PWR Holdings Limited

Thank you for standing by and welcome to the PWR Limited Half Year 26 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you would like to ask a question via the phone, you'll need to press the star key followed by the number 1 on your telephone keypad. If you'd like to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I'd now like to hand the conference over to Mr Matthew Bryson, Acting CEO. Please go ahead.

Good morning. I'm Matthew Bryson. Acting CEO of PWR Holdings Limited and I am joined by Sharon Williams, PWR's Chief Financial Officer and incoming CEO. Today I am pleased to present PWR's half-year results for the financial year 2026. This presentation will provide an overview of our financial performance, strategic priorities and outlook. Turning to slide four, Following a transitional year for the company in FY25, the first half of 2026 demonstrates clear earnings momentum underpinned by volume growth and the early emergence of operating leverage as the significant investments in capacity and capability begin to scale. Group revenue growth of almost 28% was weighted to a stronger second quarter as operational disruption associated with the final stages of the factory move and temporary power arrangements was removed, enabling improved execution and higher throughput. With the transition complete and stable infrastructure in place, the business is now operating on a far more consistent and scalable footing. NPAT growth of 38% to $5.7 million outpaced revenue growth supported by higher utilisation of our expanded labour base and improving operational efficiency as throughput increased. Strong cash conversion at over 100% remains a core characteristic of the business, supporting continued strategic investment. Net debt at period end is modest and already reflects deleveraging from peak levels earlier in the half. We expect further deleveraging in the second half. A major milestone in the half was the completion of our transition to the new Stapleton headquarters in February. Delivered in line with budget, the new facility materially increases capacity and enhances operational capability, positioning the business to execute on larger, more technically complex opportunities. Importantly, we successfully completed recertification to AS9100 and NADCAP following the relocation, ensuring no disruption to our aerospace and defence credentials and positioning us to capture further program opportunities. This facility underpins our ability to scale over the medium to long term. We're seeing strong momentum in the order book supported by improving mix and structural drivers in the key markets we serve. There is growing adoption of next generation technologies across high power motorsports and aerospace and defence applications. This is driving both market share gains and profitable growth. The structural shift towards increasingly advanced and technically complex cooling solutions aligns directly with PWR's core strengths in engineering, vertical integration and quality. We're also seeing increased AMD program activity, broader customer diversification and early repeat activity, which is strengthening the quality and visibility of the order book as the pipeline matures. With the Australian facility now scaled, we have capacity to support long-term growth well into the next decade. In the US, we've progressed key accreditations and production capability for AMD products, expanding our ability to service customers locally. Additional investment across the UK and the US enhances flexibility and de-risks supply for global customers. Capital allocation remains disciplined We're balancing growth investment with financial conservatism, ensuring the business is positioned to deliver sustainable returns as operating leverage continues to build. Overall, Half One reflects a business that has completed a significant investment phase and is now beginning to translate that scale into earnings momentum with a stronger platform to capture growth across our key markets. On slide five, we outline the progress made in the half in service of our four key strategic priorities. The relocation of our new Australian site is now complete, a significant milestone for the company and one we are extremely proud to have delivered. We continue to strengthen our aerospace and defence platform. We have also expanded our position as an approved supplier, now covering all key defence primes, including Tier 1 players. This materially broadens our addressable opportunity set. Growth on the half was strong and profitable. Operationally, we continue to build a more resilient global model. Finally, we have implemented a more scalable global operating structure positioning the business to support continued growth across our global footprint. Turning to slide six, where we break down revenue by market sector. As evidenced in the revenue bridge, the key drivers of growth this half were motorsports and AMD. Motorsports growth of 40% exceeded our expectations, in part reflecting race testing for Formula One commencing two to three weeks earlier, and increased uptake of our technical services. This result also reflects a broadening customer base across categories outside of Formula One and increased customer adoption of PWR's unique core constructions. This increase in market share is driven by improved thermal performance, packaging and aerodynamic advantage that our solutions provide our customers. Aerospace and Defence delivered over 30% growth on PCP, reflecting contributions from Defence, commercial aerospace, including eVTOL, and the developing MRO, or maintenance, repair and overhaul segments. Following delays caused by customer design changes, 75% of the US government project was recognised in Q2, albeit production spanned Q1 and Q2. we exited the half with strong year-on-year growth in back orders. In OEM, the strong revenue growth reflects the cycling of a softer PCP that was marked by the completion of two concurrent high-volume, high-complexity OEM programs. This half was supported by the maturing of new programs into production phases, and we expect this to underpin stable second-half revenue on half-once. Automotive aftermarket, revenue declined due to a deliberate provision of discount structures to improve margins. To this end, we streamlined the historical catalogue to concentrate on high-volume vehicle opportunities. The external environment is challenging for discretionary spend, but demand for our premium aftermarket products is resilient. I'll now hand over to Sharon to run through the financial performance in greater detail.

Thanks, Matt. I'll walk through the key parts of our financial performance on slide eight. We delivered strong revenue growth during the half, particularly the second quarter, with uplift in aerospace and defence and motorsports of 31% and 40% respectively. In our trading update provided at the October 2025 AGM, revenue for the first quarter was up 6% as the business settled into the new Australian facility. During the first quarter, we undertook production work in preparation for the US government order. This groundwork supported stronger execution and revenue recognition in the second quarter. Raw materials were broadly in line with PCP as a percentage of revenue. We did have some increasing costs, both direct and indirect, associated with US tariffs. These are being actively managed through increased production in the US facility, supply chain adjustments and our pricing strategies. Employee expenses increased in absolute terms, reflecting higher revenue volumes and declined as a percentage of revenue, improving margins. This reflects operating leverage with the existing platform and headcount supporting higher throughput without scaling proportionally in line with revenues. Average headcount increased by circa 5% versus PCP. This single digit increase reflects early benefits from the implementation of the scheduling and capacity planning system. In addition, labour availability across some skill sets has tightened, leading to a higher number of vacant roles. Wage inflation ranged between 5.5% to 7% across Australia and US respectively, with the UK being approximately 2%. During the half, we increased provisioning for incentives. and recognised an accelerated expense in relation to the Chairman's performance rights, which will remain on foot until their original vesting date. As flaked previously, the relocation to the new factory has resulted in a step up in our fixed cost base, particularly across occupancy and right of use expenses and depreciation in debt finance costs. This has temporarily diluted return on equity. As capacity utilization increases and margins progressively normalize, we expect returns to improve over the medium term. Notwithstanding the step up in fixed costs, NPAT increased 39% versus the PCP. Finally, a fully franked interim dividend of $0.03 per share has been declared and is payable in March 2026, equating to a 53% payout ratio. This is consistent with our proportional payout policy of between 40% and 50% of net profit after tax. We remain disciplined in our capital allocation decisions, balancing shareholder returns with investment and growth. Slide 9 speaks to working capital and cash flow. Our working capital increased by $2.5 million since June 2025, driven by an increase in inventory to support stronger revenue and A&B programs. Cash conversion remains strong at over 100% on a rolling 12-month basis. Free cash flow was negative for the period, reflecting the final stages of the investment cycle as we completed the new factory construction, particularly the controlled environment areas. FX remains an important consideration, particularly as our A&D revenues increase, which are largely denominated in USD. Consequently, we have commenced disclosing a constant currency growth rate to enhance transparency. As a net exporter, a weaker AUD benefits us, especially against the USD and the pound. A key advantage of our global manufacturing strategy is the natural hedge that it provides, with a proportion of our costs denominated in those currencies. Moving into SY27, we will continue to actively manage FX risk, maintaining hedges to provide budget certainty, and to act as shock absorbers when FX rates fluctuate. Moving on to slide 10, strategic investments in CapEx and the Australian factory are essential for supporting growth and enhancing production capacity and our ability to deliver more technically complex programs. This investment positions the business to support the increasing demand for our products and deliver sustainable long-term growth. CapEx for the first half was $12.7 million. This investment was predominantly focused on the completion of the Australian facility and installing new equipment to expand capacity and capability while improving automation, compliance and business continuity. The investment facilitates a step change in scalable production capacity that was simply not possible in the previous footprint. For the full year, we estimate total capex of $22.5 million. This slight increase relates to specific production equipment that produces direct revenue benefits by increasing our capacity. Specific investments during the period include the Stapleton electrical connection upgrade and substation where energy infrastructure requirements added an incremental $2 million. This connection occurred in late September. allowing our investment in solar power to reduce our reliance on grid electricity and help offset the higher energy requirements of a larger factory footprint. Further investments include a step change in our controlled atmosphere environments, materials capabilities and software for our scheduling and planning system to enable realisation of efficiency gains. This completes the Stapleton factory upgrade extends our US A&V capabilities, unlocks some capacity constraints in the technical services area and our emerging technology capability. We have incurred modest one-off costs of $0.8 million to relocate our controlled atmosphere production to Stapleton and additional energy costs due to running on generators for the first quarter. This new site has lifted our cost base in three areas. as can be seen in the first half profit and loss. Firstly, increased right of use depreciation and interest due to the new 15-year lease with AA's B16 front-loading lease expenses, meaning we will see a $2.2 million increase in lease expenses per year from FY26. Secondly, leasehold improvements and equipment depreciation. The new equipment and fit-out unwind in our depreciation expenses estimated at 1.2 million per year. The other area is occupancy expenses related to increased outgoings of circa 1.1 million per annum. In FY27, our investment focus will shift towards targeted efficiency initiatives and leveraging our global operating model, particularly as we expand A&D activity in Europe and with a view to increasing production flexibility. Turning to slide 11, We're pleased to have moved past our peak debt period and have already reduced net debt to $13.4 million at 31 December. The balance sheet remains strong with cash of $10.6 million and undrawn facilities of $18.5 million. Importantly, we have maintained a conservative leverage position while completing a significant investment cycle. As the group's expanded capacity and capabilities come online, We are seeing the signs of those investments translating into revenue growth, particularly through new technical capability and R&D-driven opportunities. Since listing, the group has pursued growth with discipline. Strong cash generation has funded reinvestment, resulting in modest leverage and preserving balance sheet flexibility. We remain committed to maintaining financial discipline as we pursue the opportunities ahead. with a clear focus on generating appropriate returns on invested capital. Matt will now talk through the outlook for the group.