Amotiv Ltd.

Thank you for standing by and welcome to the Emotive Limited FY26 H1 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr. Graham Wickman, CEO. Please go ahead.

Thank you and welcome to the earnings call of the mode of results for the half year ended 31st December. I'm Graeme Wickman, CEO and Director, and I'm here with Aaron Canningby, Company's Chief Financial Officer. As normal, the recording of this call, along with the material, will be available later today on the website. So I'll start the call by touching on the key messages and the group performance, a review of the operating divisions, then I'll turn over to Aaron to cover off the financial section in more detail, and then we'll conclude with a short trading update and outlook before conducting the Q&A. Let's turn to slide three. I believe we've delivered a solid result in what is a challenging operating environment. I think it reflects the discipline execution and the benefits of a multi-year diversification strategy in terms of where we garner our revenue. Our mode of Unify continues to deliver incremental benefits with ongoing cost, a margin, and operational initiatives, mitigating segment-level macro pressures through a more streamlined and efficient operating model. We had strong cash conversion and coupled with disciplined capital management that supported reinvestment in the business while returning capital to shareholders. Against all that backdrop, the FY26 guidance remains unchanged. Group revenue growth is expected with underlying EBITDA growth of circa 195 million. Turning to slide four, where we detail some group performance. Well, the revenue diversification has been a core pillar of our strategy, so it's pleasing to see the revenue growth of just over 3%, underpinned by new business wins, ongoing product investment, and a high contribution from offshore markets. This provided an offset to some of the headwinds in four-wheel drive and LPE, while our powertrain diversion continues to outstrip what is a resilient system growth. Underlying EBITDA of 98.3 million, up marginally on the PCP. It was impacted a little bit by lower four-wheel drive margins due to domestic inflationary pressures and the ramp up to South African plant. By the way, a market that we remain excited about in terms of future prospects. And then we've got some select pricing implemented in Q2, and that's expected to support the four-wheel drive margins in the second half. The emotive unified initiatives across the group delivered meaningful cost benefits and and these partially mitigated the margin pressure from domestic cost inflation. This program has got really good momentum, and further incremental benefits have been identified and expected to support H2 a little bit there, and then certainly into future earnings. A great cash flow, very strong. Capital management drove EPSA up 5%, and dividend growth of just over 8%. At the same time, leverage was maintained comfortably within the target range, and Circa 48 million was returned to shareholders in the period, inclusive of both dividends and buyback. Safety, always a pride point for the group, and therefore it's pleasing to see continued improvement in the tripper, which has trended down to just down to 9.7-ish. And as an aside, our work on reducing emissions also delivered tangible benefits in the period. Now turning to slide five, we outline the progress made on our strategic imperatives, which represent the key areas of shareholder confidence. value creation. If you look from left to right, as mentioned earlier, we're pleased to see the momentum and cost realisations from emotive unified programmes, which were first announced to the market back in May at our Thailand site visit. Now, we'll cover this in a bit more detail later on, Aaron will, but these activities garnered benefits across three of our divisions, all three, as well as also our corporate head office costs. I'm actually really excited that the commissioning of the third Thailand plant is underway, adding capacity to the already well-utilised existing adjacent facilities up in Thailand, and this low-cost jurisdiction positions as well to win business in Europe and the UK, and we touched a little bit on that at the full year, and I'm going to talk a bit more about that later on. As discussed earlier, revenue diversification has been an important driver of this result, with ongoing penetration of offshore markets resulting in a 14% growth in revenue outside of Emotiv's ANZ domestic market. Our operational excellence efforts were well rewarded in the half, safety improved. Headway was made on reducing emissions with circa 850 kilowatts of solar energy commissioned at our four-wheel drive Keesborough Park. As a result of some of the unified warehouse consolidation initiatives, Powertrain and Antacar saw an increase in dipoct post the latest phase of the Trug and Energy DC consolidation. So very happy with the way that's coming together. And then finally, in terms of capital management, the buyback we announced in October 24 was completed in the half. At the same time, we increased the dividend at a higher rate than the EPSA. Moving to slide six, we touched on a mode of 2030 strategic plan for the group unveiled at the last AGM. As you can see from the slide, we've reduced and simplified our strategic priorities from the prior GUD 2025 strategy, aligning the divisions, This calls for us to optimize our powertrain and undercar portfolio while adding one or two adjacent non-ice categories. Solidify and defend our Australia and New Zealand lighting, power and electrical business while still growing a global niche lighting and power business from our established bases both in the US and Europe. Building a leading integrated four-wheel drive and accessories and training business in Australia while leveraging key expertise to build a focused global business. And I would term that as sweating the assets, both from an engineering and also manufacturing point of view. And then finally, simplify and improve fire and motor unified to make us more efficient and effective. Now, my point of view, motor remains an attractive pure play. All centered around automotive, as you know. Servicing large and resilient addressable markets, supported by market-leading brands of largely ice agnostic products. which in turn is supported by some really strong new product development credentials, both in terms of investment and also strong market positions, something we don't take for granted. The groups led by experience management team focus on improving shadow returns through disciplined investment is backed by a strong and, I think, resilient balance sheet. Having said all that, there's lots of work to do, but we're all excited at the prospect. 2030, from a strategy point of view, is designed to create a clear path to leveraging our automotive pure play to grow and create value for shareholders, underpinned by, I think, a clear set of attractive investment thematics. Now, let me turn my attention to some divisional updates. Right, starting with forward drive. Well, revenue was up 5.5%, driven by new business, including a full period of South African revenues that weren't so present in the PCP, and this was also complemented by some continued Oz tow bar wins. I think this is a credible performance against a highly challenging backdrop. Pickups for flats in the half, net of shark in Australia and New Zealand, and down 7% net of shark in January alone in ANZ. So January was an interesting month. The mix also of OEMs was challenging in Australia, as an example, in the half, with five of the top 10 pickups down in the half between 3% and 37%. And then you sort of cast your eye to January, because remember, we are generating revenue in the half, even though those vehicles were being sold in January. And if I looked at the performance in January, six of the top 10 pickups were down, actually even more pronounced, between 14% and 38%. So a little bit softer than what we were expecting. Cruise masters, so if I turn my attention to caravans, continue to gain share, which positions us nicely for what is a weak caravan RV market when that eventually turns. I think overall the result reflects a cyclical and the inflation headwinds that the team are facing. It also reflects the ability of this division to win global business, and this has been leading us to invest in the growing perspective offshore revenue quite wide. Underlying EBITDA was down just over 15%. Down 12% if you were to back out the impact of a double debt provision for an RV customer, that was around a million. And with that similar approach, the actual EBITDA margins were down 290 basis points. Now, the key driver of which was delayed price realisation relative to domestic cost inflation, and we signalled this to the market previously. At that same time when we were talking to you, we spoke about out-of-cycle OEM pricing, and that was secured in the end of Q2 to address a period of heightened inflationary pressure within the domestic manufacturing operations. As a result, margins expected to improve from H2. There's also been a country mix impact as we consolidate South Africa for the fall first period. Now, this new facility has the excess capacity, again, not new news to our investors, as it's in the early stage of ramp-up. You'll be reminded it's been stood up on the basis of two SKUs. But we remain confident in the ability to win business in that jurisdiction and improve utilization of margins. And, of course, while it's profitable, as detailed in our FY25 four-year results, South Africa is below the margins of a mature four-wheel drive operation. Within the four-wheel drive, the motive unified also positively contributed to earnings through the right-sizing of the New Zealand operations, which are now profitable. So if I start to look forward, we expect the combined impact of pricing actions and high volumes, such as Hilux and H2 and Navara and FY27, and particularly from offshore, the likes of U-Haul and some European business, coupled with the unified efforts to improve margins from H2 and specifically beyond. Interestingly, we had some comments from our shareholders in the past, Wanted to understand a little bit more about the Chinese situation. Will the depth and breadth of our relationships with Chinese OEMs continue to improve through the half? You can see on the chart on the slide that the Chinese OEMs are becoming a larger part of the addressable market in Australia and New Zealand. Much has been made of the successful launch of the BYD Shark. Unlike some of the other Chinese OEMs, BYD has taken the approach of self-supplying tow bars. But the balance of the Chinese OEM, which represents 72%, as you can see on the chart, of units in CY25, that's CY25, have outsourced this function and we are already pending, already are customers of the four-wheel drive business, which means we're well positioned for any OEM mix change within the Australian car park. As mentioned earlier, capacity also has been added to our tyre facility. The four-wheel drive team have a really strong track record of winning and retaining business and is focused on scaling these offshore operations to drive revenue growth and recover fixed cost investments, supporting that margin improvement I mentioned over time. As evidence of this, I'm really pleased to announce that we secured our first European Tobar contract. That's being supplied out of Thailand, so it's utilizing and sweating that asset based on the engineering capability we already have. And that's our first material, when I say material, I mean in terms of an OEM contract that we've been able to secure. And that volume will be expected to come in FY27, and we expect to perhaps get some more European contracts. And that's market share gains. That's taking business off the likes of First Brands and Westfalia. In the U.S., export volumes from Thailand continue to build, with growing U-Haul demand expected to support volumes into FY27. So I'll stop there and perhaps now move to slide 9 in the LP&E division. Now, the ANZ market conditions remain challenging for LP&E, particularly across the reseller channels. Against this backdrop, the group benefited from continued execution of the emotive unified and increasing offshore revenue diversification, which provided a meaningful offset. Revenue reflects volume growth in the US and Europe, which mitigated some of the soft reseller demand in ANZ. By category, lighting delivered growth of 1%, well done to the VisionX team in the US and Europe. and that offset the muted Australian reseller demand. Power management revenue increased 3%, reflecting ongoing investment in product innovation and continued growth in the US market. And then electrical accessory revenue decreased 4%, impacted by softer Australian reseller demand, some ranging changes, but really some emerging signs of flights to value. The unified benefits were delivered through a leaner Australian operating model with total operating costs down circa 12% compared to PCP, and as a result, Underlying EBITDA increased nearly 9.5%, with margin expansion of 210 bps, largely driven by those unified benefits. But turn my attention to looking ahead. Well, the ANZ reseller dynamics are expected to persist in the second half, while Europe and the US are expected to continue to grow. The full benefit of the Q2 US tariff-related price increases expected to flow through into H2, with modest price increases anticipated from Q4. The net result is that we expect underlying EBITDA R&H to be marginally softer than H1, but slightly above, certainly, the PCP. Now let's turn to the final division, powertrain and undercar. This is a really pleasing result. Well done to the powertrain and undercar division. It reflects the continued resilience of the wear and repair market, supported by some really strong ground strength and ongoing efforts to diversify revenue. That revenue grew by almost 5%. It was driven by volume and the annualization of pricing actions. across select product categories. A broadening product portfolio, increased PD investment, drove outperformance. And when I say outperformance, I'm thinking about that relative to system growth. Interestingly, the New Zealand revenue grew by 12%, and that was driven by enhanced distribution and ranging outcomes. Efficiency and margins were supported by ongoing unified consolidation benefits and reduced EV investment. And this resulted in underlying EVIC growth of 6.7%, so nearly 7%. EV investment was further moderated through the first half, in line with the changing market dynamics, and we've spoken about what we were going to do at an early stage. With that, business on track to reach break-even by the end of FY27 on a runway basis. Looking ahead, further unified initiatives will be implemented through the second half as the business continues to consolidate site operation and prove returns. This also includes the consolidation of infinitive operations into the IMG group. operating cost benefits flowing from the first half, headcount reductions, the rationalisation of the ACS warehouse at the Traganina, and the commencement of group procurement benefits, including freight. So that sort of wraps up the divisions. Perhaps I'll now ask Aaron and hand over to Aaron to give a bit more detail to some of the finances in the back. Aaron.

Thank you, Graeme, and good morning, everyone. My name's Aaron Canning. I'm the emotive CFO, and I'll take you through the first half financial results in more detail. On slide 12, we highlight our group financials. As Graham has touched on, revenue grew 3.3%. Importantly, that was all organic growth. The four-wheel drive business benefited from new business wins as well as the inclusion of South Africa for the first full half, growing 5.5%. The powertrain and undercar business grew 4.9%, really driven by a broad range of categories from filtration, brakes and gaskets, which was pleasing to see. The LP&E division, as Graeme has touched on, was marginally down, driven to a softer ANZ reseller demand, offset by continued growth in both Europe and the US. Gross profit declined by 0.5%, with margins lower due to the inflationary increases in full drive, which have been yet to be offset by the OE price increases that were announced in Q2. These will show up in the second half. U.S. tariffs also impacted the LP&E margins as our double-digit price increases announced in May 2025 post-tariff updates did not come into effect until midway through Q2 as we honored customer back orders at pre-tariff pricing. We expect all of that margin to flow through to the second half and we continue to monitor the U.S. tariff environment and are prepared to make any further pricing changes, if required, to protect our margins. Operating costs pleasingly were lowered by over 2%, more than offsetting inflationary increases, largely due to disciplined cost management and the benefits from our emotive unifier program flowing through. Depreciation and amortization were broadly consistent period on period. Under underlying EBITDA at 98.3 million is marginally ahead of the PCP by 1.3%. And importantly, it keeps us on track for an unchanged full year 2026 earnings guidance, which Graeme will speak to in more detail later. Significant items total 8.3 million and largely relate to restructuring activities linked to executing on a mode of unified initiatives. In the half, a further 50 employees departed the business, predominantly across our powertrain and undercar and lighting power and electrical divisions, as we continue to simplify and optimize the operating model in these divisions. A more detailed breakdown of significant items are provided in the appendix on slide 26. We remain disciplined when it comes to managing significant items, and it's worth noting we are one year into our three-year emotive unified journey. Although we do expect further one-off costs in the future, we see this as moderating over the medium term. There were no non-cash impairments in the half and we remain comfortable with the carrying value of our core brands and intangibles. In terms of tax, we had an effective tax rate of 29.1% in the half, marginally up on the PCP with some minor movements in the period. A further breakdown of these movements is provided in the appendix on slide 27. We expect the full year effective tax rate to be broadly aligned with the current levels around 29%. Our statutory net pad at $46 million represents 39.4% growth on the PCP, with the prior year impacted by high significant items, including a $10.4 million non-cash impairment. Underlying EPSA grew 5.3%, largely due to earnings growth, and lower shares on issue on completion of our buyback in the half. The Board have approved an interim dividend of 20 cents per share, representing over 8% growth or a 52% payout ratio. As Graeme has touched on, pleasingly we've been able to return over $48 million to our shareholders in the period, with a combination of over $18 million invested to complete the 5% buyback program. and nearly $30 million in dividends paid in September 2025. Directing your attention to slide 13, net working capital. Net working capital percentage of revenue improved one percentage point to 28.7%. Improved collections partially offset growth and inventory balances for the period, with total working capital growing at 3.1%. I'll unpack this in a little bit more detail by divisions. And inventory increased just under 19 million since June, or 8%. It's predominantly driven by the LP&E division, which has carried higher inventory levels for our Vision X business in the US and Europe post-US tariff changes. In Australia, we have sought to rebalance our inventory holdings commensurate with reseller demand. This is still a work in progress. And Australia represents an opportunity for us to improve our inventory position through the second half as we build our sales and operational planning capability. Four-wheel drive saw marginal increases. It's important to note in that division, the majority of finished goods inventory is made to order in that business. And it also includes the inclusion of South Africa for the period and some timing of inventory purchases. The powertrain and undercar division also saw some increases as we continued our work on consolidating our logistics and warehousing footprint as part of the motive unified. As such, we have built inventory through the first half to manage this transition as we expect to make some further changes in Q3 as we rationalise our warehousing operations for our clutch and EV businesses. We expect the current inventory levels to unwind in this division through the balance of year. Our payables are broadly aligned with PCP and pleasingly our receivables have decreased by 4% or over $8 million. against the reported revenue growth of over 3%, largely due to better compliance and a concerted effort around collections. Compared to the PCP, we do not have the one-off collection issue repeat in this period. And importantly, we see further opportunities to improve our collections through the balance of this financial year. For transparency, we executed similar levels of debt factoring, around $16 million in in this period versus the PCP in December 2024 and again in June 2025. Pleasingly, our cash conversion remains strong. It's just under 92% and ahead of our guidance. Directing your attention to the chart on the bottom right-hand side of the slide, you can see the strength and the resilience of the business across a number of periods and regardless of the cycle and broader macro environment. As we look to the full year, we do not see this changing, and we expect our cash conversion to be at line and or ahead of our cash allocation target of 75% or more. As we turn to slide 14, capital investment, our investment in product development has ticked up in the period to 3.8%. It's been a key driver in underpinning our performance in our powertrain and undercar results. and also supporting future wins in four-wheel drive. We expect similar levels of investment through the second half of this year. Our capex is moderated and down 22% versus PCP, largely in four-wheel drive, which in the prior period included investments in South Africa and Thailand. As previously advised, we expect the full-year capex investment to be up to 10% lower than last year. In terms of our capex split between growth and maintenance, it is broadly balanced. It's in line with our capital allocation frame metrics and ensures we balance investment in maintaining what we have today with investment initiatives to generate future growth. On slide 15, our foreign exchange exposure was well managed. The first half was impacted by a stronger USD versus the PCP. However, this was well managed within a volatile spot market. For the remainder of this financial year, we are now effectively fully hedged with further hedging being executed in January. We also have taken the opportunity in the last few weeks in particular to take advantage of the AUD strength and we've locked in meaningful coverage for the first half of FY2027. If there continues to be any further AUD strength above current levels, this will mostly be an H227 impact for a motive. In terms of our offshore earnings, it continues to provide a natural head to FX exposure, particularly as we increase our US dollar and Asia currency earnings. US dollar earnings grew 41% versus PCP, building our natural hedge in the periods. Combined US dollar and non-ANZ earnings now represent 32% of our total post-tax earnings in the half and we see growth in offshore earnings continuing to be more meaningful through the second half and beyond. On to slide 16, our balance sheet remains in great shape. The group's balance sheet remains in strong position with gearing at 1.95 times, increasing by 0.2 turns since December 2024. It remains well within our capital allocation framework target range of 1.5 to 2.25 times. Our leverage increased marginally since June, largely due to the completion of the buyback program. I said earlier we invested a little over $18 million in completing that in the period and some further investments in new jurisdictions in the form of working capital and operating expenses. The business continues to deliver stable and predictable cash flow earnings, as I noted earlier. Our leverage guidance remains unchanged with the expectation the business will deliver through H2. Our debt profile remains long-dated with nearly two-thirds of it fixed at market-leading rates. As such, recent and any future changes in the Australian domestic interest rate environment will have a relatively low impact on our cost of funds. As a guide, 25 basis point increase or decrease will have a 0.3 impact on a full year result for us. We remain strong support from our ender group and strong appetite for further support should we need it. In terms of our cost of funds on the right-hand side, it's reduced marginally in the period by 11 basis points, largely reflecting the domestic interest rate environment. On to slide 17, in terms of our capital allocation framework, we performed strongly against the majority of these metrics. In February of last year, we announced this framework. The framework provides visibility on how we will deploy capital against, as you can see, a set of return metrics, both for organic and inorganic investments. Importantly, these metrics, in particular return on capital employed, now form part of management's long-term incentive programs. For the first half, we performed in line or ahead of all metrics with the exception of returning capital employed. This remains a key area of focus for us and we're unhappy with our current performance in that area. We continue and will continue to measure ourselves on a pre-APG impairment metric. On a reported basis, you can see the result provided in the footnotes to the slide. Furthermore, today we are announcing we expect to generate an incremental 10 million annualized gross benefits from the Emotive Unified program on exit of this financial year. And on that particular topic, I will now cover off the Emotive Unified update as part of a broader update on our outlook. I'll now direct you to slide 19. In February 2025, we announced our transformation program called Emotive Unified. This is a three-year program made up of a number of projects with execution staggered into three ways. Exiting FY25, we delivered $15 million in gross analysed benefits with $5 million reinvested into marketing, product development and new roles. This net $10 million of benefits is included in in our FY26 guidance. We are announcing today an incremental, in addition to that, an incremental 10 million annualised gross benefits to be realised on exit of FY26. These further benefits will support 5 million investment into simplifying our IT platforms, further warehouse consolidations and program management resourcing through the second half of this year. The timing of these benefits at an additional net 1 million EBITDA benefit in FY26 highlighted in the table on the bottom right of the page. These benefits are helping offset a revised modest pricing increases expected in the second half. These combined net benefits of the million announcing today and the 10 million that we previously announced are included in our FY26 guidance. I'll now hand you back to Graham to discuss this guidance and trading update in more detail.