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Edited Transcript of PWH.AX earnings conference call or presentation 2-Sep-19 10:59am GMT

Full Year 2019 PWR Holdings Ltd Earnings Call

Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of PWR Holdings Ltd earnings conference call or presentation Monday, September 2, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kees Cornelius Weel

PWR Holdings Limited - MD, CEO & Executive Director

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Conference Call Participants

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* Alex Anastasiou

* Alexander Lu

Morgans Financial Limited, Research Division - Analyst

* Preston Hamersley

* Wayne Jones

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the PWR Full Year Results. (Operator Instructions) I'd now like to turn the conference over to Mr. Kees Weel, Managing Director. Please go ahead.

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [2]

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Thank you. Good morning, everyone. Thanks for dialing in and showing interest in what we have to say. I guess I could start by saying it's been a very good, healthy year for us. It's a lot of building and lot heavy going into our business of where we are today. And I think it's starting to take shape and plus (inaudible) sent the result outline we have over the weekend. It's heading in the right direction.

So anyway, as you all know, I'm not here to say a good though. We'll just run through the results fairly quickly because I guess everybody has read what we have. And I guess it'll be more important to question time, et cetera, and so on. So I'll just flip through them -- flip through the pages and we go from there.

So obviously, our Page 3, our result page. I'm not going to go through every line item, but the 2 main line items for me is obviously the revenue number and net PAT number, the $65 million on the revenue and $14 million on the net PAT. They're both up well over the 25% from last year. And then on the bottom side of that, we've got cash on hand of $20 million and our cash conversion is very, very healthy.

But moving on from that, a bit of a snapshot. I don't think I'll waste too much time on that page. It's very self-explanatory [for the like].

On the next page is the overview. As I've said, revenue and net PAT up very good. Our sales by currency is also very strong, strong cash flow and a higher dividend. Yes, I guess, you've all seen it. To put out a total dividend of $0.115 a share, which is pretty healthy. Obviously in that, you've got a little bit of a bonus there for people of $0.03 per share of a special dividend. And I'll talk to more about that later on.

So financial performance. Yes, I'm not going to drill that down. I've got Stuart here beside me. If there's any questions on anything that you'd like to ask later on, feel free. Stuart's here. He's the financial guy, so that's all pretty straightforward.

If you look at the graph, the graph page on Page 7. You will see that very healthy across the board there of the growth of our different categories. Obviously, Industrial, there's a very, very small negative there, but it's coming off a very small base. So I don't think that's too much for us to worry about at this early stage in going into Industrial, but we have some things that we will talk about more on the AGM with how we approach that.

Surprising enough, the Motorsports, that has been increased against last year, which actually surprised myself and a few other guys here that said it's all about pushing for that -- the higher product dollar. So it's pretty good.

On the next page, our financial performance. That's very self-explanatory, won't quote too much about that.

Balance sheet, pretty healthy. Well, very healthy, I would say. So I would say, it's all very self-explanatory and have it outlaid like that, I think it's very good to see.

Our working capital and cash flow, again, with few of standouts there, I guess, it's probably the strong cash conversion from the operating activities that -- roughly 103%. And that -- very hard to get a 100% these days. It's -- to knock it up by a couple of percent, it's very healthy.

Segment analysis, very straightforward. I guess the good thing that we'd see there is C&R have stepped up from last year, so this turned the corner if you trade and obviously some more things to talk about that.

The business outlook is probably the -- we talked about last year. Well, last year down from [when] we're talking about next year. And as I said to our staff at the beginning of July, we started as a big year, and then we've got a very big push this year in different segments and what have you. So our outlook and managing organic growth is going to be paramount of how we see the next couple of years. It's going take some effort.

Our -- we just start to have a fit-out of a new building next door for micro matrix, which -- it'll be a -- more to see on that, particularly at the AGM, which we'll be having down at PWR this year, so people can see that firsthand. Just running through there, everything is -- I'll tell you those red, the OEM program. I know there's probably a bit of talk about that. I was over in the states a couple of weeks ago. We've done our first official, I guess, official shipment to Ford Motor Company, so I went straight into the Ford factory at Flat Rock. And I had the opportunity to see the product going straight on to the new Mustangs that are currently being built.

So Valkyrie starts roughly December this year. The AMG X1, we spoke about before. I'm just going to touch on a couple. AMG X1 is pushed out a little bit. It's later in this year that we all see but currently they are building newer cars, and the program is still very healthy.

We -- as you know, we have hedged through to next year to June next year. We are 50% hedged on the GP. And then we've got that one in the black box down there, the Brexit. I don't think anybody knows. If they're going to be aware, only the funds know. But we feel that a lot of that is priced into the pound as it is today, so -- but we have got, I would say, 50% forward cover up until June next year.

So continuing on with the business outlook. As with manufacturing, we're talking about this for some time now. We have now -- we have ordered the -- to the -- our premium chain. And as I say, there'll be more information and give you a lot more clarity on that at our AGM in the end of October.

The CT scanner, it's same view. That will be arriving. It's being ordered for some time now, and they will be arriving late this year, December to January. And they have to be running in February, March of next year. Everything else is pretty self-explanatory on that page.

We have micro matrix, which I said before. We are fitting out a new building next door, and that will be -- it's a lab. So building the right [next]. Everything else is pretty self-explanatory.

And so the macro outlook on the last slide, we're still very strong across all our categories. And we have a very, very long pipeline for the organic growth opportunity, particularly in the pipeline and things like aerospace and military, electronic cooling will be very busy in -- coming in the next couple of years. So I have 4 of our engineers going -- sales engineers going to Europe this week, and they will be seeing over 40-odd different customers that will certainly make a difference to our order shape coming on. So that's very quick and very particular. There's no hidden agenda here. We're just (inaudible) results the all the way through, and it's very, very healthy. So thank you, and happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Alex Lu with Morgans.

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Alexander Lu, Morgans Financial Limited, Research Division - Analyst [2]

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Just got a few questions here. So I might just start with Motorsports in Europe, please. So that again was very strong. Can you just talk about some of the key drivers of that growth? Was it mostly Formula 1? Or did you see increased penetration of the Motorsports categories as well?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [3]

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Actually, funny enough, Alex, that it was clearly across the board. It wasn't only Formula 1 there. It was across the board. And especially, when you get into the GT2, GT3 Plus right over there, which are very, very strong and what have you because that -- not only that, but you talked about Formula E, which is the -- which is very strong over there now. We supply every car in that field, which is great for electronic cooling. But I guess, one of the drivers in the Formula 1 side has certainly been the Helix Core that we introduced last year. And a lot of put and take into that. So now we expect the same, if not more, this coming year in those similar categories. So for me, to sit here and say, there's going to be another 30% increase, I've been saying that for a while now, waiting for the drop. But no, we feel very confident and strong about what's going on.

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Alexander Lu, Morgans Financial Limited, Research Division - Analyst [4]

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And did you say the categories that you weren't in, say, in FY '18 that you managed to get into in FY '19?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [5]

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No, not really. Not really. We're -- as you know, we're spread right across the world in most motorsports categories, and there's certainly nothing that you can say, well, there's an extra sale or what have you. That's been a general push across the board, and there's some opportunities that are in different categories, and there's other opportunities that disappear a little bit. So -- but we haven't lost anything significantly through that. So I would say, just a general push right across the bigger category.

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Alexander Lu, Morgans Financial Limited, Research Division - Analyst [6]

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Okay. And maybe if I just move to micro matrix. So you started to get some sales at the end of FY '19. Now that's continued to FY '20. Can you maybe just remind us what the micro matrix is and which industries you're targeting with that, please?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [7]

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Micro matrix is something that we've worked on for the last 4 to 5 years, and it's certainly taking us a while and a reasonable amount of resources dollar-wise and people to, I guess, what I would call, cracking the code. And we've had product out there for over 12 months now in racing, the aerospace and military and which has been a very good test bed for that. And we only opened up our books, if you like, probably as far as sales, like future sales and the growth probably the last 3 to 4 months, so that's really kicked off, and we had certainly some sales in May and June, and this year is starting pretty good as well. And I've always said, the micro matrix is going to be a -- slow at the start, but once things get along, I think, we'll be very, very surprised of what that is going to be. So I won't say watch your space. What I'm saying is that it's a very -- put a lot of effort into what we have. And we just want to make sure that's absolutely perfect. So we feel it's certainly going to contribute quite significantly in the emerging technology space.

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Alexander Lu, Morgans Financial Limited, Research Division - Analyst [8]

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Okay. And just one last one for me. So competition, Marsden less motorsports probably around a year ago now. So are you seeing any more competitors into the space at all? And just talk about the competitive environment in general, please.

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [9]

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Yes. That's a hard one. And we're not only sitting here and looking at our results, they're pretty damn good and start to get a bit cocky. That's not our style. But I'll touch on Marsden a little bit. I think there's a lot of projected around Marsden 12 months ago and we got to do this, and people are saying, oh, it's going to add $10 million to you at least, and I'm going to go, well, we haven't seen that. So I think that was the -- Marsden, so probably that reflected in Marsden, it's probably a little bit of a storm in a teacup. But to say, we haven't got any other competitor, we've got competitors. And besides, we haven't really been competing there. It would be a bit silly for us. Obviously, we've got competitors there. We don't see then anybody that can take away the business that we have. We're pushing -- our technology push particularly has never been so strong, and our engineering group and our CFD area and all that sort of stuff on our top end of engineering is we have spent considerable amount of money in this last year. You've seen our headcounts are up, our -- we spent $4 million on wages last year. They go somewhere and -- but we have been very, very selective on employing very, very smart people at that top end of engineering. So -- and that's about technology push and business protection. So there is no one out there that does the whole, as I said, the whole 9 yards that we're doing. But that's not to say that there's no one out there trying to chip away with -- but I can honestly sit there and say that we haven't seen anything, and I'm sure we'll be the first today. So we're very, very mindful that we're not leaving any doors ajar, so it can slip in there.

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Operator [10]

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Your next question comes from Wayne Jones with Ganes Capital Management.

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Wayne Jones, [11]

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Congratulations on the result. I'm sort of -- I'll probably ask similar questions to what Alex is asking. So in $10 million in motorsports, you can't really attribute that much of that to Marsden?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [12]

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Not really, Wayne. A lot of people are saying different stuff. And at the time of those, a lot of announcements at the time. And no, I'll be -- it's hard to pinpoint it but yes, maybe $1 million, maybe $1.5 million. We're going pretty close.

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Wayne Jones, [13]

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And do you think that will play out further? Or you think the market sort of give you everything up and it's all done and dusted now.

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [14]

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I think they're pretty much done and dusted, mate. We're obviously pushing a lot of our technology and different stuff of what our capabilities. What we can offer people is well beyond what Marsden could ever do. And that's not being -- me being a smart a**. It's just the way we are. We are certainly a technology driver in the industry, and I think that's what led to a very good result.

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Wayne Jones, [15]

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Okay. And on the micro matrix, how are you going to report that going forward? Like, if you have an F1 team that wants to take up micro matrix, will that go into your Motorsport revenue or all the micro matrix revenue go into Emerging Technologies?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [16]

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Funny you say that. We're just laughing about that, Stuart and I. I said to Stuart the other day, I said maybe we should have a separate line item just for micro matrix. And so that's [planning in phases] and that [should be] a lot of work. But I do think that -- and I've said this since day 1. I said I'm not changing my mind. I do think micro matrix will be a substantial business unit in the next 3 or 4 years. And I'm holding my ground with that. If we ever go and do have a separate line item for micro matrix, we should be probably doing it now. So it's probably a little bit up for discussion. And I'll probably get my way, I think.

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Wayne Jones, [17]

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And something really left filled for you. I just finished reading Adrian Newey's autobiography, and he was talking about expanding into America's Cup. Just wondering if there's any -- I don't know if there's any calling requirement work, because if you want to sort of leverage off that relationship. Is there any sort of ground to sort of chase that?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [18]

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Probably not, but our relationship with Adrian Newey is really strong, as you would know, and Adrian is a different individual that is absolute genius and a very, very, very good advocate for PWR products. So yes, I'm sure if there's something there that he sees that we could give some advantage with, he'd be straight onto it.

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Operator [19]

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Your next question comes from Preston Hamersley with Indian Pacific FM.

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Preston Hamersley, [20]

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I'm just wondering on the results. And I know there's seem to be a little bit -- but you can just hold their hand a little, it feels like when the [Cs] was pushed out a bit, is that an FY '20 or is it more '21 story there?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [21]

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No, a little bit of '20 there. They're obviously doing -- currently, they're doing some newer cars right now. So the program is still strong, but it's -- more assets getting held up there. They're getting held up with some emissions but we're very cautious of that. So yes, I think probably the last quarter of this year, we'll see some input for there but more on the first quarter of '21 with that. The other ones though, particularly the forward contract for buyers, the Ford, as I'd recall the GT40 and also the GT500 Mustang is strong, as I said earlier. And the first shipments have gone to them for their -- of the Mustang. Obviously, the GT40 we're doing it for some time, a couple of years now. That's got 3 years to run. The Valkyrie is on schedule for to start FY -- as in this financial year, before Christmas this year. So that's obviously we're doing some prebuilt now to try to get some stocking there before the busy season, and it's all business as usual.

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Preston Hamersley, [22]

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Okay. And then, so just on the Valkyrie, sort of second half, should that be a seamless sort of contributor this -- forward?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [23]

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Yes.

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Preston Hamersley, [24]

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Right. So we're looking at a -- just really going to be quite heavily second half, largely that division, that growing...

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [25]

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Yes, everything will be second half weighted this year for sure, and we were hoping that we get a little bit in this year, but it did really push back a little bit beyond their control. And so it will be very second half weighted, but that's nothing new to us. We're bearing for some time now and it's a matter of running the business to what it is. So yes, first half has always been in 30%; and second half, 70%. It might -- right now a little bit to 60-40. So we'll just see how that runs.

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Operator [26]

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(Operator Instructions) There are no further questions at this time. I'll now hand back to Mr. Weel for closing remarks. My apologies, we do have another question just registered. This one comes from Alex Anastasiou with Telstra Super.

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Alex Anastasiou, [27]

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Just a question on micro matrix, you mentioned 3 verticals in aero, military and racing. Does it have any application for high-end EV cars? And are you bidding for anything in that space?

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [28]

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Yes, and yes. On the application on EV cars, for sure, because of the -- we've actually got products running today in the EV racing series for some transmission tools. They are a very tight for space and weight, and they decided to go to a micro matrix module so that -- it certainly has space there. And we are bidding for some more business in that space.

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Operator [29]

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There are no further questions at this time. I'll now hand back to Mr. Weel for closing remarks.

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Kees Cornelius Weel, PWR Holdings Limited - MD, CEO & Executive Director [30]

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Okay. Thank you. Well, thanks, everybody. I really appreciate your time this morning. And I guess, as everybody had good time to look through the result and I'm sure if there's any further questions or queries that you have, Stuart and myself will be busy today, and we'll be doing Melbourne and Sydney throughout the week. So certainly, you haven't been shy and you contact us before, by all means, contact us and we're more than happy to answer any questions you might have. So thanks, again. And as I said, our AGM will be held on the 30th of October and -- 31st, is it? 31st of October, on the Thursday, I'm (inaudible) probably, and it will be held at PWR headquarters at Ormeau. So everybody's welcome. Thanks, again, and have a great day. Thank you very much.