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 2026 with the information we have available to us now. From an overall revenue perspective, we still see AMD being our strongest growth long-term market.
Is that expected to grow in FY 2026? I just understand there is a bit of transition still happening in the first half.
Yeah, yeah, no, it is definitely still expected to grow in FY 2026.
Excellent. Maybe just on the transition, sort of expecting to come in before the end of the year in December. Just noting in December and January can be a tough time to get things done. What's the risk that this completed transition stretches into the second half of 2026, or how confident are you to get in place and fully operational by the end of the calendar year?
As this falls in time, we have no expectation for that to go beyond a 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, our well-publicised delays with regards to electrical connection to this factory is evidence to that. 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. Am I just sneaking in one, just a clarification question? Just with the medium-term margin targets over three to five years, is that referring to net profit margins or just margins across the board?
Correct, and net profits.
Perfect. Thanks, guys.
No worries. Thank you.
Thanks.
Thank you. Once again, if you'd like to ask a question on the phone, please press star one on your telephone and wait for your name to be announced. Your next question comes from Tom Tweedie from MA Welles, Australia. Please go ahead.
Good morning, team. Thanks for taking my questions. Just a bit of a follow-up question on AMD and this contract. Are you expecting the $8.9 million to be delivered across FY 2026, or is there any weighting to one half? Also, any further orders that may potentially come through, would they be delivered in the FY 2026 tail end, or would that more be an FY 2027 story?
Yeah. Look, at the moment, we expect the weighting of delivery of that project to be forward in half one. I don't think we would make a statement saying that it will be assured of being fully delivered in half one. At the moment, the program expectation is the majority of that will be delivered in half one. It's probably too early to say with regards to the next phase of that project whether or not follow-up orders will be able to be included in FY 2026. Obviously, aim to deliver on the order that we have in place and get that in, get that further qualified, and that opens the opportunity for, if the program allows, for those orders to be placed perhaps early enough to see that.
Brilliant. Thanks. I was just going to also follow up on the margin questions we've had. Just in terms of these three to five-year targets back to FY 2024 margins, should we expect them to be a little bit back-end weighted to that forecast, just given all the factors you've got coming through in FY 2026, or should it be fairly linear from now through to, say, three or five years' time?
It's a really good question, Tom, because growing into our footprint and our resource cost base is a large driver of that. Your comment around waiting more to the back end as we mature that revenue pipeline would be an accurate one rather than a linear approach to that.
Brilliant. I'll just ask one more question, if I may. With the new rules going into Formula One, can you give us a sense of the step change of the number of coolers on the car and then the % mix going from traditional coolers to micro matrix? What that uplift is, obviously mindful that it may be driven by the engine OEMs rather than the teams themselves. Can you give us a sense of what that step change is from the current regulations?
Yeah, look, the total number of coolers hasn't necessarily changed too much. It's really the mix of coolers that are required for this particular type of, I guess, power unit. The biggest single change to the regulations is, from a power unit perspective, the introduction of a much more powerful electric contribution. Therefore, the cell carriers, the battery cooling cell carriers, have, I'll say, somewhat tripled in size and complexity to deal with the thermal challenge. To give that a little bit of scale, you know, the cars next year will drive out the pits with enough fuel to do an entire race but enough electrical energy to do one lap. The rate of regeneration and deployment of that electrical energy is substantial. As I said, they are literally recovering and spending that electrical energy around the duration of a single lap.
The heat generated in that rate of regeneration and deployment is significant, and it has driven a requirement for more advanced cooling solutions that's pushed us in areas of materials development and product innovation. That has been a very significant part. It's allowed engagement with more power unit manufacturers going into 2026, as did the opportunity to then engage with power unit manufacturers as well with regards to other supporting systems like water-to-air charge coolers, which now are micro matrix solutions. The vast majority of the grid will have micro matrix on the car going into 2026. That's driven by a larger number of, I'll say, water systems, and they're solving many of those other fluid challenges like oil with micro matrix, water-cooled micro matrix coolers.
It's a complementary technology that allows some aggressive packaging, which obviously becomes to the vehicle's advantage from an aerodynamics perspective if they've got more freedom with regards to what they can do with the bodywork. There is a regulation change as well that allows greater freedom of the geometries that are able to be produced with our heat exchange solutions, which is an enabler of greater core complexity. It gives the teams more freedom to design more aggressive aerodynamic strategies if we've got some more geometrical freedoms with our core shaping. There is an expectation going into the new year that with almost all teams, no one is delivering an optimized car at the start of the season. There will be launch cars. There will be initial, I'll say, race cars.
There is an expectation that all teams will go through a, I'll call it mid-season, but it's probably earlier in the season upgrade when they start to run these cars on track and they learn the intricacies of both the deployment of the electrical energy, how that's going to be used across a lap. There's also fairly significant impact on the cooling of a Formula One car with the new aerodynamic regulations that allow for movable front and rear wings, where the low pressure behind the car has a significant effect on the amount of air that's drawn through, as well as, as you appreciate, the front wing influences how air flows over, under, and through the car. That's a new development going into 2026, and it will have some influence over the cooling of the car.
Obviously, a lot of this is simulated, but the reality is that a lot of the teams will not really know until they actually get cars on track, which happens at the end of January. We anticipate an aggressive period of optimization that is likely to span not just the initial season, but with any new regulation change, there is a period of time where it takes for the, I guess, teams to start to diverge towards optimized solutions. Exciting times ahead in Formula One.
Thanks. That's really comprehensive. Thanks for taking my questions.
Thank you. Your next question comes from Tim Piper from UBS. Please go ahead.
Good morning, team. Just one on the AMD sector. I mean, through the preso, you've obviously talked a lot about investment for growth going forward, but also a lot of investment to meet sort of accreditation, compliance, and regulatory requirements of servicing that industry. Maybe two parts to the question. You've seen sort of headcount start to increase again into the end of the year. Sharyn, I think you said that was more production-related headcount. Is that correct? From here, any sort of sense you can kind of give us around sort of headcount and/or potential system-type investment that's required simply from a compliance point of view? That's sort of just a cost to play in the space.
Sure. In terms of headcount, you're right. In May and June, it was largely production-related. We did have some roles going to the motorsports design area, just leading into FY 2026. I think there was around five roles going to that area as well. Moving forward, when we look at the AMD compliance space, we have called out a number of those items, such as CMMC 2.0 in the outlook slide. That is one example of a compliance item where that cost or that approach used to be self-assessed, and the U.S. government has now changed that to be a third party's audited process, which incurs incremental cost. Where we have seen the approved suppliers go from 11 over time to 46, that's kind of the lead indicator for how these incremental costs start to pay back dividends.
Getting from 11 to 46, some of the costs as examples that lead us to where we are now has been the quality assurance, not only the system itself, and I'm not talking about the IT system, talking about the quality assurance system as a business, which does require headcount to maintain it. There's a lot of documentation controls required, a lot of review and auditing to make sure those processes and approach are adhered to. That's quality largely in that headcount space. From an IT system, that cyber that I called out, the CMMC 2.0 is important, but also things like ITAR, where especially in the U.S., whose eyes can look at information, how we as a global business transfer information so that it's compliant means there is some IT required to make sure that access to systems and documents can be controlled.
When you have extra IT, you also have headcount that then needs to maintain that IT. It's largely in headcount to make sure our compliance system is operating effectively and IT to make sure that we've got systems taking some of that manual workload out. Over time, these things do stabilize, and then the revenue can leverage through on them. At the moment, we are still in that period of implementation across three sites. NADCAP has been implemented for two of our processes in the U.S., which is great, but also that involves resources to do that, not only in preparing it, even having customers or third parties come and audit us as a supplier. It's going to take time. Hopefully, that gives you a bit of a feel that it's not just IT system, but it's largely a business system and process that people need to control.
This isn't a cost that keeps going into perpetuity. There is an element of it matures across three sites, and then we can leverage that. We just do want to call out that there's still investment to do.
Very comprehensive. Thanks. Second one, the MRO opportunity understands, obviously, early days there at the moment. Any sense you can kind of give us on contributions so far, and maybe over the next couple of years, sort of what % of AMD revenue that opportunity could potentially represent?
Yeah, I'd say modest contribution at the moment, but we certainly see it as something that we can grow substantially into. It's a more accessible market than the program-specific opportunities that we have, shall we say, with defense primes. I guess a bit like maybe the aftermarket of automotive, it's a little bit more in our control with regards to product development and engagement with market opportunities. We certainly see it growing to become a significant contributor. To date, it has been modest, but it's driving us in product design and new materials development that will not only provide opportunity in the MRO space of aerospace, but the product developments have similarities that were requirements for industrial applications, marine applications. It's providing a good foundation for future growth.
Got it. AMD did 28% growth or sort of incremental $6 million of revenue in FY 2025 with none of that $9 million contract order in there. Thinking about FY 2026, do we sort of think about the underlying AMD doing a similar kind of growth run rate again and then layer that $9 million over the top?
Yeah, AMD in terms of the composition of revenue, given where we're at in the maturity pipeline, it can't really be looked at as take the current year and then add on top because AMD is still in different periods within the customer lifecycle. For example, in 2024, where we had some really strong upfront EV toll engineering revenues, etc., they then drop down as we move into potential production. The customer goes away and does what they need to do before we enter into production volumes and contracts. It's probably a case of factoring that $9 million contract within your growth rate that you're thinking of, rather than banking the FY 2024 number and building on top on top. We just want to make sure we're quite tempered in our maturity on AMD and how those revenues flow out over time.
We're still very confident on the long-term opportunity and hope we spell that out in the pack in terms of the size of the prize. We just want to make sure the maturity of those 46 customers we're approved for is factored in over the next few years appropriately.
Got it. Sorry, just one quick one. You mentioned three to five-year margin recovery refers to NPAT margin. The comment around modest margin recovery or improvement in 2026, is that also NPAT margin or is that EBITDA margin?
Correct, NPAT.
Great. Thanks.
Thank you. As there are no further questions from the phone, we will now pause briefly before addressing questions from the webcast. Your first question today from the webcast comes from Jeff and Julie Rogers. They ask, what caused the delay in the connection of power to the new factory? Have generators been provided in a loom or force majeure situation?
Yeah, we are on generators at the moment. I don't know if I need to call them out by name in terms of why we're delayed, but I can say that part of the delay has been the fact that connection to PWR and upgrade doesn't just affect PWR, it affects the area and businesses around us. That's been one of the delaying elements of getting connection.
Yeah, it's certainly third-party related in terms of not being able to get connection to the grid.
Thank you. Unfortunately, we have run out of time for any further questions. I'll now hand back to Mr. Bryson for any closing remarks.
Thank you very much. Once again, I would just like to thank all in attendance for joining the call this morning. I appreciate the questions, and thank you all again for your continued support of PWR.
That does conclude our conference for today. Thank you for participating. You may now disconnect.