Pinned straw:
Discl: Held IRL 3.57% and in SM
I just got off the AHL results call.
At first glance, the results were flat and underwhelming. But the call gave very good insights as to what has been happening in 1HFY26 and I think, connected many dots that didn’t previously make sense. Still need to work through the numbers - lots of restatements to work through from FY25 as AHL accounts for the sale of the Kiwi business etc.
SO, it is now clear to me that:
1. The other 2 CEO’s prior to Paul Proctor were duds, which old man Gary would have been uncomfortable with, and nuked them.
2. Paul appears to be Gary’s man. In the 6M that he has been at AHL, it appears that he has had the support to the Board to undertake what now comes across as a resonably comprehensive company restructure where:
- The team pre-restructure “could not provide the leadership and development to the teams”.
- Younger, less experienced and heavy overheads were replaced by 20-30 year veterans, experienced in the Distribution and manufacturing business, have more expertise and are more hands-on - they are now working as a team around a strategy they understand and believe in.
- The factories report directly to Paul, cutting out an expensive Exec General Manager sitting in between Paul and the factories
- A “leaner organisation”, “more empowered” and “improved operating culture” has emerged for AHL “to move into a structural growth phase”
- AHL is now focusing on building up the middle level management, engineering and business development roles to expand the skills it needs, particularly in HTS
- While in the past 2 years, AHL has reported that Thailand has been optimised, looks like Paul has gone deeper - a decent team revamp, consolidating of seperately located physical facilities into one footprint and a full re-configuration of the facilities is underway, to be completed by June 2026
3. Paul did make one thing clear - the objective of the restructuring was not to cut cost. The key principle is to improve the ability of the organisation to execute on its strategy.
4. This does help explain why old man Gary was topping up on his shareholdings, on market, in Nov-Dec 2025 - it would appear that he believes he has finally found the person who can lead AHL in its next phase of growth, supports the actions taken, and he has demonstrated that faith via adding more coin in AHL.
5. Paul comes across very understated and I liked how he went about explaining what has happened and why. Because of this overstated approach, it does feel like I can place a decent degree of trust in his and the CFO’s guidance that the benefits of the restructuring are starting to be seen in these early months of 2HFY26.
In a business that is very old school/real world Design -> Manufacture, and Aftermarket Distribution, this pivot back to experience vs younger, more technology savvy management makes good sense. Given what sounds like pretty decisive changes, I am getting a pretty good feeling that AHL has turned a corner and is now set up right for growth in both HTS and Distribution.
Coupled with the complete lack of AI-mageddon exposure, AHL is turning out to be a very robust old-school growth holding in my portfolio.
I will be reviewing the results with the view that AHL has been chewing-gum-while-running in 1HFY26.
Thanks @jcmleng for the details on of the call, I wish I had been able to see it given what you covered is a very different view to my “thesis busted” view in September last year which seems the opposite to Gray’s take on things. I have sold half and have the other half on market to sell, but have not been in any rush to sell because I didn’t think the value was bad – just saw much better value elsewhere.
To sum up my reason for exiting it is that Gray has been the constant in this business which was not going to very well before Darryl Abotomey joined. It was basically a listed personal business of Gray (@Wini made some astute observations on this) and poorly run, so it is interesting that Gray is basically saying everything went south when Darryl turned up and his subsequent short lived predecessor and now they are gone, along with the previous chair then it’s all roses from here.
We will find out in due course and I hope it goes well from here, in fact it probably has a better chance now most of the restructuring has occurred (both Darryl and Gray lead), but as soon as someone ponies up $1 a share I am out and will leave AHL behind as another investing lesson, thankfully one that didn’t cost me money, just a bit of opportunity…
Adding more notes from both the call and a closer look at the results. I really, really like what I am seeing.
OVERALL
Overall, flat and underwhelming, YoY and HoH, but there is much reason to be optimistic
The results were achieved while what sounds a reasonably-sized organisation restructuring was occurring, since Paul Procter, the new CEO, commenced 6M ago - so, for a chew-gum-while-running perspective, this was a really good result for what would have a reasonably turbulent period for management - it provides good confidence that both the underlying divisions are robust.
1HFY26 was disruptive from the restructuring, but the benefits look like they will flow from 2HFY26.
BUT, there is more than meets the eye ...
REVENUE AND EXPENSES
Revenue was on-trend, total and in each segments - slow and steagy growth
Employee Benefits was essentially the only expense item to have been impacted by the restructuring, which added $1.1m of one-off restructuring costs - excluding the restructuring cost, Employee Benefits was $20.2m, which compares very favourably with 1HFY25 $21.0m and 2HFY25 $20.9m
- Headcount creep has been reduced
- People exited have not been in the business for too long, mostly highly paid executives
- Expect 3-4M payback which will then support significant YoY improvement
All other expense lines remained relatively flat - a 0.88% increase YoY and a 3.17% HoH
The brighter story is that excluding the one-off Restructuring Cost, expenses actually fell (0.63%) YoY and only increased 1.62% HoH - that is a really good sign given cost pressures in the last FY
PROFITABILITY
Operating margin fell (0.3%) YoY, and (0.1%) HoH
But EXCLUDING the restructuring cost, Operating Profit would have come in at $5.7m, that's a 18.8% increase YoY or 24.5% increase HoH - that is really good news (the slide says 20% - I am working with round numbers for the restructuring cost) - this impact is also seen at the EBITDA level
This means that, excluding the restructuring cost, this was actually a pretty strong result, the strongest since 1HFY2024 - this now makes this result very interesting ...
CASH BALANCE
Another sign of the underlying robustness of the business is cash generation
The closing cash balance was $18.6m, vs EOFY25 $18.2m, $0.4m MORE. This was despite Cash from Operations coming in relatively low at $6.3m vs the balances between $11.1m and $14.7m in each of the last 4 halfs - $3m was invested in adding inventory and raw materials for significant data centre orders
Dividends was also increased from 1.40cps to 1.45cps, a 3.8% increase YoY and represents 45% of NPAT - another good sign of confidence of, and is consistent with, the improved performance and outlook
KEY 1HFY26 TAKEAWAYS
HEAT TRANSFER SOLUTIONS
- Less reliant on on-road vehicle market, greater focus on off-road opportunities in Data Centres and Power Generation
- Manufacturing facilities in Victoria have been doubled to cater for Data Centre demand - current required capacity is 8 units/week from both Lara and Gillman, able to go to 12 units/week by adding an additional shift
- AluFin - progressing well, trials are in the market, expect to be commercially active in CY2027
- Thailand facility is being optimised, following organisation restructuring - expect to consolidate facilities into a single location and be fully reconfigured by May 2026, team in place is now a seasoned one
- Org restructuring in Thailand is mostly around middle managers, no material costs
- Margins are similar to Australian plants, but cost is lower
- Engineering and development expertise is not readily available - have to train from scratch
- SEA HTS opportunity is significantly higher than Australia, but have not yet landed on the extent - off road and power generation, predominantly
- Not impacted by rising copper prices as in many of the significant contracts, AHL has built in rise & fall provisions to link cost of raw materials and price
- Improved margins in HTS are sustainable:
- Not driven by change in volume but rather by change in product mix
- Better buying
- Good levers with customers to pass through cost increases
- Increased production volume through Lara
- Big and growing demand out of Thailand
- This is the beginning, plenty of growth ahead, and believe this is sustainable
- The HTS moat:
- ~700 years of combined HTS experience from Design to Manufacture to Support
- All HTS contracts are bespoke projects which require the end-to-end skillset which no other company has - “masters of universe in HTS across a large diverse range of HTS applications”
- Foreign competitors typically specialise in a segment eg. Power generation or on-road, but no one has expertise across a broad range of markets
DISTRIBUTION
Seeing significant uplift in revenue in Jan/Feb vs pcp
This is a high fixed cost business, still early days from a change perspective - need 1-2 years of well and aggressively management to maintain and grow business, plenty of legs given the right management
OUTLOOK
