My notes on AHL's FY24 results. As I was reviewing the Annual Report, the following 2 longer term growth areas for HTS crystallised, particularly the commentary around Caterpillar recognition, both of which now forms the core of my refined AHL thesis. Am trying to get more information on AHL's relationship with Caterpillar to work out how far it could potentially go with AluFin.
Discl: Held IRL and in SM
KEY LONGER-TERM GROWTH AREAS FOR AHL
Cooling systems for Data Centres - demand for AHL’s cooling solutions will grow as demand for Data Centres grow globally driven by the AI boom. Thailand manufacturing facility is well place to support growth in this area in the Asian region
Battery powered above ground mining equipment is set up for significant growth once the cooling technology matures.
- Supplier recognition by Caterpillar is a really good positive sign
- Cat appears to be targeting 2028 for the production rollout of Cat battery-operated trucks - the mining industry is under increasing pressure to transition to green technology and there is a whole existing fleet of mining equipment which will require upgrading to battery-operated operations once the battery-powered technology matures
- An efficient and cost effective cooling system is an integral part of the green equipment which is where AluFin is targeted at
FINANCIALS
Weaker 2HFY24 and weaker FY24 overall, but no surprises as guidance was provided in May 2024
FY24 earnings issues in HTS appear to be transitory, not permanent due to customer project slippage which is anticipated to be restarted in FY25 - expect to see some recovery in HTS in FY25
Revenue of $142.8m came above the midpoint of revenue guidance of $140m to $144m
EBITDA Proforma came in at $18.1m, at the lower end of the $18m-$19m guidance - HTS One off $1.5m costs were incurred, impacting EBITDA, also previously flagged
BALANCE SHEET
Strong cash generation from operations continues
Inventory reduced by $7m - focus in this area bearing fruit
Capex investment makes sense in terms of Thai plant expansion
OPERATIONAL UPDATES
Senior Leadership Team is now fully in place with the onboarding of the new CEO Kevin Boyle in Apr 2024
Internal re-organisation completed with key segments being (1) Heat Transfer Solutions (2) Distribution and (3) Group Support
This is the ongoing maturing of the AHL organisation that Daryl Abotomey discussed during the SM meeting.
HEAT TRANSFER SOLUTIONS
Positive Developments:
- Expanded the scope of our after sales service offering by providing more services for our customers’ equipment along its path from manufacturing and commissioning and throughout its serviceable life
- Off-highway segment continued its positive trajectory
- Continue to pursue operational efficiencies as we finalised construction of the factory extension and new offices, factory floor re-lay and new equipment commissioning at our Thailand plant.
- Continued progress on AluFin product development with a number of global mining players on multiple fronts- field testing in underground mining equipment, developing a prototype for above ground mining dump trucks, field testing units in on road transport and service testing of an auxiliary cooler module for battery electric powered above ground mining equipment -
- Awarded the Supplier Excellence Recognition award by Caterpillar; an award which recognises top-performing suppliers who have met or exceeded rigorous requirements and achieved world-class certification levels under Caterpillar’s Supplier Excellence Recognition program
Negatives offsetting the positives:
- Continued negative volume pressure in our OEM mining vehicle market in Asia.
- Conditions in the Australian domestic mining and energy sector saw a number of projects with their associated demand for cooling applications deferred.
- We expect most projects to progress in FY25 and we retain a positive outlook for this sector
DISTRIBUTION
Inventory reduction was a big management focus in FY24
Another year of top line revenue growth from a greater volume of sales across the range of categories we supply to the industrial and automotive aftermarkets.
Continued to emphasise our primary focus on cooling applications in industrial and vehicular sectors but also added to our product range with the introduction of fuel pumps and harmonic balancers amongst others.
More actively engaged in dynamic pricing to be more competitive across our product ranges and drive continued market share growth.
GROWTH OPPORTUNITIES
THESIS REVIEW
No change in thesis - business is steadily improving and growing, albeit with FY24 headwinds in HTS - these appear to be transitory
Positioning early for the longer term growth in HTS from Data Centre growth and AluFin opportunities in mining, especially when the global mining equipment players complete the current development phase of green technology equipment and massive fleet replacements from combustion to green technology occurs
Happy with 2.8% position size. Will top up position to 3.5% on any weakness below 75c, which is an attractive entry point given AHL’s all-time low price of ~64.5c