Half Year 2025 Amotiv Ltd Earnings Call
Thank you for standing by and welcome to the Emotive Ltd. H125 Results Earnings Call.
All participants are in a listen-only mode. There will be a presentation followed by a question and answer session.
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Graham Wickman: On today's call we have Mr Graham Wickman, CEO, and Mr Aaron Canning, CFO.
Graham Wickman: I would now like to hand the conference over to Mr. Graham Weckman. Please go ahead.
Graham Wickman: Thank you and welcome to the Earnings Call of Immotus results for the six months ended 31st December 2024. I'm Graeme Wickman, CEO, Managing Director and more importantly I'm here with Aaron Canning, the company's new Chief Financial Officer. So welcome to you Aaron.
Graham Wickman: looking forward to hearing from you. Some of you would have met Aaron at the AGM and you're certainly getting an opportunity to hear from him today and our subsequent roadshow this week.
Graham Wickman: A recording of this call along with the presentation material will be available later today on the MOTUS website.
Speaker Change: So I'll start the call by touching on the key messages, highlights and operating divisional summaries, then I'll turn over to Aaron covering off the financial section in more detail and then we'll conclude with a short trading update and outlook before conducting.
Speaker Change: Q&A. So let's turn to slide four. Overall the result reflects what has been a challenging environment through the half and into H2. We've leveraged a mode of strong positions and you'll see a lot of our discipline cost management.
Speaker Change: It's been a half where we've continued to invest in growth to ensure we leverage the what I'll call the opportunity rich future growth in an updated capital allocation framework lens.
Speaker Change: You'll see we're well positioned for a stronger H2, which we talked of at the AGM, with business wins, pricing and substantive actions all within our influence.
Speaker Change: Importantly, our strong capital position is able to support both our continued buyback program and investment in the growth imperatives. And finally, we reaffirm again that we fully expect growth in both revenue and EBITDA in FY25, with a slightly stronger H2 skew.
Speaker Change: So turning to slide 5 where we detail the group financial...
Speaker Change: Highlights, you can see overall revenue growth for the half at 2.3% with
Speaker Change: PU up at 5.8, LPE up at 3.6, and four-wheel drive.
Speaker Change: softer by 1.9%. Now as communicated at the AGM the headwinds continue across the New Zealand landscape, the caravan and RV sector and a little bit of the APG top 20 models.
Speaker Change: Gross margins were down slightly due to the inclusion of the LPE acquisitions, unit volumes and some higher freight costs and some adverse four-wheel drive mix, although we are taking pricing in early H2 across those segments.
Speaker Change: Underlying EBITDA was up slightly ahead of revenue, which reflects some proactive cost management and operational efficiencies. However, underlying EBITR, so EBITA, came in at $97.1 million down, which is a direct reflection of the continuing investment on behalf of the near and medium-term future growth.
Speaker Change: And that investment trajectory will be detailed later in the financial section from Aaron.
Speaker Change: Cash conversion remains strong, which is typical for our group, and the headline would actually have been even greater if not for some one-off impacts that Aaron will also call out later. We announced an interim dividend of $0.185.
Speaker Change: which is flat versus prior period and sits alongside my earlier comments about the continuing buyback program.
Speaker Change: Finally, our net debt to EBITDA leverage of 1.75 of a half remains conservative and in line with the capital allocation framework targets you'll see later in the deck.
Speaker Change: Now on slide 6, I'm excited to share how we're progressing on the FY25 strategic imperatives we detailed in FY24 year-end and also at the AGM.
Speaker Change: Now, we've spoken in some detail in the past about our competitive advantages across the divisions, the attractive TAMs we service, the significant ongoing and strategic growth actions to drive our business forward, and in this slide we highlighted what we think to be the key five outcomes to push for the pursuit of growth.
Speaker Change: And in that order, we originally talked about division optimization which we've matured to enterprise optimization Slash emotive unified and we'll see a slide shortly about emotive unified. It'll give you a bit more color
how we rolled out in South Africa.
Speaker Change: The continued increase in profitable offshore revenue, the pursuit of operational excellence and then capital management for organic and inorganic growth.
Speaker Change: Now in terms of status, I'm really happy to share we've made really good progress on all. We've quietly gone about our optimisation and our early emotive unified efforts since introducing this at our May 24 Investor Day.
We've completed cost out activities and four-wheel drive
Speaker Change: Right sizing and LPE and powertrain distribution, ERP consolidation with efficiencies across the enterprise are resulting in a reduction of our cost base by about 80 FTEs through the first half and a further 20 actually in H2 of FY25.
Speaker Change: I'm really excited to say our South African manufacturing is up and running and earning revenue as of H2. The product has gone really well in terms of budget and timing.
Speaker Change: Congratulate both Jason and his team and I'm sure Aaron will take all the credit for that budget in terms of time and budget. Well done Aaron. And of course, as we bed down this operation, we'll start hunting for further revenue opportunities over the medium term.
Speaker Change: Building our offshore revenue continued and this was nicely demonstrated by the strong VisionX performance and also Thailand doing well before we'll drive.
Speaker Change: Our operational excellence efforts were well-rewarded through the half with a considerable
Speaker Change: And I do mean a considerable array of external awards and ongoing people-centric hurdles achieved.
Speaker Change: And then finally, a capital management focus resulted in actions such as the current and ongoing share buyback program, a successful debt renegotiation, and then the updating and today publishing of our capital allocation framework.
Speaker Change: Really to ensure that you and our investors have real good clarity about this endeavour.
Speaker Change: On slide 7, we're reminded that in late FY24, we moved to divisional operating structure and re-segmented. The divisions represent those reporting segments and help with a more aligned and simpler reporting structure.
Speaker Change: The scale, the reach of the group has grown over recent years and the composition of the revenue is nicely split across those three operating divisions.
Speaker Change: We also know in the background that the group has diluted its customer base, it's taken on more of the automotive life cycle, the nice mix of traditional aftermarket and what I would describe as targeted OEM and OES business. And in this half, 15% of our revenue was gained from offshore, so I'm very pleased in that regard.
Speaker Change: On slide 8, we detail our strategic imperatives to drive growth.
Speaker Change: And I trust we were clear at our recent investor day and year-end about our six key strategic imperatives that inform both our organic and inorganic growth approach, that's on the left-hand side of the slide. And to the right side, you can see that there are four areas that support our growth opportunities are our matured term enterprise optimisation.
Speaker Change: And I'll give you a bit more detail on the next slide on that. The product development investment that's driving your business wins, like U-Haul in the U.S.
Speaker Change: Discipline changes where we're learning, like our Lighting Power and Electrical US go-to-market optimization, and then finally bolt-on acquisitions, which we work studiously in the background on.
Speaker Change: And therefore, the intersection of the imperatives on the left and the drivers on the right is where we believe great, great opportunities exist within our existing portfolio and, as we said before, strategically aligned bolt-ons.
Speaker Change: Now, for investors with good memories, you'll notice the top right item, number one, has been changed from divisional optimisation to enterprise optimisation. And we introduced for the first time the term Emotive Unified.
Speaker Change: So let's slip over to slide 9. I want to give you a flavour of the body of work we've already started in this half.
Speaker Change: So Slide 9 speaks to our thinking about leveraging our recent move to an automotive pure play. It's a methodical and deliberate effort to ensure that we drive efficiency and effectiveness within a series of defined goals.
business platforms.
Speaker Change: It's also a subset of our Next Horizon and Strategic Refresh, which over the next half you'll hear more of, and importantly, it's been internally led by our new Chief Strategy Officer, David Cecil, who joined us in Q2.
So the Emotiv Unified Business Platforms, they're internally conceived.
internally inspired, internally led activities.
Speaker Change: which is the natural evolution that we've been indicating since our Investor Day last year. There are three ways with careful management in terms of, you know, avoiding initiative overload, and it certainly pays attention to the right cultural and practical change management.
Speaker Change: We've already kicked off Wave 1 in the first half. It's leader-led with what I'll call augmented assistance of subject matter experts where we see fit.
Speaker Change: It's a multi-year effort, and if you look at the slide, the middle of the slide details the universe of platforms under the microscope, and then to the right, what platforms we're actually targeting for the Wave 1.
Speaker Change: Now, we'll be looking for either efficiency or effectiveness improvements in these key eight platforms, and that could range from, you know, removing subscale manufacturing and consolidating that all the way through to sensible ERP consolidation and consolidating kitting. So, real tangible benefits in terms of effectiveness.
Speaker Change: In April, we'll give you more detail when we host our Asian Facility Visit for Ambassadors.
Speaker Change: Needless to say, there are some benchmarks on how and how not to lean into these types of work streams. And at the end of the day, this is about the unification of the motive.
Speaker Change: Keeping the critical elements of our success, but leveraging the power of the group and scale. Something, by the way, our teams are leaning into, not away, and we've been building proof of concepts and leadership capability, and what I'd say here is our organizational maturity is supportive of this next step.
Speaker Change: Okay, let's move on to the divisional summaries. On slide 11 we start with the four-wheel drive.
Speaker Change: The result was a solid performance, and I mean that in light of the weak pickup sales and SUV sales and the continued weakness in caravan RV in the overall New Zealand market.
Speaker Change: Revenue dropped slightly but was supported with a little bit of modest acquisition contribution.
Speaker Change: Underlying EBITDA margins were flat on the back of good margin management in the face of certain cost inflation factors, therefore the 4WD team were proactive in their cost control measures.
Speaker Change: As you look all the way down to EBITDA, you can see a drop of about 8% and in the face of the above comments were pickups were down across ANZ by more than 12% and in fact you look at it in Australia down by 16%.
Speaker Change: Hence, the comment around actually a solid outcome in light of that.
Speaker Change: We were happy with the new business wins and a half. That trend just continues. I love it.
Speaker Change: A further $16 million on the back of our engineering credentials and also, interestingly, some capture of Chinese OEM business, which is an interesting trend. We've made good progress on our strategic imperatives and many of these speak to the support of the second half.
Speaker Change: such as South Africa up and running, business wins in the U.S., cost outs completed in New Zealand, and some strategic pricing and a little bit more further operating model optimization in H2.
Speaker Change: Now on slide 12, we turn our attention to LPE, lighting power and electrical. So the revenue in the half certainly reflects some challenging ANZ dynamics.
Speaker Change: This being offset to a degree with a very positive U.S. revenue performance.
Speaker Change: Overall revenue being up just over 3.5% via acquisitions and organic down.
Speaker Change: The EBITDA margin underpinning this was stable at the organic level, however at the divisional level it dropped as we wait, and I will say expect, in H2 to see the acquisition cost synergies within our influence start to roll through.
progress on our strategic imperatives and H2 confidence.
Speaker Change: are buoyed by a number of critical factors, firstly in A and Z, such as some modest reseller destocking normalization, the price increases from Feb, the cost synergies I just mentioned, acquisition.
Speaker Change: and the right sizing actions taken in H1 flying through. And then secondly, in the US and Europe, I've talked about our go-to-market optimization in the US and some wins with Volvo and Scania.
Speaker Change: Then the last slide before I hand over to Aaron is Powertrain.
Speaker Change: And the result reflects continued resilience of the wear and tear market, which is served by this division.
Speaker Change: We experienced strong and above system growth and infiltration, actually including some really good growth in commercial filtration. Also with strong gasket performance, offsetting a softer domestic brake business as we went through our transition of the new distribution centre.
Speaker Change: in H1. Margins were held through appropriate cost control and also the flow-through of the FY24 late pricing, and that sort of offset freight and domestic cost inflation factors.
Speaker Change: Our progress on our strategic impairments were encouraging and leads to a modest H2 skew. This is driven by the productivity and cost benefits of the new distribution centre for brakes, coupled with some strategic pricing in this segment and some disciplined investment in the infinitive AV business.
Speaker Change: Well, let me turn the mic over to Aaron now for some more financial details.
Aaron Canning: Thank you Graeme and good morning everybody. My name is Aaron Canning and I have the pleasure of presenting my first set of interim results as the CFO of Emotive.
Aaron Canning: Just directing your attention to the group financials on slide 15.
Aaron Canning: As Graham mentioned earlier, revenue grew 2.3% which was supported by acquisitions most notably in our LPE business, being CES, or Care of Analytical Solutions, and our Swedish business, Rinde. And to a lesser extent, the inclusion of acquisitions in the four-wheel drive business, being Milford.
Aaron Canning: Well, gathering revenue was 3% lower due to LPE, most notably in ANZ, and a softer four-wheel drive business, most notably due to new car sales being lower, caravan RV market, and New Zealand.
Aaron Canning: Gross profit grew 5% with margins being slightly lower due to the inclusion of the LPE acquisitions CES and RINDAB and were impacted by higher freight costs and adverse mix in the four drive division.
Aaron Canning: The benefit of price increases in H2 FY24 flowed through to this first half, which partly offset inflationary cost increases in the half.
Aaron Canning: with further price increases to take effect across the second half of this year across all operating divisions.
Aaron Canning: Our operating costs were pleasingly 1.6% lower in what was an inflationary environment and reflects the sustainable changes we made in the half to deliver a more efficient operating cost base.
Aaron Canning: Within this total operating costs, we invested $3.6 million in the expansion of our LPNE business in the US and our EV business in Finnative.
This compares to $2.7 million in the prior period.
Aaron Canning: Depreciation, we've split this out for you to show for further disclosure, which highlights the investments we've made in the half and fixed assets in new sites and locations.
Aaron Canning: which would include South Africa, a new distribution centre for Powertrain and Melbourne, along with the integration of our CES, RINDAP and Milford acquisitions.
Bye.
Aaron Canning: Underlying EBIT A at $97 million is marginal over the prior period and reflects the investments that we've made in the period in growth initiatives.
Thank you.
Aaron Canning: Significant items, which is 22.4 million and a large number that I want to go and explain in more detail. We do have a separate slide on this in the appendix which details this further.
But of the $22.4 million,
Aaron Canning: 10.3 relates to cash costs due to restructuring and new business set-up costs such as South Africa.
Aaron Canning: We have taken proactive steps to streamline our cost base as part of the evolution of a motive, with a particular focus in Australia and New Zealand in both the four-wheel drive and our P&E businesses, and to a lesser extent, the powertrain and undercarriage division.
Aaron Canning: These changes totaled 80 FTUs or full-time equivalents exiting the business in the first half.
Aaron Canning: And as Graeme mentioned earlier, we expect approximately 20 further FTEs to depart in age 2 through further optimising operations and natural attrition.
Aaron Canning: We expect the cash significant items cost in the second half to reflect these changes and other changes and we expect that cost to be in the range of another $3-5 million.
Aaron Canning: As I said earlier, we break out significant items both in terms of cash and non-cash on slide 24 as part of the appendices of this presentation.
Aaron Canning: The total of 100 FTEs exiting the business through FY25 reflects approximately 4.5% of our workforce.
Aaron Canning: With an annualised cost saving between $10-12 million, which we will look to reinvest some of these benefits in F26 to support future growth initiatives.
Non-cash costs within significant items totaled $12.1 million.
Aaron Canning: the largest of which relates to a 10.4 million, are impairment.
Aaron Canning: We've taken the decision to impair the carrying value of our fully equipped business in New Zealand by $9.8 million, which includes Goodwill and Brands.
Aaron Canning: This business makes fibreglass canopies for pickups and utility vehicles in that market.
Thank you.
Aaron Canning: The New Zealand new car market remains subdued and we have an expectation that the current market will remain challenging for longer.
Aaron Canning: And we felt it was prudent to take this approach to an impairment in the heart.
Aaron Canning: There's also some minor impairments relating to some brands in the LP&E division, again, which is outlined on screen.
Slide 24.
Aaron Canning: Our net finance costs, we've also taken the opportunity to split these out further for further transparency.
Aaron Canning: It reflects the reduction in our commitments, improved margins and benefits of refinancing, which are starting to flow through, with our interest costs actually being $2.1 million lower.
Thank you.
that's within net finance expenses.
Aaron Canning: Within that number, the benefit is masked by the NPV impact of the unwinding of the earn-out provisions for our VisionX business in the US, RINDAB and CES.
Aaron Canning: And I would note that's in Note 5 of our Appendix 4D.
Aaron Canning: Our tax rate for this half, excluding impairments, was 28.4% versus 30% in the PCP.
Aaron Canning: This is largely reflecting of the higher proportion of offshore earnings particularly in the US and Thailand that the business is now starting to generate. Of course goodwill impairment is non-deductible, hence the effective tax rate is 33.1%.
Thank you.
Aaron Canning: Statutory impact from continuing operations was $33 million impacted by those significant items.
Thank you. Bye-bye.
Aaron Canning: The board approved an 18.5% dividend in the half in line with last year and complemented by a buyback.
Aaron Canning: We now have 140.1 million shares on issue with a dividend payment total of just under $26 million for the half.
Aaron Canning: On the share buyback, we announced this at our AGM on the 21st of October last year. We commenced that program shortly thereafter.
Aaron Canning: We continued to buy shares up to and including the 31st of December. The program has been on hold since then due to our internal blackout trading window.
Aaron Canning: Our intention is we will recommence this program in the second half and we remain committed to purchasing up to 5% of our issued capital by October of this year.
Aaron Canning: On slide 16 it outlines our net working capital and cash conversion.
Aaron Canning: Our net working capital has increased nearly $23 million since June 2024. It is too high and it remains an area of focus for the business to improve through the second half.
Aaron Canning: In particular, inventory and improving our stock terms without compromising our competitive advantage of the breadth and depth of our range.
Aaron Canning: will be a focus for the second half and also beyond as part of the Emoja Unified platform.
Aaron Canning: Specifically, in relation to inventory since June, there have been three drivers of that increase.
Aaron Canning: The first being a de-stocking impact with AU resellers or Australian resellers in LPE. We expected Q2 customer reordering patterns to be stronger than what they were and hence our inventory levels remain elevated in that operating business.
Thank you.
Aaron Canning: In four wheel drive we built inventory in South Africa ahead of revenue being recognised from January.
Aaron Canning: And in the powertrain and undercar business, we transitioned to a more efficient non-warehouse where we intentionally increased inventory in this period to manage that transition.
Aaron Canning: When it comes to all three of these drivers, we expect these to normalise in the second half.
Aaron Canning: Payables largely reflects timing differences in supplier payment times and inventory flow.
Aaron Canning: On receivables, there was a one-off impact related to a major Australian reseller.
Aaron Canning: that related to an overdue payment that was not received in accordance with terms in the half.
It is now being paid.
Aaron Canning: And there were also some historical revamped claims dating back a number of years that were also claimed in the period.
Both of those issues total $11 million.
Aaron Canning: and we do not foresee those repeating in the second half.
Reported cash conversion was 76.5% impacted by receivables.
Aaron Canning: If I exclude the reseller issue as I've just talked about, cash conversion would have been over 87% for the half and as you can see from that table on the bottom right there, that would have been a very strong result for this half.
Aaron Canning: It is our intention to continue to reduce the reliance on receivables factoring over the period and into 2026.
Aaron Canning: And it was our expectation that our receivables factoring for FY25 for the end of this year will be lower than the same period last year.
Aaron Canning: We anticipate cash conversion for the full year of FY25 to be around 85%, noting that the business naturally has a lower working capital and a stronger cash flow performance in the second half, and we are not expecting repeats of those one-offs.
as I said before.
Thank you.
Aaron Canning: On to slide 17, this chart here from left to right really continues to show our continued investment in product development and our capability in this space as being an enabler and source of future growth.
Aaron Canning: Our current investment levels at 3.2% of revenue are expected to continue through the balance of this year.
Aaron Canning: A mix of CapEx investments, our mix of CapEx investments is increasingly reflecting the change of the shape of the business.
Aaron Canning: With more investment in supporting our offshore growth ambitions in places such as South Africa and Thailand being great examples of that and I'll direct your attention to the graph in the middle.
Aaron Canning: Our full year CapEx spend is expected to be marginally higher, up to $2 million higher than we previously advised at the AGM in October.
Aaron Canning: last year. We expect it to be in the range of 25 to 27 and we previously advised it to be around 27.
Aaron Canning: We expect this to be a high watermark for the business, with a reduction in CapEx expected into 2026.
Aaron Canning: The chart on the right shows our investment is balanced between investing and maintaining and improving our existing capabilities.
Aaron Canning: We're investing in growth initiatives that are expected to deliver a future return.
Aaron Canning: The FY26 forecast includes the establishment of our South African facilities, other production capacity increases in four-wheel drive, our Melbourne warehouse for powertrain and consolidating our IMG business onto a single site here in Melbourne.
On to slide 18.
Aaron Canning: To my point before around the increased offshore earnings of this business, I wanted to direct your attention to the first chart, first of all, in relation to US dollar exposure. We are well hedged for the second half, as you see from the graph.
Aaron Canning: Hedging is at favourable rates versus spot and this coverage obviously begins to taper off from the beginning of May.
Aaron Canning: We remain active in the market should there be any material movements in the cross rates between the Australian dollar and US dollar between now and then.
Aaron Canning: However, if current spot rates remain broadly unchanged as we head towards the end of this second half, we will look to reassess pricing to take effect from FY26 to mitigate any headwinds to our operating margins.
Thank you.
Aaron Canning: And as we continue to grow our offshore earnings to the chart on the bottom right, we are building a natural hedge.
Aaron Canning: in terms of our increased U.S. dollar earnings and Asian currency earnings.
Aaron Canning: The total of which both now represent 25% of NPAT-A contribution in the half.
Next slide please.
Bye.
Speaker Change: Our balance sheet remains in a strong position. We have a long day to debt profile and as Graham said earlier, our leverage remains at conservative levels of 1.75.
Speaker Change: The business continues to deliver stable and predictable cash flow earnings, and we do not expect any fundamental change to our leverage from our existing operations for the full year.
Speaker Change: We continue to benefit from a largely fixed long dated financing support from our lenders with market leading rates and strong support from music lenders.
Speaker Change: And to the chart on the right hand side, our cost of funds have actually reduced 80 basis points on PCP, largely reflecting lower commitments and margin improvements.
Speaker Change: with the further benefit of our refinancing to flow through into the second half.
Thank you.
Speaker Change: I want to direct your attention to a new capital allocation framework which Graeme touched on earlier.
Speaker Change: What you can see on this page is the formalisation of our capital allocation framework that will guide our investment choices and decisions and align to our strategy.
Speaker Change: We will measure our performance against these metrics on an annual basis and report these externally.
Speaker Change: We will look to link our performance to internal performance benchmarks.
Speaker Change: It's a framework that we believe will ensure we deliver for our shareholders, both in the short, medium and long term.
Speaker Change: We will continue to ensure it remains fit for purpose for the business and we will also use this as a lens to guide and assess both organic and acquisitive opportunities.
Speaker Change: The metrics you can see from the right hand side of the page refer to a continued view around the cash generation of the business.
Speaker Change: and putting a floor around our expectations looking forward on that.
Speaker Change: To the sustaining capital point, I touched on ensuring that we continue to balance investment in both what we've got and also in generating future growth.
Speaker Change: From a target leverage range, we're going to maintain our leverage within 1.5 to 2.25 times.
absent major growth initiatives.
Speaker Change: We're going to be disciplined when it comes to looking at projects and value-accrued M&A and we're going to continue to have a lens in relation to rewarding our loyal shareholders with payout ratios above 50%.
Speaker Change: and we'll look to complement that through additional returns such as the BetShare buyback.
Speaker Change: Importantly, in terms of return on capital metrics, again from both an organic and acquisitive lens, we're looking to deliver returns at greater than 15% over the medium term for both organic and acquisitive opportunities.
Speaker Change: So I'll now hand you back to Graeme to discuss the trading outlook.
an update
Okay.
Speaker Change: Thank you for taking us through that. A lot to consume there.
Speaker Change: Well articulated, thank you. So in terms of trading update, a pretty truncated January. A lot of people come back in late and the like. I haven't really seen any significant change in reported garage activity levels. The same two weeks or so, four bookings.
Speaker Change: The January performance in terms of Nuvicle sales and ANZ in the combined market, those trends have basically continued and importantly we've seen the South Africa revenue commencing in January and that's also in line with plan.
Speaker Change: In terms of outlook, let me reaffirm, we expect further growth.
the group revenue and underlying EBIT A in FY25.
Speaker Change: Driven by a slightly stronger H2 skew, this is supported by factors largely well within our control. And these include the new business wins and product launches, the likes of South Africa, modest mix improvements in ABG top 20 models, you'll probably see a little more Prado.
Speaker Change: Q3 pricing actions already taken, the restructuring and optimization benefits that we're seeing with the mode of unified are already in place.
Speaker Change: We expect the corporate cost to be lower than prior year, including that investment, and we're making it a mode of unified. The cash conversion expected to be circa sort of the 85 that Aaron's mentioned. And that all will leave us with a strong balance sheet.
Speaker Change: and a leveraged position that supports the growth we've planned and spoken of in earlier slides.
Speaker Change: And then lastly, I just wanted to repeat that we'll have an opportunity in our investment calendar.
Speaker Change: to chat with you more, other than the roadshow we're about to commence with, as we're hosting our investors in an Asian facility visit in early April, and that's something you can plan on.
Speaker Change: Okay, well that concludes the presentation of the results, done in 30 minutes.
Speaker Change: Before we go back to the moderator, I wanted to take the time to call out the emotive team.
Speaker Change: who worked really hard through H1, the board, Aaron and I are thankful for that hard work.
Speaker Change: And then finally, I've spoken in the last 12 months about the inflection point.
Speaker Change: about the Next Horizon Promotive. In this pack, you would have seen evidence of us rolling this out in a planned and deliberate manner. And I'm really excited by this prospect and where we continue to take the business.
Speaker Change: So with that, thank you for your time. I'll now hand you back to the moderator and we'll coordinate the questions that you may have. Thank you.
Speaker Change: Thank you. If you wish to ask a question via the phones, you will need to press the star key, followed by the number 1 on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box.
Speaker Change: Your first question comes from James Ferrier with Wilson's Advisory. Please go ahead.
Thank you.
James Ferrier: Good morning, Graeme and Aaron. Thanks very much for your time. Can I firstly ask you about the LPE segment? You talked there about the US dollar revenue performance.
Speaker Change: Can you give us some colour on what that looks like excluding VisionX, which perhaps gives a more pure read on the Greenfield investments with Projector, etc.?
James Ferrier: James, are you, sorry, I'm a little confused up to your question, are you talking about the e-performance or the revenue performance, sorry?
Bye.
Speaker Change: The revenue, so this is slide 13, sorry not slide, slide 12 I should say, where you talk about the US dollar revenue growth and just yeah trying to get a read, sort of x-box.
Speaker Change: excluding Vision X and therefore perhaps a more clean read on how well you're executing on those green fields.
initiatives with Projector, etc.
Speaker Change: Yes, that's fine. So, essentially, if you looked at it at a total divisional level, if you do extract... I'll answer the question in a couple of parts.
Speaker Change: If you were to extract the Vision X revenue, then the remaining LPE would be down just about 11 or so percent. I think it is from memory. I don't have that number straight in front of me, but it's around that.
Speaker Change: So that gives you a cleaner version, the total division. And then the growth in VisionX in itself, if we were to group it all as US for one second, including the fact that we folded Projector in there as part of our optimization.
Speaker Change: By far, the significant majority is in the Vision X area, quite considerably. The projector improvement is...
Speaker Change: It's great and it's coming off a small base as we're folding it in, in fact we're seeing it.
Speaker Change: quite significantly higher bits of a wasteful base. So the pure VisionX effort in its entirety has grown very nicely.
Speaker Change: Thanks Graeme, it's very pleasing to hear. On the corporate costs, I think I'm right in saying the previous guidance back in August was for around $14 million in FY25. What's changed with the revised guidance or what's driving the revised guidance there?
Speaker Change: Yeah, look, James, much like we are looking very closely at our operating businesses, we are doing the same in relation to our...
Speaker Change: corporate costs. We run a pretty lean ship, as I'm sure you're probably aware. And so it's a combination of factors. It's less people.
Speaker Change: It's also making sure we're really cost conscious around any discretionary expenditure.
Speaker Change: And then thirdly, the PCP was a bit higher, there was some higher incentives in the PCP. So it's really people, left people some discretionary expenditure reductions and the PCP being a bit higher.
Speaker Change: And to be fair to some of the members of the team, they've done some great job in terms of insurance renewals and other things where there's been some material improvements.
Speaker Change: So you know well done to them and sorry James I I have wondered in the back of my mind your question around vision X if it relates to the air now
Speaker Change: Suffice to say that they've triggered the earn out that will be paid.
Speaker Change: and you'll be reminded that that only started at 10% cargo over the three years.
Speaker Change: And I can tell you it's higher than the 10%. So hopefully that gives you confidence in our capability to acquire something offshore and grow it materially through that period.
Graeme Wickman: Thanks, Graeme. That has been a good contributor. Last question, and this is one for Aaron, probably.
Just your comment earlier on
Speaker Change: the unified program and the cadence of reduction in FTE there. I think you gave some guidance around the annualized benefit of that program. What was the dollar benefit to earnings in the first half?
Speaker Change: Look, a lot of that happened late in the first half, so it wasn't material, so it was Q2.
Speaker Change: And so, as Graeme talked about in terms of that second half skew, we're going to get the full benefit of that in the second half, so it's not a material number in the first half. It happened sort of in November.
So not a big number
Hopefully that answers your question.
Speaker Change: Yep. That is – that's very helpful. Thanks, Aaron. And thanks, Ryan. Thank you. Thanks, John.
Speaker Change: Your next question comes from Russell Gill with J.P. Morgan. Please go ahead.
Speaker Change: Hi guys, couple of questions. Just personally on the LPE sector, you made some commentaries about the inventory and de-stocking, also commentary that a major customer I guess failed to pay you in time.
Speaker Change: I guess maybe you had some broad comments about that sector from a domestic standpoint.
Speaker Change: what you're seeing there, I guess, from an underlying demand perspective relative to, I guess, some operational challenges that might be happening at your customers. And I guess, if there's any comments, you can provide that around different product mix and the like.
Thanks for the question, Russell.
Speaker Change: The same thematic existed as we commented at the AGM and actually as we were foretelling at the end of the year, you know, we're seeing We saw some destocking we've talked about that and that really didn't come back through the course of the half
We're certainly in a less, stronger, typical macro environment.
Speaker Change: But, you know, we've had great success in that business with caravan and RV and that's been at quite a low ebb through this period. And of course, New Zealand, you know, somewhere between probably 10 and 12% of its revenue typically and that's been pretty flat. So that same...
Russell: Series of thematics have continued through the half, Russell, from when we last spoke.
Russell: In terms of the payments, I think that's likely administrative error and that's already right in itself, so we don't expect that to repeat and I certainly wouldn't and hopefully we didn't.
Russell: try and conflate a payment statement with weakness in the structure of that particular segment, that's not the point we're making.
Russell: It's fair to say the exit run rate, what you see for the end of the half, is you see the inventory relatively clean in the channel, so there's no further de-stocking to come and it should be sell in, sell out relative to demand.
Speaker Change: Well again, obviously we never comment in any specific customer, but I think what you've just said amply describes the situation If anything I'd argue it's probably a little more thinner than it normally would be Given we still track sales out and clearly our sales in a bit of it
Speaker Change: at a way different trajectory. So I think your comments are a perfect one, probably a bit leaner than what you even think.
Speaker Change: On the four-wheel-drive segment, I just want to get a better understanding of ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Speaker Change: I guess the operating leverage in this business. The revenue was down one and the EBIT was down eight.
Speaker Change: Just to get a better understanding, pushing pricing through here, how do we actually understand the operating leverage in this business if we get a recovery?
Speaker Change: How do we think about, I guess, the margin in that business? Because it's pretty substantial de-leverage on quite a small revenue. Is it because it's price rather than volume that impacts throughput? How should we think about, yeah, leveraging that business going forward?
Aaron Canning: Well, I'll take a stab at that and then pass to Aaron. If you looked at the organic revenue, then it tells you a slightly different story in terms of the core piece. You've got some acquisitions rolling through there that set the background, and we talked about modest acquisition contribution.
Aaron Canning: Even if you were to peel out and look at the organic revenue, it was around, I think, five points, and the burden, if you strip it out further again, it might be about six or seven.
Thank you. Thank you.
Speaker Change: That that that is kind of the revenue position And that's off the back so therefore it translates a little bit more consistently with what you've just said about EBITDA But what what that is in the face of is obviously you know pickups that are down in Australia 15.8 percent
Speaker Change: in New Zealand combined 12% and SUVs down a little bit and a continuing weak caravan market and so
Speaker Change: The way we view that is that's transitional nature and actually we said was a solid result But don't get this wrong by the way. We're not sitting packing packing ourselves on a back
Speaker Change: But we think that's a solid outcome given, actually, when you think about the traditional throughput implications of the operating drop-through, we've been able to find other ways and other parts of that four-wheel-drive system.
Speaker Change: specific APG to get, you know, share a growth in wallet that even though we've seen drops even more significant in the pickups.
Speaker Change: our revenue, our EBITs, dropped at sort of half the rate as an example of the pick-up percentage drop in Australia. So I think we've done
Speaker Change: Well in the face of that but at the same time I would expect to see some further operating leverage drop through As we see some of the the volume tickle back a bit and some model mix ticking back as well and Aaron I don't know if you look I'll just compliment
Speaker Change: Graham Russell. So to answer your question, what is the greatest driver, volume or price? Look, volume. So with softer volume you do get de-leveraged because it's largely a manufacturing business.
Speaker Change: and so with increased volume coming through we will see margins improve.
In terms of price,
Speaker Change: You can see in our comments on slide 11, we are looking to take some price in the second half. There wasn't a lot of that in the first half. And also on cost, we took some cost out in New Zealand which we'll get the full benefit from.
Speaker Change: in the second half. But to come back to your question, volume is important given it's a manufacturing led business and you get more volume, you get the operating leverage, you get less volume, you get the inverse.
Speaker Change: And where we've had less volume, we've taken proactive steps to manage our cost base. And we'll continue to do that if we see volumes remaining soft in the future.
Aaron Canning: Great. Well, I got you Aaron, just because you did talk price.
Speaker Change: It's not just, I guess, the US dollar strength, there's type art strength with your big manufacturing facilities over in Asia.
Speaker Change: If everything did remain spot from here, what sort of price rise is required for FY26 that you'll need to implement at the start to keep margins group flat?
Speaker Change: For the balance of this half, as I articulated before, we're well cut. Your point is, if things don't move, what sort of prices would we look to take? It's not just in this business, it would be across all of our operating businesses.
Speaker Change: But we haven't worked that through yet, is the honest answer.
Speaker Change: We're focused on landing the price rises that we've got in the second half first.
Speaker Change: And, you know, we do this in consultation with our customers here as well. So I don't want to get dragged into a number because it is a bit of a hypothetical, Russell. But I will draw you back to if it remains where it is, we will look at price to mitigate any risk to our margins.
And I think, just to add that...
Speaker Change: And I mean Russell, I think you know well you're a student of the game and you've watched our business for a while We've been pretty disciplined in our margin management
Speaker Change: and we have margin maintenance as one of our key factors. We've yet to go into the budgeting cycle.
You know, ethics is one of those elements.
Speaker Change: Domestic Cost Inflation, the freight which is an elevator, freight is an example.
Speaker Change: this half. A lot of moving parts but what I would play back to you is I think history is a good lesson here in terms of our ability to have the pricing power but also to keep those moving parts well oiled and still result in core margins ticking along nicely.
Speaker Change: Great. Thanks, Graham. And just a very final question, just on your, I guess, now-formalised, articulated capital allocation framework.
Speaker Change: I just noticed in the flowchart around what the business seems like it says value accretive is should we deem a 15% ROCE a hurdle for investment and obviously let's call medium term three or four years but that's now a hurdle on making acquisitions because I guess if we rewind a couple of years.
Speaker Change: There's obviously, in this result, some write-downs of intangibles and things like that. Obviously, New Zealand went backwards a rate of knots, but are we seeing 15% as a hurdle as opposed to when we deem value accretion and the whole concept around business diversification?
Speaker Change: away from, I guess, ice, lead, and domestic supply customer base is done. And therefore, we could allocate that 15% medium target relative to the opportunity of buying back AOV stock.
Speaker Change: Yeah, that's a pretty good way to think about it, Russell. At the end of the day, having a cash capital allocation framework is about choices.
Speaker Change: and about where we choose to invest our capital. It is a framework, not a set of handcuffs, I would note.
Speaker Change: So these are guiding principles, but when it comes to things like making choices to buy back stock or to invest in an organic opportunity or an acquisitive opportunity, we will make those choices based on the return metrics that we see from those various options.
Bye.
Speaker Change: HODL is the right word, it is a target and we're going to be assessing all investment choices through the lens of that target amongst other targets.
I think
Speaker Change: You know the board and Aaron and I work hard on this and we have a point of error around what we think is acceptable Returns for our shareholders. I think that's a big big stake in the ground. I think the point you're also making Russell's that we've made acquisitions in recent times
Speaker Change: To diversify the business to become more and more resilient. So we've got a mixture of OEM. We've got a mixture of aftermarket We've got a mixture of different geographies We've upped the rate in terms of PD and other things and we're expecting that to pay off
Speaker Change: I would venture an opinion that the de-risking of our business, as I would like to call it over the last five years, if we were working at 70% of 100% of our effort de-risking and the other 30% to grow the business,
Speaker Change: That'll be changed because the de-risking work has been done and part of that's come through acquisition, part of that's come through investment. So I think Aaron's point is dead on. It's a much more stringent hurdle mindset as opposed to diversification to get the resilience in business.
Speaker Change: Because the base business now has got some resilience to it, we've got levers to pull. So I think Aaron's point is really well made and I just want to make sure that your viewers that we're not looking to try to acquire further resilience through diversification, we've got that now, it's now building on what we've got with the hurdle rate in mind.
Got it. Crystal clear. Thanks, guys. Appreciate it.
Tim Piper: Your next question comes from Tim Piper with UBS. Please go ahead.
Tim Piper: Hey, morning, Graham and Aaron, just follow up on the LP&E segment.
Tim Piper: Just with this reseller de-stocking, what was the trajectory of that through the half? It sounds like your comments might have suggested it got a bit worse than expected in the second quarter. Just in relation to your second half skew on the outlook, I mean at the
Speaker Change: AGM Outlook I think he called out a reseller destocking unwind in the second half of one of the drivers of the skew that sort of doesn't appear to be there in the Outlook commentary on today's
Yeah, slide
Speaker Change: Yeah, I'll answer in two parts, Tim, and please, Aaron, just jump in.
Speaker Change: I think it's less that it got worse through the half, it just didn't, we thought that maybe the back end of the half we might start to see it unwind, but we didn't see that. So that's how I'd interpret or how I'd ask you to interpret our comments.
Speaker Change: And then in the second half, what we said actually, and you will notice in each of the three divisional slides, you know, what we think is important in terms of progress and strategic planning.
Speaker Change: comparatives and also why we think SKUs in the second half are important. In the LP&E you actually see that's in there. So we talk about a modest unwind of the reseller discount. So we're expecting that to be part of H2 of LP&E. We didn't want to build a laundry list.
Thank you.
Graeme Wickman: and the outlook, otherwise I get a bit tired trying to list them all, but it's certainly in there, it's in our thinking, it's in our planning, and no, it didn't get worse in the heart, it just didn't unwind as we thought it might be at the back end. Yeah, I'll just add to what Graeme said, Tim, so the point I made around the inventory being elevated is, it really comes down to our inventory purchasing cycles.
Graeme Wickman: So we were purchasing inventory through that Q2 on the basis that we thought this reseller gestocking was largely behind us.
Graeme Wickman: But it continued for a little longer through that second quarter and as such we were left holding some elevated levels of inventory. It's good inventory, it's just elevated.
Graeme Wickman: And to the comment that we made, we talk about normalisation of reseller purchasing patterns on slide 12 for LP&E.
Graeme Wickman: And so sitting here now, we see a lot of that noise behind us and we see a more normalised cadence to both sales in and sales out dynamics for that business in the second half.
Graeme Wickman: Okay, got it, thanks. Second one on APG, South Africa, can you give us some sense on, through the first half, what kind of costs might have been carried in that segment on an underlying basis and then now with revenue?
Graeme Wickman: starting in January, the trajectory towards even a break-even and then profitability within South Africa? Yeah, it's just over two, sort of between two and two and a half, that rolled through.
Graeme Wickman: So that's what you can sort of think about. And then, sorry, your second part of the question was more the revenue piece. Is that correct, sorry, Tim, in the heart? Yeah, it's revenue ramps up, then moves to break even and then crop the deal.
Graeme Wickman: Yeah, we actually, and maybe I'm giving too much information here, we actually spent slightly more than we originally budgeted for because actually we're putting in further equipment there.
Graeme Wickman: that actually we don't currently have business for which might be a nod to the fact that we're going to go hard and try to win some incremental business beyond functional accessories. Not material, but just a little bit more. The other thing is that originally we were going to have a progressive ramp up at the beginning, sorry, at the end of the half.
Graeme Wickman: and we're actually able to capture the full ramp. So we actually went from zero to hero in terms of the supply to Ford and VW.
Graeme Wickman: on day one. We were actually going to do a progressive ramp. It was going to be a slow progression over a month or two. So we actually got the full revenue, which is great. It put enough pressure on us because we had to put a full shift on and employ another, I think it was 47 people.
Graeme Wickman: But it's a good problem to have. And so the revenue ramp has actually been pretty high trajectory from the get-go. The teams, the factories returned I think mid-January, which is the normal shutdown, and we're right into it.
Graeme Wickman: So the revenue ramp's good and you can probably remember that we sort of articulated that the annualized revenue on a typical run rate of that business when we talked about the conquest wins you know now a year ago was somewhere in a region of six to eight million or something like that in terms of pure revenue. I might got that number not specifically accurate but it's around that region.
Speaker Change: Tim, I'll just direct you to slope 24 and it actually breaks out the South African number. So it's 2.7 but in that number there's a bit of US.
Speaker Change: full drive expansion so as Graham said it's broadly around 2 million but you can see it's a bit outside 24.
Speaker Change: Yeah, so it's been taken by the line, that's not within the operating line. Just one last one for me again on the second half outlook, just for APG.
Again, your expectations around model mix.
Speaker Change: improvements in terms of a driver in the second half. How material is your expectation around that and what are the key changes you're expecting to flow through from a mixed point of view?
Speaker Change: We said modest and again we always at peril call our individual model and everybody gets a bit confused. But you certainly know and we did talk to both at the full year and the AGM.
Speaker Change: But you know the likes of Toyota Prado was down in some months 90%
Speaker Change: in any given month and that mole now is on stream launched.
Speaker Change: They had to delay it, you remember that from last year, they had some problems with their Hilux and then they had to delay their Prado around some engine stuff.
Speaker Change: and now they're fully in motion and, you know, without talking to any specific customer, I do know that that particular brand has some significant order bank volumes waiting there for production to come in. So that's the model mix sort of space.
Speaker Change: Other than that, we're sort of expecting relatively similar APG top 20. We're watching carefully about the quantum, though, in terms of the number of units, given that the first half pickups were down 16%, so we're just watching that carefully. You are also starting to see some of the OEMs come in and spruik the market in terms of incentive spend, so we'll see how that plays out.
Speaker Change: Sorry, can I squeeze in one real quick one? I think before you have mentioned that you're going from biannual price increases to annual, there was one in January, just confirming that you said that you would consider going with another price increase in July at current spot FXs. Did I hear that correctly?
Yeah, look, I didn't say July, I said the 26th.
Speaker Change: So my point there was if we get significant erosion in our margins due to foreign exchange, we will have to reprice to protect margins. That's the statement. I didn't say it was a certain month, I said 26.
Got it. Thanks for taking the questions.
Thanks, Tim.
Speaker Change: Your next question comes from Elijah Meyer with Goldman Sachs. Please go ahead.
Good morning, Graeme and Aaron.
Elijah Meyer: Just a couple for me. Maybe just firstly on just calling out the sort of a net investment of 3.6 mil that was included in the adjusted EBITDA. Can you give us some guidance I guess for the second half in terms of expectations around some of that net investment and how should look at that ongoing or how much of that?
is kind of sort of one-off as you're
I'll answer that. So of the 3.6 million
The majority of that relates to our infinitive EV business.
Graham Wickman: And you would have heard Graham talk to a disciplined EV investment in the second half.
Thank you.
Graham Wickman: So what does that mean? It means that with the evolving and changing nature of the electric vehicle market, the hybrid market, the make up of the car park here.
Graham Wickman: That category is changing and we must change how we approach that dynamic.
Graham Wickman: And so what that means is our second half investment in that space.
will be lower than the first half of the investment.
whilst protecting our IP and capability in that space.
Graham Wickman: But we're doing that more through a cost-conscious lens and also doing that to stand back a little and actually see how that category evolves and changes.
Graham Wickman: You will know recently if you looked at the data that actually EV sales have come off quite significantly, not only in Australia but also in offshore markets. We're just ensuring our investment is commensurate with the opportunity that we see in the short to medium term in that space.
Graham Wickman: Yep, no, that's clear. And then just maybe secondly, sort of back on APG in the four-wheel drive.
Speaker Change: obviously noting significant drops in sales. Can you sort of talk to I guess if there's been any change in in fitment rates? You sort of called out pickups obviously still high at 90% and SUVs around 50. Is that any change kind of year on year and sort of what you're seeing from it?
Speaker Change: from a human behavior perspective? Sharp question indeed, and that's why we actually put the fitment rates on the slide. So on the four wheel drive slide, we actually purposed that in anticipation of that question and the short answer is no.
Speaker Change: So, you know, fitment rates are not impacted, have not been impacted and generally aren't impacted.
Speaker Change: Even in the most dire of times because they're essentially a functional purchase there in some cases. They're considered
Speaker Change: And I don't like this term to be a grudge purchase because they are required to tow something So no, we're not seeing any fitment rates drops and then the functional accessory element of that. They're standardized parts of vehicle lines So models so they come they're not somebody ticking the box. So no, we've not seen that at all
No problem, thanks for the question.
Thank you very much.
Speaker Change: Your next question comes from Mitchell Sonnegan with Macquarie. Please go ahead.
Speaker Change: Yeah, good morning, Graeme and Aaron. Thanks for taking the questions.
Speaker Change: Just following on from Tim's question before on APG, you've mentioned about the mix, but can I just talk to what visibility you have on the new vehicle volumes in the second half and, I guess, at a higher level, what is factored into your guidance there, noting that you mentioned first half pick-ups in Aus were down 16%. Thank you.
Speaker Change: Mitch, you sound very European after your return from your sabbatical.
Speaker Change: The assumption in the background is that it's a similar sort of new vehicle sales environment.
Speaker Change: At this point, we might be expecting a tiny bit of improvement in New Zealand, but that's not super material. We're expecting, as I said earlier, maybe a slight improvement in the model mix.
Speaker Change: But what we don't have in the second half is some Hail Mary, you know, trajectory around nutricle cells in either of the markets.
Speaker Change: So that's that that's what the the predication is as you know, we have generally between two and three months worth of purchase order
Speaker Change: sitting in the bank, that depends on which vehicle manufacturer we're talking about. So that's kind of the baseline assumption. As Aaron said, within that though, there's some strategic pricing to take place.
Speaker Change: that applies to some of that OEM business. And obviously, we get the benefit of the cost-outs that we've placed in the first part, particularly in ZED. Some more operating model cost-outs in H2 to come that reflects actually a beneficial mix improvement between...
Speaker Change: you know, our OEM, OES, and aftermarket. So those are the sort of things that sit in fact as a drive, the H2 point of view.
Speaker Change: Yep, great, very clear. And just on the growth margin at 44% in the first half with the different price rises that you're pushing through, should we expect that to remain largely steady or will we expect a bit of an improvement in the second half?
Thank you.
Look, a marginal improvement.
Speaker Change: The first half which we said was down 75 basis points was a combination
Speaker Change: of the integration of some acquisitions that had lower gross margins and didn't have any synergy benefit in them.
Speaker Change: and some adverse mix there in our four wheel drive business. So as Grant touched on before, if I talk to the acquisitions, we're expecting some synergy benefits to flow through the second half.
Speaker Change: so that would be positive on gross margins. Pricing, as I said before, will be positive.
Speaker Change: And the next comment on four-wheel drive, as Graeme has touched on, we don't...
Speaker Change: anticipate maybe a modest improvement on mix but not a significant difference. So if you put all that together, mature, yes an improvement, a modest improvement in gross margins in the second half.
And, look, I think that the tangible piece around...
Speaker Change: the cost synergy and acquisition because we've used it in the pack and I asked it earlier on and I thought geez that sounds too Corporate the reality of that is that you know we've got a business called CES
Speaker Change: That is generating a certain level of revenue regardless of the caravan situation, right? We have a competitor's products
Speaker Change: Currently being installed in the CES solution to their end customer We are in the process of switching out that competitors products to our projector product. That is the cost synergy piece We speak of so it's in our control and it's in the process of being rolled out there So that's why we have confidence in that regard
Speaker Change: And just a final one, Graham, just in terms of the continued resilience in the ware and tare market, can you maybe just provide a bit more detail on how you're seeing that? Has there been any volatility through the recent periods and I guess just any particular areas of strength or weakness to call out? Thanks, guys.
Speaker Change: Look, I mean, as we come in to our earnings announcements, we double down on our field reviews and checks.
Speaker Change: Even down to the state level, so it gives us confidence around our view of bookings and wait times and you know There's been over the last 12 months Comments I've made around there's a little bit of disparity versus certain states So there's a little bit of a thematic there at times that hasn't changed
Speaker Change: We've talked a little bit about some of the major repair deferrals, which so much of ours is wear and tear as opposed to massive repair, so there's a little bit of that, but that really hasn't changed.
Speaker Change: Some commentary around the edges around service deferral, but that hasn't really come to massive fruition, and if indeed that did, we'd still get the cycle back when somebody still comes back.
Speaker Change: So those have been some of the thematics that have been rolling around in the background for probably the last 8, 9, 10, 11 months, so I'm probably repeating myself, but there's certainly been no major change as we've entered and completed this half.
Speaker Change: that powertrain business much so. I'm afraid I can't give you any new volatility or new thematic, it's much more of the same.
Excellent. Thanks, guys.
Thanks much. Good to have you back.
Speaker Change: Your next question comes from Sam Teager with Citi. Please go ahead.
Sam Teager: Hi Graeme, hi Aaron and thanks for the presentation this morning. It sounds like you might pull back some of the Infiniti's investment which should be helpful for mid-term earnings growth, but can you talk a bit about the plans for the rate you'll be investing in greenfield opportunities going forward compared to what you've recently been doing?
Sam Teager: I'll give you the first answer and then we'll ask Aaron to add.
Sam Teager: You've probably noticed that the word greenfield has been slowly but surely eradicated out of the pack because it becomes a rock for our back, because we're always going to be investing in strategic growth. But I think the point to be made here is, and I'll call out the nearly $5.8 million we spoke about the last year and a half.
Sam Teager: which comprised of LP in the US and, you know, a bit of South Africa and certainly infinitive. We always reserve the right to modify our view of the cash burn involved in those activities. South Africa we've done.
Sam Teager: LPE is an example. You'll see in the pack, Sam, that we talk about LPE go-to-market optimisation. That cash burn, which we used to call greenfield, has actually been reduced.
Sam Teager: and we've actually decided to pull the projector work into VisionX.
Sam Teager: So naturally the cash burn drops away on that so that what we used to call greenfield will drop away and then the infinitive business, Aaron's already spoken about, we're just taking a really disciplined view of the cash burn of that business. We don't want to lose the competitive advantage we have, but at the same time we need to be sensible.
Sam Teager: What we communicated to at the year end, in terms of potential spend, it will be lower by the time we finish the year.
Aaron Canning: And we'll continue to moderate any investment relative to the reward with some of those hurdles we spoke about in the short term. So Aaron, would you like to add? Yeah, look, just on the technology first, Greenfield, as Graeme said, we're going to be moving away from that. However, we're not going to move away from it.
Sam Teager: obviously a disclosure of transparency around where we choose to invest.
Sam Teager: shareholders hard-earned funds. So we'll continue to disclose that, we're just getting away from that title. And as Graeme says, this business is a growth business and we're going to be investing in growth opportunities and we'll call them out accordingly.
Sam Teager: Look, I think Infiniti has been well spoken too, second half investment will be lower than first half. Look, year on year, Sam, for the full year, it will still be up on the prior full year.
Sam Teager: And then likewise, we're looking at those other areas, BWI, the US, et cetera, as well. Not backing away from the opportunity, but just doing that through a more cost-conscious approach.
lens.
Sam Teager: Excellent, I think that'll be well received. Second question, what type of accessorization rates are you seeing or expecting on Chinese 4x4s?
Sam Teager: first, what we've typically seen with more legacy OEMs such as Ford and Toyota, just trying to understand to what extent could this be a different customer and then we could have different accessorisation rates going forward as the car park potentially changes.
Sam Teager: Look, I mean, you've heard me talk in the past, you know, SUV, passenger vehicle, put the rates of tens in terms of tow bars, SUVs around the 50s and then pickups around the 90s.
Sam Teager: What you're seeing is a continuation of the same trend. So you're seeing, if you think about SUVs, we're really interested in medium and large SUVs, not the small SUVs. And a lot of the Chinese entrants are actually small SUVs. So in terms of fitment rate, that's just not a concern for us.
If you think about pickups...
Sam Teager: Pickups are going to be interesting, Sam, because in the first outset, some of the Chinese pickups don't have the towing capability that the existing brands do. And so those brands potentially will be constrained in their potential ramp-up, but as they grow their towing capability...
Sam Teager: I'm talking, say, the shark at the moment as an example, so will their need to actually have a requisite tow bar to support that, and at the moment it doesn't.
Sam Teager: And we actually have that, which is fortunate, as you would expect, because we have 93% market share. At the same time, you're going to see the Chinese brands...
Sam Teager: start to export their vehicles, not just into our market, but the other markets. And that's why it's so interesting to make the point that we made around the win we had with GWM. We are going to ship
Sam Teager: Thai made tow bars to China for GWM models to then be fitted by their parts and accessories divisions in markets like Brazil.
Sam Teager: parts of Europe and indeed our own market. So if anything, our engineering credentials offers us a great opportunity with those Chinese brands because they cannot do it.
Sam Teager: So, it'll be interesting to watch, but I think we're well-positioned, Sam, and I don't think the fitment rates, certainly on the Chinese pickups, will differ at all of any consequence because at the end of the day, those pickups are being bought for functional reasons.
Sam Teager: Got it. All right. And then last question, just in terms of the guidance, which assumes reasonably similar new vehicle volumes in the second half compared to the first half, you know, if we do get a scenario where we have one or two rate cuts over the second half,
Sam Teager: potentially as soon as this month in a grant based on your experience at Ford, would you expect new volumes to pick up reasonably quickly or is it likely to be a bit of a lag?
Sam Teager: Well, I think you'll have that combined with the level of discount spend and the discount spend will probably be the bigger determinant.
Sam Teager: Then the rate cuts will be important, so it will give us confidence, particularly as...
Sam Teager: such a large proportion of vehicles are actually financed, not bought, as you already know, for cash. So that does help, but it would be the inducements for people to step back into the market who've been sitting there for the last one and a half, two years, thinking, I'm not playing full tote. So I think that's probably more likely a bigger driver.
Sam Teager: And look, we haven't thought that way through in terms of our forecast, nor are we indeed even, you know, we're still reacting to tariffs, as an example. You'll note in the pack we talk about the fact that...
Korea, Thailand, South Africa, Vietnam where we have major manufacturing.
Sam Teager: We're all in tariff-friendly and tariff-favorable jurisdictions. So that may be a bit of a spurt to our American aspirations again. So we're working through some of those macro rate cuts and tariff things quietly in the background, working out how we can make...
Make lemons, sorry lemons, lemonade out of lemons.
Okay. Thank you very much.
Did I really say make lemon?
Bye.
Speaker Change: There are no further questions at this time. I'll now hand back to Mr. Wickman for closing remarks.
Graham Wickman: Okay. Well, thank you for your time today. I appreciate the attention. I also enjoy the quality of the questions.
Speaker Change: Aaron and I are looking forward to spending time with our investors and some of the sell-side experts over there.
the next few days. As I said...
Speaker Change: We have reaffirmed our guidance. We feel convicted to what we're going to achieve this year. More importantly, hopefully we've given you a flavour of this next horizon, whether it be our view of capital management frameworks in terms of capital allocation frameworks.
Speaker Change: and also motive unified and I'm personally very excited about this notion of unification.
Speaker Change: of our automotive pure play. So with that, looking forward to the conversations and have a great day, thank you. Thanks everybody.
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Speaker Change: That does conclude our conference for today. Thank you for participating. You may now disconnect.