PWR Holdings Limited
Annual Report 2021

Plain-text annual report

Annual Report 2021 PWR Holdings Limited (ASX:PWH) Global Operations Indianapolis Silverstone PWR NORTH AMERICA PWR EUROPE South East Queensland PWR GROUP HEADQUARTERS INDIANAPOLIS, USA PWR NORTH AMERICA (C&R RACING INC.) Our Indianapolis based facility is deep-rooted in supplying world-class motorsports and performance automotive industry cooling solutions. With a history of providing components to top professional race teams and key industry organizations, our products have been proven to withstand the toughest environments. As a leader in cooling research and development, PWR North America offers full engineering and design services with flexible on-site manufacturing, including a state of the art Controlled Atmosphere Brazing Furnace. b ABN 85 105 326 850 SILVERSTONE, UNITED KINGDOM Based in Silverstone, England, PWR Europe extends the same broad scope of company services and cutting-edge cooling componentry that has established PWR as a worldwide resource for best- in-class cooling solutions. From design, testing to development, our Europe facility offers access to the broad range of ever-growing technical resources that PWR prides itself on. ORMEAU, SOUTH EAST QUEENSLAND PWR Performance Products and PWR Advanced Cooling Technology are headquartered in South East Queensland Australia and supply innovative cooling solutions to Motorsports, Aerospace & Defence, OEM and Industrial customers around the world. Every aspect of the manufacturing process is controlled completely within our own facility at Ormeau, which enables PWR to offer its global customers quick turn around and the unique opportunity to customize products to suit their specific needs. Annual Report 2021 PWR Holdings LimitedContents 2021 Highlights............................................................................................................................................................................................ 2 Who we are. How we work. What we do. ................................................................................................................................................ 3 Chairman’s Review ..................................................................................................................................................................................... 6 Managing Director’s Review .................................................................................................................................................................... 7 Where We Came From ............................................................................................................................................................................. 10 Sustainability ..............................................................................................................................................................................................12 Operating and financial review................................................................................................................................................................18 Directors .................................................................................................................................................................................................... 22 Executives .................................................................................................................................................................................................. 23 Directors’ Report......................................................................................................................................................................................26 Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 ................................................31 Remuneration Report .............................................................................................................................................................................. 32 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................................49 Consolidated Statement of Financial Position ....................................................................................................................................50 Consolidated Statement of Changes in Equity ....................................................................................................................................51 Consolidated Statement of Cash Flows ................................................................................................................................................ 52 Notes to the Consolidated Financial Statements ............................................................................................................................... 53 Directors’ Declaration .............................................................................................................................................................................86 Independent Auditor’s Report to the Members of PWR Holdings Limited ................................................................................... 87 ASX Additional Information .....................................................................................................................................................................91 Corporate Directory ................................................................................................................................................................................ 93 2021 Highlights Chairman’s Review Sustainability Page 2 Page 6 Page 12 1 2021 Highlights REVENUE EBITDA NPAT $79.2m $29.0m $16.8m Increased by 20.5% Increased by 23.6% Increased by 28.7% EARNINGS PER SHARE DIVIDENDS PER SHARE 16.8c 8.80c HEADCOUNT 363 Increased by 28.6% Increased by 49.2% Increased by 16.3% 2 Annual Report 2021 PWR Holdings LimitedWho we are. How we work. What we do. PWR is a global designer, manufacturer and supplier of technically advanced high performance cooling solutions, investing in research and development to provide solutions to our customers using advanced cooling technology. We adopt a flexible manufacturing approach and take pride in supporting our customers through a truly unique system of technical partnership. OUR VISION The Global Leader in Cooling Technology Inspired by Engineering Excellence OUR PURPOSE Through passionate people and innovative solutions we lead the way in advanced cooling system design and supply, to exceed the expectations of our global partners across diverse industries. OUR STRATEGIC GOALS Diversification Efficiency Solid Foundations Profitable growth through diversification into Aerospace, Defence and Emerging Technologies Operating model to optimise supply chain, manage risk and drive efficiency Build capability, systems and processes to support profitable growth HOW WE WORK PWR DNA While our strategy outlines what we do to achieve our purpose, our values of respect, passion and teamwork guide how we do it. Every day, our values shape the way we behave and the standards we RReeggaarrddlleessss ooff rroollee,, oouurr DDNNAA uunnddeerrppiinnss hhooww wwee wwoorrkk ttooggeetthheerr set for ourselves and others. RReeggaarrddlleessss ooff rroollee,, oouurr DDNNAA uunnddeerrppiinnss hhooww wwee wwoorrkk ttooggeetthheerr RReeggaarrddlleessss ooff rroollee,, oouurr DDNNAA uunnddeerrppiinnss hhooww wwee wwoorrkk ttooggeetthheerr RReessppeecctt RReessppeecctt RReessppeecctt PPaassssiioonn PPaassssiioonn PPaassssiioonn TTeeaammwwoorrkk TTeeaammwwoorrkk TTeeaammwwoorrkk • We turn up to work on time • We turn up to work on time • We are polite and courteous • We are polite and courteous • We speak the truth, we mean what we say, • We speak the truth, we mean what we say, we keep our word we keep our word we keep our word • We turn up to work on time We do what we say we will do. We always follow through. We rely on each other to do the right thing. • We talk to people and not about them • We are polite and courteous • We speak the truth, we mean what we say, • We talk to people and not about them • We talk to people and not about them • We are passionate about what we can achieve We are driven to • We are passionate about what we can achieve our vision. We always find a way and • We are solutions focused – we take take pride in what we do. • We are solutions focused – we take achieve achieve • We are solutions focused – we take • We are driven to achieve our vision We work together and solve problems together. • We are flexible and always find a way We know that together we are better. • We work together • We work together • We are passionate about what we can • We are driven to achieve our vision • We are driven to achieve our vision • We are flexible and always find a way • We are flexible and always find a way • We work together customers problems and make them our own customers problems and make them our own customers problems and make them our own • We talk to each other • We talk to each other • We talk to each other • We listen and are open to feedback • We listen and are open to feedback • We listen and are open to feedback • We have a positive ‘can do’ attitude • We have a positive ‘can do’ attitude • We have a positive ‘can do’ attitude • We chip in when one of the team is under pressure pressure pressure • We chip in when one of the team is under • We chip in when one of the team is under • We respect the PWR uniform and take • We respect the PWR uniform and take • We respect the PWR uniform and take pride in our personal appearance pride in our personal appearance pride in our personal appearance • We look out for our team-mates • We look out for our team-mates • We look out for our team-mates excellence • We take pride in what we do • We take pride in what we do • We take pride in what we do • We take responsibility for product • We take responsibility for product excellence • We take responsibility for product excellence • We deliver together • We deliver together • We deliver together • We solve problems together • We solve problems together • We solve problems together • We meet our deadlines • We meet our deadlines • We meet our deadlines • We clean up after ourselves • We clean up after ourselves • We clean up after ourselves • We value people who get in and have a go • We value people who get in and have a go • We value people who get in and have a go • We achieve together • We achieve together • We achieve together regardless of their skill set regardless of their skill set regardless of their skill set • We celebrate together • We celebrate together • We celebrate together • We treat the equipment as if it is our own • We treat the equipment as if it is our own • We treat the equipment as if it is our own • We care about working safely and are mindful of our environmental impact • We care about working safely and are mindful of our environmental impact • We care about working safely and are mindful of our environmental impact • We treat every $ like it is our own • We treat every $ like it is our own • We treat every $ like it is our own • We own up if we make a mistake so we can • We own up if we make a mistake so we can all learn from it • We own up if we make a mistake so we can all learn from it all learn from it • We are passionate about developing people • We are passionate about developing people who want to achieve who want to achieve • We are passionate about developing people who want to achieve • We are passionate about our customers • We are passionate about our customers • We are passionate about our customers • We work as a team with our customers • We work as a team with our customers • We work as a team with our customers • We are open and transparent in order to maintain good working relationships • We are open and transparent in order to maintain good working relationships • We are open and transparent in order to maintain good working relationships 3 • We are agile and resilient and take ownership • We are agile and resilient and take ownership of change together • We are agile and resilient and take ownership of change together of change together • We work on a no surprises basis • We work on a no surprises basis • We work on a no surprises basis • We want to win, all the time • We want to win, all the time • We want to win, all the time • We do what we say we will do and we • We do what we say we will do and we • We do what we say we will do and we • We don’t accept the status quo and are • We don’t accept the status quo and are • We don’t accept the status quo and are always follow through always follow through always follow through always looking for the next opportunity always looking for the next opportunity always looking for the next opportunity • We always remember where we have come • We always remember where we have come • We always remember where we have come from from from Draft | 28 June 2021 Draft | 28 June 2021 Draft | 28 June 2021 Who we are. How we work. What we do. continued WHAT WE DO We provide leading edge cooling solutions to our customers in many industries: – Motorsport – OEM – Aerospace – Automotive Aftermarket – Defence – Renewable Energy – Electric and Hybrid Vehicles – Research and Development WELDING & FABRICATION Quality orientated, our welders receive product specific training and adhere to multiple welding standards while maintaining quality processes in alignment with AS9100. TESTING AND VALIDATION Whether designed as product development parts or customer specific projects, PWR has the ability to test and measure a range of coolers in our Windtunnel against a series of performance criteria all under one roof, enabling accurate product validation and rapid development times. CT SCANNING Used primarily for research and development and quality assurance, our CT scanner opens-up a multitude of potential for further product development and non- destructive testing for external partners and research institutions. 4 ADDITIVE MANUFACTURING AND 3-D PRINTING PWR is leading the thermal management industry with unique additive technology which allows us to manufacture thinner structures requiring less build support to enable more complex heat exchanger and component designs with unmatched performance. SIMULATION PWR relies on simulation not only to shorten the time to market of product development but also to improve the thermohydraulic performance of each product design prior to manufacture and real world validation testing. RESEARCH AND DEVELOPMENT PWR’s research and development capabilities are constantly evolving with application of the latest advanced manufacturing technology and materials science, offering short product realisation lead times through internal capabilities. Annual Report 2021 PWR Holdings LimitedCNC MACHINING PWR has 3,4 and 5 axis CNC machines, including fully automated palletised systems. We have a large programming team across our two production locations allowing for 24 hour around the clock programming to deliver a high level of service to our customers. VACUUM BRAZING AND HEAT TREATMENT PWR’s Aluminium Vacuum Brazing facilitates light weight heat exchangers and aluminium cold plates to be manufactured with superior structural integrity with the use of high strength alloys. ENGINEERING AND DESIGN PWR possesses the capability to provide turn-key cooling system solutions through an integrated engineering and design approach from prototype design, specification and simulation, through manufacture, test verification and volume production. LOW AND HIGH VOLUME PRODUCTION Having the ability to engage in projects from first stage prototyping allows PWR to support concepts through to production, to ensure the end product is optimized for performance and mass, whilst adhering to packaging and design constraints. CNC SHEET METAL AND STAMPING Hosting a significant number of sheet metal fabrication machines, PWR has increased its capabilities and technology investment to be an industry leader in sheet metal manufacturing processes, allowing our products to compete on the world stage. PROTOTYPING AND CUSTOM MANUFACTURING PWR designs and manufactures prototype and custom heat exchange products for a range of market sectors such as Motorsport, Automotive, Emerging Technologies and Aerospace and Defence. TOOLING, JIG, FIXTURE DESIGN AND MANUFACTURE The tooling and fixtures required to produce our cutting-edge cooling solutions are developed by our experienced design team with a focus on ensuring that critical tolerances can be achieved with a high level of repeatability. CLEAN ROOM AND ASSEMBLY SERVICES Four isolated and environmentally controlled clean rooms allow PWR to independently manage complex precision assemblies for some of PWR’s state of the art heat exchanger solutions and assembly processes. 5 Chairman’s Review Leveraging our expertise into new industries I am delighted to present to you PWR’s 2021 annual report. COVID-19 continued to have an impact on PWR’s business during FY2021, largely driven by customers reducing or closing their operations for a period of time and some relevant sporting events around the globe being cancelled or postponed. Kees and the PWR team, however, were agile, focused and passionate about delivering returns to shareholders and the implementation of plans in pursuit of our strategic objectives of diversification, efficiency and building solid foundations. The Board recognises that this called for extraordinary efforts from the entire workforce and the Board is deeply grateful to each and every member of the PWR team for the way they were able to remain focused on our customers and deliver innovative and high-quality products, using our advanced technology. PWR delivered a strong result for the 2021 financial year, with NPAT of $16.8m up 28.7% on the prior period (FY2020: $13.1m). The Group continued to deliver on its strategic objective to build solid foundations through implementation of its ongoing capital investment program while still producing a strong return on equity at 26% (FY2020: 24%). Cash flows remain strong and together with efficient working capital management resulted in an EBITDA to cash conversion ratio of 115% and a strong cash balance at 30 June 2021 of $19.9m. PWR also repaid the drawn balance on its multicurrency credit facility with the full $10 million facility limit available to draw down to support future operational requirements, if required. Considering these results and balance sheet position, the Board has declared a fully franked final dividend of 6.0 cents per share. This takes the total dividend for FY2021 to 8.8 cents per share, an increase of 49.2% on the FY2020 final dividend. 6 During the year, we invested in our people and their development, leading edge technology and equipment and our systems and processes. We are committed to building the solid foundations which will enable PWR to continue to grow and diversify. Another strategic priority this year and into the future is to leverage our motorsport knowledge and expertise into the aerospace and defence industry. This has taken a significant step forward with the achievement of AS9100 certification (Rev D). This is an independent endorsement of the quality of the processes the team has built in-house to support our growing aerospace and defence segment. This year, Kees was named the 2021 Australian of the Year by the Australian Automotive Performance Council and we could not be more proud. A fitting accolade for a visionary leader. On behalf of the Board and the PWR team, we congratulate Kees on a career that has led him and PWR to be such exceptional representatives of the Australian Performance Automotive Industry. Looking ahead, uncertainty is likely to persist for some time and we expect to face our share of challenges as the world continues to respond to COVID-19. Shareholders can be confident that your Board will continue to preserve our strong balance sheet and focus on creating long-term value. Kees and his team are passionate and committed to positioning PWR for further growth and success as we meet these challenges. On behalf of your Board, I would like to thank all shareholders for their continued support of PWR. Teresa Handicott Chairman Annual Report 2021 PWR Holdings LimitedManaging Director’s Review Powering ahead The 2021 financial year has seen PWR recover from the early effects of COVID-19 to deliver solid revenue and profit growth across all market sectors. We have maintained a strong balance sheet and are well prepared to deliver on opportunities in the next few years Financial Highlights Revenue NPAT Ordinary DPS Cash on Hand EBITDA to operating cash conversion Employee Headcount FY21 $79.2m $16.8m 8.80 cps FY20 $65.7m $13.1m 5.9 cps $19.9m $20.8m 115% 363 94% 312 Change 20.5% 28.7% 49.2% (4.6%) 21.0% 16.3% REVENUE Group revenue grew strongly in FY21 with solid growth across all key market sectors including motorsports, automotive aftermarket, automotive OEM and emerging technologies. Revenue also grew across all major geographic markets with the strongest growth in North America which grew an impressive 64.2% due to growth in automotive OEM and emerging technologies. Unfavourable currency movements during FY21 negatively impacted revenue to the tune of 5.2%. Revenue by Market Sector Motorsports Automotive Aftermarket OEM Emerging Technologies* Industrial & Other FY21 (A$’00) % FY20 (A$’00) % Growth $42,813 54% $38,026 58% $14,867 $11,732 $8,683 $1,113 19% 15% 11% 1% $11,554 $9,956 $4,082 $2,113 18% 15% 6% 3% $79,208 100% $65,731 100% 13% 29% 18% 113% (47%) 21% * Emerging technologies includes revenue from aerospace and defence, and revenue from other market sectors generated from new technologies – cold plate, micro matrix and additive manufacturing. The sector grew 113% and now represents 11% of total revenue. 7 Managing Directors’ Report continued FY21 SALES CATEGORY ANALYSIS ($’000) (FY20 Comparatives) THIRD PARTY REVENUE BY CURRENCY Sales to third parties by currency (‘000) $1,113 1% (FY20 3%) $11,732 15% (FY20 15%) $8,683 11% (FY20 6%) $14,867 19% (FY20 18%) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 $42,813 54% (FY20 58%) Motorsports Automotive Aftermarket Emerging Technologies OEM Industrial & Other 10.8% 71.4% 27.9% AUD GBP USD FY17 FY18 FY19 FY20 FY21 Conversion of source currency to Australian dollars based on average exchange rate for each year 8 Annual Report 2021 PWR Holdings LimitedWe have strict confidentiality procedures in place when developing new technology. We also operate restricted areas within our manufacturing sites and do not permit phones on the factory floor. CASHFLOW Our working capital management remained strong for the period ended 30 June 2021 which resulted in a cash balance of A$19.9m. We believe we have achieved a balanced outcome for all stakeholders and expected future business requirements by declaring a fully franked final dividend of 6.0 cents per share. Our EBITDA to cash conversion ratio was 115% and remains strong. THE FUTURE Visibility of our growth potential for the next two to three years is now better than what we have previously had which allows us to invest with confidence. To support growth in FY21, PWR increased the headcount from 312 to 363. PWR expects continued growth in FY22 and beyond and expects further increase to headcount, together with a focus on increased productivity and efficiency. We continue to review the organisational structure and employee development to ensure this aligns with expected operational requirements. The PWR Team go beyond what is expected of them on a regular basis and I thank them for the dedication and commitment which is so often demonstrated. Thank you to shareholders, customers and staff for your continued support and I am looking forward to working with the PWR Team this year with the objective of making FY22 another record year on all fronts. Kees Weel Founder & Managing Director PWR AUSTRALIA AND EUROPE PWR continues to supply the majority of motorsport categories with cooling technology and this continues to be our primary category as noted in the graphical analysis on the prior page. PWR NORTH AMERICA PWR North America has successfully delivered automotive OEM and emerging technology programs, including solid growth in the automotive aftermarket. PWR North America is well placed to further develop and support these market sectors. CENTRES OF EXCELLENCE PWR has two (2) manufacturing hubs able to service customers globally. A key aspect of our corporate strategy is having Centres of Excellence for the different aspects of our business including manufacturing operations, engineering, design, testing, research and development and corporate services. These will ensure appropriately located and resourced specialised teams are collectively focused on delivering the best outcomes for the Group. TECHNOLOGY DEVELOPMENTS PWR deploys advanced technologies into our manufacturing processes to ensure we remain at the forefront of manufacturing capability and complexity for both existing customers as well as potential new customers and industries. During FY21, these technologies of cold plates, micro matrix and additive manufacturing have been further developed and commercialised. Our application of these technologies continues to expand as current and potential customers embrace the benefits, including customers in the aerospace and defence sector. INTELLECTUAL PROPERTY AND MANAGING CYBERSECURITY RISK Protection of PWR’s intellectual property and that of our customers is paramount. We have strict protocols in place to manage our intellectual property. We have undertaken an independent external review of our IT and potential cyber security exposures and have subsequently implemented all recommendations arising from this review. On completion of the implementation of the recommendations, a further independent external assessment was completed to test and confirm the effectiveness of cyber security robustness. 9 Where We Came From Kees with his son Paul Weel opened Paul Weel Radiators (PWR). PWRs new factory at Ormeau, Queensland started construction. PWR started designing and manufacturing Formula 1 and Nascar cooling packages, developing unique manufacturing processes. 1997 1997 2001 – 2002 2001 – 2002 2006 2006 2008 2008 2009 2009 2012 2012 PWRs vision and growth continued with demand for aluminium cooling products rapidly increasing at Currumbin, Queensland headquarters. Growth of staff to 20. PWR’s World Headquarters opened with a staff of 45 and an increased global demand for its products. PWR built the largest calorific wind tunnel in the southern hemisphere to test heat exchangers at real world operating conditions. 10 Annual Report 2021 PWR Holdings LimitedPWR achieved certification to AS9100 (Rev D). This is an aerospace and defence standard (AS) that was released by the International Aerospace Quality Group (IAQG) based on the internationally recognized standard ISO 9001. For defence and aerospace customers, PWR manufactures products such as bar and plate coolers, micromatrix coolers and cold plate coolers, backing it up with the added processes such as CT scanning and Additive Manufacturing (3D printing aluminium). PWR celebrates supplying its 4th Formula 1 World Championship win, having supplied cooling systems to Red Bull Racing from 2010 to 2013 inclusive. PWRs CNC machine shop doubled in size, introducing palletised and self-loading 5 axis machining cells to run unmanned. PWR continues to diversify its products into battery and electronics cooling systems as well as targeting the aerospace and defence industries. Product offering also expands to now include MicroMatrix production. 2013 2015 2017 2018 2019 2020 2021 PWR acquired US based C&R to strategically expand its manufacturing footprint and gain further traction in the US market. PWR listed on the Australian Stock Exchange with a staff of 80 in Australia. PWR Advanced Cooling Technology continues to revolutionise the cooling industry with a staff of 170. Factory footprint in Australia expands significantly to include the building alongside its main headquarters which is now dedicated to Engineering, R&D and Advanced Manufacturing. PWR obtains leading- edge manufacturing equipment and new technologies including aluminium Additive Manufacturing machines, SLA machine, Yxlon 3D CT Scanner and a Vacuum Furnace plus a Heat Treatment Furnace, expanding on a substantial list of manufacturing capabilities to ensure PWR can manage the production of the best solutions by whichever manufacturing methodology provides the greatest advantage to its customers. 11 Sustainability Investing in Things that Matter Go Hand- in-Hand with Building a Sustainable Business PWR is committed to operating in a manner which acknowledges and proactively manages those issues which are most material to the long-term sustainability of our business. OUR PEOPLE At the heart of PWR is its people. We believe in them, support their health, safety and wellbeing and ensure they have access to learning and development opportunities. We encourage a work place that is diverse, empowered and demonstrates good decision making and one which fosters innovation and high productivity. We take a particular interest in recruiting apprentices, offering work experience to high school students and investing in them to build a capable and committed workforce to maintain PWR’s exceptional quality workmanship and customer service. Development and Diversity Diversity is a consideration that forms part of PWR’s long term commercial success and strategy and PWR’s commitment to diversity will make it stronger and deliver benefits, including diversity of thought, improved business performance, enhanced service delivery and increased staff attraction, retention, motivation and satisfaction. We recognise, embrace and value the differences and experiences of our people and their unique contribution to the workplace. PWR is committed to promoting equality within its culture and believes this is vital for developing and maintaining a high performing and positive workplace. PWR strives to reinforce its DNA (respect, passion and teamwork) in every decision we make or interaction we have. 12 CASE STUDY Passionate and Diverse Leadership Helps to Build PWR’s Future PWR embraces diversity and is thrilled to have Natarsha as a team leader in our main production area of Transmissions and Auxiliary. “Tarsh” as we call her recently joined other PWR leaders in a front-line leadership training day and is excited about her future. Natarsha Rathmell “ When I started with PWR in 2015 I had no idea how much work goes into cooling performance cars. I never had much of an interest in cars really, other than when Indy600 came to the Gold Coast each year. But my mum worked here building various car radiators and she would come home and tell me the different car models she’d built that week, from Landcruisers one day, to Audi GT3 the next. It all sounded really interesting and if she enjoyed it, I might too. Now having worked with PWR for 6 years, I am the team leader for the transmissions and auxiliary department, and I’ve worked in so many areas within the main production department. I have helped with various components for F1 and am proof that all you need is a can-do attitude, willingness to learn and a bit of enthusiasm. You don’t need a degree or a mechanical mind to progress within such a large company. I came from working in a petfood factory to working on cooling products and performance parts for a range of categories from aftermarket to motorsport. I have already taken part in the leadership training and am looking forward to the direction my career is going. The food’s not too bad either.” Annual Report 2021 PWR Holdings LimitedWe are focused on ensuring PWR’s recruitment and development programs are inclusive and can support all our people, whatever stage they are at in life and their career. PWR is proud to have helped develop over 30 apprentices and 16 school work-experience students over the past year. Diversity Objectives The Group’s objectives for diversity over the next three years are and how we performed in FY2021 are set out below: FY2021 Actual FY2021 Target FY2022 Target FY2023 Target Number of women in Executive Management over the next 3 years Increase female representation in PWR’s workforce: PWR PWR NA PWR Europe Board composition remains at least 30% female as per the ASX Governance Principles and Recommendations. 1 11% 13% 17% 25% 2 14% 16% 33% 2 16% 17% 33% 3 20% 20% 35% At least 30% female membership As we continue to recruit, our diversity objectives will remain front of mind. CASE STUDY We Support our Schools and Apprentices with Development Opportunities Our apprenticeship and school work experience programs help PWR to build talent for PWR’s future, while also giving the trainees the learning opportunities they need to keep moving forward in their careers. Max Norris has been with PWR since 2018, initially through the PWR School Work Experience Program, Max is now in his third year of his Fitter and Turner Apprenticeship. Max is already running the 5 Axis CNC machines worth in excess of $1m. “ The few years I have worked at PWR thus far has been nothing short of an exciting, high paced environment that is filled with a positive atmosphere wherever you go. The abundance of knowledge that surrounds me and other apprentices is second to none. For myself to be given the opportunity to operate world class 5 axis CNC machines and rub shoulders with talented machinist and programmers so early in my career is a challenge that I do not take lightly, and with the support of incredible mentors and management, I am confident in my abilities as a machinist and constantly eager to learn more. I am excited for the future of PWR and cannot wait to see where it can take us next.” Max Norris Achievements Some of the achievements we are proud of are: We employed 30 apprentices and 16 work experience students this year We made a conscious decision to recruit for part-time roles that cater for those people with the need to be free to drop off and pick up their children from school We invested in leadership training for our supervisors and plan to continue that programme into the future given the tangible benefits it has already delivered. 13 Sustainability continued HEALTH, SAFETY AND WELLBEING We care about our employees and are committed to ensuring a safe and healthy workplace. COVID-19 As the COVID-19 pandemic was with us again during the year, we maintained personal hygiene and social distancing measures at all sites in line with government and Safe Work Australia guidelines. We have played our part in Australia’s drive to vaccinate its population against COVID and have given our staff time off to attend COVID vaccination clinics and we pay for their transport to and from their vaccination appointments. Employee Wellbeing At PWR we believe that investing in the well-being of our employees is an investment in PWR’s future. CASE STUDY Looking after our People At PWR we believe in looking after the health and well-being of our people and one way we can do that is through Weely’s Diner at PWR’s Ormeau manufacturing facility which employs over 270 people. Weely’s Diner is a state-of-the-art purpose-built canteen that offers free of charge, “home” cooked meals to our staff at Ormeau in Brisbane. Our head chef Grant, along with Sam and Adrienne serve breakfast, morning tea and a hot lunch to all of our staff and the occasional visitor who happens to be here at the right time. Kees Weel, Founder and Managing Director, opened up Weely’s Diner in 2008 as he firmly believes that a well fed and hydrated workforce is a happier and more productive one. As an added bonus it prompts staff to leave their workstations and get up from their chairs, stretch, refresh themselves and interact with others - especially those from other teams or departments where they exchange ideas and return to work rejuvenated. “ The “Weely’s Diner” represents more than just a financial saving for me personally as it takes away the stress and time of having to prepare food for myself every day which is hugely valuable in my busy lifestyle. Not only is the quality of food second to none but the diner also gives a great opportunity to catch up both professionally and personally with colleagues and is often a highlight of the day.” - Ben Jackson Sam Makim 14 Annual Report 2021 PWR Holdings Limited CASE STUDY Mental Health First Aid Officers Supporting the mental wellbeing of our employees is good for everyone and enhances personal and organisational resilience, and success. We are proud to have two members of our human resources team, Amy and Lauren, trained as mental health first aid officers, giving them skills to support our employees in times of need. Amy Kinnane and Lauren Stratton “ We are very proud to have our Certification in Mental Health Frist Aid. We are both very passionate about shining a light on the importance of Mental Health and the power of not suffering in silence. We have over 270 staff of all ages and backgrounds, who spend more time here at work than they do at home with their families. It is so important that we are able to support every single staff member in their physical and mental wellbeing by giving them support, guidance and access to professional help when and if they need it. We want to create an inhouse support network so no one ever feels like they are alone and know that just one conversation could save a life.” Safety We saw an increase in our Lost Time Injury Frequency Rate (LTIFR) in 2021 increasing from 3.3 to 5.9, and have invested in enhancing our internal governance for health and safety oversight and risks which includes the establishment of a Health and Safety Committee, identification and development of associated mitigation actions for our critical safety risks and undertaking root cause analysis when a safety or high potential incidents occur. There have been no fatalities, fines or prosecutions arising from safety related breaches across the Group. Achievements Free influenza vaccinations to our people Assistance with bookings, time off and paid transport to COVID-19 vaccination clinics Served approx. 203,000 meals to our 270 employees at our Ormeau manufacturing site in Queensland Trained mental health first aid officers to support our workforce Fully functional employee Work Health and Safety Committee Identification, communication and training on Critical Safety Risks across our global operations COMMUNITY AND STAKEHOLDERS Our Shareholders We are committed to engaging with all of our shareholders and we set a precedent in 2019 when we held our Annual General Meeting at our manufacturing site at Ormeau where we provided shareholders with site tours so they could see first-hand what we do. Unfortunately COVID prevented that from happening in 2020 and we held a virtual AGM where we did our best to communicate with our shareholders. We are hopeful to hold the 2021 Annual General meeting at our Ormeau manufacturing site, offer site tours and interact on a personal level with our shareholders, COVID permitting. We invested in upgrading our website which includes our investor portal so shareholders have quick access to key reports, announcements, share price and governance policies. Our Customers When entering into a relationship with our customers, PWR does not limit the service to the sale of product, but instead partners with the customer to understand their project objectives, engaging PWR’s Engineering Centre of Excellence and utilising PWR’s expertise in advanced technology to quickly develop unique cooling solutions that are right for the customer’s application. Building upon PWR’s extensive capability from design conception through to project delivery and validation, this collaborative approach often extends as far as having customers, including the world’s premier Formula 1 teams, work on-site alongside PWR engineering and production staff to optimise their cooling solutions. 15 Sustainability continued Community Support PWR’s employees are active participants in the community and foster a healthy sense of competitive tension in the workplace through participation in a number of community initiatives. This year we participated in and raised money for the Great Cycle Challenge (kids fighting cancer), Movember, Shave for a Cure and held gold coin donation lunches for community causes such as drought relief and bushfires and raised over $5,000. OUR CORPORATE GOVERNANCE AND RISK MANAGEMENT PRACTICES The Corporate Governance statement of the Group is available through the Group website and is also released to the ASX as part of our annual reporting. The Corporate Governance statement adopted by the Board reflects the Board’s endorsement and adoption of the recommendations contained in the ASX Corporate Governance Council’s Principles and Recommendations. Risk management is fundamental to maximising the value of our business and informing PWR’s strategic direction. We believe that effective risk management enables us to identify priorities, allocate resources, demonstrate due diligence in discharging legal and regulatory obligations, and meet the standards and expectations of our stakeholders. PWR’s risk management approach is a structured process to identify potential threats to the success of the business, and defines the risk appetite and strategy for eliminating or minimising the impact of these risks. We particularly focus on strategic and material risks and PWR is committed to ensuring that risk management is regarded as an essential element in our management processes with linkages to every aspect of our business including development of existing business, expansion into new markets, relationships with major customers and suppliers and our treasury and capital management activities. See below for summary of our material risks and how we manage them: Protecting the health, safety and wellbeing of our people PWR’s DNA calls out respect. Respect for our employees and respect for each other. We strive to ensure that a culture of respect promotes a safe workplace where everyone goes home safe every day. We also believe that providing our employees with health and wellbeing opportunities supports a happier, healthier, more productive workforce and workplace. We have identified and regularly talk about our critical safety risks. We investigate the root cause of all safety incidents, identify key learnings and talk about them in our toolbox talks. We are continuously improving our working environments to make them safer and more productive for our people. We have set up an Employee Assistance Program to help employees deal with life’s challenges by giving them and their families free access to professionals who can provide them with strategies to minimise stress and manage their mental health. We have two qualified mental health first aid officers at PWR’s Ormeau manufacturing facility. Managing the challenges that come with rapid growth PWR has worked hard to get where we are and have grown our business year on year but with this comes challenge. The challenge of managing and communicating with a larger workforce, more workload, the need for more factory space, better systems and processes, more customers and new advances in technology, to name a few. 16 We seek to address this risk through one of our strategic objectives – Solid Foundations. First and foremost we need to stay focused on our people at all times, no matter how demanding our business growth becomes - because our people are responsible for driving our growth. We have invested in a highly capable human resource area to provide the extra support and focus required. With growth comes change and maintaining open channels of communication with our people is essential. We are committed to ensuring each and every employee understands our vision and purpose and their role in helping to deliver them. We are focused on ensuring we have robust systems and processes that facilitate knowledge transfer for the production of our many products. When everyone follows a well-tested set of steps, we reduce the likelihood of mistakes, delays and duplicated effort. We are investing in a new Enterprise Resource Planning system that will support PWR’s business for years to come. Annual Report 2021 PWR Holdings Limited Protecting our intellectual property and managing cyber security risks Protection of PWR’s intellectual property and that of our customers is paramount. We have undertaken an independent external review of our IT and potential cyber security exposures and have subsequently implemented all recommendations arising from this review. On completion of the implementation of the recommendations, a further independent external assessment was completed to test and confirm the effectiveness of cyber security robustness. We have strict confidentiality procedures in place when developing new technology. We operate restricted areas within our manufacturing sites and do not permit phones on the factory floor. Talent identification, recruitment and retention Our ability to identify, attract and retain key talent and develop capabilities is fundamental to delivering our strategic objectives. Diversifying our business Our objective is to leverage our research and development and success in providing cooling solutions to motorsport into other industries where we can use our know-how and add value. We focus on enhancing our offerings to employees and potential employees to distinguish ourselves in the market through targeted and effective approaches to talent and recruitment management. We focus on succession planning and we identify key talent and provide them with experience and growth through time in critical roles and identify relevant external training for their skills development. We continue to improve our long-term workforce planning and talent management program across PWR. We invest in our leaders to support their skills in leading and managing their teams. We keep our strategy front of mind as it informs the decisions, we make about leveraging our existing cooling solutions into new industries. We regularly evaluate our strategic objectives with the Board. We have a dedicated advanced technology team focused on building a pipeline of opportunities. We strategically invest in leading edge manufacturing technology. We invested in securing AS9100 accreditation (aerospace and defence quality standard) and are working towards other important certifications. Maintaining our leading edge through innovation and advanced technology Technology and innovation are advancing at a rapid pace and we pride ourselves at being at the forefront of technology advances in the field of cooling however it requires continued investment and focus and falling behind is not an option. We are continuously investing in research and development. We adopt quality control approaches in everything we do and use advanced technology to problem solve for customers. We introduced capability for serialisation of products including full traceability of components and raw materials used in the production process back to raw material source. We attend trade shows and keep up to date with the latest advances in technology. OUR RESOURCE MANAGEMENT Although the PWR Group is not subject to any significant environmental regulations, the Group manages environmental aspects and impacts through its ISO 14001 compliant management system. The Group is focussed on environmental management by: – ensuring exhaust gases generated in the manufacturing process are removed via activated compounds prior to being released into the environment – recycling raw materials, cardboard and office materials – disposal of wastes and hazardous materials in accordance with government regulations. RECYCLING At PWR, aluminium is used almost exclusively in the production of our high-performance cooling solutions. This material is abundant, easy to fabricate and one of the most widely recycled materials. During the 2020-2021 financial year we recycled 181 tonnes of aluminium, up 11% on that recycled in 2019-20. 17 Operating and financial review The operating and financial results for the year ended 30 June 2021 have been impacted by the COVID-19 outbreak which is discussed in more detail below. COVID–19 This significant public health issue has impacted the full year results of the Group with customers either reducing their operations or closing them for a period of time. In addition, sporting events globally, including motorsport, were stopped for a period of time in FY20 and FY21 and have since resumed on a full or modified program. The impact on the business of this uncertainty has been partly mitigated by Federal Government initiatives in Australia and the USA. In Australia, PWR Performance Products Pty Ltd was an eligible employer for the JobKeeper program. This program commenced in April 2020 and continued until 27 September 2020. The Group has not restated or separately identified any aspect of its results for the impact of COVID-19 other than disclosing the actual benefits received or due from the Australian Federal Government JobKeeper program for FY20 and FY21, and the USA Federal Government Pay Check Protection Program for FY20. The UK Government furlough scheme was immaterial to the Group results due to the small number of eligible staff employed at PWR Europe Ltd. JobKeeper assistance Pay Check Protection Program Total before tax assistance 2021 $’000 1,980 – 1,980 2020 $’000 1,743 1,769 3,512 Our strong balance sheet has enabled us to maintain all our operations in a ready state and no staff have been retrenched as a result of COVID-19. PWR has repaid the drawn balance on the multicurrency credit facility with the full $10 million facility limit available to draw down to support operational requirements if required. Summary of financial results Revenue EBITDA1 EBITDA1 margin Net profit after tax (NPAT) Operating cash flow (excluding interest and tax) Earnings per share FY21 A$’000 79,208 28,963 36.6% 16,797 31,368 FY20 A$’000 65,731 23,430 35.6% 13,049 20,323 16.77 cents 13.04 cents Change % 20.5% 23.6% 28.7% 54.3% 28.6% 1. Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report. Reconciliation of profit before tax to EBITDA A reconciliation of EBITDA1 to the reported profit before tax in the consolidated statement of profit or loss and other comprehensive income is as follows: Profit for the period before tax Add : net finance costs Add : depreciation & amortisation Underlying EBITDA1 FY21 A$’000 22,547 677 5,739 FY20 A$’000 18,235 490 4,705 28,963 23,430 1. Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report. 18 Annual Report 2021 PWR Holdings LimitedRevenue The Group achieved overall revenue growth of 20.5% compared to the prior corresponding period. Organic revenue increased by 25.7% but was offset by unfavourable exchange rate movements of (5.2%). The above growth was primarily driven by third party sales out of the United States of America, United Kingdom and Australia, where sales grew 64.2%, 10.3% and 17.2% respectively. 5. OPERATING AND FINANCIAL REVIEW (continued) Exchange rate movements saw the GBP being 2.7% stronger at 30 June 2021 and the US dollar being (9.6%) weaker compared to the prior period. In contrast, average rates during the financial year saw the GBP (4.1%) weaker and the US dollar (11.2%) weaker than the prior period. The net impact of exchange rate movements had an unfavourable impact on revenue for the year of ($3.40m) (FY20: favourable $2.58m). EBITDA Despite the negative impact on revenue of foreign exchange rate movements, EBITDA in FY21 compared to the prior corresponding period was stronger mainly due to: – Solid revenue growth across the motorsports, OEM, automotive aftermarket and emerging technologies sectors; – Production costs control; – Benefits from the JobKeeper program; and – Administration and overhead costs increasing at a lower rate than sales and EBITDA. 19 Operating and financial review continued Net profit after tax Net profit after tax of the Group for the year ended 30 June 2021 was $16.80 million (FY20: $13.05 million). Operating cash flow The Group continued its strong cash conversion rate with FY21 operating cash flow (excluding change in working capital, interest and tax) of $33.2 million, a conversion of 115% from EBITDA. Foreign currency The Group is exposed to movements in foreign exchange rates, with consolidated revenue generated in various currencies (using average exchange rates through the reporting period) as outlined below: British pounds (GBP) US dollars (USD) Australian dollars (AUD) FY21 FY20 53.8% 31.2% 15.0% 61.8% 24.1% 14.1% Balance sheet management The balance sheet remains strong with cash of $19.9 million (FY20: $20.8 million). Working capital utilisation has improved from 128 days at 30 June 2020 to 66 days at 30 June 2021 due largely to a reduction in stock turnover days. Capital expenditure for the year was $10.4 million (FY20: $7.8 million). Our strong balance sheet can support ongoing expected capital expenditure for potential future growth opportunities whilst still having access to available and unused financing facilities. With the solid working capital position, expected future capital investment requirements and the ongoing strong contribution of EBITDA to operating cash flows, the Board has declared a final 2021 dividend of 6.00 cents per share bringing the total dividend to 8.80 cents per share. Review of operating segments The Group has two operating segments, PWR Performance Products which comprises its Australian and European operations, and PWR North America which comprises its C&R USA operations. The PWR Performance Products segment generated external revenue of $54.9 million (FY20: $50.2 million), The increase was due to the recovery of customer operations post the initial impact of COVID-19. The C&R segment generated external revenue of $24.3 million (FY20: $15.6 million). This is a strong result resulting from increased sales from the OEM, Automotive Aftermarket and Emerging Technology sectors. The carrying value of goodwill and trademarks is assessed on an ongoing basis to ensure these are not impaired. This assessment has been performed at 30 June 2021 and using currently available information has resulted in the current values continuing to be recognised. 20 Annual Report 2021 PWR Holdings LimitedReview of principal businesses During the year ended 30 June 2021, in addition to the items outlined above, the Group: – Enhanced our new micro matrix and cold plate technology product offerings; – Increased supplies into new industries including aerospace and defence; and – Increased employee headcount to expand capacity to delivery on new and potential contracts. Significant changes in the state of affairs Other than as outlined in the operating and financial review, there were no significant changes in the state of affairs of the Group during the year. 21 Directors Teresa Handicott Independent Chairman, Non-Executive Director Kees Weel Managing Director and Chief Executive Officer Jeffrey Forbes Independent, Non-Executive Director Roland Dane Independent, Non-Executive Director A N A N A N Teresa is a former corporate lawyer, with over 30 years experience in mergers and acquisitions, capital markets and corporate governance. She was a partner of national law firm Corrs Chambers Westgarth for 22 years, serving as a member of its National Board for seven years including four years as National Chairman. Teresa is a director of ASX listed company Downer EDI Limited and of Peak Services Holdings Pty Ltd, a subsidiary of The Local Government Association of Queensland (LGAQ), which is responsible for the LGAQ’s commercial operations. Teresa is a Divisional Councillor of the Queensland Division of the Australian Institute of Company Directors (AICD) and a member of the AICD’s National Law Committee. She is a Member of Chief Executive Women (CEW), is a Senior Fellow of Finsia and a Fellow of the AICD. Teresa was previously a Member of the Queensland University of Technology Council, the Takeovers Panel, Associate Member of the Australian Competition and Consumer Commission (ACCC), member of the Finsia Queensland Regional Council, Director of CS Energy Limited, Principal Law Lecturer for the Securities Institute of Australia (now Finsia) and tutor in Corporate Governance for the AICD Directors Course. Kees Weel is the founder of PWR and has been awarded the 2021 Australian Performance Automotive Industry “Australian of the Year”. From the humble beginnings of hand making his first copper and brass radiator in 1982 to a visionary leader of PWR, Kees has lead PWR on an extraordinary journey that has cemented PWR’s reputation globally for quality and innovative cooling products and unparalleled customer service. It was Kees’ inspiration to begin manufacturing radiators that quickly led to a ready-made customer base that required superior quality and capability from radiators. With an ever growing business and in-demand product, in 2006 Kees started building, what is today, PWR’s state of the art manufacturing facility at Ormeau. Kees’s uniquely Australian approach to business is his greatest strength, where no challenge is too big and an ethos that everything can be made with time, money and hard work. Following its listing on the ASX, Kees has continued to oversee the extraordinary growth of PWR while still maintaining its commitment to quality and customer service and that ‘family feel’ amongst employees. Kees continues to develop PWR’s business capabilities and leads his high performance team to be innovative, listen to the customer and always have a can do attitude. Printed in supersized letters on the wall at the Ormeau manufacturing facility is Kees’ motto: Most people see things as they are and say why. We dream of things that never were and say why not? Jeff has over 30 years’ experience in senior finance and management roles with extensive mergers and acquisitions experience. Jeff retired in March 2013 as Chief Financial Officer, Executive Director and Company Secretary of Cardno Limited, an ASX-listed engineering consultancy company. Prior to joining Cardno, Jeff was Chief Financial Officer and Executive Director at Highlands Pacific and has previously held senior finance roles in the resources sector. Jeff holds a Bachelor of Commerce from the University of Newcastle and is a Graduate of the Australian Institute of Company Directors. Jeff is a Non-Executive Director of Cardno Limited, Intega Group Limited and Chairman of Herron Todd White Australia and Herron Todd White Consolidated. Roland has extensive automotive business experience in the UK, Asia and Australia. Roland was the founder of, and remains the principle shareholder in, the Park Lane (UK) vehicle acquisition business in the UK some 35 years ago. He is also the Managing Director of the successful Triple Eight Race Engineering team, winning 8 out of the last 13 V8 Supercar championships. Key Audit and Risk Committee Nomination and Remuneration Committee Committee Chair N A 22 Annual Report 2021 PWR Holdings LimitedExecutives Matthew Bryson Chief Operating Officer (COO) Martin McIver Chief Financial Officer (CFO) Stuart Smith Former Chief Financial Officer Matthew is responsible for overseeing the operations of engineering, production and quality management of the Group. Matthew completed his Mechanical Engineering Trade as a special class Fitter and Machinist/Toolmaker concurrently studying Mechanical Engineering, before working as a mechanical design engineer, and then applying both engineering and trade skillsets to the motorsport industry. Matthew joined PWR in 2000 as a design and manufacturing engineer contributing to PWR’s formative years across product and production engineering responsibilities. This role progressed to the position of Engineering Manager at PWR, as a position held for 15 years, working closely with PWR’s customers to grow the business, and overseeing the continued development of PWR’s product and advanced manufacturing capabilities. Matthew commenced his current position of COO at PWR in July 2020. Martin McIver is responsible for finance, treasury, human resources, information technology, and procurement. Martin was previously the CFO at WorkPac with 7 years’ service and is currently Chairman at Tlou Energy Ltd (ASX:TOU). Earlier he held the position of Director in Corporate Finance with PricewaterhouseCoopers with a focus on mergers and acquisitions. Martin has a Bachelor of Business from QUT and is a MBA graduate from the American Graduate School of International Management (Thunderbird). Stuart Smith was the CFO of PWR until 12 April 2021 and then provided support to the new CFO, Martin McIver while he settled into the role. Stuart ceased employment at PWR on 23 April 2021. 23 Financial Report FY21 for the year ended 30 June 2021 24 Annual Report 2021 PWR Holdings LimitedContents Directors’ Report...................................................................................................................................................................................... 26 Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 ................................................31 Remuneration Report .............................................................................................................................................................................. 32 1. Letter from Chairman of the Nomination and Remuneration Committee ................................................................................... 32 2. How We Performed in FY2021 .......................................................................................................................................................................34 3. Remuneration of Executive KMP and How it Aligns to FY2021 Performance Outcomes .....................................................35 4. PWR’s Pay for Performance Framework ...................................................................................................................................................36 5. Contract duration and termination requirements ................................................................................................................................43 6. Remuneration of Non-Executive Directors during Reporting Period ..........................................................................................43 7. Key Management Personnel | Statutory Remuneration Table ........................................................................................................... 44 8. Shareholdings of Key Management Personnel ...................................................................................................................................... 46 9. Voting and comments made at the Company’s 2020 Annual General Meeting ....................................................................... 46 10. Rights over equity instruments granted as remuneration ............................................................................................................... 46 11. Equity Instruments ............................................................................................................................................................................................47 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................................49 Consolidated Statement of Financial Position ....................................................................................................................................50 Consolidated Statement of Changes in Equity ....................................................................................................................................51 Consolidated Statement of Cash Flows ................................................................................................................................................ 52 Notes to the Consolidated Financial Statements ............................................................................................................................... 53 Section A About this Report ................................................................................................................................................................................53 Section B Business Performance ...................................................................................................................................................................... 54 Section C Operating Assets and Liabilities .................................................................................................................................................... 57 Section D Employee Benefits ..............................................................................................................................................................................62 Section E Taxation ................................................................................................................................................................................................... 64 Section F Capital Structure and Borrowings .................................................................................................................................................66 Section G Group Structure .................................................................................................................................................................................69 Section H Other Information .............................................................................................................................................................................. 73 Section I Significant Accounting Policies ....................................................................................................................................................... 79 Directors’ Declaration .............................................................................................................................................................................86 Independent Auditor’s Report to the Members of PWR Holdings Limited ................................................................................... 87 ASX Additional Information .....................................................................................................................................................................91 Corporate Directory ................................................................................................................................................................................93 25 Directors’ Report for the year ended 30 June 2021 The Directors present their report together with the financial report of PWR Holdings Limited (the “Company”) and its controlled entities (the “Group”) for the year ended 30 June 2021 (“reporting period”) and the auditor’s report thereon. The report is prepared in accordance with the requirements of the Corporations Act, with the following information forming part of the report: – Operating and financial review on the inside front cover to page 30 – Director biographical information on page 22 and Company Secretary biographical information on page 26 – Remuneration report on pages 32 to 48 – Note H1 Financial risk management objectives and policies on page 73 – Note I10 Share capital on page 83 – Note H3 Auditor’s remuneration on page 78 – Note D3 Employee share based payments on page 63 – Directors’ declaration on page 86 – Auditor report on page 87 – Shareholder information on pages 91 to 92 – Corporate directory (inside back cover). 1. DIRECTORS At the date of this report, the Directors in office were: Teresa Handicott Kees Weel Jeffrey Forbes Roland Dane Appointed 1 October 2015 Appointed 30 June 2003 Appointed 7 August 2015 Appointed 1 March 2017 You can find information about our Directors’ qualifications, experience, special responsibilities and other directorships on page 22. 2. COMPANY SECRETARY Lisa Dalton (B.App.Sc., M.App.Sc., LLB (Hons), FAICD, FCSA, FCIS) Lisa Dalton was appointed as PWR’s company secretary on 7 August 2015 and remains the company secretary at the date of this report. Lisa is an accomplished lawyer, governance professional, senior executive and leader with over 25 years’ experience in the mining, energy, construction, manufacturing, medical, agricultural and infrastructure sectors. Lisa is currently Chairman of Second Skin Pty Ltd, a non-executive director of Healthia Limited and Company Secretary of both PWR Holdings Limited and Jameson Resources Limited. Lisa is also an independent member of the Audit and Risk Committee of the Queensland Department of Justice and Attorney General and the Queensland Department of Regional Development, Manufacturing and Water. 26 Annual Report 2021 PWR Holdings LimitedDirectors’ Report for the year ended 30 June 2021 3. DIRECTORS’ MEETINGS Our Chairman sets the agenda for Board meetings, with the Managing Director and the Company Secretary. The meetings typically include: – Minutes of the previous meeting – Matters arising – Strategy discussion – MD’s report – Chief Operating Officer report – Chief Financial Officer report – People report – Health and Safety report – Board Committee Chair reports – Continuous disclosure checkpoint – Share trading checkpoint Closed sessions with Directors and as required, a closed session with Non-Executive Directors only are held periodically throughout the year. Our Board also receives periodic reports on operational and other important business matters including regulatory updates, market research and investor relations activities. The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are: Director Teresa Handicott Jeffrey Forbes Roland Dane Kees Weel Board Meetings Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings Attended Held Attended Held Attended Held 11 11 11 11 11 11 11 11 5 5 5 - 5 5 5 - 3 3 3 - 3 3 3 - 4. PRINCIPAL ACTIVITIES The Company’s registered office and principal place of business is 103 Lahrs Road, Ormeau, Queensland 4208. The principal activities of the Group during the year were the design, prototyping, production, testing, validation and sales of advanced cooling products and solutions to the motorsports, automotive original equipment manufacturing (“OEM”), automotive aftermarket and emerging technology sectors for domestic and international markets. The Group has manufacturing and distribution facilities in Australia and the USA and distribution facilities in the UK from which our European customers are serviced. Other than items outlined in the Operating and Financial review, there were no significant changes in the nature of the activities of the Group during the year. 27 Directors’ Report for the year ended 30 June 2021 5. OPERATING AND FINANCIAL REVIEW Pages 18 to 20 sets out our review of operations and financial review. 6. DIVIDENDS Dividends paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the year Final 2020 ordinary Interim 2021 ordinary Total amount Note F4 F4 Cents per share Total amount $ Date of payment 4.00 4,007,191 25 September 2020 2.80 2,805,034 26 March 2021 6,812,225 Declared after end of year The following dividend was declared by the Directors since the end of the financial year: Final 2021 ordinary dividend Total amount Cents per share Total amount $ Date of payment 6.00 6,010,786 24 September 2021 6,010,786 The financial effect of these dividends has not been brought to account in the consolidated financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial reports. There is no dividend re-investment plan in operation. 7. LIKELY DEVELOPMENTS The Group will continue its strategy of increasing profitability and market share within existing categories and markets and pursue opportunities with emerging technologies in existing and new markets and categories during the next financial year. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 8. EVENTS SUBSEQUENT TO REPORTING DATE The Board declared a fully franked final 2021 ordinary dividend of 6.00 cents per share. The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2021. Other than the matter noted above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 9. ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 issued by the Australian Securities and Investment Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Instrument to the nearest thousand dollars unless otherwise stated. 28 Annual Report 2021 PWR Holdings Limited10. PROCEEDINGS ON BEHALF OF THE COMPANY The Group is not subject to any significant environmental regulations. 11. INDEMNIFICATION AND INSURANCE OF OFFICERS The Group has indemnified the Directors and Executives for costs incurred, in their capacity as a Director or Executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid insurance premiums in respect of a contract to insure the Directors and Executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The insurance contract prohibits disclosure of the nature of liability and the amount of the premium. 12. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. 13. NON-AUDIT SERVICES During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and – the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below. In dollars Audit and review of financial statements Services other than audit and review of financial statements Total paid to KPMG Note H3 2021 143,500 21,450 164,950 29 Directors’ Report for the year ended 30 June 2021 14. LEAD AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration is set out on page 31 and forms part of the directors’ report for the financial year ended 30 June 2021. 15. DIRECTORS’ INTERESTS Details of the Directors’ interests in the securities of the Company are disclosed in the remuneration report on page 46. This report is made with a resolution of the directors: _________________________________ __________________________________ Teresa Handicott Chairman Brisbane 19th August 2021 Kees Weel Managing Director Brisbane 19th August 2021 30 Annual Report 2021 PWR Holdings Limited Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 for the year ended 30 June 2021 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of PWR Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the audit of PWR Holdings Limited for the year ended 30 June 2021 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Erin Neville-Stanley Partner Brisbane 19 August 2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 31 31 Remuneration Report for the year ended 30 June 2021 1. LETTER FROM CHAIRMAN OF THE NOMINATION AND REMUNERATION COMMITTEE Dear Shareholders, On behalf of the Board, I’m pleased to present the Remuneration Report for the year ended 30 June 2021. This report seeks to describe, in a simple and transparent way, our approach to remunerating Executive key management personnel (Executive KMP) and the key principles that underpin our Pay for Performance Framework, as well as remuneration for our Non-Executive Directors. Short-term incentive The intent of the Short-Term Incentive (STI) is to focus our Executive KMP on what they can influence in the performance year. For the STI to be activated for Executive KMP, they have to meet the STI Gate established by the Board. If PWR exceeds the STIP Gate, this unlocks a greater STI amount for Executive KMP and forms the basis of a stretch target. This is a key feature of the STI Plan that assists the Board in aligning the creation of shareholder value with actual company performance. The STI Gate is a financial measure linked to budgeted EBIT or NPAT. Depending on whether the gate is met or exceeded, the Corporate Scorecard which sets out a number of key performance indicators (KPIs) that focus Executive KMP and other STI Plan participants on areas that align to growth, safety and product quality. The more the STI Gate is exceeded, the more of the Corporate Scorecard is unlocked. As outlined in more detail on page 41, the Company fell slightly short of the STI gate and accordingly Executive KMP did not earn STIs for the year ended 30 June 2021. This was disappointing given the significant effort and contribution they made during the reporting period for which I and my fellow directors sincerely thank them. Long-term incentive The LTI is the component of Executive KMP remuneration most closely linked to the shareholder experience as it rewards Executive KMP for delivery of returns to shareholders that exceed peer benchmarks over a three-year period. The LTI has two performance hurdles and a service condition that are assessed at the end of a 3-year performance period. For LTI grant in FY2021, the Board modified the EPS hurdle so going forward the performance hurdles for the LTIP are compound growth in Earnings Per Share (EPS) and Total Shareholder Return (TSR) benchmarked against the ASX 300 (excluding Energy sector (oil, gas and coal)). The modified EPS hurdle aligns more closely with shareholders’ interests and participants now need to demonstrate a compound annual growth rate for EPS over the 3-year performance period in excess of 10% for all rights linked to that hurdle to vest. Long-term incentive | vesting Just as shareholders have been rewarded by the increase in PWR’s share price, Executive KMP were rewarded by the increase in value of their performance rights and their ultimate LTI vesting outcome during the reporting period with the exception of the Managing Director who elects not to participants in the LTIP given his significant shareholding. At the end of June 2020, following a 3-year performance period: – PWR ranked at the 90th percentile for Total Shareholder Return (TSR) for the performance period for the FY2018 performance rights (1 July 2017 to 30 June 2020) when compared to the benchmark group of ASX 300 (excluding Energy sector (oil, gas and coal)) – our EPS hurdle for the FY2018 performance rights was measured by the growth in EPS from FY2018 (base year) to the end of the third year of the Performance Period (FY2020). The EPS growth rate was 40.5%, a compound growth rate of 12% As a result, 100% of the FY2018 performance rights vested on 1 September 2020 and provided the Executives an equivalent number of PWR shares. 32 Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 1. LETTER FROM CHAIRMAN OF THE NOMINATION AND REMUNERATION COMMITTEE (continued) Looking forward The Board has confidence in the integrity of the Pay for Performance Framework and believes it incorporates the necessary flexibility to continue to balance rewarding our Executive KMP for performance and recognising the interests of shareholders, however we plan to engage a remuneration consultant to undertake a review of our framework in FY2022 and will report the outcomes of this review to shareholders in our FY2022 remuneration report. Executives who report to the Managing Director will not receive an increase to Fixed Remuneration in FY2022 and Fees for the Non-Executive Directors will also remain unchanged in FY2022. The Managing Director received a 9% increase in TFR to bring it closer to the median of the benchmark. Our Corporate Scorecard for FY2022 will continue to focus our Executive KMP and people they lead on our business priorities including implementing controls to keep our people safe and well, growing our emerging technology business, maintaining exceptional product quality and improving productivity. In what continues to be an extraordinary time, managing the impact of COVID-19, I wish to thank our shareholders for their continued support. Sincerely, _________________________________ Teresa Handicott Chairman, NRC 33 Remuneration Report for the year ended 30 June 2021 2. HOW WE PERFORMED IN FY2021 179% 3-year Total Shareholder Return 15.1% Compound Annual Growth in EPS over 3-years 21% Revenue Growth 51 New Employees Table 1 PWR Group’s Historical Performance below summarises and compares the Group’s performance in recent financial years ending 30 June. Table 1 PWR Group’s Historical Performance EBITDA Net profit after tax Ordinary dividend per share (cents) Special dividend per share (cents) Change in share price Earnings per share Total Shareholder Return Ranking1 Units Note 2021 2020 2019 2018 2017 2016 $’000 $’000 cents cents $ cents B5 percentile $28,963 $23,430 $21,763 $16,336 $14,727 $16,903 $16,797 $13,049 $14,206 $11,001 $9,280 $8,735 8.80 5.90 8.50 7.30 5.60 4.40 - $2.60 16.77 - $0.37 13.04 3.00 $1.41 14.21 98th percentile 90th percentile 70th percentile - - - $0.36 $(0.43) $1.28 11.00 n/a 9.28 n/a 9.31 n/a 1 Compares PWR’s TSR to the S&P/ASX 300 excluding companies operating in the Energy sector (oil, gas and coal) and those that have de-listed since 1 July 2017 over a three year performance period ending on 30 June for the relevant financial year 2.1 PWR’s 3-year Total Shareholder Return Figure 1 PWR’s Total Shareholder Return (3 years to 30 June 2021) shows how PWR compared to the ASX 300 (excluding Energy sector (oil, gas and coal)) over the three year performance period to 30 June 2021, ranking PWR at the 98th percentile of the benchmark group. Figure 1 PWR’s TSR (3 years to 30 June 2021) PWR's Relative TSR for 3 years to 30 June 2021 against the Top 50 ASX 300 Companies (Excluding Energy) 400% 350% 300% 250% 200% 150% 100% 50% 0% 34 Top 3 companies exceeded 400% PWH 179% 98th percentile PWR's Relative TSR for 3 years to 30 June 2021 against the Top 50 ASX 300 Companies (Excluding Energy) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Three-year relative TSR Median (114.92%) Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 2. HOW WE PERFORMED IN FY2021 (continued) 2.2 PWR’s 3-year growth in EPS to 30 June 2021 Figure 2 PWR’s EPS growth to 30 June 2021, shows a year-on-year increase in PWR’s Earnings Per Share which equates to a compound annual growth rate in EPS of 15.1% over the three-year period. Figure 2 PWR’s EPS growth to 30 June 2021 PWR 3-year Earnings Per Share to June 2021 and Compound Annual Growth Rate over same period PPWWRR 33--yyeeaarr EEaarrnniinnggss PPeerr SShhaarree ttoo JJuunnee 22002211 aanndd CCoommppoouunndd AAnnnnuuaall GGrroowwtthh RRaattee oovveerr ssaammee ppeerriioodd )) ss tt nn ee cc (( ee rr aa hh SS rr ee PP ss gg nn ii nn rr aa EE 18 16 14 12 10 8 6 4 2 0 1144..2211 FY2019 1166..7777 1133..0044 FY2020 Financial Year FFiinnaanncciiaall YYeeaarr FY2021 20.00% 15.00% 10.00% 5.00% 0.00% %% ee tt aa RR hh tt ww oo rr GG ll aa uu nn nn AA dd nn uu oo pp mm oo CC 3.  REMUNERATION OF EXECUTIVE KMP AND HOW IT ALIGNS TO FY2021 PERFORMANCE OUTCOMES 3.1 Overview of Components of Remuneration for Executive KMP FY2022 Total Fixed Remuneration FY2021 Short Term Incentive Vesting of FY2018 Long Term Incentive Rights Grant of FY2021 Long Term Incentive Rights – The Managing Director – Despite delivering a – PWR’s TSR ranked at the – 27,599 FY2021 will receive a 9% increase to Total Fixed Remuneration to align with the midpoint of TFR of benchmarked companies – No increase will be applied to Total Fixed Remuneration for other Executive KMP – See page 23 for details on the leaders of PWR and who make up the Executive KMP solid performance with a NPAT of $16.8M, this was short of the STIP Gate after adjusting for unpaid Executive KMP bonuses and prior year tax adjustments. Therefore, the Executive KMP were not entitled to receive a short term incentive for performance during FY2021 – See page 45 for details on FY2020 STI outcomes which were earned in FY2020 but paid in FY2021 90th percentile against the ASX 300 (exclduing energy, oil and gas) at 30 June 2020 resulting in all rights allocated to this performance hurdle vesting on 1 September 2020 – PWR’s 3-year EPS growth rate for the 3-year performance period to 30 June 2020 was 40.5% resulting in all rights allocated to this performance hurdle vesting on 1 September 2020 – See page 47 for details on FY2018 LTI outcomes performance rights have been granted to Executive KMP during the reporting period (with the exception of the Managing Director) – The Managing Director elects not to participate in the LTIP given his significant shareholding – Performance hurdles for the 3-year performance period ending on 30 June 2023 TSR and compound growth in EPS – See page 42 for details on grants of FY2021 performance rights 3.2 Actual Pay for Executive KMP in FY2021 Table 2 Actual Executive KMP Pay in respect of FY2021, provides shareholders with an understanding of cash and other benefits Executive KMP earned in FY2021. The actual pay for Executive KMP in FY2021 includes: – Total Fixed Remuneration earned in FY2021 (inclusive of superannuation) – Total FY2021 STI earned based on performance during FY2021. It does not include STI earned in FY2020 and paid in FY2021 – LTI awards that vested and were exercised in September 2020 for the 3-year performance period to 30 June 2020. 35 Remuneration Report for the year ended 30 June 2021 3.  REMUNERATION OF EXECUTIVE KMP AND HOW IT ALIGNS TO FY2021 PERFORMANCE OUTCOMES (continued) Table 2 Actual Executive KMP Pay in respect of FY2021 Executive KMP Kees Weel (Managing Director) Matthew Bryson (Chief Operating Officer) Martin McIver (Chief Financial Officer)5 Stuart Smith (Former Chief Financial Officer)6 Total Fixed Remuneration actually received FY2021 FY2021 STIP Cash Value of shares issued upon vesting of per- formance rights in. FY20212 $509,675 $378,959 $74,873 $329,716 0 0 0 0 n/a3 $180,955 0 $266,135 Actual Pay4 $509,675 $559,914 $74,873 $693,351 1. 2. 3. 4. 5. 6. Total Fixed Remuneration actually received includes cash salary and fees, and superannuation. Relates to FY2018 performance rights assessed over the performance period 1 July 2017 to 30 June 2020 and which vested on 1 September 2020. Value of LTI is based on the 5-day VWAP at the time of the issue of the shares as a result of exercise by the KMP Kees Weel, while eligible to participate in the LTIP, subject to shareholder approval, elects not to do so given he has a significant shareholding Actual Pay includes cash salary and fees, cash bonus, superannuation, termination benefits, long service leave payments and share based payments. Refer to the table on page 45 for a full breakdown As Martin McIver joined PWR on 12 April 2021, his TFR is based on what he has earned since commencement. Martin is eligible to participate in the STIP and LTIP from 1 July 2021 As Stuart Smith ceased employment on 23 April 2021 his TFR reflects his earnings to the date of cessation of employment and includes 7 weeks payment in lieu of notice and an amount equivalent to his full FY2021 STI entitlement. In addition to vesting of FY2018 performance rights, the Board exercised its discretion to accelerate the vesting of his FY2019 Performance Rights. The value of LTI is the actual price paid for the shares when purchased on market to satisfy the accelerated vesting 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK The pages of the Remuneration Report that follow (together with Table 1 PWR Group’s Historical Performance) have been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) (Act) and audited as required by section 308(3C) of the Act. These sections relate to those persons who were KMP of PWR during FY21, being the Executive KMP named on page 23 and the Non-Executive Directors of PWR named on page 22. 4.1 Remuneration Governance The Board is accountable for establishing the remuneration policies and framework for the PWR Group and ensuring remuneration of the Managing Director and Senior Executives is fair and reasonable and aligned with the interests of shareholders. Outlined below is the Board’s framework for remuneration governance: Board Nomination and Remuneration Committee (NRC) The Board is responsible for setting remuneration policy and determining Non-Executive Director, Managing Director and Executive remuneration. In addition, the Board is responsible for approving all key performance indicators and performance hurdles set under the Executive KMP variable remuneration framework, being the Short Term Incentive Plan (STIP) and the Long Term Incentive Plan (LTIP). The Board delegates responsibility to the Nomination and Remuneration Committee (NRC) for reviewing and making recommendations to the Board on these matters. The Board retains full discretion to decrease or increase outcomes to ensure that they are fair and reasonable. It can use this discretion to decrease or increase the outcome as it considers appropriate. The Board has regular contact with each of the Executive KMP during the year. The NRC makes recommendations to the Board regarding all aspects of Executive KMP remuneration. This includes making recommendations in relation to the targets to be included in the STIP (both the financial and non-financial) and in relation to setting performance hurdles that attach to Performance Rights under the LTIP. The Group’s Managing Director provides updates and makes recommendations to the NRC on these matters in relation to his direct reports throughout the year. To inform the Board and NRC, and to assist with their decision-making processes, additional information and data is sought from management and remuneration consultants, as required. The NRC Charter sets out further information regarding the Committee’s objectives and role. 36 Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) Responsibility for determining NED remuneration The Board is responsible for assessing Non-Executive Director (NED) fees, assisted by the NRC. Shareholders approve the total NED remuneration cap. Shareholders have approved a cap of $750,000 per annum. Reviews of NED Board and Committee fees are carried out periodically with assistance of independent benchmarking reports and/or consultants. Managing Director Our Managing Director makes recommendations to the NRC regarding Executives and how the Pay for Performance Policy and framework applies to all our employees. Remuneration Consultants Godfrey Remuneration Group Pty Limited (GRG) provided advice on the Termination Benefit Limit and how it applied to a member of the Executive KMP of the Company. GRG was paid $2,000 + GST for the advice. 4.2 Pay for Performance Remuneration Principles The guiding principles governing PWR’s Pay for Performance Policy and how we implement them are summarised in the table below: How we meet these principles Remuneration will incorporate external market reference to maintain market competitiveness We periodically undertake remuneration benchmarking using independent renumeration consultants to maintain market competitiveness and ensure our reward supports PWR in both attracting and retaining key talent. Guiding Principles Attract and Retain Pay Executives for Performance that Delivers Value to Shareholders Make clear the line of sight between performance and reward to ensure that superior performance is recognised and rewarded, with a view to driving long-term growth and shareholder value We set key performance indicators that have stretch targets, evidenced by improvement over and above actual results achieved from the prior year or specifically linked to achievement of an outcome linked to our strategic objectives. We also ensure our reward outcomes are aligned to performance by providing a significant part of Executive KMP’s ‘at risk” remuneration on achieving both financial and non-financial measures We align short term and long term performance measures to our strategy and vision. This includes a focus on PWR being a safe place to work, ensuring our reputation for quality products is maintained, achieving key strategic priorities and achieving leading total shareholder returns. PWR’s DNA is at the centre of how we work together to deliver on our goals. Internal equity is achieved partly through external benchmarking and internally moderating performance assessments across the business. The Board maintains ultimate discretion under PWR’s incentive plans to make awards or not and all awards are subject to consideration of the Company’s ability to pay. We attempt to report in a transparent manner on the link between reward and performance under our incentive schemes and outline the governance process to give confidence to our shareholders. Promote Internal Fairness and Equity Always Consider PWR’s Capacity to Pay Build Trust by Promoting Transparency Provide fair, consistent and internally equitable reward to appropriately compensate employees for their contributions and performance outcomes Manage the balance between reward funding and Company performance / financial outcomes Ensure a level of transparency and clarity in reward design and governance processes – 4.3. Pay for Performance Framework The remuneration framework for Executive KMP comprises two elements: 1. Fixed remuneration, and 2. Performance linked or “at risk” remuneration (short and long term components). 37 Remuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) 4.3.1. Fixed Remuneration Fixed remuneration is set with reference to the median of PWR’s peers and is a function of size and complexity of the role, individual responsibilities, experience, skills and market remuneration levels. This consists of cash salary, salary sacrifice items, employer superannuation, annual leave provisions and any fringe benefits tax charges related to employee benefits. The opportunity to salary sacrifice benefits on a tax-compliant basis is available. The Board determines an appropriate level of fixed remuneration for the Executive KMP following recommendations from the NRC. The NRC has the delegated authority from the Board to engage independent remuneration consultants as it sees fit. Fixed remuneration is reviewed annually following performance reviews at the end of the financial year and takes into account the Executive KMP’s role and accountabilities, relevant market benchmarks and attraction, retention and motivation of Executives in the context of the overall market. 4.3.2. Short Term Incentive Plan (STIP) - at risk The Executive KMP are eligible to participate in the Group’s short-term incentive plan. STIP Design Under the STIP, Executive KMP have an opportunity to receive an annual cash bonus calculated as a percentage of their total fixed remuneration (TFR). There are three components to the STIP: 1. STIP Gate 2. Company Scorecard (financial and non-financial KPIs at a company level) 3. Personal Scorecard (financial and non-financial KPIs at a business unit\personal level together with demonstration of PWR’s DNA) Figure 3 Operation of STIP for Executive KMP, presents a diagrammatic representation of the mechanics of the STIP with targeted STIP being up to 55% of maximum and stretch components providing up to 100% of maximum STIP opportunity. Figure 3 Operation of STIP for Executive KMP NOT MET STIP not activated for Executive KMP No STI Award Company Scorecard Personal KPIs and PWR DNA MET Weighting Max 15% Max 40% Company Scorecard Personal KPIs and PWR DNA EXCEEDED Weighting Between >15% & 60% Max 40% STI Award up to 55% of maximum STI Award between 55% & 100% e t a G P T S I e t a G P T S I e t a G P T S I 38 Annual Report 2021 PWR Holdings Limited Remuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) STIP Gate Table 3 STIP Gate Assessment The STIP gate must at least be met for the STIP to be activated for Executive KMP. The amount by which the gate is exceeded then determines the maximum that can be attributed to each KPI on the Company Scorecard. STIP Gate Assess- ment Gate Met Gate + ≥5% Gate + ≥10% Gate + ≥15% Company Scorecard KPI outcome has maximum 25% weighting Company Scorecard KPI outcome has maximum 50% weighting Company Scorecard KPI outcome has maximum 75% weighting Company Scorecard KPI outcome has maximum 100% weighting Company Scorecard Personal Scorecard Up to 15% of maximum Up to 40% of maximum Up to 30% of maximum Up to 40% of maximum Up to 45% of maximum Up to 40% of maximum Up to 60% of maximum Up to 40% of maximum Company Scorecard The Board establishes company KPIs that form the Company scorecard on an annual basis. These are determined by assessing key drivers that are required to deliver on our strategic objectives and require the Executive KMP to work as a team to achieve. Figure 4 Company Scorecard FY2021 Organic Revenue Growth NPAT Organic revenue growth demonstrates achievement of PWR’s growth objective growing both our existing business and developing new areas of business. An increase in Group NPAT over the prior year’s budgeted NPAT is chosen because it reflects how the business manages total costs and generates a profit to provide shareholder returns, Group NPAT is assessed following the preparation and audit of the annual financial statements. LTIFR Safety performance is measured through the lost time Injury frequency rate (LTIFR) at the Group and was chosen to reflect the Group’s relentless focus on providing safe workplaces for all employees. Critical Safety Risks Quality Identifying and documenting critical safety risks for PWR’s operations and then monitoring the implementation of associated actions to mitigate these risks was selected to embed PWR’s commitment to a safe workplace for all employees Providing quality products is what PWR does best. Warranty claims and customer returns as % of total despatched items must be carefully monitored to ensure PWR continues to excel in customer service and satisfaction 20% 30% 12.5% 12.5% 25% 39 Remuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) Personal Scorecard At the beginning of the performance period, the Board establishes personal KPIs for the Managing Director and the Managing Director recommends personal KPIs for the Executives for Board approval. Personal KPIs represent 40% of the maximum potential cash bonus payable to the Executive KMP and for payment to be made against these KPIs, the STI gate must have been met. If the STIP gate is not met, irrespective of whether the KPIs have been achieved, they attract no cash payment. 4.3.3. Long Term Incentive Plan (LTIP) – at risk The Executive KMP are eligible to participate in the Group’s long term incentive plan. The LTIP is an equity-based incentive designed to provide participants with the incentive to deliver growth in shareholder value. Performance Rights Executive KMP are invited by the Board to apply for performance rights (“Rights”) on an annual basis under the LTIP. Performance Period Rights convert to ordinary shares in the Company on a one-for-one basis at the end of the three-year performance period depending on the extent to which performance hurdles are achieved and service conditions met. Performance Hurdles The performance hurdles for the Rights granted in FY2021 are: – 50% of the rights will vest upon the achievement of Total Shareholder Return (TSR) ranking criteria relative to the TSR of constituents of the S&P/ASX300 (excluding Energy sector (oil, gas and coal)). TSR is calculated by an independent third party, comparing the TSR percentile rank that PWR holds relative to the benchmark group for the relevant 3-year performance period. TSR Ranking (TSR) TSR is 50% or less TSR is more than 50% but less than 75% TSR is 75% or more Vesting outcome Nil vesting Pro rata vesting 100% vesting – 50% of the rights will vest based on compound growth in annual Earnings Per Share (“EPS”) relative to a target set by the Board. Vesting is determined by the compound annual growth rate in EPS over the 3-year Performance Period measured against specific EPS targets. Earnings Per Share (EPS) Vesting outcome Compound annual growth rate of EPS <4% Nil vesting Compound annual growth rate of EPS ≥4% to ≤ 10% Pro rata vesting Compound annual growth rate of EPS >10% 100% vesting The EPS hurdle for the FY2021 Rights is different to that attached to Rights granted in prior financial years. The Board, following feedback from some shareholders, changed the hurdle from an EPS growth rate to compound annual growth rate over the 3-year performance period. The revised EPS hurdle applies to Rights granted from FY2021 onwards. Service Condition Participants must remain continually employed with the Company until the date of vesting. Rights that do not vest at the end of the three-year period lapse, unless the Board in its discretion determines otherwise. Upon cessation of employment prior to the vesting date, Rights may be forfeited and lapse unless the Board in its discretion determines otherwise. Rights do not entitle holders to dividends that are declared during the vesting period. 40 Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) 4.4. FY2021 Remuneration Mix Table 4 Remuneration Mix for Executive KMP FY2021, sets out the Total Fixed Remuneration that the Executive KMP were entitled to during the FY2021 year together with their variable remuneration as a percentage of TFR. Table 4 Remuneration Mix for Executive KMP FY2021 Executive KMP Kees Weel (Managing Director) Matthew Bryson (Chief Operating Officer Martin McIver (Chief Financial Officer) Stuart Smith (Former Chief Financial Officer) Fixed Remuneration Variable Remuneration Total Fixed Remuneration FY2021 ($/annum) STIP Maximum Potential % TFR LTIP Maximum Potential % TFR $500,000 $375,000 $350,000 $325,000 50% 30% 30%2 30%3 50%1 30% 30%2 30%3 1. Kees Weel, subject to shareholder approval, is eligible to participate in the LTIP however he elects not to do so given his significant shareholding 2. Martin McIver commenced 12 April 2021 and is eligible to participate in the STIP and LTIP from 1 July 2021. 3. Stuart Smith ceased employment on 23 April 2021. The Board exercised its discretion to award an amount equivalent to Mr Smith’s STI for FY2021 which was paid out on cessation of employment. He was not granted any performance rights under the LTIP in FY2021. Refer to Table 12 for the vesting of performance rights during the reporting period. 4.5. FY2021 STIP Outcomes 4.5.1. STIP Gate The gate for the STIP for FY2021 was the NPAT target established by the Board. If the STIP gate is met, the FY2021 Company Scorecard is then assessed with the outcome making up 25% of the maximum attributed to the Company Scorecard. An increasing amount of STIP is available depending on by how much the STIP gate is exceeded. In FY2021, the NPAT had to be exceeded by 5% to receive 50% entitlement, by 10% to receive 75% entitlement and 15% to receive 100% entitlement to the Company Scorecard outcome. The NPAT gate was not met for FY2021. At the beginning of the reporting period, the Board established Company KPIs which together formed the Company Scorecard. Subject to the STIP gate being met or exceeded the Company Scorecard accounts for up to 60% of the maximum potential cash bonus payable to Executive KMP. Corporate KPIs on the Company Scorecard align interest and performance at a Group level and to be achieved require strategic thinking, collaboration, and business wide leadership which ultimately improves both short and long term shareholder value. Notwithstanding that the STIP gate was not met, for transparency an assessment of Corporate KPIs is outlined below: Figure 5 Company Scorecard Outcomes FY2021 Organic Revenue Growth 20% NPAT 30% LTIFR 12.5% Critical Safety Risk Tasks 12.5% >15% FY21 budgeted NPAT < 3.5 9 Quality 25% <0.5% Achieved Not achieved Not achieved Achieved Achieved Organic revenue growth of 25.6% compared to revenue in FY2020 meant that this KPI was fully achieved. The NPAT target (a separate target to the STIP gate) is a stretch target of 15% above the prior year’s budgeted NPAT and was not met. The Group recorded a LTIFR of 5.9 at 30 June 2021 compared with a LTIFR of 3.3 at 30 June 2020. This KPI was not met. Warranty claims and customer returns to <0.5% of total dispatched items was achieved. PWR’s critical safety risks focus on the prevention of serious injuries and fatalities and all 9 critical safety tasks established as KPIs for this year were achieved. 41 Remuneration Report for the year ended 30 June 2021 4.  PWR’S PAY FOR PERFORMANCE FRAMEWORK (continued) 4.5.2. Personal Scorecards Personal KPIs included specific targets for revenue growth in particular segments, global supply chain efficiencies, working capital management and the establishment of specific programs in new markets. A summary of the outcome of Executive KMP personal KPIs is set out below: Figure 6 Executive KMP Personal KPI Outcomes Executive KMP Personal KPI – Targets related to succession planning for all critical roles Weighting Outcome 40% Partially achieved – Targets related to quality standards and reporting, procurement, 40% critical safety risks and succession planning Partially achieved Kees Weel (Managing Director) Matthew Bryson (Chief Operating Officer) 4.5.3. FY2021 STIP Awards Table 5 Executive KMP FY2021 STIP Awards Executive KMP Kees Weel (Managing Director) Matthew Bryson (Chief Operating Officer) Martin McIver (Chief Financial Officer)1 Stuart Smith (Former CFO)2 Maximum Poten- tial STIP (% TFR) Actual Bonus Received (% TFR) Bonus included in FY21 remu- neration ($) 50% 30% n/a 30% 0 0 n/a 0 0 0 n/a 0 1. Martin McIver commenced 12 April 2021 and is eligible to participate in STIP and LTIP from 1 July 2021. 2. Stuart Smith resigned 23 April 2021 and on cessation of employment was paid an amount equivalent to all of his STIP entitlement for FY2021 following the exercise of discretion by the Board. This amounted to $97,500. 4.6. LTIP Grants in FY2021 A grant of Rights was made to Executive KMP in the 2021 financial year with the exception of the Managing Director who has elected not to participate in the LTIP given his significant shareholding in the Company, the former CFO who ceased employment on 23 April 2021 and the incoming CFO who commenced on 12 April 2021. Table 6 Executive KMP FY2021 LTIP Grants Description of Rights Number of Rights granted Number of Rights subject to Performance Hurdles TSR Component EPS Component Grant Date Vesting Date Expiry Date FY21 LTIP 27,599 13,799 13,799 07/06/21 01/09/23 01/03/24 Executive KMP Matthew Bryson (COO) 42 Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 5. CONTRACT DURATION AND TERMINATION REQUIREMENTS The Company has contracts of employment with no fixed tenure requirements with the Managing Director and Senior Executives. The notice period for each is outlined in the table below. Termination with notice may be initiated by either party. The contracts contain customary clauses dealing with immediate termination for gross misconduct, confidentiality, and post-employment restraint of trade provisions. Table 7 Executive KMP Notice Periods Name Executive Director Kees Weel Executives Matthew Bryson Martin McIver Position Notice Period Managing Director 6 months Chief Operating Officer Chief Financial Officer 6 months 3 months 6. REMUNERATION OF NON-EXECUTIVE DIRECTORS DURING REPORTING PERIOD 6.1. NED Remuneration Policy Non-Executive Directors receive remuneration for undertaking their role. They do not participate in the Group’s incentive plans nor receive any variable remuneration. Non-Executive Directors are not entitled to retirement payments. The objective of the Non-Executive Director remuneration policy is to: – provide a clear fee arrangement that avoids potential conflicts of interest associated with performance incentives – remunerate Directors at market rates for their commitment and responsibilities, and – obtain independent external remuneration advice when required. The aggregate Non-Executive Director remuneration cap approved by Shareholders in 2016 is $750,000 per annum (inclusive of superannuation contributions). The Board determines the distribution of Non-Executive Director fees within the approved remuneration cap. 6.2. NED Remuneration The following table sets out the remuneration rates for Non-Executive Directors through annual Board and Committee fees (inclusive of superannuation) during the reporting period. Table 8 Non-Executive Directors Fees Role Chairman Non-Executive Director Audit and Risk Committee Chairman Nomination and Remuneration Committee Chairman Approved Director Fees per annum $150,000 $95,000 $20,000 $20,000 43 Remuneration Report for the year ended 30 June 2021 0 0 0 0 7 1 , 0 5 2 7 5 1 , 0 0 0 5 1 1 , 0 5 2 9 0 1 , 0 0 0 5 9 , 0 5 2 0 9 , 0 0 0 0 8 3 , , 0 5 7 6 5 3 – – – – – – – . – – – – – – – $ l a t o T $ s t h g i r $ e v a e l s t n e m y a p d e s a b - e r a h S m r e t - g n o L s t i f e n e b e c n a m r o f r e P e c i v r e s g n o L n o i t a i - n m r e T $ – – – – – – – s t fi e n e b t s o P s t fi e n e B t n e m y o l p m E $ r e p u S s t fi e n e b $ l a t o T 9 4 7 4 1 , 3 4 6 3 1 , – – 7 7 9 9 , 8 7 4 9 , 6 2 7 4 2 , 1 2 1 , 3 2 , 1 5 2 5 5 1 7 0 6 3 4 1 , 3 2 0 5 0 1 , 2 7 7 9 9 , 0 0 0 5 9 , 0 5 2 0 9 , , 4 7 2 5 5 3 , 9 2 6 3 3 3 s t i f e n e b m r e t - t r o h S $ – – – – – – – – s t fi e n e b h s a c - n o N $ s u n - o B h s a C $ s e e f h s a C & y r a l a s r a e Y e l o R d n a e m a N – – – – – – – – , 1 5 2 5 5 1 1 2 0 2 7 0 6 3 4 1 , 0 2 0 2 3 2 0 5 0 1 , 1 2 0 2 2 7 7 9 9 , 0 2 0 2 0 0 0 5 9 , 1 2 0 2 0 5 2 0 9 , , 4 7 2 5 5 3 0 2 0 2 1 2 0 2 , 9 2 6 3 3 3 0 2 0 2 s r o t c e r i D e v i t u c e x e - n o N i t t o c d n a H a s e r e T t n e r r u C n a m r i a h C r o t c e r i D e v i t u c e x E - n o N s e b r o F f f e J r o t c e r i D e v i t u c e x E - n o N e n a D d n a o R l r o t c e r i D e v i t u c e x E - n o N e v i t u c e x E - n o N - l a t o T n o i t a r e n u m e R ’ s r o t c e r i D i c m e d n a p 9 1 - D V O C I l l a b o g e h t o t e s n o p s e r n i s n o i t c u d e r e d w p u o r G i f o t r a p s a 0 2 0 2 e n u J o t l i r p A m o r f d e c u d e r e r e w s e e f e e t t i m m o C d n a r o t c e r i D e v i t u c e x E - n o N : e t o N e r a d o i r e P g n i t r o p e R e h t r o f p u o r G e h t f o e v i t u c e x e r o n e s d n a i r o t c e r i D h c a e f o n o i t a r e n u m e r j l f o t n e m e e r o a m h c a e f o t n u o m a d n a e r u t a n e h t f o s l i a t e D I 9 E L B A T N O T A R E N U M E R Y R O T U T A T S | L E N N O S R E P T N E M E G A N A M Y E K . 7 44 . l e b a T n o i t a r e n u m e R y r o t u t a t S P M K 9 e b a T n l i n w o h s Annual Report 2021 PWR Holdings Limited  Remuneration Report for the year ended 30 June 2021 % f o n o i t - u m e r - r o p o r P n o i t a r e n - r o f r e p e c n a m d e t a l e r - e r a h S d e s a b - g n o L m r e t s t n e m y a p s t i f e n e b t s o P s t fi e n e B t n e m y o l p m E s t i f e n e b m r e t - t r o h S $ l a t o T $ s t h g i r - r o f r e P e c n a m $ g n o L e v a e l e c i v r e s $ n o i t a i - n m r e T s t fi e n e b $ r e p u S s t fi e n e b $ l a t o T $ h s a c - n o N ) i v ( s t fi e n e b $ h s a C s u n o B $ s e e f h s a C & y r a l a s r a e Y e l o R d n a e m a N ) d e u n I i t n o c ( 9 E L B A T N O T A R E N U M E R Y R O T U T A T S | L E N N O S R E P T N E M E G A N A M Y E K . 7 – – – – – – – – – % 0 – 5 1 2 0 8 , – – % 0 , 4 1 9 6 4 5 – 6 0 4 9 1 , % 5 6 1 . , 6 3 5 3 4 6 8 2 3 6 , 7 2 8 , 1 1 % 0 0 3 . , 7 3 6 2 0 6 5 5 9 0 8 1 , 8 5 4 7 1 , % 4 3 2 . , 4 9 5 0 8 4 0 3 2 3 7 , 4 8 5 6 , – – – – – – 5 7 6 4 3 , 0 5 2 0 5 , 4 4 3 9 2 , 1 7 5 5 3 , 4 2 4 5 , – 3 3 8 2 9 4 , 3 3 8 7 1 , 0 0 0 0 5 7 4 , 1 2 0 2 , 1 6 8 4 7 5 1 6 8 4 2 , 0 0 0 0 0 1 , 0 0 0 0 5 4 , 0 2 0 2 0 8 8 4 7 3 , 5 6 2 5 2 , 0 , 5 1 6 9 4 3 1 2 0 2 9 0 2 5 6 3 , 1 0 4 , 1 2 0 0 0 9 3 , 8 0 8 4 0 3 , 0 2 0 2 – – 2 9 7 4 7 , 2 4 3 5 , 0 – – 9 4 4 9 6 , 1 2 0 2 – 0 2 0 2 , 5 6 2 4 9 2 1 2 0 2 % 6 7 3 . % 5 3 2 . – % 9 7 . – – % 1 . 3 2 % 8 4 1 . % 3 9 1 . % 5 2 1 . 2 0 6 7 0 7 , 5 3 1 , 6 6 2 , 7 6 9 3 3 4 2 5 9 2 6 , – – , 4 7 5 4 5 2 – – – 7 5 8 6 4 1 , ) 7 2 2 , 1 5 ( – – – – 8 9 6 5 5 , – – 8 8 1 , 6 1 6 8 3 8 3 2 , – – – 6 8 3 2 4 1 , – – – – 0 0 5 7 9 , 1 5 4 5 3 , , 6 1 5 8 0 3 2 5 2 4 1 , , 9 6 3 7 3 9 , 1 9 8 0 7 4 4 , 4 6 8 6 3 , 0 0 5 7 9 , 5 9 8 4 0 1 , 1 2 0 , 1 5 2 , 1 2 9 6 2 6 , – – 1 2 0 2 0 0 0 0 2 , 6 8 3 8 1 2 , 0 2 0 2 – – – – 1 2 0 2 6 8 3 2 4 1 , 0 2 0 2 , 9 2 3 8 8 1 , 1 1 2 0 2 d n a ’ s r o t c e r i D e v i t u c e x E – l a t o T e p o r u E , r e g a n a M l a r e n e G ) v i ( n o t r u B w e r d n A A S U , r e g a n a M l a r e n e G ) v ( r e d y R m J i 1 7 5 5 3 , 4 4 4 5 3 3 , ) 4 6 3 8 ( , 0 0 0 9 3 , 8 0 8 4 0 3 , 0 2 0 2 r e c i f f O l i i a c n a n F f e h C i , 8 2 5 9 5 9 , 1 3 8 2 , 1 9 1 1 4 8 1 , 8 9 6 5 5 , 0 5 8 7 3 1 , , 6 8 2 6 5 6 , 1 8 9 8 7 3 , 0 0 0 8 9 1 , , 8 8 3 0 2 4 , 1 0 2 0 2 n o i t a r e n u m e R ’ s e v i t u c e x e r o n e s i , 9 6 3 7 1 3 2 , , 8 7 2 6 1 3 2 , 3 8 2 , 1 9 1 1 4 8 1 , 8 9 6 5 5 , , 1 7 9 0 6 1 , 5 1 9 9 8 9 , 1 8 9 8 7 3 , 0 0 0 8 9 1 , , 7 1 0 4 5 7 , 1 0 2 0 2 9 8 0 7 4 4 , 4 6 8 6 3 , 0 0 5 7 9 , 1 2 6 9 2 1 , , 5 9 2 6 0 6 , 1 2 9 6 2 6 , – , 3 0 6 3 4 5 , 1 1 2 0 2 n o i t a r e n u m e R P M K – l a t o T d e t i i m L e p o r u E R W P t a d e s u c o f y l l a n o i t a r e p o s i t i s a P M K s a d e d r a g e r r e g n o l o n s i n o i t i s o p s i h T . e t a d g n i t r o p e r t a D U A o t d e t r e v n o c d n a P B G n i i d a P . d e t i i m L e p o r u E R W P y b d e y o p m E l ) v i ( . e t a d n o i t a s s e c t a D U A o t d e t r e v n o c d n a D S U n i i d a P . 0 2 0 2 y r a u r b e F 6 d e s a e c c n I i g n c a R R & C t a t n e m y o p m E l ) v ( . t n e m e v o m e v a e l l a u n n A ) i v ( 45 . 0 2 0 2 y u J l 1 r e c ffi O g n i t a r e p O i f e h C s a d e t n o p p a i , i g n i r e e n g n E r e g a n a M l a r e n e G y i l s u o v e r P ) i ( 1 2 0 2 l i r p A 3 2 n o d e s a e c t n e m y o p m E l ) i i i ( 1 2 0 2 l i r p A 2 1 O F C s a d e c n e m m o C ) i i ( s r o t c e r i D e v i t u c e x E s e v i t u c e x E d n a l e e W s e e K t n e r r u C r e c i f f O g n i t a r e p O i f e h C ) i i ( r e v I c M n i t r a M r o t c e r i D g n g a n a M i ) i ( n o s y r B w e h t t a M r e c i f f O l i i a c n a n F f e h C i ) i i i ( h t i m S t r a u t S r e m r o F   Remuneration Report for the year ended 30 June 2021 8. SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL The movement during the year in the number of ordinary shares in PWR Holdings Limited held, directly, indirectly or beneficially, by each member of the Key Management Personnel, including their related parties, is as follows: Table 10 Shareholdings of KMP Name Non-Executive Directors Teresa Handicott Jeff Forbes Roland Dane Managing Director and Senior Executives Kees Weel(i) Matthew Bryson(ii) Martin McIver Former Senior Executives Stuart Smith(iii)(iv) Shareholdings of KMP Opening Balance 1 July 2020 Shares acquired during the year Shares disposed of during the year Closing Balance 30 June 2021 Other 39,500 20,000 60,885 27,429,885 – – – – – – – (7,122,097) 3,526,309 37,330 (175,000) – – – 10,000 56,303 (56,303) – – – – – – – 39,500 20,000 60,885 20,307,788 3,388,639 – 10,000(iv) (i) 61,385 shares held personally by Kees Weel; 20,246,403 shares held by entities controlled by Kees Weel; 10,000,000 shares held by Wagon Weel Pty Ltd as trustee for the Wagon Weel Trust. At 30 June 2021 Kees Weel is a director of the trustee and beneficiary of the trust; 10,246,403 shares held by KPW Property Holdings Pty Ltd as trustee for the KPW Holdings Trust. At 30 June 2021 Kees Weel is a director of the trustee and beneficiary of the trust. (ii) 37,330 shares acquired by Matthew Bryson on vesting of FY2018 performance rights. (iii) Stuart Smith ceased employment on 23 April 2021. 24,886 shares were acquired by Stuart Smith on vesting of FY2018 performance rights and 31,417 shares were acquired by Stuart Smith when the Board exercised its discretion to accelerate vesting of FY2019 performance rights as part of cessation of employment arrangements. All other performance rights lapsed and no rights were granted in FY2021. (iv) Closing balance represents closing balance at date employment ceased (23 April 2021). 9. VOTING AND COMMENTS MADE AT THE COMPANY’S 2020 ANNUAL GENERAL MEETING The Company received 91.91% ‘for’ votes on its remuneration report for the 2020 financial year. The Company did not receive any specific feedback or comments at the 2020 AGM on its remuneration report. 10. RIGHTS OVER EQUITY INSTRUMENTS GRANTED AS REMUNERATION Details of performance rights over ordinary shares in the Company that were granted as remuneration to members of Executive KMP during the reporting period are included Table 9 KMP Statutory Remuneration Table on page 45. There were no alterations to the terms and conditions of performance rights granted as remuneration to KMP since their grant date. 46 Annual Report 2021 PWR Holdings LimitedRemuneration Report for the year ended 30 June 2021 10. RIGHTS OVER EQUITY INSTRUMENTS GRANTED AS REMUNERATION (continued) 123,497 performance rights vested during the reporting period. Total Performance Rights on issue at 30 June 2021 are as follows: Table 11 Rights Over Equity Instruments Granted as Remuneration Description of Rights FY19 LTIP FY20 LTIP FY21 LTIP Executive KMP Matthew Bryson (Chief Operating Officer) Total on Issue to Executive KMP Total on Issue to Non KMP Total Vested during the reporting period Total Forfeited due to resignation Total on issue at 30 June 2021 Fair Value per Right at Grant Date Number of Rights granted TSR Component $ EPS Component $ Grant Date Vesting Date Expiry Date 1.82 3.17 4.33 2.68 4.49 6.00 22/08/18 19/09/19 07/06/21 01/09/21 01/09/22 01/09/23 01/03/22 01/03/23 01/03/24 31,417 23,243 27,599 82,259 225,493 123,497 (23,243) 307,752 11. EQUITY INSTRUMENTS 11.1. Performance rights over equity instruments The movement during the reporting period, by number of rights over ordinary shares in PWR Holdings Ltd held, directly, indirectly or beneficially by each key management person, including their related parties, is as follows: Table 12 Performance Rights Over Equity Instruments Rights Held 1 July 2020 Granted as compensa- tion Exercised Lapsed Forfeited Held 30 June 2021 Vested during year Vested and exercisable at 30 June 2021 Matthew Bryson 91,990 27,599 37,330 Martin McIver – Stuart Smith 79,546 – – – 56,303 – – – – – 23,243 82,259 37,330 – – – 56,303 – – – The forfeited Rights represent those Rights that did not vest due to failure to meet service conditions. 47 Remuneration Report for the year ended 30 June 2021 11. EQUITY INSTRUMENTS (continued) During the reporting period, the following shares were issued on the exercise of Rights previously granted as compensation: Table 13 Rights That Vested to Executive KMP During the Reporting Period Executive KMP Matthew Bryson Stuart Smith Number of shares Amount paid per share ($) 37,330 56,303 $- $- The value of Rights over ordinary shares in the Company granted and exercised by each Executive KMP during the reporting period is detailed below. Table 14 Value of Rights That Vested to KMP During the Reporting Period Matthew Bryson Stuart Smith Granted in year $(a) Value of rights exercised in year $(b) $142,549 $180,955 – $266,135 (a) The total value of rights granted in the year is the fair value of the rights calculated at grant date. This amount is allocated to remuneration over the vesting period. (b) The value of rights exercised during the year is the market price based on the previous 5 days VWAP at vesting date after deducting the price paid to exercise the right or if shares were purchased on market, the market price paid 11.2. Key management personnel transactions KMP, or their related parties, may hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of those entities. These entities may transact with the Group. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. From time to time, directors of the Group, or their related entities, may purchase goods from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers and are not material. This report is made with a resolution of the directors: _________________________________ __________________________________ Teresa Handicott Chairman Brisbane 19th August 2021 Kees Weel Managing Director Brisbane 19th August 2021 48 Annual Report 2021 PWR Holdings Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2021 Revenue Other income Raw materials and consumables used Employee expenses Occupancy expenses Other expenses Profit before depreciation, net finance costs and income tax Depreciation and amortisation Total depreciation and amortisation expense Finance income Finance costs Net finance (costs)/income Profit before income tax Income tax expense Profit for the year attributable to equity holders of the parent Other comprehensive income Items that are or may be reclassified to profit or loss: Exchange differences on translating foreign operations Total comprehensive income for the year Note B2 B2 C5 B4 B1 E1 2021 $’000 79,208 2,760 (18,013) (30,932) (562) (3,498) 28,963 2020 $’000 65,731 4,177 (14,249) (28,313) (490) (3,426) 23,430 (5,739) (5,739) (4,705) (4,705) 24 (701) (677) 22,547 (5,750) 16,797 39 (529) (490) 18,235 (5,186) 13,049 (528) 16,269 (324) 12,725 Basic and diluted earnings per share B5 16.77 cents 13.04 cents The accompanying notes are an integral part of these financial statements. 49 Consolidated Statement of Financial Position At 30 June 2021 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Deferred Income Contract liabilities Employee benefits Current tax liabilities Provisions Total current liabilities Non-current liabilities Loans and borrowings Deferred Income Contract liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity The accompanying notes are an integral part of these financial statements. 50 Note 2021 $’000 2020 $’000 C1 C2 C3 C4 C5 C6 E2 C7 F1 F2 C8 D1 E2 F1 F2 C8 D1 F3 19,857 9,341 6,489 1,646 37,333 34,280 14,915 770 49,965 87,298 5,333 1,789 443 901 2,626 2,001 173 13,266 6,667 1,746 1,351 306 10,070 23,336 63,962 26,223 12 37,727 63,962 20,805 6,932 6,528 2,912 37,177 29,296 15,034 876 45,206 82,383 4,770 1,882 208 – 2,050 1,886 133 10,929 16,145 798 – 261 17,204 28,133 54,250 26,071 437 27,742 54,250 Annual Report 2021 PWR Holdings LimitedConsolidated Statement of Changes in Equity for the year ended 30 June 2021 Foreign currency translation reserve $’000 Share based payments reserve Retained earnings $’000 Total equity $’000 (87) 524 27,742 54,250 Note Balance at 1 July 2020 Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Employee share-based payments Dividends paid Total transactions with owners Balance at 30 June 2021 Balance at 1 July 2019 D3 F4 Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Employee share-based payments Dividends paid Total transactions with owners Balance at 30 June 2020 D3 F4 Share Capital $’000 26,071 – – – 152 – 152 26,223 25,921 – – – 150 – 150 – (528) (528) – – – (615) 237 – (324) (324) – – – The accompanying notes are an integral part of these financial statements. 26,071 (87) – – – 103 – 103 627 16,797 – 16,797 – (6,812) (6,812) 16,797 (528) 16,269 255 (6,812) (6,557) 37,727 63,962 344 26,495 52,997 – – – 180 – 180 524 13,049 13,049 – 13,049 (324) 12,725 – (11,802) (11,802) 27,742 330 (11,802) (11,472) 54,250 51 Consolidated Statement of Cash Flows for the year ended 30 June 2021 Cash flows from operating activities Cash receipts from customers Government COVID-19 grants received Cash paid to suppliers and employees Cash generated from operating activities Interest paid Income tax paid Net cash from operating activities Cash flows from investing activities Government grant income received Interest received Proceeds from sale of property, plant and equipment Payments for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Dividends paid Proceeds from borrowings/(repayment of borrowings) Payment of lease liabilities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June The accompanying notes are an integral part of these financial statements. Note 2021 $’000 2020 $’000 80,111 1,980 62,271 3,512 (50,723) (45,460) C1 31,368 (340) (4,619) 26,409 55 24 4 (10,365) (10,282) (6,812) (8,585) (1,819) (17,216) (1,089) 20,805 141 20,323 (413) (3,741) 16,169 1,040 39 19 (7,763) (6,665) (11,802) 5,000 (1,670) (8,472) 1,032 20,223 (450) C1 19,857 20,805 52 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION A ABOUT THIS REPORT A1 Reporting entity PWR Holdings Limited (the “Company”) is a Company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2021 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group Entities”). The Group is involved in the design, engineering, testing, production, validation and sale of customised cooling products and solutions to the motorsports, automotive original equipment manufacturing, automotive aftermarket and emerging technologies sectors for domestic and international markets. The Company’s registered office and principal place of business is 103 Lahrs Road, Ormeau, Queensland 4208. The Group is a for-profit entity for the purposes of preparing these financial statements. A2 Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASB) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the Financial Report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. The financial statements were approved by the Board of Directors on 19th August 2021. (b) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. (c) Use of estimates and judgements The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of the entities within the Group. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about critical judgements, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the Notes B3 (Government grants) and C6 (Intangible assets). A3 Significant accounting policies The accounting policies set out in Section I to the consolidated financial statements have been applied consistently to all periods presented in these consolidated financial statements. 53 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION B BUSINESS PERFORMANCE B1 Operating segments The Group has two strategic divisions, which are its operating segments. These divisions offer similar products and services, but are managed separately because they require different technology, apply contrasting marketing strategies and cater to different markets. The following summary describes the operations of each reportable segment. Operating segments Operations PWR Performance Products PWR North America Designing and manufacturing high end racing products, OEM products, Emerging Technology products, and automotive aftermarket products for non-USA markets. Designing and manufacturing racing and OEM and Emerging Technology products primarily for the USA market. The PWR North America segment had previously been referred to as C&R with the composition of this segment remaining the same. The Group determines its operating segments based on information presented to the Managing Director being the chief operating decision maker, with operating segments based on the Group’s operating divisions. Intersegment pricing is determined based on cost plus a margin. PWR Performance Products PWR North America 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Total 2021 $’000 2020 $’000 Revenue from sale of manufactured products Revenue from services External revenues Inter-segment revenues Segment revenue Operating EBITDA1 54,513 423 54,936 3,098 58,034 22,724 525 50,160 923 51,083 20,494 Depreciation and amortisation (4,391) (3,126) Segment profit/(loss) before interest and tax Capital expenditure 18,333 9,350 17,368 7,259 49,635 23,880 15,408 78,393 65,043 392 24,272 1,788 26,060 6,158 (1,348) 4,810 1,015 163 15,571 1,987 17,558 2,792 815 79,208 4,886 84,094 28,882 688 65,731 2,910 68,641 23,286 (1,578) (5,739) (4,704) 1,214 504 23,143 10,365 18,582 7,763 1 Operating EBITDA is the segment’s profit from operations before interest, taxation, depreciation and amortisation. Reconciliation of reportable segment profit or loss Revenues Total revenue for reportable segments Elimination of inter-segment revenue Consolidated revenue Profit before tax Profit before tax for reportable segments Elimination of inter-segment loss/(profit) Net finance (costs)/income Consolidated profit before tax 54 2021 $’000 2020 $’000 84,094 (4,886) 79,208 68,641 (2,910) 65,731 23,143 18,582 81 (677) 143 (490) 22,547 18,235 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION B BUSINESS PERFORMANCE (continued) Geographic information The Group operates manufacturing facilities and/or sales offices in Australia, the UK and the USA, and sells its products to customers in various countries throughout the world. Three customers in the PWR Performance segment comprise 19% of Group’s revenue for the year ended 30 June 2021 (2020 – Three customers comprised 26%). Below is an analysis of the Group’s revenue based on the location of the Group’s customers. 2021 2020 Revenue $’000 Non-current assets(i) $’000 Revenue $’000 Non-current assets(i) $’000 10,114 22,199 25,257 11,185 3,271 7,182 37,964 9,957 1,274 – – – 8,434 15,648 21,008 8,808 4,196 7,637 33,210 11,109 11 – – – 79,208 49,195 65,731 44,330 Note 2021 $’000 2020 $’000 Australia USA UK Italy Germany Other Countries (i) Excluding deferred tax assets. B2 Revenue and other income Revenue from contracts with customers Sales of goods Rendering of services Other income R&D tax incentive 78,393 65,043 815 79,208 688 65,731 732 1,980 70 2,782 42,813 14,867 11,732 8,683 1,113 79,208 607 3,512 – 4,119 38,026 11,554 9,956 4,082 2,113 65,731 Government grants – COVID-19 assistance Government grants – incentive assistance B3 Customer Revenue by Market Sector Motorsports Automotive Aftermarket Automotive OEM Emerging Technologies1 Industrial and Other 1 Emerging Technology includes revenue from Aerospace and Defence across all technologies, and revenue from other market sectors generated by cold plate, micro matrix and additive manufacturing. The Group recognised $450,000 (2020: nil) in customer revenue from satisfying performance obligation for contract liabilities (refer Note C8). 55 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION B BUSINESS PERFORMANCE (continued) B3 Expenses and Income Significant items During the year, the Group received Government assistance for COVID-19 in Australia through the JobKeeper programme. The Group has received confirmation that the prior year Pay Check loan forgiveness has been approved, supporting the position adopted in the prior year financial statements. JobKeeper assistance Pay Check Protection Program Total before tax assistance 2021 $’000 1,980 – 1,980 2020 $’000 1,743 1,769 3,512 Research and Development The Group recognised $8,515,807 (2020: $7,259,654) as an expense in relation to its research and development activities. This is included in employee expenses, raw materials, consumables and overheads in the income statement. B4 Finance income and finance costs Interest income Finance income Interest expense Net foreign exchange loss Finance costs Net finance income/(costs) B5 Earnings per share Basic and diluted earnings per share 2021 $’000 2020 $’000 24 24 (340) (361) (701) (677) 39 39 (413) (116) (529) (490) 2021 2020 16.77 cents 13.04 cents Profit attributable to ordinary shareholders The calculation of both basic and diluted earnings per share was based on profit attributable to equity holders of the Company of $16,797,132 (2020: $13,048,905). Weighted average number of ordinary shares Issued ordinary shares at 1 July Weighted number of ordinary shares at 30 June 2021 No. 2020 No. 100,087,694 100,000,000 100,163,924 100,058,462 The impact of the performance rights issued by the Group during the year and in prior years was not material to the calculation of the Group’s diluted earnings per share. 56 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES C1 Cash and cash equivalents Bank balances Cash and cash equivalents in the statement of cash flows Reconciliation of cash flows from operating activities Cash flows from operating activities Profit for the year Adjustments for: Depreciation and amortisation Research & development tax credit Unrealised foreign exchange loss/(gain) Share based remuneration (Profit)/Loss on sale of property, plant and equipment Changes in: Trade and other receivables Inventories Trade and other payables Other assets Employee benefits Other Tax balances Net cash from operating activities C2 Trade and other receivables Trade receivables Trade receivables due from related parties (refer Note H2) 2021 $’000 19,857 19,857 2020 $’000 20,805 20,805 16,797 13,049 5,739 4,705 732 563 255 22 607 394 330 – (2,409) (2,243) 39 563 1,266 621 2,336 (115) 663 71 (1,349) 548 (14) (592) 26,409 16,169 9,335 6 9,341 6,923 9 6,932 Provisioning for trade receivables has been assessed considering known factors including COVID–19 and is consistent with prior reporting periods. No impairment is considered necessary. C3 Inventories Raw materials Work in progress Finished goods Consumables Allowance for inventory obsolescence 3,062 672 3,626 115 (986) 6,489 The cost of inventories sold and recognised as an expense during the year end 30 June 2021 was $38,281,175 (2020: $31,330,228). 2,924 898 3,799 98 (1,191) 6,528 57 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C4 Other assets Prepayments Deposits Other assets (including JobKeeper receipts) C5 Property, plant and equipment Plant and equipment – at cost Accumulated depreciation Motor vehicles – at cost Accumulated depreciation Land and buildings – at cost Accumulated amortisation Under construction 2021 $’000 829 – 817 1,646 42,188 (16,362) 25,826 377 (313) 64 11,607 (3,691) 7,916 474 2020 $’000 715 490 1,707 2,912 29,324 (12,809) 16,515 351 (309) 42 10,752 (1,824) 8,928 3,811 34,280 29,296 Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Land and buildings $’000 Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 Total $’000 10,752 1,053 – – (215) 29,324 279 13,351 (52) (714) 11,590 42,188 1,824 12,809 – 1,867 (17) 3,674 7,916 (26) 3,858 (279) 16,362 25,826 351 36 – – (10) 377 309 – 14 (10) 313 64 3,811 44,238 10,049 (13,351) – (35) 474 – – – – – 474 11,417 – (52) (974) 54,629 14,942 (26) 5,739 (306) 20,349 34,280 2021 Cost Opening balance Additions Transfers Disposals Effect of movements in exchange rates Closing balance Accumulated depreciation Opening balance Disposals Depreciation Effect of movements in exchange rates Closing balance Net carrying amount 58 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES (continued) 2020 Cost Opening balance Additions Transfers Disposals Effect of movements in exchange rates Land and buildings $’000 Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 – 24,844 349 10,674 – – 78 7 4,521 (247) 199 – – – 2 574 7,756 (4,521) – 2 Total $’000 25,767 18,437 – (247) 281 Closing balance 10,752 29,324 351 3,811 44,238 Accumulated depreciation Opening balance Disposals Depreciation Effect of movements in exchange rates Closing balance Net carrying amount – – 1,824 – 1,824 8,928 10,125 (231) 2,866 49 12,809 16,515 292 – 15 2 309 42 – – – – – 3,811 10,417 (231) 4,705 51 14,942 29,296 The land and buildings balances comprise right-of-use assets with carrying value of $7,915,607 (2020: $8,928,000). The plant and equipment balance as at 30 June 2021 does not include assets with carrying amounts under finance lease (2020: $229,200). During the year, the Group did not acquire any assets under finance lease (2020: NIL). Right-of-use assets The Group leases its office and factory facilities under leases are accounted for using AASB16 Leases. These leases typically run for between five (5) year and ten (10) years with options to extend. Right-of-use assets relate to leased properties that do not meet the definition of investment property are presented as property, plant and equipment (see Note C5). 2021 Right of Use Lease Assets: Balance at beginning of year Additions to right-of-use assets Amortisation charge for the year Effect of movements in exchange rates Balance at end of year 2020 Right of Use Lease Assets: Balance at beginning of year Additions to right-of-use assets Amortisation charge for the year Effect of movements in exchange rates Balance at end of year Land and Buildings $’000 8,928 1,053 Total $’000 8,928 1,053 (1,850) (1,850) (215) 7,916 Land and Buildings $’000 – 10,674 (1,824) 78 8,928 (215) 7,916 Total $’000 – 10,674 (1,824) 78 8,928 59 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C6 Intangible assets 2021 Cost Accumulated amortisation 2020 Cost Accumulated amortisation Reconciliation 2021 Carrying amount at beginning of year Effect of movements in exchange rates Balance at the end of the year 2020 Carrying amount at beginning of year Effect of movements in exchange rates Balance at the end of the year Goodwill $’000 Trademarks $’000 Total $’000 3,930 10,985 14,915 – – – 3,930 10,985 14,915 4,049 10,985 15,034 – – – 4,049 10,985 15,034 4,049 10,985 15,034 (119) – (119) 3,930 10,985 14,915 4,018 31 4,049 10,985 15,003 – 31 10,985 15,034 Impairment For impairment testing, goodwill and trademarks are allocated to the Group’s cash generating units (CGUs) as follows: PWR Performance Products PWR North America 2021 $’000 2,122 8,432 2020 $’000 1,904 8,432 10,554 10,336 2021 $’000 1,808 2,553 4,361 2020 $’000 2,145 2,553 4,698 Goodwill Trademarks 60 Annual Report 2021 PWR Holdings Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES (continued) Impairment For impairment testing, the recoverable amount of each CGU was based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of each CGU. The carrying amount of each CGU was determined to be less than its recoverable amount and accordingly, no impairment loss was recognised. Value in use is calculated based on the present value of the cash flow projections over a five year period and include a terminal value at the end of year five. The cash flow projections over the five year period are based on the Group’s budget for 2022 and growth over the forecast periods based on the Group’s business plans and management’s assessment of the impacts of underlying economic conditions, past performance and estimated impact of COVID-19 and other factors on each CGU’s financial performance. For the PWR North American CGU, the cashflow projections include management’s estimate of the expected growth from PWR North America’s involvement in OEM programs as a cooling assembly supplier, growth in Emerging Technologies, as well as growth into the automotive aftermarket. The long-term growth rate used in calculating the terminal value is based on long term inflation estimates for the country and industry in which each CGU operates. The cash flows are discounted to their present value using a pre-tax discount rate based on a weighted average cost of capital adjusted for country and industry specific risks associated with each CGU. Given the uncertainties in respect to the volatility in capital markets. Management have considered sensitivities to the recoverable amount. The sensitivities applied includes a decrease in revenue of 10% for FY22 with revenue returning to forecast from FY23 onwards to determine the recoverable amount. Whilst headroom would reduce, the recoverable amount of each CGU would exceed the base value carrying amount. Key assumptions used in the estimation of value in use over the five year period including the terminal value were: PWR Performance Products Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate Average EBITDA margin PWR North America Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate Average EBITDA margin 2021 % % 12.0% 2.0% 4.4% 37.4% 11.6% 2.0% 8.1% 15.8% 2020 % % 13.6% 2.0% 2.0% 35.6% 11.5% 2.0% 5.2% 16.4% 61 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C7 Trade and other payables Trade and other payables are carried at amortised cost. Trade payables Other payables 2021 $’000 1,335 3,998 5,333 2020 $’000 2,077 2,693 4,770 C8 Contract liabilities The contract liabilities primarily relate to the advance consideration received from customers for performance obligations, for which revenue is recognised over time. The amount of revenue recognised from performance obligations satisfied (or partially satisfied) in 2021 was $450,000 (2020: nil). Less than one year Between one and two years Between two and five years Balance at end of year SECTION D EMPLOYEE BENEFITS D1 Employee benefits Current Annual leave liability Long service leave liability Non-current Long service leave liability 2021 $’000 901 901 450 2,252 2021 $’000 $’000 1,979 647 2,626 2020 $’000 – – – – 2020 $’000 $’000 1,538 512 2,050 306 261 During the year ended 30 June 2021, the Group contributed $1,432,382 (2020: $1,315,553) to defined contribution plans. These contributions are included in employee expenses in the statement of profit or loss and other comprehensive income. D2 Key management personnel compensation Key management personnel compensation comprised the following: Short-term employee benefits Termination benefits Post-employment benefits Share based payments Other long-term benefits 62 2021 $’000 1,606 98 130 446 37 2,317 2020 $’000 1,990 56 161 91 18 2,316 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION D EMPLOYEE BENEFITS (continued) D3 Share based payments During the year the Board granted performance rights to employees under the terms of the Performance Rights Plan (the Plan) approved at the Company’s Annual General Meeting on 21 October 2016. Under the Plan, the Board may issue employees conditional performance rights for no consideration. Subject to the achievement of vesting conditions, the performance rights entitle the employee to receive ordinary shares in the Company at no cost. Vesting of the performance rights approved during the year is subject to meeting a 3 year service condition and achievement of performance hurdles (based on either an EPS growth target or total shareholder return (TSR) ranking). The performance period for the rights issued is from 1 July 2020 to 30 June 2023. 27,599 (2020: 46,486) performance rights were issued to key management personnel during the year with 50% subject to the EPS performance hurdle and 50% subject to the TSR performance hurdle. At 30 June 2021, all of these performance rights remain on issue. In accordance with the Group’s accounting policy, the grant date fair values of the rights issued will be recognised as an expense over the vesting period. An expense of $400,899 (2020: $330,000) was recognised during the year and included in “employee expenses” in the statement of profit or loss and other comprehensive income. The EPS performance hurdle for the performance rights issued during the year is based on the compound annual growth rate in EPS. The EPS performance hurdle for performance rights issued in prior years is based on the three year growth in EPS. At 30 June 2021, there were 54,660 performance rights that had been issued in prior years that are subject to the three year growth in EPS performance hurdle. Measurement of fair values The fair value of the TSR component of the performance rights has been measured using a Monte Carlo simulation. The fair value of the EPS component of the performance rights has been measured using the Black Scholes formula. The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payments were as follows: Fair value at grant date Share price at grant date Exercise price Expected volatility Risk free rate Expected life Expected dividends 2021 2020 TSR component EPS component TSR component EPS component $4.33 $6.24 Nil 36% 0.35% 3 Years 1.77% $6.00 $6.24 Nil N/A N/A 3 Years 1.77% $3.47 $4.78 Nil 37% 0.70% 3 years 2.19% $4.49 $4.78 Nil N/A N/A 3 years 2.19% Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price prior to the grant date. 63 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION E TAXATION E1 Income tax expense Current tax expense Current period (Over)/under provision in prior period Deferred tax expense Origination and reversal of temporary differences Total income tax expense Numerical reconciliation between tax expense and pre-tax accounting profit Profit for the period Total income tax expense Profit excluding income tax Income tax using the Company’s domestic tax rate of 30% Tax effect of R&D benefit Effect of tax rates in foreign jurisdictions Over provision of tax on Pay Check Program in prior period Other 2021 $’000 2020 $’000 5,921 (536) 5,385 365 5,750 16,797 5,750 22,547 6,764 (217) (392) (460) 55 5,750 5,107 – 5,107 79 5,186 13,049 5,186 18,235 5,470 (182) (224) – 122 5,186 64 Annual Report 2021 PWR Holdings Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION E TAXATION (continued) E2 Tax assets and liabilities Current tax assets and liabilities The current tax liability of $2,000,811 (2020: $1,885,681) represents the amount of income tax payable in respect of current and prior periods to the relevant tax authority. Net balance at 1 July $’000 Recognised in profit or loss $’000 Recognised through Equity $’000 Net $’000 Deferred tax assets $’000 Deferred tax liabilities $’000 2021 Property, plant and equipment (1,444) Intangible assets Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Capital raising costs Other items Net tax assets/(liabilities) 2020 Property, plant and equipment Intangible assets Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Capital raising costs Other items Net tax assets/(liabilities) (747) 784 8 344 (368) 2,293 – 6 876 (1,060) (766) 681 – 404 (484) 2,198 227 (245) 955 (692) (19) 213 44 28 67 (929) – 923 (365) (384) 19 103 8 (60) 115 95 (227) 250 (79) – – – – – 259 – – – 259 – – – – – – – – – – (2,136) (766) 997 52 372 (42) 1,364 – 929 770 (1,444) (747) 784 8 344 (368) 2,293 – 6 876 – – 997 52 490 1 1,364 – 1,337 4,241 – 654 784 8 575 1 2,293 – 390 4,705 (2,136) (766) – – (118) (43) – – (408) (3,471) (1,444) (1,401) – – (230) (369) – – (385) (3,829) The Group’s tax losses recognised as a deferred tax asset arise from its US operations. Management considers that based on the Group’s plans for this business, it is probable that future taxable profits will be generated against which the tax losses can be recovered. 65 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION F CAPITAL STRUCTURE AND BORROWINGS F1 Loans and borrowings Current Finance lease liability Right-of-use liability Non-current Right-of-use liability Multi-currency facility loans 2021 $’000 2020 $’000 – 1,789 1,789 6,667 – 6,667 229 1,653 1,882 7,560 8,585 16,145 The multi-currency facility loans were denominated in AUD and GBP. Interest on the AUD loan was charged quarterly at 2.10% pa and the GBP loan was based on GBP 3 month LIBOR rates plus a margin. Reconciliation of movements in liabilities to cash flows arising from financing activities Long term borrowings (GBP) Long term borrowings (AUD) Lease liabilities Total liabilities from financing facilities 2020 Carrying Value $’000 3,585 5,000 9,213 17,798 Non-cash changes Foreign exchange movements $’000 Right-of-use movements $’000 – – (202) (202) – – 1,282 1,282 Cash flows $’000 (3,585) (5,000) (1,819) (10,404) 2021 Carrying Value $’000 – – 8,456 8,456 Finance facilities The terms and conditions of the Group’s finance facilities at 30 June 2021 were as follows: Facility Corporate credit card Finance lease Multi-currency facility Currency Nominal interest rate Maturity 2021 2020 Facility limit $’000 Carrying amount $’000 Facility limit $’000 Carrying amount $’000 AUD USD Variable Variable AUD 5.4%–8.2% 2023 – 2023 100 100 7,500 AUD Varies 2023 10,000 – – – – 100 100 7,500 – – 229 20,000 8,585 Finance facilities are secured by charges over the Group’s assets. Under the terms of the agreements, the Company and several of its wholly owned subsidiaries jointly and severally guarantee and indemnify the lender in relation to the borrower’s obligations. 66 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) Finance leases Finance lease liabilities are payable as follows: Future minimum lease payments 2021 $’000 2020 $’000 Interest 2021 $’000 Present value of minimum lease payments 2020 $’000 2021 $’000 2020 $’000 Less than one year Between one and five years – – – 232 – 232 – – – 3 – 3 – – – The Group has no operating equipment used in the manufacturing process under finance leases. F2 Deferred income Less than one year Between one and five years Balance at end of year Note I15 2021 $’000 443 1,746 2,189 229 – 229 2020 $’000 208 798 1,006 Government grants The Group was awarded a government grant during the current period and a retention payment for a grant awarded in the prior period, together amounting to $1.19m (2020: $1.04m) and has been recognised as deferred income. The grants are being amortised over the useful life of the equipment in relation to which the grants were provided. F3 Capital and reserves Share capital Ordinary shares 2021 No. of shares $’000 2020 No. of shares $’000 Balance at beginning of year 100,087,694 26,071 100,000,000 25,921 Issue of shares on vesting of FY17 performance rights Issue of shares on vesting of FY18 & 19 performance rights – 92,080 – 152 87,694 – 150 – Balance at end of year 100,179,774 26,223 100,087,694 26,071 Capital management The Board aims to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the capital base as well as the level of dividends to ordinary shareholders. There were no changes in the Group’s approach to capital management during the year. 67 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) F4 Dividends Dividends recognised by the Company are: 2021 Interim 2021 ordinary Final 2020 ordinary Total amount 2020 Interim 2020 ordinary Final 2019 ordinary Special 2019 Total amount Cents per share $ Total amount $ Franked/ unfranked Date of payment 2.80 2,805,034 Franked 26 March 2021 4.00 4,007,191 Franked 6,812,225 25 September 2020 1.90 1,901,666 Franked 27 March 2020 6.90 6,900,000 Franked 19 September 2019 3.00 3,000,000 Franked 19 September 2019 11,801,666 Franked dividends declared or paid during the year were fully franked at the tax rate of 30 percent. Dividend franking account 30 percent franking credits available to shareholders of PWR Holdings Limited 942,805 425,869 2021 2020 At 30 June 2021, the franking credits of the Group were 4,185,254 (2020: 3,109,903). The ability to utilise the franking credits is dependent upon the ability to declare dividends. Recognition and measurement Dividends are recognised as a liability in the period in which they are declared. F5 Commitments Amounts recognised in the Consolidated Profit and Loss Total Interest on lease liabilities Amounts recognised in the Consolidated Statement of Cash Flows Total cash outflow for leases 2021 $’000 2020 $’000 (229) (266) 2021 $’000 2020 $’000 (1,819) (1,803) 68 Annual Report 2021 PWR Holdings Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) Lease extension options The property leases include extension options exercisable by the Group between three (3) and six (6) months before the expiry of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility and certainty. Extension options held are exercisable only by the Group and not by the lessors. The Group assesses at the lease commencement dates whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. Other commitments At 30 June 2021, the Group had agreed to purchase plant and equipment for $3.3 million (2020: $4.9 million) within 12 months. SECTION G GROUP STRUCTURE G1 Parent entity information As at and throughout the financial year ended 30 June 2021, the parent and ultimate parent entity of the Group was PWR Holdings Limited. Statement of profit or loss and other comprehensive income Profit/(Loss) after income tax Total comprehensive income Statement of financial position Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2021 $’000 8,188 8,188 77 31,976 32,053 – – – 2020 $’000 10,896 10,896 50 30,575 30,625 202 – 202 32,053 30,423 26,223 627 5,203 32,053 26,071 524 3,828 30,423 Contingent liabilities The parent entity is party to a cross guarantee and indemnity in relation to the Group’s borrowing arrangements, refer Note F1. The parent had no other contingent liabilities at 30 June 2021. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in the notes. 69 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION G GROUP STRUCTURE (continued) G2 Controlled entities The following entities are subsidiaries of the parent entity, the results of which are included in the consolidated financial statements of the Group. P.W.R Performance Products Pty Ltd PWR IP Pty Ltd PWR Europe Limited C&R Racing Inc PWR EU B.V. Country of incorporation Australia Australia UK USA Netherlands Ownership interest 2021 % 100 100 100 100 100 2020 % 100 100 100 100 100 G3 Deed of cross guarantee Pursuant to ASIC Corporations (wholly owned companies) Instrument 2016/785, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgement of financial reports, and Directors’ reports. It is a condition of the Instrument that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor, payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: P.W.R Performance Products Pty Ltd PWR IP Pty Ltd Both subsidiaries became a party to the Deed on 18 May 2017. 70 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION G GROUP STRUCTURE (continued) A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 June 2021 is set out below. Statement of profit or loss and other comprehensive income Revenue Other income Raw materials and consumables used Employee expenses Occupancy expenses Other expenses Profit before depreciation, net finance costs and income tax Depreciation and amortisation Profit before net finance costs and income tax Finance income Finance costs Net finance income/(costs) Profit before income tax Income tax expense Profit for the year attributable to equity holders of the parent Total comprehensive income for the year Retained earnings at beginning of year Transfers to and from reserves Dividends recognised during the year Retained earnings at end of year 2021 $’000 52,127 2,764 (8,696) (22,233) (378) (2,511) 21,073 (4,290) 16,783 1,580 (1,917) (337) 16,446 (4,833) 11,613 11,613 25,060 (13) (6,812) 2020 $’000 45,179 2,350 (6,889) (19,178) (355) (2,459) 18,648 (3,119) 15,529 1,831 (1,791) 40 15,569 (4,628) 10,941 10,941 26,962 (1,041) (11,802) 29,848 25,060 71 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION G GROUP STRUCTURE (continued) Statement of financial position Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Related party loans Investments in subsidiaries Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Employee benefits Deferred income Tax liabilities Provisions Total current liabilities Non-current liabilities Loans and borrowings Deferred income Deferred tax liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 72 2021 $’000 2020 $’000 9,714 8,962 4,172 – 9,661 9,940 3,988 – 22,848 23,589 26,213 11,751 5,990 7,142 3,486 54,582 77,430 2,503 1,209 2,451 1,313 1,003 124 8,603 4,282 2,930 3,947 306 11,465 20,068 57,362 26,223 1,291 29,848 57,362 21,459 11,751 12,240 7,142 337 52,929 76,518 2,432 1,438 1,895 208 1,051 92 7,116 14,072 798 1,511 262 16,643 23,759 52,759 26,071 1,628 25,060 52,759 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION H1 Financial risk management The Group has exposure to the following risks arising from financial instruments: – credit risk – liquidity risk – market risk The note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Risk management framework The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management activities are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management activities are reviewed to reflect changes in market conditions and the Group’s operations. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate. Management assesses each new customer for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period was as follows. Cash and cash equivalents Trade and other receivables Note C1 C2 Carrying amount 2021 $’000 19,857 9,341 29,198 2020 $’000 20,805 6,932 27,737 Cash and cash equivalents The Group held cash and cash equivalents of $19,857,387 at 30 June 2021 (2020: $20,804,705), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties, which are rated A to AA-, based on independent rating agency ratings. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the country in which customers operate, as these factors may have an influence on credit risk. 73 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) Exposure to credit risk The maximum exposure to credit risk for trade and other receivables at the end of the reporting period by geographic region was as follows: Carrying amount Australia UK USA 2021 $’000 2,495 5,152 1,694 9,341 The ageing of the Group’s trade and other receivables at the end of the reporting date was as follows: Not past due Past due 1-30 days Past due 31-60 days Past due > 61 days Provision for impairment 8,363 830 63 85 9,341 – 9,341 2020 $’000 975 4,328 1,629 6,932 5,820 1,059 6 47 6,932 – 6,932 Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historic payment behaviour and analysis of customer credit risk. Management’s analysis of customer credit risk has considered the estimated impact of COVID-19 on the economic environment and its assessment of expected credit losses. No impairment losses were recognised in respect of trade and other receivables during the year (2020: Nil). Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In addition, the Group maintains the following lines of credit: (refer Note F1) – A$10,000,000 foreign currency advance facility (multicurrency); – A$7,500,000 asset finance facility; – A$100,000 corporate credit card facility; and – USD$100,000 corporate credit card facility. 74 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments. 2021 Trade and other payables Foreign currency loan (GBP) Local currency loan (AUD) Right of use liabilities Finance lease liabilities 2020 Trade and other payables Foreign currency loan Local currency loan (AUD) Right of use liabilities Finance lease liabilities Note Carrying amount $’000 Contractual cash flows Total $’000 12 months $’000 1-5 years $’000 C7 F1 F1 F1 F1 C7 F1 F1 F1 F1 5,333 (5,333) (5,333) – – – – – – – – – 8,456 (8,456) (1,789) (6,667) – – – – 13,789 (13,789) (7,122) (6,667) 4,770 3,585 5,000 9,213 229 (4,770) (3,672) (5,105) (9,213) (232) (4,770) (87) (105) (1,653) (232) – (3,585) (5,000) (7,560) – 22,244 (22,992) (6,847) (16,145) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to currency risk on its financial assets and liabilities arising from sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, being the Australian dollar (AUD), Pound Sterling (GBP) and US dollar (USD). The currencies in which these transactions are denominated are primarily AUD, GBP and USD. Under the Group’s financial risk management policies, the Group may use derivative financial instruments to manage its foreign currency risks. At 30 June 2021, the Group had entered into participating forward contracts to manage its exposure to sales denominated in GBP. These contracts, which settle monthly until 30 December 2021, have a total notional amount of £3.9 million (2020: £1.15 million) and have been accounted for at fair value through the profit and loss. The fair value at year end was a liability of $54,240 (2020: $105,123 asset). During the year ended 30 June 2021, the Group recognised $202,892 in realised gains (2020: $172,362 gain) and $563,280 in unrealised losses on derivatives (2020: $288,506 loss). This has been included in finance income or costs in the income statement. 75 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) Exposure to currency risk A summary of quantitative data about the Group’s exposure to currency risk on financial assets and liabilities at year end is as follows: Trade receivables Trade payables Foreign currency loan Net statement of financial position exposure Notional amount of foreign currency derivatives Note C2 C7 F1 30 June 2021 30 June 2020 AUD $’000 2,574 (625) GBP £’000 2,722 (254) USD $’000 1,302 (419) AUD $’000 1,145 (682) GBP £’000 2,255 (305) USD $’000 1,193 (476) – – – (5,000) (2,000) – 1,949 2,468 883 (4,537) (50) 717 – 3,900 – – 1,150 – Sensitivity analysis At 30th June, exchange rates used to translate the above were 0.5426 to the GBP and 0.7512 to the USD (2020: 0.5579 to the GBP and 0.6854 to the USD). A strengthening (weakening) of the GBP or USD against the AUD at 30 June would have affected the measurement of financial instruments denominated in a foreign currency and increased or (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The analysis is performed on the same basis for 2020, using consistent foreign exchange rate variances, as indicated below. Profit or loss (net of tax) Equity (net of tax) Strengthening $’000 Weakening $’000 Strengthening $’000 Weakening $’000 (318) (82) 6 (73) 289 75 (6) 67 (318) (82) 6 (73) 289 75 (6) 67 30 June 2021 GBP (10% movement) USD (10% movement) 30 June 2020 GBP (10% movement) USD (10% movement) 76 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) Interest rate risk At the end of the reporting period the interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the Group was as follows: Fixed rate instruments Financial liabilities Variable rate instruments Financial assets Financial liabilities Nominal amount Note 2021 $’000 – – 2020 $’000 (229) (229) C1 F1 19,857 20,805 – 19,857 (8,585) 12,220 Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the end of reporting period would have increased or (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 30 June 2021 Variable rate instruments Cash flow sensitivity (net) 30 June 2020 Variable rate instruments Cash flow sensitivity (net) Profit or loss (net of tax) Equity (net of tax) 100bp increase $’000 100bp decrease $’000 100bp increase $’000 100bp decrease $’000 139 139 85 85 (139) (139) (85) (85) 139 139 85 85 (139) (139) (85) (85) Fair values The fair values of the Group’s financial assets and liabilities approximate their carrying amounts recognised in the statement of financial position. 77 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) H2 Related party information Certain key management personnel, or their related parties, hold positions in other entities that result in them having control, joint control or significant influence over the financial or operating policies of these entities. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control, joint control or significant influence were as follows: Entity Transaction Transaction values during the year Balance outstanding Receivable/(Payable) 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Bayswater Road Radiators Pty Ltd(i) Sales of goods Triple Eight Race Engineering Pty Ltd(ii) Sales of goods 51 5 45 2 6 – 9 – (i) Bayswater Road Radiators Pty Ltd is an entity associated with Kees Weel, which purchases goods from the Group. (ii) Triple Eight Race Engineering Pty Ltd is an entity associated with Roland Dane, which purchases goods from the Group. H3 Auditor Remuneration Audit services Auditors of the Group – KPMG Audit and review of financial statements Accountability GB 2021 $ 2020 $ 143,500 144,000 Audit and review of financial statements – controlled entities 15,837 14,075 Other services Auditors of the Group - KPMG IT Advisory services 21,450 68,407 H4 Subsequent events The Board declared a fully franked final ordinary dividend of 6.00 cents per share. The financial effect of the 2021 declared final dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2021. Other than the matter noted above, there has not arisen in the interval since the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 78 Annual Report 2021 PWR Holdings Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION H OTHER INFORMATION (continued) H5 New accounting standards Changes in accounting policies -new standards and interpretations adopted The accounting policies applied in these financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended 30 June 2020. A number of other new standards are effective from 1 July 2020 but they do not have a material effect on the Group’s financial statements. In April 2021, the International Financial Reporting Standards Interpretation Committee (IFRIC) issued a final agenda decision, Configuration or Customisation Costs in a Cloud Computing Arrangement. The decision discusses whether configuration or customisation expenditure relating to Software-as-a-Service (SaaS) arrangements is able to be recognised as an intangible asset and if not, over what time period the expenditure is expensed. The Group has adopted this agenda decision within the financial statements. The Group has not extensively utilised SaaS arrangements and the historical accounting policy has been to expense all such costs in the profit or loss over the period in which the service is received. The adoption of this agenda decision has not impacted the financial statements of the Group. New Standards and Interpretations Not Yet Adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2021 reporting and have not been early adopted by the Group. The most significant of these to the Group are AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements and Other Amendments, and AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current. The Group has not yet considered the estimated impact that these Amendments to Australian Accounting Standards will have on its consolidated financial statements. Income tax Inventories SECTION I SIGNIFICANT ACCOUNTING POLICIES 1. Basis of consolidation 2. Foreign currency 3. Revenue 4. Employee benefits 5. Finance income and finance costs 6. 7. 8. Property, plant and equipment Intangible assets and goodwill 9. 10. Share capital 11. Provisions 12. Leases 13. Financial instruments 14. Fair value measurement 15. Government Grants 79 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 1 Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. 2 Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of the Groups’ entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at transaction or balance date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss. The consolidated assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the functional currency (AUD) at exchange rates at the dates of the transactions. Foreign currency translation differences are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity. 3 Revenue Sale of goods For the sale of manufactured products, revenue is recognised at the point in time that the performance obligation is satisfied which is generally on shipment of the goods to the customer from the Group’s warehouse. Rendering of services For services, including wind tunnel testing and freight, revenue is recognised over time as those services are provided. 4 Employee benefits Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably. Long-term employee benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. Share based payment transactions The grant-date fair value of share-based payment awards granted to employees is recognised as an expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. 80 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted. Defined contribution funds Obligations for contributions to defined contribution plans are expensed as the related service is provided. 5 Finance income and finance costs Finance income comprises interest income on funds invested and changes in the fair value of derivative financial instruments at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings and changes in the fair value of derivative financial instruments at fair value through profit or loss. Interest expense is recognised using the effective interest method. Foreign currency gains and losses on monetary assets and liabilities are reported on a net basis as either finance income or finance costs depending on whether foreign currency movements are in a net gain or net loss position. 6 Income Tax Income tax on the profit or loss for the year comprises current and deferred tax. Current and deferred tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance date, and any adjustments to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: initial recognition of goodwill, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and difference relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. In determining the amount of current and deferred tax the Group considers the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such as changes to tax liabilities will impact tax expense in the period that such a determination is made. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. 81 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories 7 Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in-first out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 8 Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Cost also may include transfers from other comprehensive income of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or loss. Subsequent costs Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred. Depreciation Depreciation is calculated to write off the cost of property, plant and equipment less their estimated residual values using the straight-line and/or diminishing value basis over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives are as follows: Plant and equipment Motor vehicles 2021 2020 2-10 years 2-10 years 4-6 years 4-6 years Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 9 Intangible assets and goodwill Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Goodwill is not amortised. Trademarks Separately acquired trademarks are measured initially at cost of acquisition. Trademarks acquired in a business combination are recognised at fair value at the acquisition date. Fair value is determined using the relief from royalty method. The Group’s trademarks are subsequently carried at cost less impairment losses and are not amortised as they are considered to have an indefinite useful life. 82 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) Research and development Research expenditure is recognised as an expense as incurred. Concessional tax benefits and incentives receivable are recognised as other income based on an estimate of the eligible research and development expenditure incurred during the financial year. Costs incurred on development projects are recognised as intangible assets only when it is probable that a project will, after assessment of its commercial and technical feasibility, be completed and generate future economic benefits and can be measured reliably. Impairment of non financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and trademarks with an indefinite life are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 10 Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit. The Company does not have authorised capital or par value in respect of its issued shares. All shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Foreign currency translation reserve The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as the effective portion of any foreign currency differences arising from hedges of a net investment in a foreign operation. Share based payments reserve The share-based payments reserve comprises the grant-date fair value of share-based payment awards granted to employees. 11 Provisions Warranties A provision for warranties is recognised when the underlying products are sold, based on historical warranty data and a weighting of possible outcomes against their assumed possibilities. Provision for warranties relates to products sold during the current and prior financial years. The provision is based on estimates made from historical warranty data. The Group expects to settle most of the liability over the next year. 83 Notes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 12 Leases Leased assets Assets held by the Group under finance leases that transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of its fair value and the present value of the minimum lease payments. After initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are recognised in the Group’s statement of financial position under AASB16. These assets are classified as right-of-use assets and are presented as property, plant and equipment. Further information about the right-of-use assets is included in Note C5 – Property, Plant and Equipment. AASB 16 Leases The Group, as a lessee, assesses whether a contract is or contains a lease. Under AASB 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises right of use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet. However, the Group has elected not to recognise right of use assets and lease liabilities for some leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group recognises a right of use asset and a right of use lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right of use asset is subsequently depreciated using the straight-line and/or diminishing value basis from the commencement date to the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. Where applicable, the Group has applied some judgement to determine the lease term for some lease contracts which include renewal options or terminations. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use asset. 84 Annual Report 2021 PWR Holdings LimitedNotes to the Consolidated Financial Statements for the year ended 30 June 2021 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 13 Financial instruments Non-derivative financial instruments Trade and other receivables are initially recognised as fair value and subsequently measured at amortised cost less impairment. Trade receivables are due for settlement no more than 30-60 days from the date of recognition. The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at reporting date. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities’ category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. After initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. Interest-bearing loans and liabilities are recognised initially at fair value less attributable transaction costs. After initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Derivative financial instruments The Group may use derivative financial instruments to manage its foreign currency exposures. Derivatives are recognised initially at fair value. Any directly attributable transaction costs are recognised in profit or loss as they are incurred. After initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit or loss. 14 Fair value measurements The consolidated financial statements have been prepared on the historical cost basis except for any derivative financial instruments which are recognised at fair value. ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. Several of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When one is available, the Group measures the fair value using the quoted price in an active market for that asset or liability. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. When an active market is not available, the Group uses observable market data as far as possible. Further information about the methods and assumptions made in determining fair values for measurement and/or disclosure purposes is included in the following notes: – Note I13 – financial instruments – Note D3 – share based payments. 15 Government Grants Government grants related to assets are initially recognised as deferred income at fair value when received. They are then recognised in profit or loss as other income on a systematic basis over the useful life of the asset to which the grant relates. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the periods in which the expenses are recognised. 85 Directors’ Declaration for the year ended 30 June 2021 DIRECTORS’ DECLARATION 1. In the opinion of the directors of PWR Holdings Limited (the “Company”): (a) the consolidated financial statements and notes that are set out on pages 49 to 85 and the Remuneration report on pages 32 to 48 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 3. 4. There are reasonable grounds to believe that the Company and the group entities identified in Note G3 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2021. The directors draw attention to Note A2 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of directors. ______________________________ Kees Weel Director Brisbane 19th August 2021 86 Annual Report 2021 PWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited for the year ended 30 June 2021 Independent Auditor’s Report To the shareholders of PWR Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of PWR Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2021; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 87 87 Independent Auditor’s Report to the Members of PWR Holdings Limited for the year ended 30 June 2021 Valuation of goodwill and intangible assets $14.9m Refer to Note C6 to the Financial Report The key audit matter How the matter was addressed in our audit Our procedures included: • We considered the appropriateness of the value in use methods applied by the Group to perform the annual impairment testing of goodwill and intangible assets against the requirements of the accounting standards. • We, along with our valuation specialists, assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. • We compared the forecast cash flows contained in the value in use models to Board approved budgets and the Group’s business plans. • We assessed the accuracy of previous Group budgets to inform our evaluation of forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions, such as forecast cash flows, forecast growth rates and discount rates, within a reasonably possible range. We did this to identify those CGUs at higher risk of impairment and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and growth rate assumptions including PWR NA’s ability to convert OEM and emerging technology opportunities, and market uncertainties associated with COVID-19. We used our knowledge of the Group, their past performance and our understanding of factors impacting the business and customers in which the CGUs operate in. We used the Group’s recent performance to inform our assessment of the Group’s recovery from COVID-19. • Working with our valuation specialists, we independently developed a discount rate range, considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Group, CGUs and the industry it operates in. • We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. A key audit matter for us was the Group’s annual testing of goodwill and intangible assets for impairment given the size of the balance (being 17% of total assets). We focused on the significant forward-looking assumptions the Group applied in their value in use models, including: • forecast cash flows – the Group experienced business disruption as a result of COVID-19. This condition, and the uncertainty of recurrence, increases the risk of inaccurate forecasts. We focused on the expected rate of recovery from COVID-19 for the Group when assessing the feasibility of the Group’s forecast cash flows. • forecast growth rates – in addition to the uncertainty described above, the PWR North America (PWR NA) Cash Generating Unit (CGU) includes the Group’s estimate of the expected growth from PWR NA’s involvement in original equipment manufacture (OEM) programs and emerging technologies. The Group’s model is sensitive to changes, and negative changes to these assumptions reduces available headroom. This drives additional audit effort specific to the feasibility of forecast growth rates. • discount rates – these are complicated by nature and vary according to the conditions and environment the specific CGU is subject to from time to time. The Group uses complex models in performing their annual impairment testing. These models use forward looking assumptions based on the Group’s budgeting and business plans, and a range of other internal and external sources as inputs to the assumptions. Complex modelling using forward-looking assumptions tend to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. 88 88 Annual Report 2021 PWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited for the year ended 30 June 2021 Other information Other Information is financial and non-financial information in PWR Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. • Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. 89 89 Independent Auditor’s Report to the Members of PWR Holdings Limited for the year ended 30 June 2021 Report on the audit of the Financial Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of PWR Holdings Limited for the year ended 30 June 2021 complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 36 to 48 of the Directors’ Report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Erin Neville-Stanley Partner Brisbane 19 August 2021 90 90 Annual Report 2021 PWR Holdings Limited ASX Additional Information Shareholder Information at 27 July 2021 DISTRIBUTION OF EQUITY SECURITY HOLDERS The following table shows the distribution of PWR shareholders by size of shareholding and number of shareholders and shares at 27 July 2021. Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of Ordinary shares Number of Security Holders 645,874 4,785,226 4,095,651 8,215,051 82,437,972 100,179,774 1,489 1,747 554 355 23 4,168 85 shareholders hold less than a marketable parcel of ordinary shares of 69 shares as at 27 July 2021. TWENTY LARGEST SHAREHOLDERS The following table sets out the 20 largest shareholders of ordinary shares listed on our shareholder register and the details of their shareholding as at 27 July 2021. Name 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 3 KPW PROPERTY HOLDINGS PTY LTD 4 WAGON WEEL CO PTY LTD 5 CITICORP NOMINEES PTY LIMITED 6 MAMLEC PTY LTD 7 ANACACIA PTY LTD 8 NATIONAL NOMINEES LIMITED 9 BNP PARIBAS NOMINEES PTY LTD 10 UBS NOMINEES PTY LTD 11 NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> 12 TRUEBELL CAPITAL PTY LTD 13 NETWEALTH INVESTMENTS LIMITED 14 BNP PARIBAS NOMS PTY LTD 15 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD 16 WASK MANAGEMENT PTY LTD 17 WEELY'S PTY LTD 18 UQ ENDOWMENT FUND LTD 19 CITICORP NOMINEES PTY LIMITED 20 MS DESLEA MARY SNEDDON Top 20 holders of ordinary fully paid shares Total remaining holders balance Number of ordinary shares held Percentage of capital held % 20,295,471 19,443,640 10,246,403 10,000,000 7,784,020 3,325,000 2,335,438 1,973,424 1,738,132 1,095,080 836,591 633,125 434,352 426,557 414,123 364,575 217,181 160,000 159,802 150,250 20.26 19.41 10.23 9.98 7.77 3.32 2.33 1.97 1.74 1.09 0.84 0.63 0.43 0.43 0.41 0.36 0.22 0.16 0.16 0.15 82,033,164 18,146,610 81.08 18.92 91 ASX Additional Information Shareholder Information at 27 July 2021 SUBSTANTIAL SHAREHOLDERS At 27 July 2021, PWR Holdings Limited had 6 substantial shareholders who, together with their associates, hold five per cent or more of the voting rights in PWR, as notified to PWR under the Australian Corporations Act. Shareholder KPW Property Holdings Pty Ltd Wagon Weel Co Pty Ltd Perennial Value Management Ltd FIL Limited Perpetual Limited Tribeca Investment Partners Pty Ltd RIGHTS The number of performance rights on issue are set out below: Number of rights holders Number of rights on issue 7 307,752 VOTING RIGHTS Number 10,246,403 10,000,000 6,109,243 6,092,515 5,358,768 5,255,497 Ordinary shares The Company does not have authorised capital or par value in respect of its issued shares. All shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Securities Exchange The Company is listed on the Australian Securities Exchange. The Home exchange is Sydney. Ticker Code ASX:PWH Other information PWR Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. On-market buy-back There is no current on-market buy-back. 92 Annual Report 2021 PWR Holdings LimitedCorporate Directory PWR HOLDINGS LIMITED ABN 85 105 326 850 WEBSITE www.pwr.com.au DIRECTORS Teresa Handicott Kees Weel Jeffrey Forbes Roland Dane COMPANY SECRETARY Lisa Dalton PRINCIPAL REGISTERED OFFICE LOCATION OF SHARE REGISTRY Computershare Investor Services Pty Ltd Level 1, 200 Mary Street Brisbane, 4000 Queensland ASX TICKER CODE: PWH PWR Holdings Limited 103 Lahrs Road Ormeau, 4208 Queensland Phone: 07 5547 1600 07 5547 1666 Fax: info@pwr.com.au Email: POSTAL ADDRESS PO Box 6425 Yatala QLD 4207 NORTH AMERICA PWR North America (C&R Racing) 6950 Guion Road Indianapolis, IN 46268 USA Phone: +1 317-293-4100 +1 317-293-4110 Fax: info@crracing.com Email: EUROPE PWR Europe 1141 Silverstone Park, Buckingham Road Silverstone, Northants, NN12 8FU United Kingdom Enquiries Phone: +44 (0) 1327 362940 +44 (0) 1327 362960 Fax: Email: sales@pwreurope.com 93 

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